
Who Rules America: An Investment Manager's View on the Top 1% - ph0rque
http://sociology.ucsc.edu/whorulesamerica/power/investment_manager.html
======
Astrohacker
It makes perfect sense that most people in the top 0.1% are associated with
the financial and banking industries if you know how banks work. Banks, and
the Federal Reserve, create new money. They give this money to themselves, and
then loan it out. This is as bad as, and effectively equivalent to,
counterfeiting. Creating new money, i.e. counterfeiting, i.e. inflation, does
not create new wealth. It merely changes the distribution of the purchasing
power of the money away from most people who have the money and to the people
who get the new money. This is where the wealth of the top 0.1% comes from.
Freshly printed money. It is a terrible system. The people with the highest
wealth are not contributing in proportion to their wealth. Rather, they are
stealing their wealth from the bottom 99.9% by stealing their purchasing power
by printing new money.

If you would like to read a thorough argument about how fractional reserve
banks and the Federal Reserve are scams, read "The Mystery of Banking" by
Murray Rothbard. Google it and you will see it is available for free at
mises.org.

For some reason this subject is very polarized and I get downvoted whenever I
explain this. Don't downvote me just because you are uncomfortable with what
I'm saying. Note that I am not ignorant. I have learned about economics. It
just so happens that when trying to understand the issues myself, I have
arrived conclusions that are not mainstream. But they are the correct
conclusions in so far as I presently understand.

~~~
eternal_skeptic
You say "Banks, and the Federal Reserve, create new money". That is factually
untrue: only the Federal Reserve can legally create new money in the US. Since
you mentioned it by name, you are definitely talking about the US, but the
same state holds in virtually all developed countries as well: one designated
"central bank" entity creates money, the others don't.

Per your main point, yes, the central bank creates money, but it doesn't
"give" it to anyone. Seriously, you describe it as if there's a "printing
party" at the FR, and only the rich get invited to grab booty bags stuffed
with trillions of freshly minted dollars.

The truth, of course, is that the FR (and secondary banks) can only lend that
money. They lend it for a variety of people and reasons. Not too long ago,
they lent it to too many people. Not because their kind heart, but because
it's a business: they lend it out hoping to get it back with interest.

Who do they lend it out to? Well, to some of the people here, for starters.
Because what you failed to consider is that if I'm already at the top 0.1%,
the best thing for me is to keep the situation static: not printing any new
money. Because you're talking about the top 0.1% dollar earners and holders.
Inflation dilutes their assets and earnings just like everybody else's, and in
absolute values, they lose more.

Lending is (generally) an instrument of economic growth, a way to fund
innovation and investment in production of new products and services. Guess
what, if nobody can get loans, new businesses and startups won't get funding
either.

~~~
Astrohacker
Here's how banks counterfeit money. You deposit $100. The bank loans out $80
of your money to someone else. They put that money back in the bank. The bank
now has $100 - all your money. But your checking account says $100, and the
loanee's checking account says $80, for a total of $180. The bank has now
effectively created--that is, counterfeited--$80 in new money. They gave this
new money to themselves, and then loaned it out. Since their reserves are
still over 20% (or whatever the present reserve requirement is), they keep
doing this until 80% of the money is money they have counterfeited and loaned
out.

And the Fed does give money to banks. They gave loans at 0% interest to
Goldman Sachs who then buys government debt with it and earns interest >0%.
That is the same as giving them the new money. And that is only one way, but
there are others. Another way is by buying government debt from banks using
freshly printed money at prices that are necessarily above what the market
value would be if there wasn't an institution like the Fed that can print new
money any time it wants to buy stuff.

~~~
marcamillion
Ok...so I am going to bite.

Fractional reserve banking is the process you described. Give the bank $100,
it is then legally obliged to only keep X%, let's say 10%. Hence, why most -
if not all - banks today are vulnerable to a 'run on the bank', because banks
never have 100% of outstanding liabilities immediately liquid.

However, that being said, you make it sound as if those banks are
lending/giving that money to rich Saudi princes who squander it. They are not.
They are lending it to entrepreneurs that have built a business to X point
that want to expand. Those entrepreneurs take that money at a relatively low
interest rate (in America anyway) and invest it into their company, believing
that the return they can generate is higher than the interest they pay.

Those entrepreneurs in turn hire people and when they are successful, they pay
themselves a lot of money. They can also sell the business at some point in
the future.

All the while, they pay back the bank the principal + interest and they have
their business. This is the way it should work and this is the way it works
about 80% of the time.

The other way fractional reserve banking works is that those same banks, end
up using some of those funds to invest. They invest in a diversity of assets -
stocks, gov't debt, etc.

They also invest in an asset class known as 'Alternative Assets'. You know
what type of fund is a major beneficiary of raising money from banks and large
financial institutions by fulfilling the alternative asset type category?
Venture Capital funds.

Sure, you can argue that there is a bubble in Silicon Valley, but VC funds
have been - undoubtedly - a major part in the major creation of MANY things we
take for granted today. From Fairchild Semiconductor to Apple to Intel to
Facebook, Twitter, Microsoft (eventually), Cisco to FedEx, UPS, McDonalds,
Burger King, to many others in between.

Guess who got rich along the way? All those founders + many employees. Not
just in earning good wages, but also in stock options and experience for their
next job.

So let's just cut this crap about fractional reserve banking being the bane of
society.

Sure, fiat currency, can and does lead to inflation - but inflation is the
cost of technological advancement.

If there was no fiat currency, we (the ENTIRE world) would have gone through
the worst depression we have ever seen - rather than just a 'Great Recession'.
It would make the 1930s look like a blip in the radar.

It is precisely because the fiscal and monetary authorities were able to take
those drastic measures to save the global economic system, that we can even be
discussing this today.

It's also easy to dismiss the crisis as being caused by Wall Street,
but...again...progress and advancement comes with a price.

Also, if you hate fiat currency so much and you think the world would see less
recessions as a result of going back to the gold standard or backed by some
finite amount of money, how about you take a look at history for a sec:
[http://en.wikipedia.org/wiki/List_of_recessions_in_the_Unite...](http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States)

As you can see, the list of recessions before 1960 is pretty extensive.

America 'broke' the Bretton Woods system in 1968 -
<http://en.wikipedia.org/wiki/Bretton_Woods_system> \- and that essentially
marked the end of using a reserve currency backed by a physical good (gold).
Since then, there have been recessions but they haven't been as severe as many
before the great depression.

The 1800s were absolutely BRUTAL when it comes to economic recessions. Going
through that list, it feels as if almost every year was a recession. Kinda
insane.

I apologize if this reply comes across as very terse and perhaps facetious,
but I am SICK and TIRED of people bashing the current fiat system when there
is no other viable alternative in sight. Every system has it's drawbacks, and
has its pros. The fiat system is one where the global economic systems evolved
into it - not because bankers wanted to get rich, but because policymakers
realized that by being able to print more currency on-demand, it would soften
economic pullbacks. What this 2008 credit crisis has shown us, is that they
were DEAD right. We can debate the causes of the crisis until the cows come
home, but what cannot be debated is that the policymakers (from Hank Paulson,
Geithner, Bernanke, Sheila Beir, Jean-Claude Trichet, Mervyn King, and
everyone else around them in their jurisdictions) made the right choices and
used the right tools - because the world economy has truly been saved from
possibly the worst recession we have ever seen. The only thing worse than what
could have been, is what could have been had America defaulted on it's debts -
but that's another argument for another day.

Oh, and when the Fed prints new money and earns interest on that new money, if
they earn any profit you know who gets that? You. The taxpayer. It's called
seigniorage - <http://en.wikipedia.org/wiki/Seigniorage> . At the end of the
Fiscal year, if the Fed has profited from it's monetary activities during the
year, it writes a fat ass check to Uncle Sam. Sometimes in the $50B range.
Imagine ANY corporation paying a tax bill that large.

Edit: Although this isn't terribly up-to-date, ehre is a nice paper explaining
seigniorage and how much the US gov't made over the last 50 years up to the
90s -
[https://docs.google.com/viewer?a=v&q=cache:iB65wWXSx3oJ:...](https://docs.google.com/viewer?a=v&q=cache:iB65wWXSx3oJ:research.stlouisfed.org/publications/review/92/03/Seigniorage_Mar_Apr1992.pdf+seigniorage+federal+reserve&hl=en&gl=jm&pid=bl&srcid=ADGEESiIMVMX_ddPJTa6XmPdOFaIuATvwQKXgbIe-9vOBmz2M_fg3nA41dv-M0GwNLAwjALdV_y9DuTrhfCbXzeMqJ_8nx1GmbTyiwSviRDlyprgQbMBwyCDnFCWi8JHN1Q3OFuN6YJe&sig=AHIEtbTwEN5WhXznwkbzgas9x37C7Qs-
iQ)

Edit 2: Here is a nice summary of the Feds performance and how much it paid
over to the US Treasury in 2009 and 2010 if anyone wants to debate their
performance, oh and this is ON TOP of them saving the world economy (basically
single handedly) - [http://www.marketwatch.com/story/the-feds-annual-profit-
surg...](http://www.marketwatch.com/story/the-feds-annual-profit-surges-
to-817-billion-2011-03-22)

~~~
Astrohacker
> However, that being said, you make it sound as if those banks are
> lending/giving that money to rich Saudi princes who squander it. They are
> not. They are lending it to entrepreneurs that have built a business to X
> point that want to expand.

Banks create 80% of the money and declare themselves owner of it, which they
then loan out. There is nothing wrong with loaning money. But there is
something very wrong with creating new money and then loaning it out, which is
what banks do. They are money trolls... hijacking 80% of the money and
charging a toll for using it.

> I apologize if this reply comes across as very terse and perhaps facetious,
> but I am SICK and TIRED of people bashing the current fiat system when there
> is no other viable alternative in sight.

Bitcoin is a viable alternative. (I'm aware of all the limitations of bitcoin,
like the maximum rate of transactions. But the fundamentals are sound. The
problems that exist can and will be fixed in time. Bitcoin will scale to be a
global currency.)

> The fiat system is one where the global economic systems evolved into it -
> not because bankers wanted to get rich, but because policymakers realized
> that by being able to print more currency on-demand, it would soften
> economic pullbacks.

Nope. It very much is because bankers wanted to get rich. The Federal Reserve
was designed by bankers. Other central banks are designed by bankers.
Governments go along with it because they get to benefit from the inflation
just like the bankers.

> At the end of the Fiscal year, if the Fed has profited from it's monetary
> activities during the year, it writes a fat ass check to Uncle Sam.
> Sometimes in the $50B range.

The Fed does not produce wealth. Any profits they give to the government, thus
saving taxpayers a little money, are more than offset by the loss in
purchasing power the taxpayers suffer through inflation.

~~~
marcamillion
At this point now, based on your replies, I can only assume you are trolling
so I will ignore the first 2 responses and reply the to third and fourth.

>Nope. It very much is because bankers wanted to get rich. The Federal Reserve
was designed by bankers. Other central banks are designed by bankers.
Governments go along with it because they get to benefit from the inflation
just like the bankers.

Are you a techie? Do you understand the web? Who would you want writing
legislation to govern the web? Lawyers who are clueless about the web and
think that the internet is a series of tubes, or people that are VERY web
savvy - like Tim Berners-Lee, et. al? The same thing applies to finance,
banking and everything else. Makes no sense to have people writing legislation
or creating systems that don't understand what they are doing.

>The Fed does not produce wealth. Any profits they give to the government,
thus saving taxpayers a little money, are more than offset by the loss in
purchasing power the taxpayers suffer through inflation.

If that's the case, why has inflation been so low in the US in the last two
years, when the Fed undertook the largest expansion of it's balance sheet in
modern history? i.e. it has printed more money recently, than at any other
time in it's mandate - but inflation AND inflation expectations are still low.

~~~
shalinmangar
>If that's the case, why has inflation been so low in the US in the last two
years, when the Fed undertook the largest expansion of it's balance sheet in
modern history? i.e. it has printed more money recently, than at any other
time in it's mandate - but inflation AND inflation expectations are still low.

That is because all that inflation has been exported to other countries. There
are economies who have bet their growth on exports and depend on a strong
dollar.

~~~
Robin_Message
It's going to be just hilarious when China realises it can't actually do
anything with all the shiny pieces of green paper we've posted them in
exchange for most of their industrial output for a couple of decades, not to
mention the whole Middle East.

------
cjy
I found this article poorly written and defended. I didn't find it HN worthy.
It is basically an investment manager complaining that the wealthiest
Americans are mostly in finance and don't pay enough taxes because most of
their earnings are from capital gains. He makes a lot of presuppositions in
his writing that he never defends. For example:

"I asked if her colleagues talked about or understood how much damage was
created in the broader economy from their activities."

How does finance destroy the broader economy in general? Liquid functional
capital markets are critical for a stable economy. Finance is only bad for the
economy when incentives are structures so that government limits the downside.

"America's top corporations reported 31% profit growth and a 31% reduction in
taxes, the latter due to profit outsourcing to low tax rate countries."

Outsourcing is not bad. He treats it like it is a dirty world. Companies
should have work done where it is most efficient. Google comparative
advantage. "It wasn't the hard-working 99.5%"

Because the top .5% aren't hard working.

"In my view, the American dream of striking it rich is merely a well-marketed
fantasy that keeps the bottom 99.5% hoping for better and prevents social and
political instability. The odds of getting into that top 0.5% are very slim
and the door is kept firmly shut by those within it."

By definition, the odds of getting into the top .5% have to be very slim
because only .5% of the population can get in there.

Also, I should note that the lower 99.5% benefit from lower capital gains
taxes when it comes to appreciation on their homes. Obviously, this hasn't
been a benefit lately. But, this is important given that the home constitutes
the biggest chunk of net worth for many families.

~~~
rayiner
> How does finance destroy the broader economy in general? Liquid functional
> capital markets are critical for a stable economy. Finance is only bad for
> the economy when incentives are structures so that government limits the
> downside.

False dichotomy. The article talks about the current financial system in the
US hurting the economy. It's not suggesting dismantling the financial system
in general.

Step back for a moment. The financial industry is infrastructure. It's there
to grease the wheels of productive industry. It facilitates growth, but cannot
in itself create that growth. Now, last year the financial industry accounted
for something like 1/3 of corporate profits. It's gotten absolutely immense.
Do we need such massive institutions just to create "liquid functional capital
markets?" Are these companies so profitable because they're really creating
enormous amounts of value for the economy, or because being close to the money
makes it easier to justify taking a percentage cut of the money flowing
through the system?

Now, I'm not attacking them just because they're profitable. But to an extent
they're profitable because the benefit tremendously from government
protection. When Apple innovates and sells iPhones, they pay 35% tax on those
profits, but when a trader at Goldman moves money around to make profits, they
pay less than half that in taxes. If we believe that tax rates create
incentive structures, does it really make sense to incentivize the latter so
much more heavily than the former?

~~~
yummyfajitas
Huh? Short term capital gains rates are 35%. (I assume that's what you mean by
"moves money around".)

Long term cap gains rates are lower, but that compensates for the fact that
the company you bought was also paying taxes in the meantime.

------
numlocked
_Another client with a net worth in the $10M range is the ex-wife of a
managing director of a major investment bank, while another was able to amass
$12M after taxes by her early thirties from stock options as a high level
programmer in a successful IT company. The picture is clear; entry into the
top 0.5% and, particularly, the top 0.1% is usually the result of some
association with the financial industry and its creations. I find it
questionable as to whether the majority in this group actually adds value or
simply diverts value from the US economy and business into its pockets and the
pockets of the uber-wealthy who hire them._

This paragraph ruffled my feathers quite a bit. It's overreaching to say that
a programmer who managed to make out like a bandit when their company hit it
big is just "diverting value from the US economy". That scenario is quite a
bit different than, say, profiting off of elaborate financial engineering.

And _of course_ large amounts of money have "ties" to the financial industry.
What the heck else are you going to do with the money? Equating a programmer
who happened to strike it rich during an IPO (presumably) with an investment
banker as both being tied to the financial services industry is ridiculous.

~~~
intended
To unruffle your feathers a bit - I read this article earlier this week on a
finance blog. To an extent, the language and profession influence here is
slanted towards people following the financial readers.

His larger thread is about how the lower 5% are different from the top 1%.
That the top 1% is made up primarily of finance types, but that he has clients
who have reached the top 1% from different entry points.

------
arjunnarayan
There's a pretty simple solution: Abolish the capital gains tax, and tax all
capital gains at the income tax rate. There is no more "capital gain". Only
income. Whether your income was earned through labor or rents on capital that
you own seems rather irrelevant to me.

~~~
lionhearted
Let's think about secondary effects.

What percent of very wealthy Americans do you think would renounce their
citizenship based on this? How much less investment capital would there be in
the USA based on that?

Note: Not asking for a value judgment ("good riddance if they do!" - not
productive). Just your estimate as to what percent of wealthy Americans would
give up their citizenship and how much less investment capital would result.
It's an important detail to consider.

~~~
potatolicious
Echoing what rayiner said - where are the rich going to go?

Europe is less friendly to the rich - extremely so in the most pleasant of
places. China? India? Neither are very pleasant places, and even with
truckloads of cash has a hard time competing with the quality of life enjoyed
in the US even under onerous taxation.

I think you're not giving enough credit to the American quality of life - it's
why my family immigrated here from Asia. While developing Asian countries have
seem dramatic improvements in the last two decades, the QOL in most of these
countries still pales in comparison.

Just about anywhere someone used to the Western quality of life would _want_
to go would have higher taxes.

~~~
lefstathiou
That's not true. How about Hong Kong or Singapore where you certainly get a
western style life with extra benefits: safer, cleaner, live-in maid service,
better access to healthcare and a 15-20% all in tax rate. Have you been to
Thailand or Indonesia? Sounds ridiculous but this is happening right now. I'm
in banking and I hear my clients talk about it all the time. They're doing it
as we speak (slowly migrating their business operations and key personell)

The thing about entrepreneurs is that they are an irrational bunch. I could
introduce you to a couple of people who would rather put all their money into
a boat and sink it than pay it as additional tax. Sounds crazy but from a
growing number of people's perspectives, the problem isnt excess taxation, its
excess taxation coupled with gross mismanagement. Nobody likes seeing their
money go to waste, especially to causes they dont agree with (ie union
pensions for government employees that retire after 20 years of service).

~~~
econgeeker
Good Point.

For instance, New Zealand. Nice place. Great People. First class quality of
life-- better than the USA. Higher taxes than the USA in many ways, but the
government is so much less corrupt that the taxes are much less of a burden.
You don't mind paying when you see you're getting value for the money.

------
torstesu
Reminds me of the Citigroup reports on plutonomy that was allegedly leaked.
The reports give an interesting, and to some degree offensive, look into the
mindset of the plutocrats -- that is, the richest of the rich

[http://dl.dropbox.com/u/810028/101001citigroup-plutonomy-
rep...](http://dl.dropbox.com/u/810028/101001citigroup-plutonomy-report-
pt1.pdf)

[http://dl.dropbox.com/u/810028/101001citigroup-plutonomy-
rep...](http://dl.dropbox.com/u/810028/101001citigroup-plutonomy-report-
pt2.pdf)

------
HSO
Coming from HN, this just caught my eye on the NYT: "Even Marked Up, Luxury
Goods Fly Off Shelves" ([http://www.nytimes.com/2011/08/04/business/sales-of-
luxury-g...](http://www.nytimes.com/2011/08/04/business/sales-of-luxury-goods-
are-recovering-strongly.html?hpw&pagewanted=all)) while the country struggles
to pay its debts and is losing its future. Just goes to show how separated the
top .5% of American society has become from the rest... What I as a an "Asian-
European" will never get is the unmitigated adoration of material wealth in
American society/mass culture. Can't help but feel that is also a part of the
problem. I mean, you don't have to be all ethical and bright to realize that
Einstein, for instance, was not particularly wealthy and yet deserved (and
commanded) orders of magnitude more respect than your typical billionaire.
What's with the obsession about bling?

~~~
mattmorgan
> _you don't have to be all ethical and bright to realize_

Yes, you do. Perhaps these traits are more rare than you realize. You're not
just coaxing me to tell you that you are special, right? :)

------
yummyfajitas
The author of this article seems to be trying to confuse things:

 _Membership in this elite group is likely to come from being involved in some
aspect of the financial services or banking industry, real estate development
involved with those industries, or government contracting._

What does "involved in some aspect" mean?

 _...built a small company and was acquired with stock from a multi-national.
Stock is often called a "paper" asset...CEO of a medium-cap tech
company...another was able to amass $12M after taxes by her early thirties
from stock options as a high level programmer in a successful IT company._

~~~
noahth
I agree that those examples are not great at conveying the main point he's
trying to make, but let's consider for a moment that the top .1% evaluates to
a larger number than 5. Maybe he was calling out notable exceptions, or maybe
it's just a poorly edited piece of writing.

~~~
neuroelectronic
He was calling out notable exceptions...

| but it's infrequent to meet one whose wealth wasn't acquired through direct
or indirect participation in the financial and banking industries.

~~~
yummyfajitas
I don't think he was calling out exceptions. The paragraph intersperses people
working in finance (or their ex-wives) with people not working in finance and
draws no distinction between them.

"One client runs a division of a major international investment bank..."

In fact, one particular sentence lists both financial wealth and non-financial
wealth:

"Another client with a net worth in the $10M range is the ex-wife of a
managing director of a major investment bank, _while another was able to amass
$12M after taxes by her early thirties from stock options as a high level
programmer in a successful IT company_."

But maybe noahth is right, and the article is just poorly edited.

------
rdl
Why the fuck does he consider CEOs and others who sell their companies to be
"directly connected to the finance industry?" To that extent, a cashier at
wal-mart is directly connected to the finance industry because she helps a
traded corporation make revenue.

~~~
pg
As far as I can tell he equates making money from the sale of stock rather
than from salary with being part of the finance industry. I stopped reading
when I realized that.

~~~
rdl
Yeah, craziness. If he'd be open about his agenda but consistent with the
terms reality uses, I'd be fine with it.

I actually think carry should be taxed as regular income (except that the
people who get carry are the kind of people who could structure to get around
this).

I'd also be ok with capital gains and regular income being taxed at the same
rate IFF that top rate were low (say, 25%) without deductions/credits, AMT,
etc. A flat ~25-30% tax for everyone, plus a decent personal exemption
(possibly even refundable, so if it's "$20-30k in free money from the
government per person per year, paid in cash or paid as a credit against taxes
owed", some people can live 100% on the credit and not work.

Allowing capital gains to offset capital losses, with carryover, probably is
enough privilege to capital gains vs. regular income. It may create some
disinvestment at the margin, but there's plenty of capital out there. For a
startup founder making $100mm at exit, there isn't really an argument that
he'd take the $200k/yr job instead of the $100k/yr job with the shot at the
big exit due to being taxed 25% vs. 15% at exit; the uncertainty remains in
the "will my company sell (and will it be for big money)", not the tax rate at
that time.

That said, I'm totally happy taking every capital gain benefit available to
me; waiting 5 years for a $10mm tax-free capital gain (Small Business Jobs Act
of 2010, good for investments including founder shares purchased until
12-31-2011) is pretty damn nice.

------
sigil
Common fallacy: personifying "the top N%" as if it were some mostly static set
of people -- hard for anyone else to break in, rare that anyone falls out once
they make it in. The old class system anxiety.

In reality, the further you get towards the top, the harder it gets to stay
there:

 _The composition of the very top income groups changed dramatically over
time. Less than half (39 percent or 42 percent depending on the measure) of
those in the top 1 percent in 1996 were still in the top 1 percent in 2005.
Less than one-fourth of the individuals in the top 1/100th percent in 1996
remained in that group in 2005._ [1]

Here's another study with similar results across all income brackets. [2] None
of the brackets are very stable; people move around quite a bit.

Or, we could just sit around reading collections of personal anecdotes.
Seriously, why is this article on the front page?

[1]
[http://www.entrepreneur.com/tradejournals/article/206340741....](http://www.entrepreneur.com/tradejournals/article/206340741.html)

[2]
[http://books.google.com/books?id=lhiIyq8ylUMC&lpg=PA146&...](http://books.google.com/books?id=lhiIyq8ylUMC&lpg=PA146&ots=52lc_0w_bL&dq=tomas%20sowell%20household%20income%20misleading&pg=PA147#v=onepage&q&f=false)

------
mkramlich
This started off sounding like it was going to be a Repub/TeaParty/Koch-style
political propaganda piece, but the further I went into it the more pleasantly
surprised I became. Makes some good points about the distinction between
different groups and tiers at the top of the American income ladders. It's
true that the concerns and goals and challenges of upper income "working
class" folks like small business entrepreneurs, doctors, lawyers are different
than the folks from Real Money and the big financial firms, banks, executives
of huge multi-nationals, etc. I also have become increasingly confident in the
theory that the so-called credit crisis a few years ago was basically a setup
or con job. There's a lot of evidence, at least at the level of circumstance
and motive and means, aligned with it being true.

~~~
aodin
To those curious about this claim, I would recommend Nomi Prin's "It takes a
Pillage". She, a former manager at Goldman Sachs, makes a strong argument for
the bailouts being criminal.

------
jwingy
I personally don't care much that these people are wealthy or even able to
evade paying as much taxes as we do. The problem I have, and the problem I
think the author is trying to expose is that DUE to their wealth, these top
0.1% are able to exert a vastly disproportionate amount of influence on our
political and legal system, often times to the detriment of the other 99.9% of
us, and preventing politicians from making the level headed, balanced
decisions they need to make.

Even if the people as a organized collective can get together to rally against
a certain issue, and even if that group can win, anybody with lobbying power
(e.g. money) can simply lobby again at a later time to throw in some rider on
a completely unrelated bill to pass some law getting what they want.

------
nazgulnarsil
This is encouraging. Want to know what a truly sick economy looks like? One
where the top 1% inherited their assets/incomes. Ignoring the huge selection
effects in talking about the top .1% of winners in the financial markets is
silly.

~~~
Duff
What planet are you from? This guy's mega-rich clients are mostly from
"financial services, real estate and government contracting".

All of those things are either indirectly or directly subsidized by the US
taxpayer. So the public is borrowing money and these folks are capitalizing
it. And the Republicans claim to not be in favor of redistribution of wealth!

The bizarre thing is that if you looked at an analysis like this 25, 50, 100,
150 years ago, the picture would be different. The robber barons of the past
built things, employed people. Investment bankers lobby for regulation to drum
up business, and gouge people for their services, whatever they are.

~~~
nazgulnarsil
Things aren't great. I'm not saying that. I'm not an apologist for the pretend
free-market. I'm just saying this isn't the doom and gloom the original author
or the vast majority of readers will probably think. WHat do you think 99% of
human history looks like anyway? It looks like a boot stomping on a human
face. Decrying the winners of the financial game, rigged though it is, as
villains is just laughable compared to anything except rich white people
problems.

------
rmason
Take a good look at the Forbes 400. The vast majority of them are
entrepreneurs and though a sizeable number made their money from the financial
industry it's no where near a majority - not even close.

<http://www.forbes.com/wealth/forbes-400/list>

~~~
tedkimble
What's your point? The author is talking about the top 0.5%, or even just the
top 0.1%.

The Forbes 400 represents the top 0.0000132%.

Sure, maybe entrepreneurs are the majority in that group, but don't trick
yourself into thinking the other 1.5 million in the top 0.5% are too.

~~~
rmason
We don't have the Forbes 4 million to view. But for every Zuckerberg on that
list there are more than a few members of that 0.1% from members companies on
that list.

I am not doubting that the financial industry influence is quite concentrated
compared to others, but I am not convinced he's totally proven his case. Maybe
the firm he represents has an outsized proportion of financial people as their
clients.

~~~
Tsagadai
Look at the filings for big companies. Usually the top incomes and options are
given to the CEO, COO and CFO. CFOs are often sitting on large sacks of money
and directly participating in the finance industry. Even companies with no
other ties to finance or banking are usually playing around with the same
mechanisms as hedge funds, banks and other investment organisations. You are
making the mistake of thinking the only income a business makes today is from
its core products and services. Most large businesses are making plenty of
income from interest and investments if they aren't overflowing with debt.

------
aj700
Possible self-rectification

Elite keeps serfs ignorant by providing no economics education.

Voters fail to grasp debt situation.

US soft defaults, inflation etc.

Dollar loses preeminence, 50% of value, the unwarranted part.

Massive inflation affecting all imports, which is most of what people buy,
since America makes very little.

Inflation acts as wealth tax, and transfers value from old to young. Many
factories move (back) to US. More jobs. Less inequality.

So, I think the demand for dollars from overseas investors who want safety
really hurts the US. You could do all this without the evaluation if you would
start seeing China as a threat and get protectionist now. Autarchy, in fact.

~~~
rayiner
So in a modern economy, accumulated wealth as an "earmark" on current and
future productivity. People don't buy food and store it for retirement. They
buy shares in Intel and get dividends from the labor of future workers to pay
for their retirement. The current state of affairs seems to be one where too
much has gotten earmarked. Those booming corporate profits that come from
layoffs rather than above-the-line growth are going partly to CEOs, sure, but
they're going mostly to retirement, pension, etc, funds. Retirees/near-
retirees earmarking future productivity.

I think inflation is inevitable as the younger generation decides to
reallocate this distribution of the fruits of its own labor.

------
auganov
A typical article spreading hate towards the rich portraying them as people
that have insight into secret evil money making techniques unavailable to
other people.

Any ways that hate has always been there and I don't think it's going
anywhere. Just delete it from HN, no need for it here.

------
shapoopy
While I appreciate the effort to bring attention to the serious differences
between the simply well-off and the astonishingly-rich-and-powerful, I'm
having trouble wrapping my head around some of this:

 _"While income and lifestyle are all relative, an after-tax income between
$6.6k and $8.3k per month today will hardly buy the fantasy lifestyles that
Americans see on TV and would consider 'rich.' In many areas in California or
the East Coast, this positions one squarely in the hard working upper-middle
class, and strict budgeting will be essential. An income of $190k post tax or
$15.8k per month will certainly buy a nice lifestyle but is far from rich."_

What in the _hell?_

Where I come from, six figures is rich, period. I grew up in a household whose
yearly income was a bit over $100,000 (pre-tax), and had no delusions about my
place in the economy. Sure, weren't "free from financial worry," but we
nonetheless could afford the occasional vacation and a new or semi-new car
when we needed it.

My significant other comes from a place where $50,000 each year (pre-tax) is
considered rich (and this in the apparently-mythical California, no less). She
grew up with a pre-tax annual income of less than $10,000.

While it's inaccurate an potentially damaging to misrepresent the degree to
which it truly is the _super_ -rich that benefit most dramatically from our
economy, it also seems just as potentially damaging to write as though we
really _are_ all in the middle-class. This article seems to utterly silence
the existence of poverty and the working class in order to make its point.

Maybe I just come from one of those strange parts of the country where we
still have backwards things like "industry" and a "proletariat." I suspect,
however, there's a lot more folks from places like where I'm from than places
like the strange utopia this guy lives in.

Uh, </end_rant>?

------
srbloom
I already knew the about the vast disparity in the top 1% of earners, but I
did not know how difficult it is to retire comfortably. A 30-year retirement
is quite a luxury.

~~~
pyoung
Who knew that 'Live fast, love hard, die Young' would also be a fiscally
responsible lifestyle!

------
sekou
If there is a reluctance among the very wealthy to pay taxes, I'd guess that
they don't trust a government that they believe to be inefficient, and that
they see no benefit in paying taxes for themselves or their businesses.

It seems like in order to get into that top .5 percent, you'd usually have to
have a certain kind of perspective about reality, and to change the mindset of
someone who takes every possible action in terms what's best for the growth of
their wealth or their business might not be easy, sometimes close to
impossible. Regulation is important here to keep these folks from getting
carried away.

You'd have to get them to see the value in growing the economy as a whole and
how that serves their interest. And hey, they may already know that and just
not think the government is any good at growing the economy.

I guess it's about finding common ground and moving in a way that the very
wealthy and everyone else thinks is beneficial and responsible.

~~~
Klinky
I think most of the reason you can't trust the government is because these
people are pulling the strings of the government. When you have a political
structure where money means everything, money buys power. These people don't
pay taxes because they have built the system so they don't have to. It's not
that they don't trust the .gov, they essentially are the .gov.

------
dodo53
>One of our clients, net worth in the $60M range, built a small company and
was acquired with stock from a multi-national. Stock is often called a "paper"
asset.

This seems odd (also the example of programmer with stock options later) - so
is he saying that because the payment is in equity you're in the financial
sector / not producing real value? I'd read that last line as being
disparaging about stock because it's "paper". The only example with any bite
is the investment banker admitting they think they add no value.

------
kds
"Give me control of a nation's money supply, and I care not who makes its
laws."

\-- Mayer Amschel Rothschild (1744 - 1812), a popularly-alleged quote

------
ch
"Ordinary citizens in the bottom 99.9% are largely not aware of these systems,
do not understand how they work, are unlikely to participate in them, and have
little likelihood of entering the top 0.5%, much less the top 0.1%."

So how does an ordinary citizen become aware of 'these systems' and begin to
participate in 'them'?

------
recampbell
Regarding those who will only bring home 15k per month post retirement:

"And, for those folks who made enough to accumulate this much wealth during
their working years, the reduction in income and lifestyle during retirement
can be stressful."

This is where I started laughing out loud! What a profound lack of
perspective.

~~~
rayiner
The point of the article isn't that we should pity those folks making "only"
$300k/year. They have nice houses and nice cars and eat at nice restaurants.
However, they still need to worry about money. If your $300k/year is coming
from your labor as a lawyer, and you go blind, your financial situation does a
180. If your $300k/year is coming from dividends on the huge pile of stock you
own, that's a totally different ballgame.

------
pedram
It's interesting how boldly he states on the front page that "conspiracy
theories are wrong": <http://sociology.ucsc.edu/whorulesamerica/>

Why would some rich people conspire to get more power? That would be immoral.

------
irisdai
Koch Brother-backed tea party is a dangerous sign of this claim, if the law
and public allow top 0.?1% to control the psychopath of US. So-called "small
government" is just an excuse of going down to dictatorship by the rich few.

------
mattmorgan
If some of the top 1% can't retire comfortably, then who IS retiring these
days?

------
mahyarm
Nice to know the numbers.

------
tomelders
Works out that around 31,191 people _rule america_.

That works out at about 33 people per member of congress. A manageable number
I suppose, should they all decide to lobby.

I do find it highly unlikely that they'll ever reach a consensus at those sort
of numbers though.

That said, around 1,245 of the top 0.01% should statistically be sociopaths,
which is a concern.

~~~
po
_That said, around 1,245 of the top 0.01% should statistically be sociopaths,
which is a concern._

Assuming an even distribution… which is unlikely.

~~~
tomelders
the distribution is skewed towards the top 0.1%. According to "This American
Life", the percentage of psychopaths* is higher amongst the _wealthy and
successful_ than the rest of society.

Not sure what the definition of _wealthy and successful_ is though.

*I wrote sociopaths by accident, although there's some debate as to wether there's a difference between the two.

Also, what's with the down votes? What did I say..?

~~~
po
Right that was my point... that the top 0.1% would probably have more. How did
you arrive at the ~1k number you did? By extrapolating from general population
incidence of sociopaths? That only works with even distribution.

~~~
tomelders
I wasn't being totally serious, but I calculated the top 0.1% of total US
population, and then 4% of that, which is apparently the percentage of
sociopaths/psychopaths for that section of society. The average across the
entire US population is about 1%.

------
rwmj
Be interesting to get comparative figures for France pre-revolution.

------
michaelochurch
Terrible writing.

I'll sum it up: hard working people in the bottom half of the "top 1%" are not
evil power-brokers but the most successful professionals. You have to look at
the top 0.5 or top 0.1% (I'd argue that even 0.1% is generous) before engaging
"the corridors of power", which consists of financial and real estate elites
as well as contractors exploiting corrupt government officials. Is this news?

A more interesting exposition might be the ruse that exists because Americans
conflate these two classes of rich. It has all sorts of pernicious cultural
effects. American conservatism is founded on the false belief that the
$5m/year bankers are merely scaled-up versions of the $400k/year neurosurgeon
who has been working hard since he was 6... when in fact, they're totally
different.

This is fairly important if one looks at where revolutions begin. They usually
start from the high end from the middle class, among people who are "rich" but
not especially powerful. The American colonists were very wealthy, but had no
clout because they were 3000 miles away from those making the decisions. The
French revolutionary thought leaders were wealthy salon denizens, although far
from the court at Versailles, and therefore increasingly out-of-power as the
clouds darkened over France. History describes such revolutionaries, radicals,
and agitators as "middle class" in hindsight (they're our heroes, and the U.S.
associates "middle class" reflexively with virtue) but these people did, in
fact, come overwhelmingly from the richest ~5 percent. The American "Founding
Fathers" were downright rich. Revolutionary agitation usually comes when hard-
working, intelligent, and previously fortunate people become out of power and
hit a ceiling, either because society is deeply stagnant or because they're
actively being deprived of autonomy. Eventually, conflict between the small,
closed, social-network-based "upper" elite and the larger, fluid, merit-based
"upper-middle" elite reaches a boiling point. It was this way at the end of
the 18th century in America and France, and it will very likely be this way in
the major conflict of the first third of the 21st century. The danger is that
the conservative American has been misled into believing that the more noble
elite ("elitist liberal intellectuals") is the oppressor while the truly
damaging elite is held up as the good one, as if there were _any_ similarity
between a $20m/year, fifth-generation-wealthy banker and "Joe the Plumber".
There's not. But conservative Americans have been led to believe that bankers
are hard-working people just like them while "intellectuals" are an elitist
enemy oppressor. Culture is, in the U.S., slowly replacing race as the elite's
favorite divide-and-conquer mechanism. American conservatism is a machine for
driving a wedge between the people who are trying to save this society
("liberal intellectuals", although neither word should be pejorative) and the
common people of the country they are trying to save.

No news in the OP. The world is run by a morally debased and increasingly
incompetent oligarchy, heavily intertwined with the banking system and with
about 40% of its membership in the U.S. upper class. That was only news in
2008 to people who weren't paying attention.

~~~
bokonist
_American conservatism is a machine for driving a wedge between the people who
are trying to save this society ("liberal intellectuals", although neither
word should be pejorative) and the common people of the country they are
trying to save._

Who are you including under the term "liberal intellectual"? Are you including
folks like Martin Feldstein (Harvard), Larry Summers (ex Harvard), Robert
Rubin (Harvard BoD) and Robert Schiller (Yale)? If so, I'd argue those
academia-associated liberals are every bit part of the problem. Even further-
to-the-left intellectuals like Krugman have their salaries mainly funded by
donations from wealthy bankers, and they offered very little criticism of the
financial sector before 2008.

~~~
davedx
Yup... Chomsky makes very much that point in 'On Language'; the liberal
intellectuals are the elite's best propagandists. :(

------
kleptco
People who tend to accumulate lot's of money tend to be sociopaths and should
be closely monitored and controlled.

