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Who Rules America: An Investment Manager's View on the Top 1%

sociology.ucsc.edu

71–80 of 207 posts

Re: Who Rules America: An Investment Manager's View on the Top 1%

#71

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.

Suppose I had invested $1 million in a private company 10 years ago. It is now worth much, much more, how much no one really knows. I go to a bank and mention I own 100,000 shares of XYZ corp. Could I have a loan please, collateralized with some of my shares? The bank says sure, how about $2 million at prime +0.3%. I say that's just fine.

Under current tax law there is no capital gain recognized, and it's hard to imagine how there could be, I don't even know how much my income is at this point, only that some bank is pretty sure it's bigger than $1 million. It's not that this was some complicated tax avoidance strategy through the Isle of Mann either, it's just a loan. Taxing non-cash income as cash income causes many difficult problems. Ask folks who exercised options on shares whose value evaporated during the lockup period how they felt about their tax bill?

This is an arms race we can't win, I'm pretty sure there's always going to be assets with values to murky to tax, but not too murky to borrow against no matter how generous we are with defining income. The top 0.1% are going to be a moving target, there's too much money at stake for them not to be.

Re: Who Rules America: An Investment Manager's View on the Top 1%

#72

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.

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 cap…

You could graduate it over many years and the departures would unlikely be noticeable. Investment capital levels cannot trump everything.

Re: Who Rules America: An Investment Manager's View on the Top 1%

#73

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.

I too did the same exact thing, and I share your opinion. People in the upper echelon, especially in the finance industry, have lost their minds. What ever happened to aphorism living below your means. I guess people that the quote references are not financially prudent, and honestly, deserve to suffer in my eyes, since they probably caused this mess to begin with.

Shit, to be honest, I'd be lucky to net 1/7th a month of that income while working this year. Hopefully, if everything goes better than plan, I'd be able to land a fulfilling job where I can net 1/6th, but I am highly skeptical though.

Re: Who Rules America: An Investment Manager's View on the Top 1%

#74

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 cre…

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.

Re: Who Rules America: An Investment Manager's View on the Top 1%

#75

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 cre…

Programmers who get acquired are being acquired (i.e. paid) mostly by people in the financial industry. IPOs are largely driven by large investment houses which are managed by people in the financial industry.

The financial industry itself is really just a word that describes people who decide where to direct vast sums of money. As soon as you are directing vast sums of money you get labeled as part of the financial industry.

Re: Who Rules America: An Investment Manager's View on the Top 1%

#76
post #65

Earlier quoted context omitted.

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.

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.

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.

Re: Who Rules America: An Investment Manager's View on the Top 1%

#77

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.

[deleted]

Re: Who Rules America: An Investment Manager's View on the Top 1%

#78

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 th…

there is a documentary called "Money Masters" available on Youtube that explains the history of this Federal Reserve monetary system,

Fed is basicly unconstitutional private institution

Re: Who Rules America: An Investment Manager's View on the Top 1%

#79
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.

Re: Who Rules America: An Investment Manager's View on the Top 1%

#80

Earlier quoted context omitted.

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 mone…

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 loa…

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...

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:...

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...

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