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And the point of the presentation? To create wealth envy?

What is always missing from such presentations is the fact that our society, at least for now, is highly mobile. Today's poor can be tomorrow's rich and vise versa.

My family was probably low middle class. I am now a 1%er. All through hard work, sacrifice, and making good decisions most of my life. And I have friends that started off worse than me.

Meanwhile, I have a nephew that started out strong middle class but is basically dirt poor living hand to mouth because of his repeated bad decision making and laziness.

As long as society is mobile, I don't care too much who has what.

JLC
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I'm afraid if the middle class continues to struggle, due to wealth inequality, there won't be much of a society. Unfortunately many of the good middle class jobs in manufacturing have disappeared. Company profits are at an all time high, the effective corporate tax rate has dropped from 40% to 20% since 1987 while raises for middle and lower level workers have stagnated. Long-term that will not produce a strong economy or a strong country.

One can say "I got mine, to heck with everyone else" but it may just become harder for everyone as the middle class continues to deteriorate.
Businesses will have fewer customers with less money to spend.
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Zeelotes,

Well done presentation. Accurate?

There's no such thing as "how wealth is distributed in America". The idea that somehow wealth simply exists and is subsequently somehow "distributed" among the people has no basis in reality. I suppose wealth could be confiscated and then distributed, as it's supposed to be in socialism, but while that is done to some degree in America that portion of the economy certainly wasn't separated out for the graphs.

Also, the socialism graph was ridiculous. In real life, no socialist system has ever gotten anywhere near having a result of everyone having the same wealth. In all likelihood, it's simply not possible.

Try this one:
http://www.theabsurdreport.com/2011/afterburner-with-bill-wh...

Phil
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Also, the socialism graph was ridiculous. In real life, no socialist system has ever gotten anywhere near having a result of everyone having the same wealth. In all likelihood, it's simply not possible.

It is not possible if the socialism is either run by humans, or populated by humans.

Run by humans: those who decide what everyone's needs and capabilities are will tend to favor themselves and their friends and family - it's purely human nature.

Populated by humans: some will immediately consume all that is distributed to them, others will secretly accumulate a reserve against emergencies and thus have more.
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What you see here is the death knell of America.

Wealth controls the government and "distributes" the dollars. Make no mistake. Every kind of manipulation is taking place behind the scenes to build this kind skewed wealth "distribution".

JLC, you need to look farther than your personal anecdotes.
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I would like to hear from some who defend this current monetary distribution on the basis of "hard work". Just how did the wealth become skewed this way in the last 10 to 20 years. It was certainly different in the near past.

Are the 1% working so much harder lately?

fd
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Phil

I had a look at the video you referrenced. It is kind of absurd to use refridgerators or TV's as a surrogate for wealth. A firdge is a one time expense of $400-$1200. Some are even included in retal units.
If wealth were equal to appliances, it would be telling to know how many fridges someone owned or was being payed.

When rent can be a $1-2000 a month expense, your appliances don't amount a real measure of anything. I can own a fridge but still not afford to fill it with much or have place to put it.

So according to Mr Afterburner, once you have all your appliances you are set and no worries going forward.

It is an absurd analysis indeed.

fd
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Have you never studied statistics?

The word distribution doesn't necessarily mean that any person nor omniscient power has explicitly distributed anything. It's just a way of looking at who receives the income or who owns how much of the nation's assets...the Distribution.

The question being raised is, why is there such a narrow concentration of income and wealth. Asserting that it's just a matter of hard work and taking risks doesn't cut it. I know a lot of very hard working folks who have taken risks that didn't work out. That's the nature of taking a risk. If economic success was a sure thing, everyone who chose to work hard would be rich. Unfortunately, that isn't a given.

If hard work and risk taking and trying to do so in a smart way were guarantees of economic success, then most everyone following the precepts of this board would be rich.

The assumption that those at the bottom of the economic spectrum are lazy or undeserving is usually put forth by some folks at the other end who make the equally unsubstantiated assertion that if you simply work hard and smart and take risks, good things will come. I'll agree that you won't get anywhere without working at it, but a lot of other factors affect success or failure.

The real question posed by that presentation is, acknowledging the great wealth of this country exists (from natural resources, the work of of our forefathers, etc) - Is the compensation and asset ownership currently seen at the top of the economic pile commensurate with the contributions made to society and the economy by those owning or receiving that wealth.

The guy making the presentation is also asking, why (and how) has our nation's income and assets become more and more concentrated in fewer and fewer hands during the last 40 or 50 years. Do you really believe that this great nation is now composed mostly of lazy, undeserving souls?

Ultimately, and I don't think this question was asked, is this concentration of wealth a good thing for the future of the United States? If not what do we, you and I, do about it?
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Just how did the wealth become skewed this way in the last 10 to 20 years.

This segment that ran on Marketplace yesterday can help answer your question:

http://www.marketplace.org/topics/wealth-poverty/yes-rich-pa...

Hint: It has something to do with the portion of the 1% that work in Finance...
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A f[ri]dge is a one time expense of $400-$1200.

That has not been my experience. I bought my house in 1976, and it still had the original (Kelvinator?) refrigerator that came with it when it was built in 1950. I had to get a new one that lasted about 13 years. That one lasted about 10 years. I am now on my third. When I looked them up in Consumer Reports, they suggested that refrigerators now last on average 9 years, so it is hardly a one-time expense. In fact, I assume that the home appliances I buy are actually rented. The annual rent is the purchase price divided by how long they last.
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Ultimately, and I don't think this question was asked, is this concentration of wealth a good thing for the future of the United States? If not what do we, you and I, do about it?

The answer, of course, is that we can do next to nothing about it because the extremely wealthy own the government, and our oligarchic system (one dollar, one vote) means there is nothing that we can do about it.
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flightdoc101,

I had a look at the video you referrenced.

Try watching the whole thing. It's less than 10 minutes.

It is kind of absurd to use refridgerators or TV's as a surrogate for wealth.

That was one example. There were others, like square footage of living space, malnutrition, and so forth.

One of the key points was: In America, the poor have pretty much everything the rich have, it's just that they get it a few years later.

So according to Mr Afterburner, once you have all your appliances you are set and no worries going forward.
It is an absurd analysis indeed.


You really didn't watch it, did you?

There's a particularly interesting point made at 5:39, starting with "Imagine you work in a large office building...".

Phil
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ProphetWise,

The word distribution doesn't necessarily mean that any person nor omniscient power has explicitly distributed anything.

Yes, but in context it's clear he means some sort of actual distribution going on, not that "this is the statistical distribution of the wealth we find existing in America". It's not as totally clear in this particular clip as it usually is, because usually you have things like "inequitable distribution" or "unfair distribution" that make no sense if "distribution" refers to statistics rather than the actual process of distributing. However, clearly the graph of wealth distribution by socialism in this clip can only refer to an actual process of distribution, not to a statistical distribution since there is no sample to take statistics of (at least, none of socialism that have the result shown).

The question being raised is, why is there such a narrow concentration of income and wealth.

I think the question raised is "Obviously this is unfair, but how unfair is it?". There's no effort made to trace the sources of the wealth or how it came to be that way, so obviously that's not a point of interest.

Do you really believe that this great nation is now composed mostly of lazy, undeserving souls?

Do you have any source indicating what I believe the composition of this great nation to be?

Ultimately, and I don't think this question was asked, is this concentration of wealth a good thing for the future of the United States? If not what do we, you and I, do about it?

Correct. Those questions were not asked. Nor were even the foundations of such questions addressed.

Phil
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Phil,

It appears that you, JLC and others dislike anything suggesting that there may be something wrong with the concentration of wealth in the US. Similarly, the discussion of the level of compensation in some quarters of the economy touches a raw nerve.

You've taken me to task for questioning your belief about the composition of the US population, but you didn't indicate what you believe. Forgive me if my suggestion was inappropriate. I was trying to get at the core question. Why is there a growing concentration?

JLC's observations about his nephew seemed to express his view of most of the population at the bottom of the economic spectrum. His post appeared to suggest that he and his friends deserved there financial status because they had earned it and I don't doubt that they did work to earn it. I do take issue with his assertion that, somehow, those at the bottom have earned (or not earned, as the case may be) their position. I find that assertion most problematic when he implies (by extension of the description of his nephew) that their economic position is simply the result of laziness.

Following up on that thought, when the subject of an increasing concentration of wealth and growing disparity of incomes has developed in the last 10 or 20 years, one might be forced to conclude that it could be the result of a growing laziness amongst the US population. If that isn't the case, then what is causing the narrow concentration of wealth and income? That question is one which many folks don't like as it may suggest inequities within the economic system.

My views are guided by the dictum, "There, but for the grace of God, go I." Given that recognition, I cannot judge those at the bottom or top, but I do question how equitably our system works.
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ProphetWise,

It appears that you [Phil], JLC and others dislike anything suggesting that there may be something wrong with the concentration of wealth in the US.

No, not at all. There are several things that are wrong in the US that contribute to the fact that people aren't all identically wealthy... and several things that are right. What I disagree with is that any form of "distribution" is a major factor in this result, or that any form of "redistribution" to change this result is desirable.

Similarly, the discussion of the level of compensation in some quarters of the economy touches a raw nerve.

True. Personally, I'm in favor of uncoerced, freely-negotiated compensation where both the party receiving and the party paying the compensation feel the level is appropriate. Unless of course we're talking compensation of government employees, where the persons paying the compensation generally has little or no say over the matter.

You've taken me to task for questioning your belief about the composition of the US population, but you didn't indicate what you believe. Forgive me if my suggestion was inappropriate.

Correct, I didn't indicate what I believe; hence my objection to your implication of my beliefs.

I was trying to get at the core question. Why is there a growing concentration?

I don't think that is a core question of the video clip, seeing as how it never touched on "why". Perhaps it's your core question. I don't know for a fact that there is a growing concentration, although some time researching the topic would probably provide a general idea of the rate and direction of change (if any).

I do take issue with his [JLC's] assertion that, somehow, those at the bottom have earned (or not earned, as the case may be) their position.

I believe his assertion was that his nephew deserved his position at the bottom, not that "those at the bottom" can be lumped together with a single analysis.

Following up on that thought, when the subject of an increasing concentration of wealth and growing disparity of incomes has developed in the last 10 or 20 years, one might be forced to conclude that it could be the result of a growing laziness amongst the US population. If that isn't the case, then what is causing the narrow concentration of wealth and income? ... ...but I do question how equitably our system works.

First, I'm not granting there's a "growing disparity of incomes". That said, here's something for your consideration. At the invention of the plow, a person with a plow could be several times more productive than a person without a plow. But as farming goes, and most people then were farmers, that's about the range. At one end, you've got hand farming on poor land, at the other extreme you've got plow-assisted farming on top-notch soil. What was the ratio of productivity between the worst condition and the best?

Now consider today. Ignoring for the moment people who simply refuse to work, and all illegal activities, you've got the minimum wage jobs at one end. At the other end, there are several ways for someone to create something that brings in pennies (maybe even dollars) a day from millions of people, perhaps even 90% or more of the population of the US (or even a percentage, although not 90%, of the world's population) and does so for months or years on end. What is the ratio between those two points on a range?

Given that the ratio between the least productive and the most productive people has increased by an unbelievable amount in the past few centuries (and increased a lot even in the past few decades), would you expect the ratio between "the poor" and "the rich" (whoever those are) to remain the same? Would you attribute the difference in wealth, or the rate of change in the difference, primarily to the "inequities in the system"?

Phil
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I would like to hear from some who defend this current monetary distribution on the basis of "hard work". Just how did the wealth become skewed this way in the last 10 to 20 years. It was certainly different in the near past. Are the 1% working so much harder lately?

It makes perfect sense that some in our society will be able to grow their wealth faster than others due to a combination of motivation, education, hard work, inherent ability, and in some cases, luck. You ask the question of why the wealthy have been able to become wealthier faster than the rest of the population, but the answer from what I can see is simple. The wealthy became wealthy because of the reasons above, and they can grow their wealth quicker for those exact same reasons. The question should not be why have the wealthy gotten much wealthier, but why have the poor and middle class not. It's not simply because the wealthy have all of a sudden become "greedy" today and won't share their piece of the pie any longer. Wages are simply a function of supply and demand of labor, and what we're seeing is labor supply greatly expanding due to globalization while demand increases at a much slower rate. The result is stagnant wages.

Many jobs that the poor and middle class could once do can now be done equally as well by others in other countries at far lower wages. This has a depressing effect on wages in this country for those with lower labor skill sets due to the supply and demand for labor. Globalization and free trade have created untold prosperity for the world as a whole, but it's a double edged sword - it's also a great equalizer for global wages. The reason the wealthy have been much less affected by this is that they in general possess skill sets that are far more difficult to outsource or compete with by foreign labor. The wealthy have been able to continue growing their wealth as they have always done, but the poor and middle class have had to battle the effects of foreign labor on their way up the ladder.

History has shown that redistribution via socialism is not the answer, not just because it is unfair to the wealthy who as a majority have honestly earned their money, but because it drives out the businesses and investment that are currently allowing the poor and middle class to tread water by causing them to flee to countries with more favorable business environments. Anything specifically designed to hurt the wealthy will in turn hurt economic growth for all. Protectionism isn't the answer either, since the benefits of it - eliminating the threat of foreign labor - would be largely offset by the negative economic impact of reducing free trade. And that's if the rest of the world doesn't follow the same route, something which is attributed as one of the factors that caused the Great Depression.

What's the answer? Increase the economic freedom of the US and make it the number one destination as an attractive place for businesses and investment to continue the rising tide that helps lift all boats. Right now, countries like Singapore and Hong Kong hold that status. At the same time, to offset globalization's downward pressure on low-skill wages, we need to dramatically reform the education system in this country to make it more competitive and to provide Americans with skills that developing, low wage countries cannot provide. I'd like to see a nationwide voucher system that would put the power in the hands of parents to send their kids to the best schools while helping to pinpoint and weed out poorly performing schools and teachers. Competition breeds excellence in our society, and I believe we should apply this concept to education as well. Along with this, we need to start placing a stronger emphasis at home on academic excellence as other cultures do, not sports or entertainment. This, IMO, is the answer to our problems. But I know of very few politicians on either side of the aisle willing or competent enough to address these issues.
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“Why is there a growing concentration?”

==========================================

This video uses the "is it fair argument" very effectively as does most on the left of the political spectrum. It provokes a visceral response, which wins the day for many.

The answer to your question, beyond the subset of good decision vs. bad decision folks, is that over the last 40 years the government has taken over so much of our economy in such a way as to provide disincentives to take risks that enable a more equitable distribution of wealth and/or upward mobility.

The middle class is faced with so many regulations that only the least risk adverse try to break out and start a business or they have a comfortable income which is supplemented by government goodies.

I have personal experience with this but will not provide details for the sake of brevity.

The poor are offered so much free stuff that many are content to stay dependent on the government. I read somewhere that government subsidies and welfare equate to $60K for a family of 4. If true, finding a job that pays $65K or $70K with an uncertain outcome vs. a sure thing $60K equivalent is difficult for most to overcome.

Then we have the cultural changes that start early in life. Most kids are given a trophy for a sport, even if the team ends up in last place. It’s hardly good training for being competitive in the real world.

But then later on life, they wonder why all the wealth has passed them by, by those that understood or were taught by their parents the real lesson…there is no free lunch.

It's not that the 1% is taking from the middle class or the poor, or that anyone is lazy; it's that the middle class are either looking to the government to fix their problems or looking at the government as a hurtle that they don’t wish to tackle and the 1% is not.

One cannot make the argument that the 1% is using their money to put up barriers for the 99%, when the politicians that are in favor of more regulations say that they represent the middle class and the poor. But do they?

It seems that every Democratic initiative is designed to trap folks into a lower socioeconomic class, so as to maintain a voting block favorable to their party, which, they believe will perpetuate their power.

That's why the income distribution has become skewed over the last 40years, IMHO.

Remove these barriers and the distribution of wealth will even out over time.
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It appears that you, JLC and others dislike anything suggesting that there may be something wrong with the concentration of wealth in the US. Similarly, the discussion of the level of compensation in some quarters of the economy touches a raw nerve.

This is totally 100% off topic for this board, but in MY opinion there is something seriously wrong with the concentration of wealth (and income) in this country, and that problem is that it's too little the consequence of real wealth being produced but too much the consequence of government and politics. What needs to be done is (for starters) to eliminate the estate tax, eliminate progressive taxation, put securities-rating agencies back in their proper role of working for - and being paid by - bond BUYERS, let said buyers freely decide which such agencies to trust, get the government out of the businesses of lending money (or guaranteeing loans, which has turned out to be the same thing thinly disguised) and financing bail-outs and start-ups, resume adherence to bankruptcy laws...

You've taken me to task for questioning your belief about the composition of the US population, but you didn't indicate what you believe.

That's right, THEY didn't. YOU indicated what they believe. You have no authority to do so, and also lack the necessary knowledge of their views. It is an error to make a firm statement about another person's views when you don't know their views. Even if you happen to guess correctly about what those views are, you are still wrong.
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I'm afraid if the middle class continues to struggle, due to wealth inequality, there won't be much of a society. Unfortunately many of the good middle class jobs in manufacturing have disappeared. Company profits are at an all time high, the effective corporate tax rate has dropped from 40% to 20% since 1987 while raises for middle and lower level workers have stagnated. Long-term that will not produce a strong economy or a strong country.

This has become OT, but I'll weigh in with my $0.02.

There is a wealth inequity, but I certainly don't want the gov't determining how much is too much and who is making too much. Also my gut tells me that there is a difference based on how you obtained your wealth (can't unpack that here due to lack of space).
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Do you really believe that this great nation is now composed mostly of lazy, undeserving souls?


I can't resist. It appears that laziness has increased. That plus the education gap, and not necessarily measured by # of years of school, could explain at least part of the increasing wealth gap
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Do you really believe that this great nation is now composed mostly of lazy, undeserving souls?


I can't resist. It appears that laziness has increased. That plus the education gap, and not necessarily measured by # of years of school, could explain at least part of the increasing wealth gap


There's a natural limit to how poor one can be - fall below that limit and you fairly promptly die. (This is rare enough in the US that when it happens it's newsworthy.)

There's no natural limit to how rich one can be.

Therefore we WANT the distance between the poorest and the richest to increase, if it's increasing because society in general is becoming more prosperous.

However, we don't want a gap. We want a continuum.
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Now consider today. Ignoring for the moment people who simply refuse to work, and all illegal activities, you've got the minimum wage jobs at one end. At the other end, there are several ways for someone to create something that brings in pennies (maybe even dollars) a day from millions of people, perhaps even 90% or more of the population of the US (or even a percentage, although not 90%, of the world's population) and does so for months or years on end. What is the ratio between those two points on a range?

This really struck me. The use of the word "create." In today's world, how many people actually create an object, a thing, themselves? As opposed to someone working in a corporation for a salary?

And when we're discussing the idea of wealth creation, is that wealth creation from actual objects, or the creation/sale of an object, process or idea, or is it from financial manipulation of existing resources, and therefore the wealth is created not from things or ideas, but from other money?

I would venture to say that in today's world, the person who creates something and becomes wealthy from that thing is extremely rare.

However, the ones who have been able to manipulate money are in a different situation entirely.

GSF
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This thread has become kind of weird to me. People seem to be saying that the reason for the change in wealth distribution, which has mostly affected the top percentiles is because of the laziness and bad decisions of those on the lower rungs.

The comments about government involvement focus on disincentivizing those at the bottom, but no one has mentioned how much the tax code has changed in the last 50 years in favor of the wealthiest people. Someone even suggested that the distribution would be evened out if we had a LESS progressive tax system.

I understand that people believe in the free market. Less regulation. Flat taxes. Fine, if that's what you believe, but my thinking is that with a not very progressive tax code those things lead to precisely the extreme situation we have today in terms of wealth inequality.

Someone wrote how getting rid of the estate tax will decrease wealth inequality. Please explain how that works.
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http://ecolocalizer.com/2010/04/12/plutocracy-reborn-wealth-...

If people accept this chart, some will ask how the disparity shrunk and stayed low between 1929 and 1982. Of course the hegemony of American manufacturing also had a big role. I believe there were other factors: Banking regulations, Govenrment work programs from the 30s to the 60s, the GI bill, Social Security, a high percentage of the workforce unionized and a progressive tax structure. And the collective memory of many of our parents that greed and conspicuous consumption probably had something to do with the disaster that was the Great Depression.

As these things began to be dismantled in the 80s wealth inequality has skyrocketed.
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The use of the word "create." In today's world, how many people actually create an object, a thing, themselves?

You are falling for the Labor Theory of Value fallacy.

Believing this fallacy is why the USSR remained poor and hungry.
* Farmers grew crops = good. They work & create food.
* Middlemen who just transported crops from the farmer to the city = bad. They created nothing and grew no crops.
* Solution: kill the greedy bloodsucking middlemen, since they create nothing, and insisted that they get paid for it.

* Outcome: crops rotted in the fields and people starved in the cities.
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The poor are not poor because the rich are rich and the poor don't become poorer as the rich become richer. As long as individuals engage in voluntary, mutually agreeable and beneficial economic transactions without coercion or fraud, one can work hard and smart (some smarter than others) and move up the economic ladder and become wealthy. Who cares how the wealth created is distributed?

As far as wealth inequity, what difference does it make? It's not a zero-sum game such that when one person gets rich, someone else must become poor. This is the fallacy of the left based on envy and "fairness" and their solution is that everyone should have the same, or relatively the same amount of wealth. They want to force results. This is absurd. This is socialism which only serves to make everyone equally miserable. Creating or earning your wealth doesn't produce poverty.

And yes, many people make bad financial and educational decisions which contribute to their own lack of wealth and their poverty. That should not obligate by government coercion that we must pay their way. If they are capable, they should take personal responsibility and dig themselves out of the hole they made for themselves. How about night school, two jobs, whatever is necessary? But don't obligate by coercion that anyone should owe them anything so that they can increase their wealth. If individuals wish to help them get on their feet, that should be their decision whether or not to do so and the government shouldn't in the name of misplaced and phony compassion, confiscate their earnings to help someone who can and should help themselves.
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* Farmers grew crops = good. They work & create food.
* Middlemen who just transported crops from the farmer to the city = bad. They created nothing and grew no crops.
* Solution: kill the greedy bloodsucking middlemen, since they create nothing, and insisted that they get paid for it.

* Outcome: crops rotted in the fields and people starved in the cities.


I'm not taking it to that degree. I have a strong respect for logistics, processes, and services. To me, I take the Six Sigma approach to value-added (Transforms the item/service toward completion, Customer cares (willing to pay for it), Done right the first time).

So transportation of a good is still a value added activity.

Under that definition, manipulation of money is still value-added, of course, as it transforms money towards a particular goal, which is more money, and clearly people are willing to pay for that. Whether it's done right the first time, well...

But there is still a significant difference in the amount of wealth created solely through manipulation of existing wealth and wealth created through any other means.

The question is, when considering the distribution of wealth in this country, how much of the concentration of wealth exists due to the manipulation of existing wealth and the industry surrounding that specific activity, vs. any other means?

GSF
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I'm not taking it to that degree. I have a strong respect for logistics, processes, and services. To me, I take the Six Sigma approach to value-added (Transforms the item/service toward completion, Customer cares (willing to pay for it), Done right the first time).

So transportation of a good is still a value added activity.


The problem wasn't so much that they got it wrong. Errors will eventually correct, if allowed to.

The problem was that they looked at a situation, decided (albeit erroneously) that the situation wasn't right, and used force to change the situation to their own preferences.

Which is the same thing you are doing in posing the question.

Under that definition, manipulation of money is still value-added, of course, as it transforms money towards a particular goal, which is more money, and clearly people are willing to pay for that. Whether it's done right the first time, well... But there is still a significant difference in the amount of wealth created solely through manipulation of existing wealth and wealth created through any other means.

You happen to identify one particular thing as good, but then proceed to identify another particular thing as bad. And the follow-on is that you think the situation that you identify as bad should be corrected by force.

That what the UUSR (specifically Lenin & Stalin) did. They thought a thing was bad. In hindsight, we realize that they made an error. But at the time, they thought they were NOT in error.

============
And this ENTIRE thread does not belong on the MI board.
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http://www.forbes.com/sites/robertlenzner/2012/07/20/increas...

The question is not necessarily is it fair, but is it good for society?


Here's another interesting take
http://www.forbes.com/sites/timworstall/2011/12/14/six-walto...


The poor are not poor because the rich are rich and the poor don't become poorer as the rich become richer.

That's a completely erroneous thought. the distribution of wealth is dramatically impacted by tax and economic policy.
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JLC's observations...

And you missed the main point about my post. SOCIETY IS MOBILE.

The examples of my own family goes to show you that dynasties do not last. They can easily be gone in a generation or two. Some might say, look at the Kennedys. So. Two generations away from JFK they have less power/prestige. Anther generation or two more and it will be JFWho?

...one might be forced to conclude that it could be the result of a growing laziness amongst the US population...

I readily admit that my views are jaded from the population I deal with every day. Too many on entitlements having too many children that they nor our government can not afford to support, etc., etc., etc. We are reaching the tipping point the Alexis de Tocqueville warned about.

... but I do question how equitably our system works....

Out of all forms of government/economics, democracy/capitalism works the best. I've been to many other countries and have seen the results of "from each according to his ability, to each according to his need". Trust me, we do not want to go there.

JLC
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Cars last far longer than they used too. Aside from electronics, things in and around the house break sooner than they used to. The old Frigidaire, the ones with coils on the top, lasted 40 years or more, the later 1950's model almost as long. Central air conditioners , washing machines , etc are built to lower standards today. I assume that's price related. It's hard to sell a washing machine that costs a lot more than others, because consumers have no way to know whether the increased price just means more semi- useless bells and whistles , or a higher profit margin, or increases in durability with higher quality parts.
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Cars last far longer than they used too.

My parents have a '56 Chevy & '72 Beetle that would beg to differ. Then there is my '85 300ZX....

I don't know if things are built worse today than a few years ago. I think that the pace of change and the cheapness of computer processing just makes it cheaper/easier to buy new than repair.

JLC
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There's no natural limit to how rich one can be.

Actually, there is a limit. It is exceeded only once in a while, and is usually noticed by the historians.

It occurs when the poor perceive that things are so bad that they are willing to lose their lives fighting a revolution against the rich. Usually, when that is done, the rich "win" even when the revolution at first appears successful, because unless the rich are literally decapitated, their remaining assets and social networks allow them to recover much more quickly than the nominal victors.
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Rayvt,

Although I didn't pen the comments concerning creating things, I feel the need to jump in.

I agree with you that we often do require middle men and others who facilitate the ultimate useful production of goods or services. This includes everything and everyone in the complex chain required to effectively deliver the goods or services to the ultimate consumer. The question is how much value do the supporting entities add or what share of the ultimate value of the product do they deserve. It's not an easy question to answer and we can't just assume that the natural course of the economy always distributes the shares in a reasonable manner.

Wherever one entity (person, company, groups of persons or companies) gains dominance or control in one area of the system, the equation becomes distorted.

Let's suppose farmers in one area of the country are dependent on one distributor who has obtained control of the only road to the ultimate market. That distributor could extract a share of the product value which is disproportionate to the costs of distribution (including compensation for cost of capital and typical risks). The same would hold if one farmer controlled all the land suitable for growing (let's say) tomatoes. That farmer might extract more for the tomatoes we need (or desire). These dominant positions in the markets create distortions.

If our economic system allows or encourages the development of such concentrations, artificially locking out competition, we all suffer.

So, it seams, I champion true free enterprise.

I believe in competition. Real competition can fuel innovation, improve the volume and variety of goods and services and (theoretically) lead to improved quality of life for all within society. However, I also have concern when extreme concentrations of economic resources, including labor, money, raw materials and means of production and distribution limit competition. When the concentration of wealth and/or income starts to artificially limit genuine competition by cornering resources (including the creation of laws and regulations favorable to those controlling the resources) then our system is no longer equitable and the pursuit and benefits of free enterprise will not be obtained.

While we can go on with this discussion, it is far off topic and I will limit my own comments to one additional post.
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Let's suppose farmers in one area of the country are dependent on one distributor who has obtained control of the only road to the ultimate market. That distributor could extract a share of the product value which is disproportionate to the costs of distribution (including compensation for cost of capital and typical risks). The same would hold if one farmer controlled all the land suitable for growing (let's say) tomatoes. That farmer might extract more for the tomatoes we need (or desire). These dominant positions in the markets create distortions.
=========

True enough.

That's why Teddy Roosevelt (R) put through anti-trust laws.

All M & As go through a process to ensure that this won't happen.

If you know of such a case, please contact these folks ASAP:

http://www.justice.gov/atr/about/antitrust-laws.html
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ProphetWise,

Let's suppose farmers in one area of the country are dependent on one distributor who has obtained control of the only road to the ultimate market. That distributor could extract a share of the product value which is disproportionate to the costs of distribution (including compensation for cost of capital and typical risks).

In theory, perhaps. In real life there's a limit to the possible "disproportionate"-ness, unless a government grants a monopoly in some form. In your example, most likely someone seeing how much profit the distributor is making would build a new road, or a canal, or a rail line. Or perhaps the farmers would move, or switch to a crop that distributor doesn't handle well.

If our economic system allows or encourages the development of such concentrations, artificially locking out competition, we all suffer.

Concentrations in free-enterprise systems may limit competition to a degree, but I doubt they will ever lock it out. And we suffer far worse under the laws and regulations intended to "solve" this problem than from the problem, to the limited extent it can actually occur in real life, itself.

When the concentration of wealth and/or income starts to artificially limit genuine competition by cornering resources (including the creation of laws and regulations favorable to those controlling the resources) then our system is no longer equitable and the pursuit and benefits of free enterprise will not be obtained.

The "creation of laws and regulations favorable" is the key point there. As far as I can tell, studying the history of so-called monopolies, if someone starts cornering resources to boost profits, someone else sees that boost and finds an angle to get in on it. Unless the government does something to block free enterprise. In other words, it's not the cornering of resources that cause the "benefits of free enterprise [to] not be obtained", it's the application of government interference.

Phil
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And you missed the main point about my post. SOCIETY IS MOBILE.

The examples of my own family goes to show you that dynasties do not last. They can easily be gone in a generation or two.


People can change classes, no-one disputes that, but do they? The stats suggest social mobility in the USA is declining.

SA
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What is missing from this entire conversation and what I think is the biggest contributer to peoples lot in life is the consequence of their decisions. Yes luck plays a small part. Hard work and Risk taking seem to be the prevalent opinions.

Additionally, decisions seems to take on the properties of good and bad without even touching on the preponderance of the cases, those being the bulk of people have DECIDED that they are perfectly happy with their income and level of wealth for many reasons (security, wanting to work only 40 hrs/wk etc). For example (I know examples get ridiculed here) Sure, UAW workers bitch about the CEO's salary at the same time they glorify the wage their union bargained for them. They choose to remain autoworkers. They COULD choose to do something else but remain in their comfort zone. That is neither good nor bad. It's a decision they made.

People make other decisions affecting one's lot in life wrt wealth accumulation such dropping out of school at an early age, doing drugs or just living to surf all the time.

So just looking at the "distribution of wealth" alone has no importance to me when the probability exists that it is perfectly normal based on what individuals decide for themselves.

If you want more wealth, do what those who have it have done but remember those in the top bottom and middle aren't the same people from year to year so be prepared.

The government has no role in this other than to assure other people arent't stealing from you. They have no business taking their stuff and giving it to others. If that were the case, we could just eliminate the government middleman and make it legal to steal other people's stuff if they have more than you.
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No. of Recommendations: 79
JLC,

I am all for a mobile society but the problem is that our society is becoming less mobile and more of a pure "class" society.

I like you was able through my life time to see the transformation from my grandparents who started dirt poor, to my parent who were lower middle class to myself who isn't in the top 1% but is in the top 3 or 4%.

However, I am deeply concerned about how much harder it would have been to repeat it today.

For example, I went to school at UCLA. Cost per year when I went there $694 a year. Cost today for in state (w/o room and board) $17,000.

When I started my current job, I had full health coverage and a pension plan. The joke was at my company you might not be able to get rich working there but you can sure retire nice. Today you pay 25% of your health care cost (because it is a good generous company relative to many) but no pension plan at all.

When I started working in my field the Computer and Engineering field was expanding: average raise per employee over that 5 year period about 7%: average raise per executive: 7%. Today average employee: 2% CEO and top executives: 23%. Executive compensation 1982: $1 Million Executive compensation today: $27 million plus unvested stock options.

So I personally am not for anything close to socialism. When my father died, I was able to say at his eulogy that he was able to leave the "American Dream" and he did. I am able to live the "American Dream" and because of all our hard work my children are living the "American Dream". However I really doubt that as many poor immigrants are making it to the top and able to live the American Dream as were when my grandparents started. To me it is important that America continue to be the "land of opportunity" and stop its trend toward being a "class" society.

Moe
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JLC says, "Out of all forms of government/economics, democracy/capitalism works the best. I've been to many other countries and have seen the results of "from each according to his ability, to each according to his need". Trust me, we do not want to go there."

This is true, but something worked best before democracy/capitalism and, most likely, something will work better after it. Surely, this can't be the end of the road.
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Moe,

Having recently returned to the MI board, it's good to see you're still hanging out here and posting.

As you can see, this very Off TOPIC subject has garnered considerable comment and opinion. It's good to know that I'm not alone in my concerns.

Nate
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If you want more wealth, do what those who have it have done but remember those in the top bottom and middle aren't the same people from year to year so be prepared.

The most common (but not the only) path to wealth is to inherit it.

But as Balzac has said, "Le secret des grandes fortunes sans cause apparente est un crime oublié, parce qu'il a été proprement fait." (The secret to great fortunes without apparent cause is a forgotten crime, [forgotten] because it was successfully committed.)

If you do not accept Balzac's view, consider that another indicator is the amount of education (not necessarily, but usually, formal academic education) the person has. And it is the wealthy who have the best opportunities to get a good education, starting from infancy. They live in wealthier countries, wealthier neighborhoods, they have a family tradition of education, etc. The poor live where schools are much worse, no pre-school available, and must leave school long before the wealthy are required to.
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The government has no role in this other than to assure other people aren't stealing from you.

Right. And there are countless ways to steal.

I admire people like Bill Gates, Steve Jobs, Michael Dell, and many others who built businesses from scratch and made huge fortunes. They deserve every dollar they made. But don't kid yourself that you or anyone you know can do the same through hard honest work. You have as much chance of doing that as being a superbowl quarterback.

The problem is that the ranks of the super-rich are getting filled with people who steal their way to riches. Bank chief executives, who nearly destroyed this country's economy and should have gone to jail, are instead collecting $50 million incomes. They stack their boards of directors with similar executives who are part of a "scratch my back, I'll scratch yours" club, and hire compensation consultants to justify their "above average" incomes. Yes, they are all above average.

Thirty years ago an executive at the same size bank, with the same profit margins, would have made $5 million. Today they make ten times more in real dollars, while most hard working Americans aren't making a dime more for the same job than they did thirty years ago (inflation adjusted).

These executives are stealing their riches from their stockholders and their employees, and the political system has been stacked to protect their stealing. In addition they pay far less in taxes than they did thirty years ago, and the economy has not benefited one iota from the change.

The debate about wealth is miscast as a black or white choice between unfettered capitalism and pure socialism (what used to be called communism). The truth is we're all socialists. Most of us support social security, medicare, free public education, unemployment insurance, progressive income tax rates, etc, etc. It's just a matter of degree. Some countries have more aggressive social policies than others. A country that chooses unrestricted unregulated free markets is as doomed as one that chooses pure communism. Among the shades of gray of socialism, I think the Swedes have a better answer than we do. And before ignorantly jumping all over that statement, I suggest reading about what they're really doing -
http://www.economist.com/news/special-report/21570840-nordic...

Elan
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elann,

Thank you for your eloquent post.


You have clearly expressed many of my own thoughts.

Nate
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I am all for a mobile society but the problem is that our society is becoming less mobile and more of a pure "class" society.

Ok, I was not going add to this thread anymore (it belongs on another board), but since this is the second similar comment directed at me (both civil), I'll respond here then drop out the thread.

While I haven't looked/researched, might I suggest a chart/table comparing the decline in society mobility with the beginning/increasing of government "entitlements"? The bottom stay where they are because it is not worth the effort to work. Welfare is a good enough lifestyle and they have all day to do it where work takes time away from sleeping on the couch. Meanwhile, the upper part are working and making/accumulating more because it is profitable.

We are still highly mobile. Someone like Mark Zuckerberg or Steve Jobs went from upper/middle class to uber wealthy. There are plenty of stories of athletes growing up on some share cropper farm and now making $20 million a year. Some staying there and some losing it all. Janitors leaving millions in wills to schools.

Are we a class society, no. Are we headed there, maybe. IMHO, the more government gets involved the more likely it is to get screwed up.

JLC
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The most common (but not the only) path to wealth is to inherit it.

Unless things have drastically changed since the publication of "The Millionaire Next Door", I understood the most common path to wealth was to work for yourself.

JLC
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I suspect outsized wealth generally correlates with skill in exploiting the compounding effect. People on this board have generally grasped this concept. Those living hand to mouth have a very hard time setting anything aside, much less investing it effectively. Hence the forced savings represented in home ownership too often comprises the entire nest egg, assuming one is fortunate enough to own a home and hasn't drawn down the equity.

Even setting aside a very small fraction of earnings can mount up impressively over a lifetime through the 'magic' of compounding. The problem is that many, perhaps most, humans have a very hard time acquiring the gut-level feel needed to take advantage of this.

Tom
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The best way to control excessive executive compensation would be to let stockholders vote on it directly

The company would have to send out a separate form (no electronic media) stating something like




"Mr.Smith, our CEO ,wants a salary of $10 million next year. This is an increase of___% over last year. It exceeds our stock price increase (decrease) of ___ % by____ %. The average CEO of a company the same size is paid $_____ per year. The average executive of peer companies is paid $_____. Mr Smith also gets $____ in benefits and perks. Mr Smith is paid ______ times as much as the average employee.

Do you think Mr Smith deserves the $_____ salary he is requesting? Vote YES or NO.

If the company doesn't get a yes vote of over 50% of the shareholders (not just the shareholders responding) Mr Smith is limited to the average CEO pay or a specified multiple of other company
employee salary. Only shareholders who have held the stock over a year can vote on this.




This notification would have to be in simple language (there are ways of scoring this) not hidden in long boilerplate documents, a separate mailing from the normal stockholder meeting.

Outlaw options, force top executives in public companies to buy stock so they have downside risk as well as upside risk.

Reform the way BOD are nominated and elected.
If executives don't like these restraints, they can always take the company private.

Of course it will never happen. Big money owns both political parties.


Then there is the Swiss alternative
http://www.economist.com/news/business/21573169-switzerland-...
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For example, I went to school at UCLA. Cost per year when I went there $694 a year. Cost today for in state (w/o room and board) $17,000.

Although that may be the sticker price, one shouldn't forget all of the benefits our society provides for those less well off. For example, my alma mater provides free tuition for families making under 100K, progressing to free tuition, room & board for those making less than 60K.

If mobility is indeed decreased today, my guess would be that the root causes are earlier in life (in conjunction with other changes such as a shift in what jobs pay well spurred by increased globalization and a shift toward knowledge workers).

As an aside, I wonder how many people in the top 20% consider themselves "middle class"? It appears that the upper quintile starts at a household income of 88K.

-Yonik
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They stack their boards of directors with similar executives who are part of a "scratch my back, I'll scratch yours" club

When debating Elan's point, a lot of people say well thats the repsonsibility of the owners. However the problem today is most companies don't have any real owners yet we have not adjusted to a system to deal with that.

What do I mean, well for for a random example here is CIT top 10 owners

Fund % of Company they own
Oppenheimer Funds, Inc. 5.73
AllianceBernstein, L.P. 5.02
Vanguard Group, Inc. (The) 4.46
Centerbridge Partners, L.P. 4.40
Franklin Resources, Inc 4.39
FMR LLC 3.74
Price (T.Rowe) Associates Inc 3.47
Epoch Investment Partners, Inc. 3.18
Capital Research Global Investors 2.72
State Street Corporation 2.69


Nobody on this list cares about anything but is CitiCorp the best investment for their clients at this particular moment. If CitiCorp starts messing up is any one of the going to call for changes in how the company is being run??? No!!!!! They will sell there shares and move onto a company that is a more worthy investment.

So with no owners, no regulations and nobody looking out for all the people that invest their retirement money and other savings in these companies they are able to run amuck and that is what they do. What would you do if you ran a big company? You'd try to make as much as you can while giving your employees and stock holders as little as you can. More they get the less you get. Totally CAPATALISTIC concept and thus that is why that is what is happening today.

Moe
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Are we a class society, no. Are we headed there, maybe. IMHO, the more government gets involved the more likely it is to get screwed up.

We half agree on this point btw.

The government has three choices: 1) to regulate and set rules to make sure there is fair competition, 2) get stuck with the bill for not regulating or 3) let the economy be destroyed by greed.

Right now almost everyone is upset because our government is following the second of these 3 courses.

We let bankers greed destroy our whole financial system so we give billions to those companies so we don't get destroyed. We let factory jobs leave the country and them get replaced with jobs where workers have very little rights. So blue class jobs have gone from middle class pay to lower class pay with no health care, or affordable wages. So the government pays for their health care (at least when they step into an emergency room) and gives workers food stamps. So yes we get low prices for Walmart but only because we subsidize their workers. Same for your $5 Subway sandwiches.

I prefer the first option: make sure workers have rights to organize and get their fair share from their bosses. Make sure the big corporations and the big franchises have employees that get benefits so we don't have to subsidize them later.

Pensions have become a thing of the past again. That means for those not old enough to remember when you get old you will find the seniors eating dog food and there will be another group of people for the government to bail out.

Best to make sure businesses do the right thing upfront even if the cost of their goods goes up 10%.

I should also add the max tax rate was once 70%, I use to never understand why I rate that high was needed now I do.

Moe
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As an aside, I wonder how many people in the top 20% consider themselves "middle class"? It appears that the upper quintile starts at a household income of 88K.

I used to have a co-worker that grew up as "poor". He used to claim all he really wanted was to be upper middle-class. Once, having recently seen a tax table demographic on Minnesota resident revenues, I told him he was above the 95% income level of all Minnesotans. He wasn't happy to hear that.

For him, joining the army was the mode of his mobility. But he was also an intelligent, disciplined, and hard-working guy.
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Elan expressed my own views quite nicely.

"These executives are stealing their riches from their stockholders and their employees, and the political system has been stacked to protect their stealing. In addition they pay far less in taxes than they did thirty years ago, and the economy has not benefited one iota from the change."

BINGO.
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The truth is we're all socialists.

Wrong with a capital W.

Neil
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Unless things have drastically changed since the publication of "The Millionaire Next Door", I understood the most common path to wealth was to work for yourself.

First of all, a millionaire is not such a wealthy person these days. There seem to be 1342 billionaires in Forbes list, and the Rothchild family is not even on the list.

At the other extreme, many people want to work who cannot get jobs, and even the jobs some can get pay minimum wage or less and are only part-time so the employers do not have to provide medical benefits, workman's compensation insurance, etc. Minimum wage is not enough to live on. Where I live, the minimum wage is $7.25 an hour. 40 hours per week x 50 weeks per year = 2000 x 7.25 = $14,500 a year. Now rents for uninsulated electrically heated one-bedroom apartments around here are over $800/month or $9600 a year, leaving $4900 a year for food, clothing, transportation expenses, medical expenses, ... . $408.33 a month. Think about that, and think about those whose jobs only 1250 hours a year. And even they are the lucky ones that have a job at all.
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More on the Swiss Plan to empower shareholders

http://www.businessweek.com/articles/2013-03-04/swiss-limits...
http://www.guardian.co.uk/commentisfree/2013/mar/05/switzerl...
Shareholders own the company , it's a shame that we need new laws to give them control over compensation of the top executives ,who are after all their hirelings?

It's notable that 68% of the Swiss electorate approved the plan. Fortunately for Swiss shareholders you can have plebiscites, direct vote of the populace. No necessity to go through elected officials, many of whom were long ago bought by the big money guys. In the US we have to go through the Senate and House and President, all of whom are deeply influenced by the substantial support that they have received from the very people that would be effected by these laws.


I'm not against big money pay for big performance. I'm definitely not in favor of the government directly setting executive compensation. Many in government would prefer for the power to be with them, so they will have yet another way to shake down executives. I'm just in favor of stopping abuse, making BOD pay for neglect of duty (not just with money that they can insure against, but with jail time) and giving power back to shareholders.

But I think shareholder approval will only work if it's voted on only by long term shareholders. And maybe institutional votes will have to be limited, they are only too willing to swap an executive friendly vote for access to management, those little hints about how the company is doing. All votes of more than a few hundred shares should be public information. If Vanguard or somebody is voting for excessive pay, you will know who to blame.
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JeanDavis:"The most common (but not the only) path to wealth is to inherit it."

Actually, only a small percentage (under 25%) of millionaires 'inherit' their wealth.

That's a 'wealth envy' myth.

Not only that, but 15% of those fall out of the millionaire category each year and others enter.....

(ie, folks die, donate to charity, take massive business losses, lose big int he stock market, etc)


t.
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Aphastot:"I'm afraid if the middle class continues to struggle, due to wealth inequality, there won't be much of a society. Unfortunately many of the good middle class jobs in manufacturing have disappeared. Company profits are at an all time high, the effective corporate tax rate has dropped from 40% to 20% since 1987 while raises for middle and lower level workers have stagnated. Long-term that will not produce a strong economy or a strong country."


The middle class has always struggled. Heck, after WW2, the goal was to own a 1200 sq foot house and one car......and that was the ideal family......with 2 kids.....no cable TV..no internet fee..no cellphone bill.....the only bill other than water, elec and gas was for the telephone. Period. Heck, most homes didn't have a dishwasher, dryer, freezer....and TV was 'new'......but free over the air.

Now? Gimme a break....

---

Yeah, you aren't going to be middle middle class in 'manufacturing' doing a repetitive job......the world has passed that by. But if you study and get an education...there are still plumbers and electricians and machinery operators (tractors, graders, bulldozers, etc) that make excellent money. You just aren't going to get many factory jobs assembling widgets.

---

effective corporate tax? You pay that!......every bit of tax is simply added on to the cost of goods and services you buy!.... that was a joke, of course, right?


If Taco Bell pays more in taxes to the feds, you pay more for your food at Taco Bell. Duh!.....

yes, wages have stagnated. So have job skills. so have math skills for kids graduating high school.


t.
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"This really struck me. The use of the word "create." In today's world, how many people actually create an object, a thing, themselves? As opposed to someone working in a corporation for a salary?

And when we're discussing the idea of wealth creation, is that wealth creation from actual objects, or the creation/sale of an object, process or idea, or is it from financial manipulation of existing resources, and therefore the wealth is created not from things or ideas, but from other money?

I would venture to say that in today's world, the person who creates something and becomes wealthy from that thing is extremely rare."


Bill GAtes.....

Facebook Founders....

Many sports stars

Many rock stars.....

at least 50 internet company founders with their own ideas

But...you're fixated on 'quick wealth'.


Many others start a business and grow it ...and grow it...and grow it over time.....sell it then retire. By the tens of thousands or hundreds of thousands.


t.
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Minimum wage is not enough to live on.

Depends on the lifestyle. Minimum wage shouldn't support more than a minimum lifestyle.

When I was in college, 15 hours per week paid for my room and board.

Where I live, the minimum wage is $7.25 an hour. 40 hours per week x 50 weeks per year = 2000 x 7.25 = $14,500 a year. Now rents for uninsulated electrically heated one-bedroom apartments around here are over $800/month or $9600 a year

The 1-bedroom condo I lived in for decades was more space than what four of us shared when I was in a dorm.

I could easily have converted the living room into a second bedroom, and both bedrooms would have been at least double the size of the dorm room I shared with a roommate. That alone would cut your shelter cost in half. And only two people to share the bathroom, plus a full kitchen (instead of a mini-fridge and toaster oven). Less than $800 per month paid for mortgage, taxes, and association dues, which included central heating and air conditioning, basic cable, water, free laundry rooms, outdoor pool, hot tub, sauna, and exercise equipment. Even a "party room" available. Only electric and phone for utilities. My 26-year-old nephew lives there now.

And, the 40-hour work week is a relatively new concept.

If I took 18 credits in college (which should use 36-54 hours per week), and add my 15 hours per week for room and board, my "work week" while in college should have been 51-69 hours per week.

When I was working after college, a number of co-workers got their MBAs while working. So they needed to spend a lot of time outside of the normal work week for classes and studying. Same with the actuaries I knew. They spent a lot of time preparing for their exams, outside of a normal work week. And, during quarterly closings of the books, all of us were also on 24-hour call.
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However I really doubt that as many poor immigrants are making it to the top

When you get free stuff that immigrants didn't previously get, why work to get to the top? Why work at all? We ain't what we used to be. Thanks to liberalism/socialism - the current trend in our country.
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So with no owners, no regulations and nobody looking out for all the people that invest their retirement money and other savings in these companies they are able to run amuck and that is what they do. What would you do if you ran a big company? You'd try to make as much as you can while giving your employees and stock holders as little as you can. More they get the less you get. Totally CAPATALISTIC concept and thus that is why that is what is happening today.
==================================================
Moe,

So how was this any different in 1980, when there were even less regulations?

I’m not getting the connection between this rationale and why the income distribution has been skewed since then.

You are complaining about lack of regulations and Elann is stating that regulations are stacked towards the rich. So which is it?

The genesis of the banking crisis has been well documented. Fannie Mae and Freddy used a carrot on a stick to encourage the types of loans that were made, and never should have been made.

And it was all sanctioned by a Congress that wanted to raise the poor up by giving them a "fair" shot at the ultimate American dream, which is to own their own home.

Sure bankers and Wall Street made millions off this social experiment, but the enabler was the government, building on laws that went all the way back to Carter.

So yet again, the government interference in our somewhat free economy caused unintentional and very adverse consequences, and those that believe that the government can solve all our problems want to demagogue the issue, which only ensures that folks have a hard time understanding what really happened.

I too believe that the income distribution is out of whack, but instead of passing yet more laws, ala the Swiss, why not try and understand what factors have caused this and try and fix the problem:

1) Growing government intrusion into our economy, which has both created hurtles for some risk adverse folks and dependency that encourages complacency as well as other unintended economic consequences as discussed above.

2)The growth in the global economy, which has destroyed traditional jobs due to the cheap labor overseas.

3)Our non-competitive educational system in K-12 that does not prepare our youth for the high tech jobs that are going begging as we speak. Hell, in some school systems, 40% of the "graduates" cannot read at the 4th grade level. This despite the massive amount of monies that are spent in this area.

4)The cultural changes that I have mentioned in an earlier post that encourages an entitlement society, rather than competition. Somewhere in my attic, I have a HS letter from playing Basketball and a thropy or two, but you better believe that I had to earn them by bearing out the competition.

5)A constituency that is almost totally ignorant of the history of our country; our political system and its founding values, and is left with no choice but to vote totally from their visceral reaction to an issue that has been distorted by the press and the spin doctors.

If we can fix these issues, I believe that the income distribution disparity will fix itself over time.

But this is not the biggest threat to our country as some here have stated.

The biggest threat is contained in the data found here:

http://www.usdebtclock.org/

If you scroll down to the bottom, you will see that our total national assets are about $94T, but the total of unfunded liabilities plus our outstanding debt is $137T, which means that if we could somehow confiscate all private assets and then somehow find someone to sell all our national assets too, we still would be short about $43T!

Please let these simple facts sink in.

So folks, I respectfully submit that if we could fix the income distribution curve tomorrow by some sort of magic, we still would be in dire straits, and sadly, it is no different in the rest of the world, although by varying degrees.

So for those that are drawn to the “it’s not fair” argument, how fair will it be to ANY of us, if this issue is not given the priority it deserves, and we all end up in political and economic anarchy?
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So how was this any different in 1980, when there were even less regulations?


Sir, have you ever heard of, let's say, off the top of my head, the Glass-Steagall Act?


And also, once again, the wealth inequality has ZERO to do with the poor.

It is not what the poor have lost to anybody else though disincentives.

It is about how the rich have won with lower taxes and less regulation,

and how the HARD WORKING middle class has lost.
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It is about how the rich have won with lower taxes and less regulation,

and how the HARD WORKING middle class has lost.


And how the rich have gotten there via out-and-out fraud.

I would have said the overpaid working class has lost, because their jobs could easily be automated or outsourced at a lower cost. They couldn't work hard enough to be competitive without allowing total compensation to be lowered.
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MoeBruin,

The government has three choices: 1) to regulate and set rules to make sure there is fair competition, 2) get stuck with the bill for not regulating or 3) let the economy be destroyed by greed.

Right now almost everyone is upset because our government is following the second of these 3 courses.


No. People are upset now because politicians are bought by special interests, and the government passes laws that favor the people who paid. It's not a level playing field, because the government is corrupt (those who buy the politicians are corrupt too, but that wouldn't matter if they couldn't be bought). If the government can be forced into doing as little as possible to "set rules to make sure there is fair competition", then there would be less motive to buy government favoritism. The more the government regulates, the more motivation there is to skew those regulations to your favor.

We let bankers greed destroy our whole financial system so we give billions to those companies so we don't get destroyed.

Only in that the bankers get favorable legislation. If the government stuck to a simple set of laws and regulations, the bankers' greed could only be beneficial.

We let factory jobs leave the country and them get replaced with jobs where workers have very little rights.

Or in other words, jobs where the workers are paid less. Meaning we get the products for cheaper. That is to say, financially this is actually to the advantage of the average consumer in America. Perhaps not to the advantage of those workers in other countries, but you know what? America isn't their mommie. Their government needs to protect them.

So blue class jobs have gone from middle class pay to lower class pay with no health care, or affordable wages.

I doubt you mean what you say. Affordable wages? You mean affordable for the greedy bankers you just spoke of to pay?

So the government pays for their health care (at least when they step into an emergency room) and gives workers food stamps.

Actually a variety of people pay for their health care, taxpayers being one portion, but not the government.

So yes we get low prices for Walmart but only because we subsidize their workers.

Unless of course Walmart uses the workers you just spoke of in other countries. In that case, it's the other countries (and/or their workers) subsidizing the low prices we get.

I prefer the first option: make sure workers have rights to organize and get their fair share from their bosses.

The first option is at odds with the rest of what you say. "Fair competition" would mean allowing the free market to operate with a minimum of government interference (say, just enforcing contract and rudimentary criminal law). The "fair share" a non-stockholder worker has of the company (or "their boss") is zero. The company doesn't owe employees who haven't capitalized the company any share of anything. Of course the company owes the employees whatever compensation has been freely negotiated between the company and the employee, as the employee similarly owes the company the negotiated labor.

If the employee is somehow entitled, as a "fair share" more than the freely-negotiated compensation of the employment contract, then who is to say what they are entitled to? Clearly not contract law, which says they get what was originally negotiated. Can we appoint MoeBruin to decide what share is fair for each employee?

Make sure the big corporations and the big franchises have employees that get benefits so we don't have to subsidize them later.

Just the big ones? The employees of medium and small companies won't have The MoeBruin Committee making sure they get benefits? Why not just let the employees (of all companies, regardless of size) negotiate a wage that lets them afford food, shelter, health care, entertainment, etc.? If one company won't pay, then let them try negotiating with another. If no one will pay them what they think they are worth, perhaps they should rethink how much their labor is actually worth. Surely you wouldn't advocate having companies pay employees more than their labor is even worth?

Phil
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And also, once again, the wealth inequality has ZERO to do with the poor.

It is not what the poor have lost to anybody else though disincentives.

It is about how the rich have won with lower taxes and less regulation,

and how the HARD WORKING middle class has lost.

================
It was regulations that coerced Fannie Mae into forcing banks to make bad loans, and that was driven by social justice concerns. It was a disaster.

But it really doesn't matter.

If you would bother to read the rest of my post, you would see that we can take everyone's assets and liquidate the governments assets, and we would still be totally broke.

Raising taxes on the wealthy or even confiscating all their wealth would not solve our problem.

Only a dramatic restructuring of our entitlement programs will balance the books.

Please look at the numbers. Again, our liabilities exceed our assets by $37T.

It's a good thing we are not required to use "mark-to-market" rules for determining if we are a credit risk.

Of course, I suppose we can keep printing money until inflation makes $37T a weeks paycheck.

Who among us wants to go there?
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make sure workers have rights to organize and get their fair share from their bosses.

As long as supply and demand set the price of wages low, that *is* a workers' fair share. Neither the company nor the employees should be involved in manipulation of the supply and demand curve.

The employees should be free to strike and demand higher wages. But they shouldn't be free to prevent others from taking the jobs left behind, if those people choose to work for the lower wages.

I got a kick out of the cartoon in this item:

http://www.theblaze.com/stories/2012/02/03/is-this-iowa-high...

Funny how the communist model never explains who built the factory. In the capitalist model, if the workers built the factory, they would also be the owners, and would share the profits just as shown in the communist model. But they would also share any losses...
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"It was regulations that coerced Fannie Mae into forcing banks to make bad loans, and that was driven by social justice concerns. It was a disaster"

The housing/banking crisis was not caused by the CRA. It was caused by very low interest rates, appreciating housing and the greed of the bankers to maximize their profits and bonuses, combined with the securitizing of loans that allowed the bankers to make loans, sell the loans, pocket the up-front fees and loan that money again rather than carrying a lot of the loans on the books. The repeal of Glass-Steagel also allowed the banks to leverage up their balance sheets to maiximize profits. The big banks perpetuate that myth to mitigate the blame.

Barry Ritholz has posted about the CRA numerous times, here are just a few-
http://www.ritholtz.com/blog/2008/12/more-cra-idiocy/
http://www.ritholtz.com/blog/2012/12/what-does-the-new-commu...
http://www.ritholtz.com/blog/2009/06/cra-thought-experiment/...
http://bigpicture.typepad.com/comments/2008/10/misunderstand...
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Funny how the communist model never explains who built the factory

I guess you haven't read much Lenin. He proposed an early phase (50-100 years) of intense capitalism after which the withering away would occur. Quite a dreamer he was. Thinks about it though, if he had lived and the Russian people avoided the scourge, we might just now be seeing the transition of the Soviet System to the workers paradise.

Nothing like theoretical economics: Communism. Voodoo. Trickle Down. All pipe dreams.
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I admire people like Bill Gates, Steve Jobs, Michael Dell, and many others who built businesses from scratch and made huge fortunes. They deserve every dollar they made. [...] Thirty years ago an executive at the same size bank, with the same profit margins, would have made $5 million. Today they make ten times more in real dollars, while most hard working Americans aren't making a dime more for the same job than they did thirty years ago (inflation adjusted).

You can't decide if you admire them or hate them. That's the problem with wealth envy.
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After reading:

I admire people like Bill Gates, Steve Jobs, Michael Dell, and many others who built businesses from scratch and made huge fortunes. They deserve every dollar they made

You write

You can't decide if you admire them or hate them. That's the problem with wealth envy.

That's the problem with combining bias and poor reading comprehension.
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You are complaining about lack of regulations and Elann is stating that regulations are stacked towards the rich. So which is it?

I said the political system is stacked toward the wealthy, not that new regulations have been created to favor them. The wealthy have lobbied successfully to dismantle effective regulation.
Two shining examples -
The dismantling of Glass-Steagall which was a root cause of the banking crisis of 2008.
The supreme court decision re: Citizens United which has determined that corporations are people and bribes are protected free speech, and has allowed deep pockets to own every politician in the country.

Elan
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It's laughable running on about the greed of bankers without talking about the greed of prospective home buyers. Many were committing fraud too, lying about their assets and salary. It's true that the lying greedy bankers stayed out of jail but so did the lying greedy home buyers.
It was all a giant con game, and as in all good con games it only works when the recipient of the con wants quick money and doesn't care much about whether it's honest money.
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"Thirty years ago an executive at the same size bank, with the same profit margins, would have made $5 million. Today they make ten times more in real dollars, while most hard working Americans aren't making a dime more for the same job than they did thirty years ago (inflation adjusted). "

Pro athletes are clearly stealing money as well by this logic, making more in real $$ than a player for the same team with the same stats would have 30 years ago. It's theft!
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JLC says, "Out of all forms of government/economics, democracy/capitalism works the best. I've been to many other countries and have seen the results of "from each according to his ability, to each according to his need". Trust me, we do not want to go there."

This is true, but something worked best before democracy/capitalism and, most likely, something will work better after it.


Actually, JLC misstated. Democracy is not strictly necessary, or actually even desirable.

What is necessary, instead, is respect for individual rights. A democratic republic (not a democracy) is the form of government that, so far, has been least destructive to that respect, but it is still destructive.

Unfortunately, perfect anarchy is extremely unstable (because humans are not perfect) and usually collapses into something *far* worse than a typical democratic republic.

As for what comes after capitalism, nothing. Also nothing comes before capitalism. Capitalism isn't perfect either, but not only have we not found a better alternative for humans, we haven't found any alternative at all for any species. (We have found ways of seriously distorting the incentives that capitalists, of whatever species, must respond to.)
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If you want more wealth, do what those who have it have done but remember those in the top bottom and middle aren't the same people from year to year so be prepared.

The most common (but not the only) path to wealth is to inherit it.


That may be the most common single path if you divide the other alternatives sufficiently finely (e.g. "establish a successful plumbing business" and "establish a successful auto mechanic shop" are two separate paths)... but it only accounts for about one out of eight of this country's millionaires. http://news.discovery.com/human/life/millionaires-120722.htm...
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Are we a class society, no. Are we headed there, maybe. IMHO, the more government gets involved the more likely it is to get screwed up.

Distinct social classes have never been stable without laws enforcing them, rewarding people for staying in the class they were born in and punishing them for trying to get out other than through government-approved and highly restrictive channels.

The myth that unrestricted untaxed inheritance leads to the means of production becoming more and more concentrated began because it was once true - and it was true because of laws dictating that the means of production could not be divided among multiple heirs, or even sold! As soon as the means of production not subject to such restrictions exceeded in importance the means of production subject to them, the trend reversed.
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I said the political system is stacked toward the wealthy, not that new regulations have been created to favor them. The wealthy have lobbied successfully to dismantle effective regulation.
Two shining examples -
The dismantling of Glass-Steagall which was a root cause of the banking crisis of 2008.
The supreme court decision re: Citizens United which has determined that corporations are people and bribes are protected free speech, and has allowed deep pockets to own every politician in the country.


The rich have always had outsized influence on the goverment throughout history -- long before even the USA came into being. This is a fact of human nature and will always be the case. You might as well rail against the unfairness of gravity.

The thing to do is to deal with the world the way it is, rather than the way you wish it was.

Given that the rich have and will *always* have a large level of control over what the government does, what to do?

How about: set things up the government so that it doesn't have such a large control over people.
Then having political influence will be worthless.

How's that uberpowerful California state government working out?

------
Citizens United didn't say that corporations are people. It said that a corporation is a method where people can organize together. People have the right to free speech, and they don't lose that right just because they join together.
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<< How's that uberpowerful California state......working out? >>

The weather is fantastic. The snow is deep. The beaches are pristine. The women are beautiful!

Oh, wait! You asked:

<< How's that uberpowerful California state government working out? >>

Not so good! What a price we pay!!


Alan
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Make sure the big corporations and the big franchises have employees that get benefits so we don't have to subsidize them later.

Subsidize them now through higher prices?
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The thing to do is to deal with the world the way it is, rather than the way you wish it was.

So what would have done then, in 1776?
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The weather is fantastic. The snow is deep. The beaches are pristine. The women are beautiful!

Not to mention that pretty soon, people will be able to get from Fresno to Bakersfield (distance 130 mi) in under an hour on high-speed rail.
For those 7 people who commute daily from Bakersfield to Fresno, this will be a big benefit.
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The thing to do is to deal with the world the way it is, rather than the way you wish it was.

So what would have done then, in 1776?


Human nature is the invariant, not forms of government.

People will *always* try to use governmental power to direct benefits to themselves. Rich people try, poor people try, every group tries.

That's the way the world works: Everybody attempts to improve their own situation. That's human nature.
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I only read part of this thread, but America is no longer a country with a lot of social mobility.


It has become less socially mobile than Europe and other Western nations.

See the attached link. This is a very sad thing.

http://www.nytimes.com/2012/01/05/us/harder-for-americans-to...
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The government has three choices: 1) to regulate and set rules to make sure there is fair competition, 2) get stuck with the bill for not regulating or 3) let the economy be destroyed by greed.

Right now almost everyone is upset because our government is following the second of these 3 courses.


I disagree. The government has not chosen any of your three choices. It prevents fair competition and actively pushes for destruction by greed and malinvestment. The only variation in the last couple decades has been in speed - not direction.
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Or in other words, jobs where the workers are paid less. Meaning we get the products for cheaper. That is to say, financially this is actually to the advantage of the average consumer in America. Perhaps not to the advantage of those workers in other countries, but you know what?

The only rational view is that the jobs are to the advantage of those workers in other countries - because if that were not the case, those workers would not take those jobs.

Now it's possible that the reason it is to those workers' advantage is because someone is threatening them with harsh punishment for not taking the jobs - i.e. forced labor. That would be wrong and primarily the fault of whoever has the authority to make such threats and means to make them plausible. But if the punishment is "if you don't do this work we won't give you a bunch of goodies" or "if you don't do this work you'll have to do the work you've been doing or find another way to earn a living" - in other words "if you don't change how you earn a living, don't expect the living you earn to improve rapidly" - that's perfectly normal and legitimate.
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Two shining examples -
The dismantling of Glass-Steagall which was a root cause of the banking crisis of 2008.


If that was the root cause, please explain why the entire rest of the world - which never had an equivalent regulation - waited for the US to repeal that regulation and have a crisis before having their own crisis?
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Fresno to Bakersfield (distance 130 mi) in under an hour on high-speed rail.

... and we have come full circle.

http://billwhittle.net/?page_id=59

Neil
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Could someone tell me where the Mechanical Investing board is please ?

Trev:O)
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manucastle,

Could someone tell me where the Mechanical Investing board is please ?

Click on the link "Ignore Thread" (above). You can't miss it.

Phil
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The rich have always had outsized influence on the goverment throughout history -- long before even the USA came into being. This is a fact of human nature and will always be the case. You might as well rail against the unfairness of gravity.

The thing to do is to deal with the world the way it is, rather than the way you wish it was.


The world is a diverse place. In various times and places the distribution of wealth is, and has been, different. The situation in the U.S. today in that respect is not the same as it was 30 and 50 years ago, and it has changed for the worse. It's no a law of gravity. It is political corruption and economic malfeasance that has changed things.

The GINI index is a commonly used measure of a country's wealth inequality. Look at this table -
http://en.wikipedia.org/wiki/List_of_countries_by_distributi...
The rightmost column shows the Wealth GINI index. You can click on the little arrows in the column heading to get an ascending or descending sort. You can see from this that the U.S. has the fifth most extreme inequality of wealth among all countries.

You can also see the change in the GINI income index for the U.S. over recent decades here -
http://en.wikipedia.org/wiki/Gini_coefficient#US_income_Gini...
Scroll up a little to see a chart with a comparison to other countries.

Elan
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"The thing to do is to deal with the world the way it is, rather than the way you wish it was."

So what would have done then, in 1776?

====================

It was the most wealthy that financed and led that revolution and had the most to lose.

They weren't cut from the same cloth as Lenin, whom you seem to admire.

Anyone who infers that Communism would have worked if some "unlucky event" had not tripped it up somehow, ought not be holding up the American revolution to somehow prove their point. Just MHO.

Thank God for our 1st Amendment as Mr. Lenin would never let you have your say, unless of course, it was the party line.
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The housing/banking crisis was not caused by the CRA.

=====
Once you bend the rules to allow a subset in, EVERYONE takes advantage and that is exactly what happened.

125% loans never existed before this law was passed and they were given out to thosec that had a pulse under this law.

And only a fool would have taken advantage of these kinds of loans, but sadly we had a lot of fools.
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Lenin, whom you seem to admire.
You see that in my post?
Anyone who infers that Communism would have worked if some "unlucky event" had not tripped it up somehow<i/>
You see that in my post?

Did you read the last sentence of my post. This one:

Nothing like theoretical economics: Communism. Voodoo. Trickle Down. All pipe dreams.

Please get yourself some reading comprehension ability and then go back and read my post.
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Everybody attempts to improve their own situation. That's human nature.
Precisely my point. If "the world the way it is" doesn't work for you, it may be that dealing with it "the way it is" causes you to try like hell to change things to the "way you wish it was" in order to "improve your own situation".
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I am making a public commitment to not respond to this thread on MI. It belongs on a different board IMO. If anyone wants to dialog w/me on any issues I raised here, bring it to my attention through the "email this reply to author " function. Don't post reply to boards. If you want to suggest another board, have at it.

Jack
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The CRA was passed in 1977, why did it take over 25 years for housing loans to those evil, undeserving poor people receiving loans to buy houses bring the whole system down?
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This is not my opinion, but people who believe the cra is the cause of the financial crisis would say that it was changes to the act in the 90s that led to the crash. The changes made the act stronger.

Still, The crash happened in 2008, so why did it take from the 90s to until 2008 for the crash to happen.
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The CRA was passed in 1977, why did it take over 25 years for housing loans to those evil, undeserving poor people receiving loans to buy houses bring the whole system down?

===============================
Please read the history of this act as amemded.

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

I don't think you will see such perjorative words as "evil and underserving" in that article nor have I seen any posts reference these words.

The point is that once you lower the bar for some, you lower the bar for everyone.

More to the point, it was not the poor per se that helped collapse the system, it was the unintended consequences of government making housing more affordable for everyone that helped collapse the system.

And it wasn't the only factor...cheap interest rates helped.

Folks were encouraged to treat their homes as ATM machines, refinacing every few years and living large off the equity that was withdrawn.

There was a member of my family that lost his home that he and his wife owned for 22 years as a result of his foolish actions.

So yes, it was everyone, but changing that law made it too tempting for too many people, and only a small subset of them were poor. And again, it was the government that was the great enabler, both with changes in this law and by maintaining artificially low interest rates.

And it might be noted, we still have the latter and no one can audit the Fed Reserve to find out how much money has been printed and where it has all ended up.

Since the answer to these questions will affect us all at some point, shouldn't we have the right to know, so that we can better plan for our future?

Or do we continue to just to trust an institution that has helped cause financial havac in our economy?
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This is not my opinion, but people who believe the cra is the cause of the financial crisis would say that it was changes to the act in the 90s that led to the crash. The changes made the act stronger.

Still, The crash happened in 2008, so why did it take from the 90s to until 2008 for the crash to happen.


You have to have an inflated bubble before you can have a bubble pop catastrophically. Inflating any bubble takes some time; a real-estate bubble takes more time than a stock bubble because the turnover isn't nearly as fast. And in the 90s the Fed was busy inflating the dot-com bubble. Nonetheless, the beginnings of this residential-real-estate bubble are visible in price data in 1998.

Oh, and I don't know of anyone who thinks that the CRA is *the* cause of the financial crisis. *A* cause, yes, but it wasn't the only stupid change in laws and regulations.
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"It's laughable running on about the greed of bankers without talking about the greed of prospective home buyers. Many were committing fraud too, lying about their assets and salary. It's true that the lying greedy bankers stayed out of jail but so did the lying greedy home buyers.
It was all a giant con game, and as in all good con games it only works when the recipient of the con wants quick money and doesn't care much about whether it's honest money."

Be very careful where you point your arrows of accusation. To assert fraud is to assume intent.

It is certainly true that everyone involved wanted more (greed). Home buyers wanted homes and nicer homes. Land owners, builders, contractors, retail bankers, investment bankers....(the list goes on) discovered a great way to make the dreams of prospective home buyers come true and reap vast profits with negligible risk.

While various government entities may have encouraged the process, the invention of Mortgage Backed Securities was the little gem that made the chaos possible. That ingenious invention was sold on the presumption that a person's home was sacred and the homeowner would protect their home and always pay their mortgage. As originally developed, it was not conceived that lenders would make imprudent, poorly qualified loans. In the beginning that assumption was mostly correct, but over time things changed.

How things changed was very simple. The process that made the change simple was complex.

Investment bankers bought up huge quantities of mortgages and utilized the stream of mortgage payments to back the Mortgage Backed Securities (or bonds) which they sold to big investors. The streams of principal and interest from the mortgages were sliced, diced and assembled into something called tranches which represented cash flows the securities buyers would receive. The tranches were organized in a variety of ways-- principle payments, interest payments, maturities, risk ratings, geography, source of mortgages -- most any way you might imagine dividing up the payment streams. Securities sold in this way had the appearance of sound financial instruments tailored to the income demands and risk levels of potential buyers. Security buyers like pension funds, banks, mutual funds, government bodies loved the idea of securities providing a nice steady stream of good income backed by the monthly payments good old dedicated homeowners, who, you must remember, would nearly always pay their mortgages.

So now you're saying, how was the change simple? There was nothing simple in the packaging of mortgage backed securities. Most investors really didn't understand the securities, but they appeared safe and sure.

There were two elements to "The Simple Part". First is that these babies provided a huge and ready market for re-selling mortgages made to facilitate home purchases which enriched the landowners, contractors, builders, real estate salesman, etc, etc. Everyone profited once the transactions were closed and nobody assumed any ongoing risk. The second, and most important part, is that the risk, in terms of the mortgages, were packed into these securities and sold off to investors with negligible recourse to the issuers for loans that went bad.

So, simply, what brought about the change in the use of Mortgage Backed Securities was the absence of risk for the mortgage issuers. With no risk, who cared how good the loans might be. Tell the potential home buyers they can afford it and get the mortgage approved. Proof of income, employment, assets... as time went on, mortgage issuers often didn't care, just make the loan and sell it (and the risk)off. Just make the loan, collect the fees and move on.

Everyone could profit. A huge market for the securities had developed, just make loans, good or bad, package 'em up and sell 'em off. Ultimately the security buyers were the con.

With no regulation and the ultimate risk taker, the security purchaser having faith in mortgagees to make their payments, but not knowing exactly what they were getting, there was little to no incentive on the part of EVERYONE in the entire chain of financed real estate transactions to assure that the home buyer was really qualified and capable of making the payments.

Yes, I suppose everyone except the security buyer was in on the con. But, even the security buyers wanted the big, "sure" returns. So maybe they were in on it as well. Maybe it was a big con that everyone wanted to believe in, but a fraud?

If there was fraud, there were others more liable than the home buyers for pushing these questionable transactions along. It may appear that the home buyers were gaining a lot in this "loosey goosey" process, but they still had a lot to lose. Just look at the many others who had so much to gain and nearly nothing to lose. The home buyers had far more at risk than any builder, real estate broker, mortgage broker or banker.

I promised I would make only 1 more post on this thread.

I'm done.

Can we now get back to MI?
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those evil, undeserving poor people

Why do you think poor people are evil?

Anyone who can't afford to make their mortgage payment is undeserving of the mortgage. People who took out $150K mortgages who could only afford the payments on a $75K mortgage did not deserve the $150K. The same goes for those who could only afford a $750K but took out a $2M. Congress through the CRA encouraged "creative" financing that "influenced" lender to approve both. Responsible lenders who denied these types of mortgages were blackmailed by community organizers using phoney accusations such as "redlining" to get people into these mortgages. Fannie an Freddie guarenteed these mortgages eliminating the risk to lenders for takling them on.
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Why do you think poor people are evil?

Anyone who can't afford to make their mortgage payment is undeserving of the mortgage. People who took out $150K mortgages who could only afford the payments on a $75K mortgage did not deserve the $150K. The same goes for those who could only afford a $750K but took out a $2M. Congress through the CRA encouraged "creative" financing that "influenced" lender to approve both. Responsible lenders who denied these types of mortgages were blackmailed by community organizers using phoney accusations such as "redlining" to get people into these mortgages. Fannie an Freddie guarenteed these mortgages eliminating the risk to lenders for takling them on.








Mortgages are very complicated. People were told your house will go up in value, and you can refinance at a rate you can afford. Also, Mortgages brokers would often doctor their applications so they would receive the mortgage. Now the people who were buying homes to flip, I have no sympathy for.


As far as the cause. I view "the commodities and futures and modernization act", which allowed derivatives to be unregulated as a big part of it. Also, the ratings agencies giving aaa ratings to collateralized debt obligations (cdos) was a big one. How can you the same rating to a cdo, that you give to a Treasury?

Also, off balance sheet entities like Structured investment vehicles would get the debt off the balance sheet of banks.

Finally, the whole thing became so complicated that no one understood what was happening. Remember Greenspan was as surprised as the rest of us.
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those evil, undeserving poor people

Why do you think poor people are evil?

You apparently missed it, that was intended to be sarcasm.

Saying and believing the housing crisis was due to the CRA doesn't make it true. The housing boom was caused by extremely low interest rates as set by the Federal Reserve. The bankers came to realize that they could boost their profits via securitization, let someone else hold the loans and recycle their loanable funds over and over and collect up-front fees. They also believed "housing values don't go down". In order to maximize the numbers of loans they could make they abandoned the requirements for down payments, ability to repay and appropriate documentation for lending standards. They also pressured appraisers (who are paid by the banks) to provide favorable apparaisers. Some people who received loans were ignorant about the terms, some bought way more house than they could afford figuring they could sell at a profit and in some areas flippers went crazy buying houses they expected to sell at a profit. In hot areas of the country, flippers were buying houses at the start of development of a new housing area with the plan to flip them upon completion for a quick profit when construction was complete.

Now you can ignore the facts and say the bad business practices were caused by the CRA but that is simply not true. Having worked in business at an executive level for 30+ years I can tell you businesses that are forced to do something that they feel is bad business in one area won't extend that to other areas. The practices I mentioned above were caused by banker greed pure and simple. The banks and financial institutions made large profits and they collected obscene bonuses.

Large numbers of bad loans were made by financial institutions that weren't subject to the CRA. Blaming the CRA is simply a myth perpetuated by the conservatives and right wing nut-jobs like Rush Limbaugh who want to blame the Democrats. The bankers who kept their big bonuses in most cases and were bailed out by the government want to absolve themselves of blame as well so they blame the CRA as well.
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The bankers came to realize that they could boost their profits via securitization,

TMT33, You analysis agrees with mine very closely. The only thing I would take some exception to is the part about securitization.

Mortgages have been securitized for decades. It is actually a good thing, because the banks would sell the loans to Fannie, and Freddie, and they would have more money to lend.

What we had here were not normal mortagage backed securities, which we always had, but collaterized debt obligations (cdo, which mixed in good loans with bad loans, so no one knew what they were buying.

Also, the credit default swap market was an insurance policy on the cdo's, so people thought they could not lose by buying a cdo.

What made it much worse, is that if you could buy 10 credit default swaps (cds)on the same cdo, and sell the same cdo 10 times. They called these synthetic mortgages. That is how a 50 billion dollar problem became a 50 trillion dollar problem.
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myth perpetuated by the conservatives and right wing nut-jobs like..

At this point I hit the "Report this Post" link.

Leave it alone. Take this garbage and this entire thread somewhere else. There's plenty of message boards on the web where idiots and nutjobs can sling cr*p at each other.

This is not that board.

This is a board about making money thru mechianical investing.
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mark19601962, I agree with you 100% and add to it that by slicing and dicing the loans into various packages the riskiest loans could receive a Triple A rating, safe as safe can be.
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Upon further reflection Ray, you're right, these types of threads tend to promote divisiveness on the board and do nothing to advance the topic of Mechanical Investing. I apologize for continuing the thread.
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Is there a rule that says you can only have certain discussions on certain boards?

That's pretty much up to the board. METaR, by board consensus repeatedly verified, bans partisan politics and discussions of specific US politicians/parties, and TMF seems willing to enforce this by removing FA'd posts that would be exceedingly mild on several other boards.
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I totally agree. the question is why did the rating agencies not catch this. Is it because the investment banks paid them for the rating, or was it because these things were so complicated no none could understand them?
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If this discussion is to continue, then it should be an intellectual discussion with no adjectives describing other people's ideas.

I actually listened to about 40 lectures from economists about the cause of this on my ipod, and even they can't agree.

I even heard a lecture by Dan Arieli, who thought it was a behavioral finance issue, where people had faith that the markets were efficient, and that the cdos they were selling (that they admittedly did not understand), were fine.

There were clearly numerous causes.

Personally, I see the commodities and futures modernization act, which deregulated derivatives as the single largest cause.
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Is it because the investment banks paid them for the rating, or was it because these things were so complicated no none could understand them?

Could be either or both. The system we have expects the rating agencies to find these things while giving them every incentive to not look for them.
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Personally, I see the commodities and futures modernization act, which deregulated derivatives as the single largest cause.

I looked that question over once and found plenty of blame to go around.

* The elder Bush administration asked a Democrat-dominated Congress for authority to regulate derivatives, and *got* that authority assigned to an existing regulatory agency. However, the then-head of that agency then decided not to use the new authority.

* The Clinton-appointed head of the agency, seeing a potential for trouble coming, started setting up to regulate derivatives, and the Clinton administration asked a Republican-dominated Congress to revoke the authority to do so; and it was revoked.

* The younger Bush administration repeatedly asked Congress for legislation tightening up financial regulation (I don't know if any of the proposals touched specifically on derivatives) and was repeatedly rebuffed.
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That is my understanding also. It was a joint democrat and republican idea to not regulate derivatives.

Here is a link to a movie about Brooksley Born who warned about this, and no one listened to her.

http://dvd.netflix.com/Movie/Frontline-The-Warning/70127213?...
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or was it because these things were so complicated no none could understand them?

Mostly this.

"Investors may consciously or unconsciously pursue strategies which take on the risk of low-frequency, high-severity outcomes. Strategies which can only be torpedoed by low-frequency events will mostly produce favorable outcomes; identifying the tail risk implicit in such strategies is an extraordinary challenge. The absence of the severe negative outcome is not, regrettably, proof that it cannot occur."

"negative skew can kill. One problem is that
for any given finite look-back period, it is impossible to
know what the true downside risk is. For a security with
a normal distribution, downside risk is reasonably easy to
analyze. But for one with negative skew, the risk in a
given period may be a wholly inadequate representation
of the true risk of the security. This was the case with
sub-prime mortgages up until 2007."

"An unlevered investment with negative skew has a risk
that is hard to fully quantify. This is inconvenient, but not
necessarily a debilitating problem. Combining that with
leverage – with its inherent assumption that the riskiness of
the investment is known – will give a result that probably
looks well-behaved until the moment when it suddenly
doesn’t."


This occurs over and over again in human history. When nobody has ever seen something before, it's pretty hard to point to it as a risk.
In recent history:
Johnstown Flood,
Texas City Disaster, April 16, 1947 (Who knew that simple fertilizer could explode?)
Black Monday, October 19, 1987
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warrl,

That's pretty much up to the board. METaR, by board consensus repeatedly verified, bans partisan politics and discussions of specific US politicians/parties, and TMF seems willing to enforce this by removing FA'd posts that would be exceedingly mild on several other boards.

But on the "Conservative Fools" board, TMF refuses to remove disruptive posts that pretty much everyone who frequents that board agrees shouldn't be on it, claiming they only remove posts that don't meet the Fool's rules.

Phil
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Ray,

Everything you say with regard to skew, and leverage is correct.

The question however, is why give aaa ratings. Only two companies in America the last I heard, (microsoft, and Exxon) are aaa rated. Why not give them a good rating, but not the best one.

I did not predict that aig would not be able to make good on its credit default swaps, when people defaulted on their mortgages, and hence crash the system, but I did predict that housing prices would either stagnate, or go down. (Simply because it is impossible for housing prices to go up faster than income forever.) Eventually, no one could afford a house.

If I could see that, why could not the regulators, who gave them aaa ratings.
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I could easily have converted the living room into a second bedroom, and both bedrooms would have been at least double the size of the dorm room I shared with a roommate. That alone would cut your shelter cost in half.

Not around here: the zoning board and the code inspector would have the landlord, or in the case of a condo, the management group, in court to get you evicted. The management would surely be fined for allowing such non-code use.

And, the 40-hour work week is a relatively new concept.

People literally died to win the 40-hour work week, and it was not so they could work less. Machines were displacing workers, and there were not enough jobs to go around, so they got the work week shortened so the hours they did not work could be replaced by new employees.

If I took 18 credits in college (which should use 36-54 hours per week), and add my 15 hours per week for room and board, my "work week" while in college should have been 51-69 hours per week.


A local school here in New Jersey, not in Princeton, Trenton, or Newark, posts the following fee schedule, per semester:

FULL-TIME UNDERGRADUATE STUDENTS
Full Time (12-18 credits)
$14,541.00

Comprehensive Fee **
$314.00

Fall Orientation Fee
$200.00

Total
$15,055.00

Other fees may apply. Please consult the University Catalog for additional information.
_____________
RESIDENT STUDENTS
ROOM
Double
$3,085.00 - $4,107.00
Triple
$2,316.00 - $3,138.00

BOARD
105 Meals Plus Points Plan
$2,195.00
195 Meals Plus Points Plan
$2,316.00
225 Meals Plus Points Plan
$2,389.00

That is almost $20,000 Per semester -- not including books, etc. Now if you go half-time, the tuition might be cut in half, but the time will be doubled. and the dorm rent and meals will still stay the same.

Now $14,500 a year, if the student is lucky enough to get a full-time minimum wage job (not 15 hours per week) minus the $40,000/year expense for school and related expenses means he will be going into debt by about $25,000 a year, so (s)he will run up $100,000 in debt if he goes full time. More if he goes part time.
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Perhaps not to the advantage of those workers in other countries, but you know what? America isn't their mommie. Their government needs to protect them.

And when their government tries to do that, such as in Iran in the early 1950s, and in Central and South America for 100 or more years, what happens? The US sends in the Marines or now, the CIA and Special Forces, and overthrows their government. All to make the world safe for U.S. investment.

https://www.youtube.com/watch?v=F3_EXqJ8f-0

http://www.lewrockwell.com/orig/twain1.html
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Not around here: the zoning board and the code inspector would have the landlord, or in the case of a condo, the management group, in court to get you evicted. The management would surely be fined for allowing such non-code use.

How would a non-structural room divider be non-code?

Heck, when I bought the place, the contractor was more than happy to tear down part of the wall between the bedroom and the living room. I wanted to place my TV in a central location, so it was visible from both rooms. It also has an 8' x 25' redwood deck patio with a brick wall.

In any case, two people could easily have shared the condo as-is, with over six times the space of the dorm room two of us shared in college.

The University of Minnesota is only a 20-minute express bus ride away, with practically door-to-door service.

FULL-TIME UNDERGRADUATE STUDENTS
Full Time (12-18 credits) ... Total
$15,055.00 [per semester!!]


Expensive school. Where I went, Iowa State University, they currently estimate just over $18K per year for all costs, including room and board and over $2K for personal expenses.

105 Meals Plus Points Plan
$2,195.00


Those "Plus Points" better be worth a lot. Otherwise, they're paying over $20 per meal. Outrageous. Even the other plan at $10 a meal is outrageous.

In the retirement community I'm at, the additional person fee for the food plan is less than $200 per month, for breakfast and either lunch or supper.

For breakfast today:
-- 2 Fried Eggs (I could have had them scrambled, poached, or hard-boiled)
-- Bacon (4 strips) and Sausage (2 small links)
-- Fried Potatoes
-- English Muffin (or white, wheat, marble rye, or raisin toast, or bagel with cream cheese)
-- Milk and Juice (4 daily choices), with refills if desired
-- Pecan Muffin (bran muffin or small danish are also available)
-- Bowl of fresh cut seasonal fruit (prunes also available)
-- Also had a choice of oatmeal or dry cereal, fresh fruit, yogurt, etc.

Lunch or supper structure has 3 courses:
-- Starter: 2 soup choices, multiple salad choices
-- Entree: About 25 regular (including a 6-oz filet) and 3 daily choices
-- 2 Sides: About 8 regular and 4 daily choices
-- Dinner roll(s) and beverage(s)
-- Dessert: About 6 regular and 2-3 daily choices

Yesterday, I had a large bowl of seafood chowder, dinner roll, lemonade, patty melt, onion rings, coleslaw, and chocolate cake.
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If I could see that, why could not the regulators, who gave them aaa ratings.

The regulators did NOT give those aaa ratings - or any other ratings.

Ratings are done by for-profit ratings agencies with no actual regulatory authority.

The for-profit ratings agencies, in accordance with an act of Congress, are paid by the security issuers. A rating agency that tilts a tiny bit in the issuers' favor becomes more popular with said issuers than a straight-up agency (so gets more money), so soon they all are doing it and one of them tilts a tiny bit further...
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How would a non-structural room divider be non-code?

The divider would have nothing to do with it; it is not a building code issue. It has to do with the number of non-family members living long-term in a single family residence. Some friends had a very large house in a wealthy town near here. It was such a big house that the couple did not even sleep in the master bedroom because it was too big.

It had a separate apartment in it with its own bedroom, bathroom, kitchen, laundry room, etc. It had communicating door with the main part of the house, and was intended for the live-in servants back when it was built. My friends needed no live-in servants and decided to rent it out. Not allowed. No one can rent apartments in that town. The town is scared to death of low-income inhabitants, though there are some, but they do not want anyone who, even potentially, might bring additional students into their school system.

There are a few entire houses for rent there. $7000/month, $7500/month, $29,000/ month. Not likely to get a lot of students...
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The divider would have nothing to do with it; it is not a building code issue. It has to do with the number of non-family members living long-term in a single family residence.

When I was in college there was an incident of that. Four unrelated students rented a house; the two females had upstairs bedrooms, the two males had downstairs bedrooms. Ooops, that violated local ordinances and they were given three days to correct the situation.

So two of them got married - but nothing else changed, not even the sleeping arrangements.

When the lease expired, they divorced.
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The regulators did NOT give those aaa ratings - or any other ratings.

I mis-wrote. I meant to say rating agencies, not regulators.

But your response addressed my question.
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The divider would have nothing to do with it; it is not a building code issue. It has to do with the number of non-family members living long-term in a single family residence. Some friends had a very large house in a wealthy town near here. It was such a big house that the couple did not even sleep in the master bedroom because it was too big.

My profession is property management, and at my last job, we had a 70% student population.

We got around that by pretending we did not know. they allowed four in a two bedroom apartment. Often there were 8, but we only put 4 on the lease. We had no problems in the 13 years that I managed the building.

If someone sneaks someone in, and we don't know about, we did not break the law.

Maybe in suburbs, where they are terrified of low income people, or college students, it would be more of a problem.
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I did predict that housing prices would either stagnate, or go down. If I could see that, why could not the regulators?

You're kidding, right? Turn on the TV, read a newspaper, read a magazine. Watch CNBC, watch Cramer, watch Kudlow.
EVERYBODY has an opinion, and EVERYBODY thinks theirs is right and everbidy else's is wrong.

It's so common that it's even got a name: Hindsight bias
"A basic example of the hindsight bias is when, after viewing the outcome of a potentially unforeseeable event, a person believes he or she "knew it all along."

There is another one, which name I can't remember, which is that people remember about the times when they were right and forget about the times when they were wrong.
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There is another one, which name I can't remember, which is that people remember about the times when they were right and forget about the times when they were wrong.

There is a field of scientific research I am interested in that is so controversial that many will not even acknowledge it is scientific at all. It is the part of parapsychology called remote viewing. I consider r.v. to be a relatively new name for clairvoyance. But there are a phenomenal number of scientific studies done on it in the last 125 years or so, some of which have been done by reputable scientists.

Those skeptics assert that the studies have all been poorly done, that the good results published, and the rest suppressed. So in this field, by implicit agreement, the problem, currently called the file drawer problem where the failed studies remain in the file drawers and the successful ones are published, is circumvented because (A) the organizations working in the field insist that all failed studies be published, and they agree to publish the failed studies as well as the successful ones. And (B) they calculate the number of hypothetical studies hidden in file drawers that would be required to significantly change the statistics. And quite often, it is known that there could not be that many studies in a field where there are so few serious workers.

You do not have to agree with what I just said.

Are you looking for the term the file drawer problem?
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The GINI index is a commonly used measure of a country's wealth inequality.

I see a whole lot more good news than bad in that table. It's genuinely a cause for celebration.

Accept the good with the bad. It's party time!

Neil
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I see a whole lot more good news than bad in that table. It's genuinely a cause for celebration.

Let's see how true that is. The good news is that the U.S. is the wealthiest country in the world (except for a couple of tiny countries). The average wealth per adult in 2000 was $200K. Not bad at all.

Japan, which has the most equal wealth distribution, had an average of $157K per adult. So we're about 25% richer than the Japanese on average. Great.

Now lets look a little deeper. In the U.S. the top 10% of the population own 71.5% of the wealth. A bit of math shows that if you're in the top 10%, the average wealth of your peers is $1430K. If you're in the bottom 90% the average wealth of your peers is $63K.

In Japan the top 10% of the population owns 39.3% of the wealth. The same math shows that the top 10% of the Japanese have an average wealth of $617K and the bottom 90% have an average wealth of $106K.

So, even though the U.S. is richer per person on average, if you're not in the richest 10% of Americans you are poorer than your Japanese cohorts.

90% of us have a lot less to celebrate than you might think.

Elan
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It is common knowledge that the rich have been getting richer, and everyone else's wages are flat.

The question that is never addressed is why.

One reason, is that the tax policies now favor the wealthy more than they did before.

Another reason is we are competing with foreign workers.

Still another reason is the loss of high paying manufacturing jobs.

With all that said, I do not feel confident in why this has been happening. It is not only in America, but all over the world.

Does anyone know what has caused this?

Mark
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IMO, The corporate class took control of the country in 1981. Reagan had worked for GE from the early 50s on, and was as loyal to his corporate sponsors as he was to anyone. I'm not trying to minimize the globalization of work, but with his inauguration in Jan of 1981 we began to see the beginning of the decline of the working class.

Interesting to see this question about 20 minutes after I read this http://www.huffingtonpost.com/2013/03/11/general-electric-ta...
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Damn I apologize. I realized as I pressed submit that I was breaking my pledge. I am putting this thread on ignore so I am not tempted to respond to it.
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It's so common that it's even got a name: Hindsight bias
"A basic example of the hindsight bias is when, after viewing the outcome of a potentially unforeseeable event, a person believes he or she "knew it all along."


There are some things you can call hindsight bias, but I don't think this is one of them. Warren Buffet wrote an article calling these security Financial instruments of Mass Destruction between 1998 and 2000. Stiglitz was another famous person warning of the dangers before they happened. I would say that constitutes foreknowledge. There were lots of writers talking about the coming crash due to these things in the 2004-2007 time frame. Granted they have gotten other things wrong, but no-one who is widely read should have been completely surprised by these things.
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With all the talk about top X-percentile, this might interest some: a calculator for your
household net worth percentile ranking based on the latest (2010) US Census data.

http://politicalcalculations.blogspot.com/2013/01/the-distri...
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You can use this link to determine the low end of the top 1% group. Its $1,490,000. So if you are worth this or more then you are in the top 1% and are part of the 40%-of-the-US-wealth group. Hmm, survey?
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Have you never studied statistics?

Have you never studied compound interest?

It stands to reason that concentration of wealth is a consequence of prosperity. Those who earn enough to have disposable income, above what they need to survive, can invest it, and earn a return. That return, plus the initial investment, and any additional investment, can compound over time. The fact that most millionaires are self-made bears this out. They saved, invested, and allowed the money to compound.

If you can do none of these things, you will never have wealth. If you can only do some of these things, you are unlikely to ever be wealthy. If you do all of these things, you are maximizing your chances.

Yes, luck does enter into the accumulation of wealth, but the overwhelming majority of those in the top 1, 2 or 5% are there because of their choices, not their luck.

You can wail, flail, and even lie about any of this, but it won't change the truth. Choices and self-discipline matter.
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