
How We Value the Super-Rich - Wall Street vs. Silicon Valley - robg
http://www.nytimes.com/2008/09/28/weekinreview/28stone.html?ref=weekinreview
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jmtame
I'm taking a Money, Media, and Power class that looks at the history of the
United States since the 80s in great detail. It considers how America has
become extremely capitalistic, which isn't bad as long as open, competitive
markets are encouraged.

What we've seen happen in history is the massive consolidation of companies.
Look at the media industry, for example. It is now impossible to create your
own TV network, and it will probably soon be impossible to compete freely on
the Internet because the same conglomerates that dominate the cable and phone
industry are trying to do the same thing with the Internet. I have two words
that can summarize the entire thing: network neutrality. Complete deregulation
is a bad idea; what happens if you take all the rules out of a football game?
Everyone will cheat.

How does this relate to the topic? We don't like people who get their money
for two reasons, in my opinion. We don't like people who are anti-competitive,
and who try to dominate markets (such as the Internet, cable, and television
industries) and intentionally want to stifle innovation. That's not
contributing to society, and we all know that once a monopoly is established,
a company has no incentive to innovate.

The other reason I personally dislike people with great wealth is because
they're not being fiducially responsible. If America is going to be more
capitalistic, the people with the money should be driving innovation, not
stifling it. They need to act responsibly with their money, and that includes
being philanthropic and charitable. When they just hoard it all and it becomes
a competition to see who can hold the biggest pot, I don't think you deserve
to have it in the first place (think Elon Musk, and how much money he has
invested into SpaceX and Tesla Motors). What we have now is a massive gap in
income disparity, and that's pissing off the lower and middle class. It's
actually driving the middle class out of existence, and I would say at that
point the wealth isn't being distributed evenly enough.

That's my take on why we dislike wealthy people. At least some of them. As the
article pointed out, I really do think some self-made rich individuals
rightfully deserve it and are acting responsibly.

~~~
Hexstream
"What happens if you take all the rules out of a football game? Everyone will
cheat"

Technically, if you take all the rules out of a football game then _nobody can
cheat_.

~~~
jmtame
Ha! That is true. I should have said what happens if you take all the
regulation out of a football game. I was trying to emphasize the point that
deregulation (or taking away neutrality rules) is bad and will allow larger
media companies free reign to do whatever they want. With that much power,
they're bound to exert absolute control over the whole system.

The idea of regulation is not to stifle younger, newer innovators. It's to
prevent the larger players from taking over and locking out competition. At
one point, it was illegal to own more than 40 TV stations.

~~~
anamax
It's always a bad idea to confuse intent with effect.

I've no doubt that fans of regulation want good things. However, the result of
said regulation rarely matches those intentions.

Not to go all Dr. Phil, but insanity is doing the same thing repeatedly,
expecting a different result.

Media control regulations lock in big media. Note that we didn't even get a
fourth network until TV started to lose marketshare. (Yes, no one owned more
than 40 stations, but that restriction didn't affect media control.)

------
jasonlbaptiste
This also goes back to pg's article on where you live and what defines
"power". In the past 7 years, I've lived in the following places and
definitely have seen what constitutes wealth/doing well:

Cambridge- Definitely education, but in a weird place. I studied for the
summer at Harvard. Everyone was unique, some cases weird, but absolutely
brilliant in their specialty. It was about being the best in their area of
study.

New York/Northern NJ- I grew up here, and this is where I was before going
back to Boston. It was about more traditional routes of money, and nothing
earth shattering. You were a dentist, a doctor, or wall street trader. There
were some celebrities around too. It was all about the traditional path. Go to
a private high school, go to a good college, get the right internships, slave
away 9-5, then become rich via Goldman Sachs or something. Boy did I break
that mold...

(Went to Boston College next, but not adding that in since Cambridge covered
that area well enough)

Miami- Now this is interesting. The whole Miami Vice attitude you see is 100%
real. My thoughts on this area are indicative of it as a whole, NOT the
technology sector, which is flourishing very nicely down there. Success was
measured by how nice your material possessions were. Lamborghinis, bottles of
Cristal, and overpriced penthouses. Most money here wasn't really earned, but
through family inheritance or foreign overseas money. Yes, drug money still
powers part of the town.

Silicon Valley- This can include SF, even though my experiences are from
living in Palo Alto. It's all about what you're building, who you're going to
help, and what the "delta" is. How were things before hand, and how are they
once you're done? No doubt money is important, but it's a by product of the
previously mentioned statement. In my 5 months here, I've met the founders of
insanely successful companies, billionaires,etc. Honestly, you wouldn't know
it, if it wasn't for the companies they founded. Everyone is also willing to
help out here. In short, wealth is valued by what you have created and the
people you help achieve that same goal.

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geebee
This reminds me of PG's essay on how to create wealth:

"his essay is about how to make money by creating wealth and getting paid for
it. There are plenty of other ways to get money, including chance,
speculation, marriage, inheritance, theft, extortion, fraud, monopoly, graft,
lobbying, counterfeiting, and prospecting. Most of the greatest fortunes have
probably involved several of these."

There was a time when inheritance was considered more honorable than trade
(typical of most aristocratic societies), but that's been pretty well
dismissed by now. In most free market democracies, the social respect for huge
fortunes tends to be closely correlated with the proximity of the activity to
the direct creation of wealth.

So high tech tends to be viewed very favorably. Seeking wealth through
marriage is viewed unfavorably ("gold-digging"). Flipping condos is tolerated
but not highly respected, but renovating for a profit is viewed more
positively. Vast sums won through litigation tend to be irritating (though
people generally reserve their scorn for the big share taken by the attorney,
less so for the litigants). These activities aren't despised, but they are
respected less than the true wealth creators.

And lastly, of course, there's genuine hatred for the illegal (or legal but
predatory) practices like extortion, robbery, cartel-building, and so forth.

Finance probably isn't _despised_ (or at least wasn't until the recent bail-
out), but because it's perceived as further down the chain from high-tech, it
will generate more resentment than admiration.

By the way, high tech isn't completely clean here - Carly Fiorina did receive
a huge retirement package - worth about $40 mil, I think.

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furiouslol
In light of the Wall St bailout, here's a question to ponder: Is Google too
big to fail?

In the event of capital inadequacy due to fraud/investments-gone-wrong, should
the government bail out Google with taxpayers' money since Google is so
integral with the Internet economy?

~~~
neilk
The whole Internet economy is small enough to fail. It's still just a tiny
sliver of the US economy. And ready substitutes for Google's wares exist all
over the place; not as good in some cases, but more than adequate.

Besides, Google is mostly a facilitator of transactions. The might get
fractions of a penny from every dollar spent on the interwebs. So if that
price is fair, presumably we would just have to pay a few micro-pennies more
per item for distributors to find alternative ways to market their goods or
spend a few micro-pennies more effort in searching for it ourselves.

That seems wrong to me somehow, as it can be very hard to find some things on
engines other than Google. But it seems to make economic sense. Unless we
consider the very low "cut" that Google is taking to be an anti-competitive
measure?

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hsuresh
This is on similar lines to PG's essay on wealth ->
<http://paulgraham.com/wealth.html> (One of my all time favorites, wish i had
learnt about it earlier).

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krakensden
Reminds me of Paul Graham's `cities and ambition' essay...

------
time_management
"Rich" isn't the first thing that comes to most people's minds when they hear
about Steve Jobs, any more than "powerful" comes to their minds when they hear
about Barack Obama. People think of them as "successful", because they like
those who have vision and succeed at implementing it, but "the rich" and "the
powerful" have negative connotations. There's a one-step mental transition in
realizing that, in fact, Steve Jobs is rich (but that's okay) because he is
successful, and likewise for Obama.

Silicon Valley is ostensibly positive-sum. Some of what occurs on Wall Street
is also positive-sum: for example, arbitrage and market-making provide
liquidity to markets. Some financial activity, however, is not. Unfortunately
for Wall Street's reputation, people tend to focus on the activities that are
excessive and destructive, such as the subprime mortgage fiasco.

In general, people tend to resent most those who make money in manners that
are zero-sum (or negative-sum). Examples of this would be NYC landlords, who
are becoming inordinately rich based entirely on others' pain and misfortune,
and health insurance executives, who enrich themselves by charging ridiculous
premiums and then denying care to sick people. Most people, when they think of
Wall Street, think of traders; few would draw the distinction between, say,
corporate finance and what traders do. Trading isn't actually zero-sum, given
that it provides liquidity, but it seems to most people like a zero-sum game,
and so it's not well respected.

~~~
asdf333
I agree w/ your point except the part about trading being a value-added
activity. Liquidity, if you ask Warren Buffett, is overrated.

When people trade AAPL, for example, there is a loser and a winner. The real
value is not created by those trading AAPL it is created by Steve Jobs and
those working at AAPL. While trading is not zero-sum, it is a mostly zero-sum
activity.

You might say. AIG may beg to differ, since it went under for liquidity,
rather than solvency reasons. However if you don't employ dangerous amounts of
leverage, it is not an issue. There are plenty of insurance companies in
business who didn't dance too close to the edge like AIG did.

~~~
gaius
Yes and no. The price of AAPL is whatever people are willing to pay for it.
AAPL is effectively a currency; Apple can use it to acquire other companies.
Without an active secondary market, stock can't play this role at all.

~~~
asdf333
Sure. I am not saying we shouldn't have a secondary market.

I am saying: "Hey if professional traders did not exist, the markets may be a
bit slower but it'll still work."

So yes, they provide liquidity but...at least in today's markets the CDO
traders are not doing their job on the liquidity front! :)

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newt0311
The article makes it look like bankers get paid for nothing. That is simply
not true. Wall Street allocates capital. Somebody has to decide how the
capital available in the US gets distributed. For startups, its VCs, for
mature companies, it is large institutional banks and the stocks and bond
markets. The salaries are large because of the sheer amount of money that
floats around. Consider the banker(s) who decide whether to give a loan to GE
or handle a mutual fund. Chances are good that that single transaction has
several million USD attached to it. Even a few %age of that is a very large
amount. The larger comercial banks like JPM and Citigroup have upwards of half
a _trillion_ dollars of deposits. Suddenly multi-million dollar salaries don't
seem that extravagant anymore.

Furthermore, if top level execs were really overpaid, we would see competition
from outsiders capable of offering similar quality at lower price. It is not
unusual for corporations to hire outside the company. That executive pay is
still high is an indication that maybe, CEOs really are worth a few million
dollars a year.

This is further complicated by federal regulation surrounding this sector of
the economy. Banking regulations make it nearly impossible to start a bank.
Other financial institutions are similarly constrained (though maybe not to
such an extent). This artificially decreases supply and therefore, increases
prices.

Are there some abuses in pay? Sure, just like there are abuses in everything
else. However, because business execs are paid X times the average American
and some demonstrably bad CEOs are rewarded extravagantly for their
incompetence does not imply that capitalism has failed and _all_ high-level
pay needs to be regulated.

~~~
ardit33
Absolutely not true. It seems that a lot Wall Street allocated the money where
THEY would make the most profits. And this happen to be the housing mania. For
few years the profit from housing was so juicy, that they decided to ignore
the fundamentals, and their myopia brought us to this situation.

In a good scenario, wall street will be allocating money to where it is more
efficient, in our case, they just shuffled money around in esoteric papers,
and pinched a bit of it every time it changed hand, which contributed nothing
to the economy, except their own pockets. Now the music has stopped, and a lot
of these banks are left with hot potatoes in their hand, and brought us to
this mess.

~~~
gruseom
_Now the music has stopped, and a lot of these banks are left with hot
potatoes in their hand_

Now that you mention it, hot potato and musical chairs at the same time could
make a pretty good game. :)

