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

Almost.

> [programs are] designed to provide the banks with greater profit and allowing them to offload risk

Yes, the Fed is essentially paying the banks to loan money. It's not because the Fed is corrupt, though. It's because that's how bad the economy is.

Normally, banks will happily lend money. But when the risk of default is greater, as it is in a recession, banks are stingy with loans: they only loan to those with better credit-- and at a higher interest rate.

Bank liquidity is so tight right now (yes, it's their own fault) and the economic outlook so dim that if they had their druthers, banks wouldn't lend at all. If that happened, the economy would have an even worse outlook.

Luckily, the Fed can encourage banks to lend by giving them a discount on money (usually around 0.25%). Right now, however, the Fed can't give a discount because the rate is already at 0%. Thus, the present situation of the Fed basically throwing money at the banks, begging them to lend it out to the broader economy.

This is what is known as an edge case.

Don't like it? Join the club. What's happened since 2008 has sickened the remaining responsible, ethical folks managing the economy. But it's not right to impugn the Fed with the actions of a few irresponsible investment banks. If you read Sorkin's account in Too Big to Fail it's plain to see how Paulson and Geithner's actions amounted to making the best of a bad situation. In their case, it's important to distinguish between the appearance of impropriety and actual impropriety.

My point was the author's claim that the top of the top 1% is "involved in the financial services industry" is meaningless because of how he defines it. The only people who don't fit his description would be salaried employees.

To address your points - you're ignoring the difference in financial goals and economies of scale.

Joe is an employee. So his goal is to preserve the capital he earns, which is a service the retail bank offers. He earns a paltry interest on his money because 1. the bank lends his cash out very conservatively, and 2. he's not paying for the service of having it actively managed by a professional.

Rich people can not only afford professional money management, but very wealthy ones typical have access to higher quality investment vehicles than less wealthy rich. And since they have more capital (that they don't need) than Joe does, they tend to tolerate more risks. They also tend to get the rewards of that risk when its professionally managed.

At that scale of money, investment can have positive externalities. The capital invested in Facebook, Google, Apple, etc directly helped create jobs and expand the technology sector. Joe's money did comparatively little. Both are rewarded for their proportional economic impact. Capital gains is an incentive to keep rich people from parking their cash at a retail bank. Whether it works 100% effectively is definitely up for debate. But the general idea is that their cash can be deployed in a way that not only makes the rich richer, but the rest of society as well.

Correct. Only in relatively recent times has the distinction "class" become solely delineated by income or wealth.

Wealth has always been a big part of it, but throughout much of human history, wealth didn't create class; class created wealth. Your access to the monarch or ruling body granted you certain monopolistic privileges and land, from which you derived enormous wealth. But the wealth was the byproduct of, and not the generator of, class. (In fact, many extremely wealthy people, such as successful merchants and traders, were nevertheless denied elite class status because their class ranking had been fixed at birth).

This equation was turned on its head to some extent by the industrial revolution. This was the first time in history when the wealth generated by industry and trade began to dwarf the wealth generated by land ownership and agriculture on a massive and undeniable scale -- thereby wrenching power from the nobles/landowners, and placing it in the hands of newly minted industrialists. But even in the following century, it took a long while for wealth and social class to become thoroughly decoupled, and then reassembled in a different way.

What's happening now in America is that we're once again returning to a system where parentage and class beget wealth, which fixes class, which then repeats with the next generation. There are always notable exceptions to the rule, and these exceptions are held up in support of the "American Dream." But they are very clearly the exceptions. (And, in a surprising many of those rags-to-riches stories, a closer examination of the events behind the narrative often reveals that the "rags" origins were exaggerrated to varying degrees).

I don't see how it could really work otherwise. There is no such thing as a good that everyone would value equally. Intrinsic value varies depending on the needs of the traders.

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..?