
An Investment Manager's View on the Top 1% - niels_olson
http://www2.ucsc.edu/whorulesamerica/power/investment_manager.html
======
api
... and the problem I have with Occupy's "tax the rich" and similar
sloganeering is this:

Given the immense political connections of the financial class, it is a
virtual certainty that any attempt to "level the playing field" would end up
falling not on them but on the more productive rich and the upper middle
class. In other words, the burden will fall on the people who actually earned
it. If anything, the financial elites will find a way to _benefit_ from it at
the expense of the "lower rich."

It's not the haves vs. the have-nots. It's the connecteds vs. the connected-
nots. The connected-nots with high net worth are just peasants in fancy suits.

Really... doctors, lawyers, engineers, business owners, and executives in
productive industries ought to be marching in the streets too. This is not the
99% vs. the 1%. This is about a sophisticated, complex, deeply embedded system
of financial con artistry vs. everyone else on the planet. What we have here
is a worthless parasite class -- a decadent nobility -- that has buried itself
into our civilization like a tick.

~~~
cynicalkane
[EDIT: I may have misinterpreted the parent post as criticizing finance. I'd
delete my comment but I'm leaving part of it here because it has already been
replied to.]

 _What we have here is a worthless parasite class -- a decadent nobility --
that has buried itself into our civilization like a tick_

The fact of the matter is you will have a very hard time finding a financial
person who defends the current state of things. I never have. Nobody considers
bailouts or too-big-to-fail optimal, and nobody likes the regulatory mud the
financial industry swims in. And the financial industry, and probably my
paycheck, would be smaller if none of this stuff existed. And I wouldn't mind
because it'd be made up for by living in a more productive nation.

Of course, you'll still see mega-rich financiers because the economies of
scale are unbeatable in this industry. And calling the financial system "con
artistry vs everyone else on the planet" is a worthless thing to say because
_trading, investing, credit, and risk management add value_ and to say
otherwise puts you in a very flimsy position, a position by which you'd have
to adopt a wildly heterodox economic view--such as classical Marxism--to
reasonably defend yourself.

~~~
_dps
I often play "defender" of the finance industry among my friends, but I think
we should separate two claims:

    
    
      1) finance, as a whole, is "bad" for whatever reason
      2) separate from (1) the people and companies involved in finance are "bad"
    

These are two entirely different claims. It's totally possible to believe that
the finance industry provides valuable capital allocation and risk management
services, but to also believe that the companies running these services have
become corrupt (and that said corruption happens at the expense of the "99%").

I don't think one can reasonably blame the population at large for suspecting
something fishy. Between bailouts of "clearing house counterparties" like
AIG/Fannie/Freddie, below-inflation Fed Funds rate to which finance elites
have exclusive access, a revolving door of GS alumni at Treasury, etc., one
could easily be forgiven for suspecting systematic corruption. The only way to
overcome this predisposition is an open commitment to transparency and "taking
your lumps when you deserve them", which, in my opinion, has not been
demonstrated by the finance community vis-a-vis the taxpayer.

~~~
cynicalkane
I agree with the attitude of this post, but I'm puzzled that you criticize the
Fed Funds rate as below inflation. This is how you create an expansionary
monetary policy which is the correct response to a credit-collapse recession.
This enriches commerical banks, but all monetary policy is distortionary.

A good alternative might be helicopter money. I wonder how well that would do,
politically.

~~~
_dps
Sorry, I didn't mean to align myself with specific monetary policy. I barely
know anything about it. The only point is that I personally can't call up
Bernanke for a Fed Funds loan, so the expansion of the money happens
asymmetrically across society (in particular, preferentially for the Federal
Reserve member banks).

I regret mentioning it. I don't want this to become a Federal Reserve or
monetary policy debate. My bad. Go in peace :-)

------
pg
As many pointed out the last time this was on HN, it's pretty misleading to
consider anyone who sells their company to have made their money via "direct
or indirect participation in the financial and banking industries."
Disqualifyingly misleading, frankly.

~~~
niels_olson
OP here. I was actually surprised to see this accepted as a new post on HN. I
thought news redirected reposts to the page of the original post. Google
actually shows three links

<http://news.ycombinator.com/item?id=2922500> (died quietly)

<http://news.ycombinator.com/item?id=2786547> (died quietly)

<http://news.ycombinator.com/item?id=2844059> (exploded)

~~~
ivankirigin
If a post isn't in the cache it can get reposted. It's a technical flaw but
enables a good UX where if enough time has passed, a repost works.

------
ShabbyDoo
In summary: Those in the 99th to 99.9th percentile of wealth may be richer
than those in the 98th percentile, but they don't enjoy most advantages
implicitly granted to the top 0.1% of Americans.

~~~
gburt
I think this is a very important point. The 1% is not the enemy except for in
symbolic terms.

The enemy is a much smaller group of individuals/corporations than that, and
perhaps even, the enemy is more of a "process" than it is any group. I doubt
Wal*Mart executives sit up at the top of their tower and plan about how they
can tear apart society for their own self interest, but rather, there is a
whole process and system built up that is doing exactly that.

~~~
cynicalkane
I was ready to agree until you said Wal*Mart, in particular in the context of
'tearing apart society'.

Economists--including progressives, such as Matt Yglesais--often comment on
the bipartisan fetishization of small businesses and liberal demonization of
large ones. This attitude often seems motivated by isolated incidents--the
tendency of any deep pocketed company to attract bad press and lawsuits--not
the general effect of large business on people as accounted for by sound
economic data. In general, large businesses tend to offer better jobs and more
advanced economies tend to have more, larger businesses. Nor should Wal-Mart
be constructed as harming the lower class, as their very low prices are
especially important for the lower class which they achieve by real
efficiencies of scale for which mom-and-pop stores are generally incapable. I
don't have time to find citations everything, but for the last claim you can
check out
[http://www.slate.com/articles/news_and_politics/dialogues/fe...](http://www.slate.com/articles/news_and_politics/dialogues/features/2006/is_walmart_good_for_the_american_working_class/the_low_prices_are_good_news.html)

~~~
pyre
What about their response to employees trying to start a union?

~~~
dantheman
Unions in America are broken; no one has problems with a group of people
organizing as long as they don't get special rights. For instance, being able
to fire a person when they don't show up for work, e.g. firing strikers. Or
look at what the NLRB is doing to Boeing as they try to open up a new plant in
SC. It's unfortunate, but unions are a cancer - they enshrine an us vs them
attitude, they demand special rights, they encourage bad management, and in
general act as a parasite sucking as much benefit as they can from their host.

~~~
lifeisstillgood
> Unions are a cancer I don't wish to start a flame war so I shall be measured
> here.

Unions came in to being to fight massive, widespread exploration of workers
that today would be considered criminal. Unions are still required for their
original purpose across the globe (
<http://en.m.wikipedia.org/wiki/Foxconn_suicides>)

I agree that the USA has been curiously free of unionisation (having 5% of
your population as illegal indentured servants probably helps) but most
western countries have had the unions win their important battles and it will
take a while, if ever, before unions as they were in late 19c early 20c will
be needed again

oddly it feels like movements such as occupy are going to become the new union
movement.

Anyway my point was that unions = cancer is such a self evidently wrong thing
to say for billions of workers that it even makes cancer cringe.

~~~
dantheman
Many battles unions claim to have "won" were already transformation that were
happening that they took credit for.

Also unions in the US have reprehensible tactics such as advocating - card
checks for voting (intimidation), unfunded pensions, forcing nonunion members
to pay dues, having closed shops, etc.

As for the conditions at Foxconn, I feel for the people - but often it's the
best option that people have; i.e. it's better to work at Foxconn than be a
subsistence farmer. The suicide rate there is 13.9 which is lower than Finland
& Switzerland among many others
[http://en.wikipedia.org/wiki/List_of_countries_by_suicide_ra...](http://en.wikipedia.org/wiki/List_of_countries_by_suicide_rate)
and much lower than US armed forces @ 20.2
[http://www.ft.com/cms/s/0/2c662840-9b74-11df-8239-00144feab4...](http://www.ft.com/cms/s/0/2c662840-9b74-11df-8239-00144feab49a.html#axzz1je4R7WRS)

In general, as a community gets richer work conditions improve. When a
community first starts working it doesn't have access to the intangible wealth
that richer communies have and thus they need to work more hours to make up
for this deficiency. As time progresses the accumulate wealth - build roads,
infrastructure, housing, stores, have savings. And so can afford to work less,
as they work less they start sending children to school instead of the factory
(housing and food can be earned by the parents), which then increases the
wealth as they are able to work on tasks that require more specialized labor.
The better working conditions achieved in America vs China are the result of
capital investment and not unions.

Often times unions use their power to cement the position in industry, and use
labor law to decrease competition (think of it as regulatory capture). For
example there is the case of LOCHNER v. PEOPLE OF STATE OF NEW YORK:

"The true origins of the Bakeshop Act lie in an economic conflict between
unionized New York bakers, who labored in large shops and lobbied relentlessly
in favor of the law, and their nonunionized, mostly Jewish and Italian
immigrant competitors, who tended to work longer hours in small, old-fashioned
bakeries. “A ten-hour day would not only aid those unionized bakeries who had
not successfully demanded that their hours be reduced,” Bernstein observes,
“but would also drive out of business many old-fashioned bakeries that
depended on flexible labor schedules.” The large corporate bakeries joined the
union in supporting the Bakeshop Act. After all, it was in their economic
interest to favor regulations that crippled the competition."
([http://reason.com/archives/2011/09/14/lochner-isnt-a-
dirty-w...](http://reason.com/archives/2011/09/14/lochner-isnt-a-dirty-word))

Now this isn't to say that unions didn't accomplish anything or to say that
they didn't have a positive impact in some ways; I just think that 1. unions
get a lot of credit for things they have a mild impact on 2. people ignore all
of the horrible things that they do

~~~
lifeisstillgood
I agree capital investment generates wealth. Unions represent one means of
distributing (not re-distribuing) that wealth - ensure that the labour used to
transform x into wealth get a larger share of pie so they can for example
afford schooling this increasing the speed of wealth creation.

Unions get credit for distributing wealth to the workers faster than owners of
capital would do, and for defending individuals against exploration ( and the
point isthat without unions (or other organised collective action) each of us
is an explotable individual)

As for the bad things, I just ask what I would choose to do in that situation.
HN top choice is start up a competing foxconn that treats workers better. But
I fully understand the other thought process:

if the other guy has an army and enforces discipline it would be foolish of
you if you thought individual spirit and the invisible hand were going to be
any damn use

so for my money unions are just the more militant end of a spectrum that has
co-operatives and workers collectives somewhere in the middle and Cadbury on
the far end.

All of the spectrum is about how to distribute the new wealth being generated.
It does not all have to go to the owners of capital ( frankly I feel the term
Capitalism is misnamed. I would prefer unimpededmarketpricesignalling but is
suspect it won't catch on:-)

[edit: can't spell on iPhone plus went off on a tangent. But I would be very
interested if anyone knows of research on effect on blue collar wages of the
massive influx of illegal workers into USA. This is something the UK as an
island has little of.

------
moocow01
One thing I wonder is if the upper crust of the upper crust are actually
losing their wealth in relative terms (globally) by damaging the country. In
essence, if you extrapolate the trend big money and assets in a broken country
are not as valuable as the same in a healthy country (whatever the definition
of that is). Now I know they can move their money overseas but I would guess
that much of the US's top .1%'s money making vehicles are tied to the US in
one way or another.

~~~
michaelochurch
One thing that struck me was reading _1984_. The inner-party elite of Oceania
were barely middle-class by a material standard, and their society was falling
further apart every year, but they held a lot of power. Materially, they
weren't in an enviable position, any more than kings who died horribly of now-
curable diseases are enviable, but the perverse and horrible (like O'Brien)
could enjoy the shit out of their power and others' misery. The boot stomping
on a face for a thousand years.

Most dictators enjoy their peoples' misery, and they get more out of the power
than they would out of the 1-10x bump it would give their financial status
(they have enough money, and unlimited means to get it) to be leading a
healthy nation instead of a failing one. Kim Jong-il? While he was alive, I
bet he was one of the happiest fuckers out there. And the U.S. corporatist-
fascist oligarchy isn't morally superior in inclination; it's just that there
are social structures (like laws and elections) in place retarding their
progress.

Some people judge wealth and prosperity in absolute terms: what we can do,
experiences we can have. That's how most of us on HN feel: it's a positive-
sum, win-win mentality. But a lot of people see these things in purely
relative terms: they _like_ elitism and exclusion, and that others are
suffering from bullshit they don't have to deal with. It makes sense when one
considers that excessive financial ambitions are usually sexual in nature, and
the sexual benefits derived from obscene wealth are based solely in relative
social status (being "alpha").

The OP needs to be read by a lot of people (who probably won't read it):
people who conflate $400k/year neurosurgeons who got "rich" and startup new-
money by working their asses off (who are generally held to deserve their good
fortune, and I agree) with an entrenched, culturally underaccomplished,
fascistic, and depraved aristocracy of indolent, manipulative parasites that
society should be getting rid of+ through whatever means necessary.

(+ To make it clear, I mean we need to get rid of _the aristocracy_ as an
institution, not "get rid of" the individual people. I'd find it quite morally
acceptable to solve society's problems in a way that finds them bad, if they
weren't willing to decline peacefully and gracefully, but I also think revenge
is an utterly stupid impulse and find it most useful to not care either way
what happens to them, as long as they're removed from power.)

~~~
yangez
>entrenched, culturally underaccomplished, fascistic, and depraved aristocracy
of indolent, manipulative parasites

The article specifically mentions the "financial services or banking industry"
in this context so that's who I assume you're talking about. Now, this sounds
great when you use a vague sound bite, but are you really prepared to say that
society should strive to "get rid of" anyone who makes a lot of money in the
financial sector?

~~~
michaelochurch
No, of course not. I know some hedge fund managers who grew up middle-class
and achieved their wealth through grit and hard work. Whether we like what
they do is another story; they're not part of the parasitic upper class, and
they're generally not evil people. They have more in common with startup new-
money.

The people I'm talking about come from a closed, powerful social network.
They're not part of a social network because they're rich. They're rich
because they're part of a scumbag old-boy network. And they get their wealth
the same way corrupt government officials (notice that corrupt politicians are
always rich) do: they steal it from society.

By the way, it's not arbitrageurs (which is what many hedge fund traders are)
who are destroying society. Actually, most of them make markets more efficient
in a way that's rather harmless. It's investment banking/M&A types-- people
like Meg Whitman who make fortunes spinning IPOs (that is, robbing companies
during the IPO process). That's another rant however.

~~~
api
Evil? Maybe not. Hard working? Quite possibly. But almost definitely overpaid.

How much value does the banking industry really create? A _whole lot_ of what
this industry does could be replaced by algorithms and put on autopilot.

Maybe I'm ignorant, but it really looks to me that the smart and courageous
decisions about allocating capital are being made by entrepreneurs, angel
investors, and wealthy individuals who earned their money in value-producing
industries (Bill Gates, Jeff Bezos, and Elon Musk come to mind). The banking
industry seems to just squat over a lot of toll bridges, and doesn't seem to
even do much in the way of bridge maintenance.

~~~
leot
It's the many great leaders that end up transforming lives and countries, and
so the tragedy of overcompensation in the finance industry is how it has
attracted-away the world's smartest and most charismatic. Now these elite
college grads hang out with each other instead of mentoring, inspiring, and
setting an example for others. Instead of leading teams to accomplish great
things, they are figuring out how best to fool the next guy.

Large-scale prosperity is far more likely when more America's smartest and
most charismatic are leading instead of wheeling-and-dealing. Decline was
inevitable as soon as high-finance ceased being the province of the boring and
bookish.

------
simonh
One thing I as a Brit find strange is how the US taxes it's citizens and
companies on income from abroad. The UK certainly doesn't do this and I'm not
aware of anywhere else that does it either. It seems to me that if you are
doing business abroad, say in the UK, you are not benefiting from US physical
or legal infrastructure while doing so any more than a brit working in
britain, so why are you expected to fund it?

To put it another way I'm sure Apple's operations in the UK are self-funding
by now, so if Apple earns money in the UK and moves it to the US it is taxed
by the US, where if a UK company transfers money earned in the UK to the US it
isn't taxed. What's the justification for that? It seems nuts.

------
ebaysucks
The top 1% is only 1.2 million USD net worth, top 0.5% is 1.8 million USD.

So basically for a team of 2-3 tech founders raising a series A round is the
entry ticket to becoming part of the 1% (on paper at least).

~~~
randomdata
You don't even need a fancy startup. Interest rates are quite low right now,
which makes saving more difficult. But if we assume an average 5%, saving just
$6,000 per year once you reach normal working age doing a regular old job will
find you with well over $1.2M by the time you retire.

$6,000 is a lot of money, but it's not that much money. An iPhone, for
example, costs approximately $2000-3000 by the time it is all said and done
and I see _a lot_ of them out on the street in the hands of normal Americans.

With enough time, $1.2M can be made with a regular job. Nobody said you had to
be in the 1% of net worth holders by the time you turn 25, or it doesn't
count.

~~~
sbov
The top 1% won't be $1.2M by the time I retire. For your comparison to be
valid go ask someone who was born in the 40's how easy it would have been for
them to save $6,000/year.

~~~
randomdata
A fair point. I was really just attempting to illustrate how $1.2M is not that
difficult to acquire.

I admit, I come with a biased perspective. Everyone I know born in the 40s
were farmers. They all pretty much lived a life of poverty, putting all their
income into appreciating assets. They're now all sitting on multi-million
dollar fortunes.

Assuming you are in the mid-to-high end earning range of the 99%ers, if you
want to live a life of poverty, there's a good chance you'll make the 1% list
someday too.

That's the problem with blanket statements. I would think someone who made
their millions through questionable banking tricks is quite a bit different to
the poor dirt farmer who sold his farm at retirement, no?

------
taa
A very interesting article indeed. Not much new, though. I am curious, though
.. many co-founders with very successful exits make the top 0.05% or 0.01% in
terms of networth, but they're new money. They're not part of the 0.01% closed
circle. What happens to them, usually? Are they accepted into the 0.01% circle
once they've made enough money to afford it, or are they treated like a
wealthier bottom half of the top 1%?

And for the wealthy people who have pledged 50%+ of their wealth to charity -
where do they fall in all this classification?

~~~
moocow01
I don't have any statistics to back up my points but I would think the
following would be the case...

With the exception of really tremendous exits, let say a pretty successful
cofounder gets between .5 million and 5 million (I'm making these numbers up
but Id assume these are pretty reasonable guesses for a majority of moderately
successful exits). So if thats the case you have a nice chunk of net worth but
after an exit you may not have much cash flow to keep up with the big hitters
who have a tremendous stream of cash coming in consistently.

Im certainly not arguing that the co-founder with the successful exit is in a
bad position - just that their cash flow may be comparatively low compared to
someone else who has an ongoing "money printing machine" so to say.

------
kennethh
If anyone is interested in topics like this I would recomend:
<http://globaleconomicanalysis.blogspot.com/>

This is one of the top financial blogs currently.

Look at articles regarding fraction reserve lending like this one:
[http://globaleconomicanalysis.blogspot.com/2011/03/central-b...](http://globaleconomicanalysis.blogspot.com/2011/03/central-
bank-authorized-fraud.html)

------
SudarshanP
When Google's employees started to become rich, they were taught the best
investment was index funds; that investment firms like Goldman were just out
to grab their fees and didn't perform any better over the long run.

[http://www.tradersnarrative.com/the-best-investment-
advice-y...](http://www.tradersnarrative.com/the-best-investment-advice-youll-
never-get-1550.html)

------
nezumi
If the top 0.1% do indeed manage to destroy the US economy, and, say, China
becomes the preeminent economic superpower, does anybody happen to know if
China's financial system would be able to resist the same sort of abuse? (If,
indeed, it's not already too late.)

------
tryitnow
There's some other fascinating articles on this guys site. I especially like
his look into the local real estate industry.

I don't share all his leftist proclivities but his research has been very eye
opening and informative (and paradoxically made me a bit more libertarian).

------
marchdown
It just occurred to me that some might not see the parallel between the
"nighty-niners" and the bolsheviks. Both words mean "members of the majority".

------
ryanmarsh
I'm still not discouraged... keep trying.

