Wednesday, June 06, 2012

Significant Turnover in the Top 400 U.S. Earners; From 1992-2009, 85% Were in Just 1 or 2 Years


Number of Years in Top 400Number of Taxpayers in GroupPercent of Taxpayers Represented by Each GroupNumber of Returns in total Top 400 over 18-year PeriodPercent of Returns Represented by Each Group
12,82472.99%2,82439.22%
245811.8491612.72
31814.685437.54
41132.924526.26
5671.733354.65
6551.423304.58
7370.962593.6
8290.752323.22
9180.471622.55
10 or more872.251,14715.93
Total3,869100%7,200100%

The IRS has a new report on the 400 taxpayers reporting the highest adjusted gross incomes (AGI) from 1992 to 2009, and the table above shows the frequency of appearing the "Fortunate 400" over the entire period (Table 4 in the IRS report). The 7,200 tax returns (400 highest earners x 18 years) from 1992 to 2009 represented 3,869 unique, individual taxpayers, since some taxpayers made it into the top 400 earner group more than one year. The data show that:

1. Of the group of 3,869 top earners from 1992-2009, 2,824 individuals made it into the "Fortunate 400" only one time during the 18-year period. Those 2,824 one-timers represent about 73% of the total (3,869), so only about one out of every four, or 27% of the total, made it into the top 400 more than once between 1992 and 2009 (see columns 2 and 3 above).

2. Moreover, 2,824 earners made it into the top 400 once (73%), and another 458 ( about 12%) made it into the top group twice. So 85% made it into the "Fortunate 400" group either once or twice, and only about 15% made it into the top group more than twice.

3. There were only 87 taxpayers out of the 3,869 total taxpayers in the group (2.25%) who were in the top 400 in 10 or more years.

4. Of the 7,200 total returns filed over the 18-year period, 2,824 represent one-timers, so on average in any given year, about 40% of the returns are filed by taxpayers who are not in the "Fortunate 400" in any of the other 17 years (see last two columns).  And more than half of the total 7,200 "Fortunate 400" returns between 1992-2009 (3,740 and 52%) were filed by taxpayers whose returns only appeared in one or two of the 17 years.  

According to the IRS, "The data reveal a mostly changing group of taxpayers over time. In fact, there were 3,869 different taxpayers represented in total for the 18-year period. Of these, a little more than 27 percent appear more than once and slightly more than 2 percent were represented in 10 or more years."

MP: Whenever we hear commentary about the top or bottom income quintiles, or the top or bottom X% by income, or the top 400 taxpayers, a common assumption is that those are static, closed, private clubs with very little turnover - once you get into a top or bottom quintile, or a certain income percent, or the top 400, you stay there for decades. 

But reality is very different - people move up and down the income quintiles and percentage groups throughout their careers and lives. The top or bottom 1/5/10%, just like the top or bottom quintiles, are never the same people from year to year, because there is constant, dynamic turnover as we move up and down the income categories.  As the new IRS data show, almost three out of every four members of the ever-changing, dynamic "Fortunate 400" over the last 18 years were only "members" of that group for a single year.    

65 Comments:

At 6/06/2012 2:32 PM, Blogger morganovich said...

mark-

you have a decimal point in the wrong place for the % appearing 8 times line.

 
At 6/06/2012 2:36 PM, Blogger Ironman said...

Now, that's what we call the "billionaire decay function"!

 
At 6/06/2012 3:30 PM, Blogger Mark J. Perry said...

Thanks Morgan, it's fixed now.

 
At 6/06/2012 3:45 PM, Blogger VangelV said...

But reality is very different - people move up and down the income quintiles and percentage groups throughout their careers and lives. The top or bottom 1/5/10%, just like the top or bottom quintiles, are never the same people from year to year, because there is constant, dynamic turnover as we move up and down the income categories. As the new IRS data show, almost three out of every members of the ever-changing, dynamic "Fortunate 400" over the last 18 years were only "members" of that group for a single year.

Your points are valid. But there is still a big problem. The way that the system is structured in the US you have a disproportionate amount of people at the top end who earn their incomes in the FIRE sectors that are heavily dependent on Fed largesse and taxpayer bailouts. What the US needs is a free market where losses are not socialised and reckless risk taking is not backstopped by the taxpayer.

 
At 6/06/2012 3:45 PM, Blogger Aniboy777 said...

The very last sentence needs to be fixed: "As the new IRS data show, almost three out of every members of the ever-changing, dynamic "Fortunate 400" over the last 18 years were only "members" of that group for a single year."

 
At 6/06/2012 3:47 PM, Blogger Mark J. Perry said...

Thanks, it's fixed now, I apologize.

 
At 6/06/2012 4:08 PM, Blogger Tom said...

What are the dollar amounts to get into the top 400?

 
At 6/06/2012 5:11 PM, Blogger morganovich said...

vangel-

last i heard, the financial sector had paid back all the tarp funds with interest. (apart from freddie and fannie which i agree are an abomination)

a loan is not a bailout.

this repeated use of "bailout" to describe a repaid loan seems like populist barracking to me.

if you ran a printing company and your press broke, so you went to the bank, got a loan, bought a new one, and used the funds it generated to pay back the money your borrowed with interest, it's difficult to see how that could be called a "bailout".

so why refer to things like TARP that way?

 
At 6/06/2012 5:37 PM, Blogger rjs said...

of those who were once in the top 400, how many stayed in the top 10,000?

how many ever dropped to the bottom quintile after making the top 400?

how many who ever made the top 400 had previously been in the bottom quintile?

 
At 6/06/2012 5:40 PM, Blogger rjs said...

btw, your link has an appendage that makes it inoperable; here's the correct link:

http://www.irs.gov/pub/irs-soi/09intop400.pdf

 
At 6/06/2012 6:03 PM, Blogger Methinks said...

this repeated use of "bailout" to describe a repaid loan seems like populist barracking to me.

It's not.

TARP is nothing like a printer going to the bank to get a loan to buy a new piece of equipment. No bank would lend a bankrupt company money.

Congress, on the other hand, "lent" money to banks to spare them bankruptcy. I use quotes because paying it back was always optional and I'm convinced the banks only repaid it because the government intended to meddle too much if they didn't.

That's not really a loan. That's a bailout with a repayment option - and the option is gifted at the expense of the taxpayers to the bailed out banks.

Furthermore, while you understand that as a depositor, the money you keep at the bank will be lent out and that you have the right to withdraw at any time, as a taxpayer there is no understanding that you will be forced to backstop failed banks - especially investment banks. And foreign banks via AIG (which I don't think paid anything back). TARP was a gross congressional overreach, an unforgivable interference with the economy to prop up a system too fragile to survive, ladling more moral hazard into the already overflowing cauldron.

You also, when speaking about TARP, tend to ignore that the only reason banks were able to repay TARP was because of the Fed's heroic efforts to inflate asset prices and squash the short term rates (at which the banks borrow) to zero. And that part of of the bank bailout comes at the expense of prudent savers.

I've worked (and continue to work) in this industry - mostly on Wall Street in NYC - for a very long time. I understand better than most that not everyone in "finance" is a leech and I get that TARP was repaid and the scapegoating of all things finance is unjustified. However, you are much too forgiving of TARP (much too much and uncharacteristically so, IMO).

 
At 6/06/2012 6:10 PM, Blogger morganovich said...

methinks-

a agree that the way is was done, as opposed to the paulson plan which was asset based, was a bad one, but lender of last resort in times of illiquidity is a proper and necessary role for the fed.

without such, no fractional reserve system can be stable.

 
At 6/06/2012 6:13 PM, Blogger morganovich said...

also:

i am not arguing for the bernanke put, zirp, or the free money coming from fed deposits etc.

i agree that it's all a bad idea and accentuates moral hazard.

i'm just sick of the endless descriptions of money that was paid back as a bailout.

 
At 6/06/2012 6:41 PM, Blogger Methinks said...

a agree that the way is was done, as opposed to the paulson plan which was asset based, was a bad one, but lender of last resort in times of illiquidity is a proper and necessary role for the fed.

I wasn't a big fan of the Paulson plan either. You and I disagree about the Fed's role as the lender of last resort. But, I doubt we disagree that the I-banks were entitled to an impromptu lender of last resort. I also doubt we disagree on the issue of making AIG's creditors whole. None of those are proper activities for the Fed.

I understand that you disagree strongly with ZIRP, the Bernanke put, etc. I bring those up only because they were crucial for the banks to repay TARP. They "repaid" it at the expense of savers. So, that was a pure gift of other people's money from the Fed.

While I agree that the anger is a little (but not entirely) overdone and misdirected, I still cannot see anything that is a loan of funds the lenders did not consent to lend with an optional repayment as anything but a bailout - particularly since the "repayment" was made possible by transferring wealth from savers to banks.

 
At 6/06/2012 6:42 PM, Blogger Methinks said...

That is, the I-banks were NOT entitled to a lender of last resort.

 
At 6/06/2012 6:45 PM, Blogger OBloodyHell said...

>>>> No bank would lend a bankrupt company money.

LOL, and with whom did you consult for this gem of "fact", Paul Krugman?

Banks do it ALL THE TIME, it's called "restructuring" and often one can get a bank loan while in a bankruptcy state if you can convince the bank that your recovery plan is likely to work and that your company is able to recover and pay back the loan.

"That's not what I meant"

Well, it should have been the undercurrent of your reasoning, since much of the bankruptcy that occurred was a really, really stupid form of bankruptcy forced upon the companies by "Mark To Market" regulation demanding that they sell off their companies at fire sale prices EVEN though they likely had the capacity to weather the downturn in the economy.

I am with morganovich on the astoundingly crappy way it was executed, but it was hardly an entirely bad idea. Any TARP funds that were handed out as a bank-style loan to existing companies with decent business plans (often in "bankruptcy" solely due to badly written Federal regs in the first place) is one thing.

Handouts to companies with no rational business plan and no likely chance of paying it back unless pigs sprout wings and unicorn farts can be made in industrial quantities is worthy of railing against.

 
At 6/06/2012 7:09 PM, Blogger Methinks said...

Ohbloodyhell,

No. Krugman is all about bailing out everything in sight.

You disagree with what I wrote, but with the following caveat.

...if you can convince the bank that your recovery plan is likely to work and that your company is able to recover and pay back the loan.

That was not the case with the failed banks. You know how we know that? Everyone refused to lend to them because of the irredeemable toxic waste on their books. The Fed kindly took it off their hands at our expense (who do you think is backstopping the Fed?). So, when I said "bankrupt", I obviously meant company that is totally kaput with no prospects.

You take issue with Mark-to-Market, but you ignore the far worse consequences of Mark-to-Make-believe. Where the assets are selling in the market right now is what the current value of your assets are. The argument that they are currently performing is bogus. The market is forward looking and it was factoring in a reduced probability that those assets would continue to perform based on new information.

And that's not what forced the sales of those assets anyway. Rigid capital requirements set by our friendly regulators are what forced a lot of asset sales. As well as deleveraging. No lender is dumb enough to continue to accept a bad asset as collateral for a loan. And thank God for that. If it weren't for one huge trading concerns jacking up margin and forcing the liquidation of a giant bond position, that firm would have blown up and taken down a very large clearing firm with it.

Any TARP funds that were handed out as a bank-style loan to existing companies with decent business plans (often in "bankruptcy" solely due to badly written Federal regs in the first place) is one thing.

But, here's the thing, Ohbloodyhell, those companies could find funding in the private market. To argue that they required government to do that is to argue that the private sector lending out its own money is dumber and more poorly incentivized than a bunch of government bureaucrats handing out OTHER people's money.

So, the only entities that will ever get government bailouts are total failures. They will always be a bad idea. That's what government does - funds failure and punishes success. And that's what adds insult to injury. The government extending credit to the unworthy crowds out credit to the worthy.

 
At 6/06/2012 7:17 PM, Blogger morganovich said...

methinks-

what about folks like JPM that were forced to take tarp and pay it back with interest?

what are we to call that if not extortion? (which seems like the opposite of a bailout.

regardless, if we leave out fred and fan, TARP made money. thus, it seems disingenuous to speak of it like it harmed the taxpayer. at best we can argue that the risk reward was unattractive, but there was no loss. i take that to be a key aspect of a bailout.

regarding lender of last resort:

then how do you propose to prevent bank runs during periods of systemic illiquidity? or are you proposing we abolish fractional reserve banking entirely and return to the 12th century?

 
At 6/06/2012 7:27 PM, Blogger morganovich said...

"That is, the I-banks were NOT entitled to a lender of last resort."

perhaps once upon a time.

perhaps you have noticed that the difference between an i bank and a retail bank has gotten a bit blurry.

 
At 6/06/2012 7:28 PM, Blogger morganovich said...

i also seem to recall that the big ibanks that got tarp (gs, jpm) didn't want it and were forced into the program.

 
At 6/06/2012 8:08 PM, Blogger VangelV said...

last i heard, the financial sector had paid back all the tarp funds with interest. (apart from freddie and fannie which i agree are an abomination)

a loan is not a bailout.


I do not agree with the assessment. The financial system was insolvent because it made lousy bets that lost big and because its mark to model values diverged greatly from the market price for its holdings. The financial system was bailed out by the taxpayers and by the Fed's purchase of its toxic 'assets'.

If I buy something for $100 and can't sell it for more than $25 I do not expect someone else to come in and buy it at par. But that is what happened to the financial system and it is still in huge trouble. What should have happened is liquidation. The government could have guaranteed the deposits and had the creditors and equity holder take the haircut that they deserved. Once all of the lousy assets were liquidated we would have had a basis for a sound, rather than a fake, recovery.

 
At 6/06/2012 8:09 PM, Blogger morganovich said...

vangel-

no. it was illiquid, not insolvent.

if it had truly been insolvent, it could not have paid back tarp so quickly.

 
At 6/06/2012 8:12 PM, Blogger VangelV said...

if you ran a printing company and your press broke, so you went to the bank, got a loan, bought a new one, and used the funds it generated to pay back the money your borrowed with interest, it's difficult to see how that could be called a "bailout".

But that is not all that happened. The Wall Street casinos wound up with assets that were a tiny fraction of what they were worth and were short of cash. They got cash from the Treasury and got the Fed to take the bad assets at par. All that did was encourage further risk taking.

I would have clawed back all bonuses for the Wall Street firms and would have had the equity holders and creditors eat the losses. If rewarding incompetence and corruption does not stop the entire monetary system will go up in smoke.

 
At 6/06/2012 8:15 PM, Blogger VangelV said...

a agree that the way is was done, as opposed to the paulson plan which was asset based, was a bad one, but lender of last resort in times of illiquidity is a proper and necessary role for the fed.

without such, no fractional reserve system can be stable.


But that is the problem. As long as the Fed backstops reckless behaviour like lending money to people with bad credit who do not provide documentation you can't have a stable system of any kind. And why should we have a system that robs workers and savers so that the privileged bankers who get the money first and get to create credit out of thin air by simply adding more leverage?

 
At 6/06/2012 8:20 PM, Blogger morganovich said...

v-

lender of last resort lending absolutely should be asset based, take realistic account of their value, and change punitive enough rates to discourage banks from wanting to use the facility.

but can you seriously support government control of salaries etc?

that's an awfully slippery slope and sounds like fascism to me.

firm that are insolvent should be allowed to fail, but those that are merely illiquid should be able to get help (for hefty fees).

 
At 6/06/2012 8:22 PM, Blogger Methinks said...

Morganivich -

I call that government force - aka, business as usual. It's not the opposite of a bailout, but it's disgusting.

The only reason TARP was repaid is because of the harm to savers. So, I hardly think we can claim that it "made money" in any meaningful sense. If I could manipulate the way government can, I'd be a trillionaire.

Congress took a giant bet with taxpayer funds. It worked out. A good outcome doesn't make a dumb bet smart.

perhaps you have noticed that the difference between an i bank and a retail bank has gotten a bit blurry.

I don't really have the time tonight to launch into a discussion about the rather deep issues of fractional reserve banking and lenders of last resort. I'll only say that there's plenty of evidence that the Fed has not made the banking system more stable. It might very well have made things worse.

No, there is no fuzzy line between i-banks and commercial banks. There is a very clear difference between them and i-banks are in no way part of the banking system the Fed was supposed to be a LLR for. I'm not exactly fooled into thinking that Goldman is suddenly a commercial bank because it applied to be reclassified as one to get goodies from the Fed (it has since dropped the pretense. How convenient).

If you mean that some bank holding companies have both commercial and i-banks, that doesn't make it any more fuzzy. Those are still two separate entities and one can survive without the other just as all of AIG's individual businesses could have survived just fine even as its CDS operations blew up.

There is no justification for the Fed bailing out i-banks and insurance companies. None.

I'm not sure why keep bringing up the fact that some banks were forced to accept TARP (besides JPM, Wells Fargo was also forced - and that's just the big banks). It's not going to convince me it wasn't a bailout. That government shoved TARP down healthy banks' throats in order to obscure the truth from the public and from other banks in the system is an abomination of enormous proportions. It's difficult to express in words how horrific I find the whole enterprise. Truly.

TARP was a horror from start to finish. There are ways to deal with failing banks. TARP is among the most disgusting ways.

 
At 6/06/2012 8:22 PM, Blogger VangelV said...

no. it was illiquid, not insolvent.

if it had truly been insolvent, it could not have paid back tarp so quickly.


The bad paper on the banks' balance sheets was purchased by the Fed at par even though it was valued by the market at a 75% or higher discount. If you pay me $1 for each quarter that I give you I will pay back the loans too.

 
At 6/06/2012 8:24 PM, Blogger Henry H said...

TARP is a bailout. Feds need AIG to practically double to make a profit. Many of the billions went through AIG as a pit stop on their way to the other investment banks.

AIG, Government Motors, Ally Bank(Government Motors Loan), Chrysler, and other companies are a loss to taxpayers. AIG closed at less than $30.

The taxpaers are expected to foot the bill on over $60 billion dollars in losses. I am sure they left out all the costs of lawyers, administrative staff, and Congress to implement the program.


http://www.bloomberg.com/news/2012-01-10/treasury-press-releases-omit-tarp-losses.html

All together, TARP is projected to lose about $60 billion, Treasury officials said in a press briefing in April.

 
At 6/06/2012 8:26 PM, Blogger VangelV said...

lender of last resort lending absolutely should be asset based, take realistic account of their value, and change punitive enough rates to discourage banks from wanting to use the facility.

but can you seriously support government control of salaries etc?


No. Like I said, I would have let all those executives go bankrupt long before they could collect those fat bonuses. And I would have put many of them in jail for the mark to model scams that they were pulling off.

In fact, I would go a lot further. I would not allow the banks a monopoly on the creation of money and credit. I would get rid of the legal tender laws and let the market choose the money that would be used to settle debts without government meddling. Obviously, you would not tax a gain in purchasing power any more than you would subsize a loss in purchasing power.

 
At 6/06/2012 8:46 PM, Blogger Methinks said...

I would have clawed back all bonuses for the Wall Street firms and would have had the equity holders and creditors eat the losses.

I don't think people understand what a "bonus" is on Wall Street.

I guess in most industries, a "bonus" is some amount you receive in addition to your normal compensation for achieving beyond expectations.

On Wall Street, compensation is divided into fixed and variable. The variable portion is called a "bonus". Everyone gets bonuses (i.e., some of their compensation is variable) including the lowest assistant, i-banking analyst and secretary. Nobody would ever work for just the base pay, the higher you go, the lower the fixed portion of your compensation.

By advocating for a clawback, you're effectively saying that any company that goes bankrupt is justified in retroactively decreasing its employees' compensation. That could be a problem since I don't remember any clawback provisions in any of the employment contracts I've signed with Wall Street I-banks (though, I did negotiate some guaranteed minimum bonuses). For government to claw back past compensation, it would have to abrogate private contracts. Now that seems like a strange thing for you to advocate for.

My former boss at Lehman lost over 10 years of compensation in the collapse. A large portion of the bonus for the more senior (and higher paid) employees is not in cash. It comes in the form of company stock that vests over a period of years. Thus, at any given time, an employee of the firm has a pretty big stake in the company. My former boss didn't move a lot of his vested funds out of Lehman stock and so he lost that portion along with the unvested portion - about ten years of compensation. As you can see, because of multi-year vesting periods, there is a natural clawback of bonuses when the company goes bankrupt.

I can agree to letting the creditors and shareholders eat the losses. After all, they did take that risk. The employees didn't agree to risk more than the unvested portion (or vested portion still invested in company stock).

 
At 6/07/2012 2:09 AM, Blogger OBloodyHell said...

>>> of those who were once in the top 400, how many stayed in the top 10,000?

how many ever dropped to the bottom quintile after making the top 400?


So, you would figure that someone with the brains and skill to make the top 400 should////"MUST" also be stupid and incompetent enough to lose EVERYTHING, then?


This isn't some random Fairy Godmother thing you nit. They don't get that position by having some watery tart "doink" them on the head for it.

It would take considerable ineptitude -- of an innate kind -- to lose that much money. It's damned hard to even SPEND close to that much money (*sigh* -- go ahead, ask why "anyone should have so much, then?" so I can rip you a new one for being a totally moronic twit).

As a clear result of that, it's almost, not quite but almost impossible to fall THAT far.

Most of the people who make that top group almost certainly DID start from a positive spot. It's how it works -- I make a heck of a lot of money in my life, then use that money to benefit my children, so they don't have to climb all the way up the ladder that I've already climbed.

If I TEACH them WELL, they will succeed in taking the wealth I gave them to start with and do BETTER for themselves than I was able to.

But the implicit presumption at the middle of your imbecility is that others don't also benefit from this -- people I hire do better for themselves than they would if I -- or even my child -- were starting from destitution.

There's a phrase, lost on idiots -- "A rising tide floats all boats" -- in a true free-market economy -- or even the half-way one we have -- EVERYONE gets wealthier, not just the Rich Fat Cats.

And this is pretty damned obvious to anyone not a greedy, clotheaded fool -- even poor Americans know luxury and comfort that no one knew 100 years ago, not even Rockefeller himself. And everyone today is substantially better off than all but the top quintile of that era.

Dunderhead.

 
At 6/07/2012 2:21 AM, Blogger OBloodyHell said...

>>>> Everyone refused to lend to them because of the irredeemable toxic waste on their books.

RIGHT.

Now:

WHERE DID THIS "toxic waste" COME FROM?

A: Most of it came from Federal Regulation and Money Meddling.

They got stuck with this crap because they HAD to take loans that they otherwise would NEVER have taken under the threat of being openly called "racists". They were told they would be investigated by the USJD for civil rights violations.... and so forth.

And even THERE, a lot of the crap they had came from the GSEs, who aggregated a lot of the crap and sold it to them so they could satisfy this BS demand created by both ridiculously, arbitrarily low interest rates on Real Estate (another form of money meddling) and by Federal Fiat.

Some of them went into it willingly (taking Federal largess is hard for a business to resist -- this should be obvious), and those are the ones who got screwed the worst. Others kept it to a minimum and came through in much better shape -- Wells Fargo, for example, didn't need much, if any, assistance, IIRC. Their close relative, First Union/Wakovia had much worse management, and sucked in all it could.

I'm not claiming the Banks were just Good Guys Being Good, but the whole situation came from government meddling in Real Estate and related Finance arenas at the core.

The Fed is a lousy business operator but it's a great carrot-and-stick. It seems no surprise that, after driving the banks towards a cliff that it was somehow needful that the same bunch had to throw them a rope to keep them from falling into the sea.

I, frankly, care far more if they paid it back than that they got it.

 
At 6/07/2012 6:40 AM, Blogger VangelV said...

Nobody would ever work for just the base pay, the higher you go, the lower the fixed portion of your compensation.

Of course they would work for base pay. That is what they did for decades. But when you game the system to get rewarded richly when you win on ridiculous bets and have no downside when you lose the compensation evolves to pay employees much more.

What you are ignoring is the fact that the financial system is automatically backstopped by the government. The incentive is to make large bets and collect a very high bonus for a few years. When the system collapses your risks are low because you have already made more than you could have in an ordinary lifetime working as a doctor or engineer. But instead of losing your job and taking a much lower paid one instead you have Uncle Sam bail you out and the process begins again. That is not free market capitalism.

By advocating for a clawback, you're effectively saying that any company that goes bankrupt is justified in retroactively decreasing its employees' compensation.

No. When bonuses are based on fraud as they were when profits were created out of thin air by mark to model accounting the bonuses were not deserved. Stealing from shareholders and creditors is not to be permitted by a legal system that is supposed to protect from theft.

 
At 6/07/2012 6:54 AM, Blogger VangelV said...

Congress took a giant bet with taxpayer funds. It worked out. A good outcome doesn't make a dumb bet smart.

Worked out? The money is now backed by much of the toxic paper that the Fed took from the banks when it provided them with Treasuries. Having the USD backed by mortgage paper based on loans made to deadbeats and charlatans is not my idea of a good outcome even if the can has been kicked down the road a bit.

 
At 6/07/2012 7:09 AM, Blogger VangelV said...

WHERE DID THIS "toxic waste" COME FROM?

A: Most of it came from Federal Regulation and Money Meddling.

They got stuck with this crap because they HAD to take loans that they otherwise would NEVER have taken under the threat of being openly called "racists". They were told they would be investigated by the USJD for civil rights violations.... and so forth.

And even THERE, a lot of the crap they had came from the GSEs, who aggregated a lot of the crap and sold it to them so they could satisfy this BS demand created by both ridiculously, arbitrarily low interest rates on Real Estate (another form of money meddling) and by Federal Fiat.


The banks went along with Congress and the GSEs and kept cheering for more and more Fed liquidity so that they could make more loans. They did not have to do what they did. They did not have to invent and issue, liar loans. But they did because it meant more inflated earnings and much higher bonuses over the short term. When the party ended they should have lost everything just as many of their victims did.

Note that it was US paper that did a huge amount of damage to the foreign banks that purchased it. Many of those banks were counterparties to American financial institutions and had to be bailed out. And note the leverage used by the financial system. Banks were not supposed to have 25:1 or 60:1 ratios. Essentially, the Wall Street firms became massive hedge funds who were protected from failure by the taxpayer. All I am saying is that is wrong.

And please do not give me the sob story about how employees were innocent in all this. If many of us could figure out the scam they should have been able to as well. But they did not and were more than happy to go along as long as those fat bonuses were paid out each year.

The argument is against the partnership between Congress and the financial system because that partnership robs hard working people of purchasing power while it funds wars and projects that have political goals and enriches the people working in the financial system. What we need are free markets in which there is no monopoly on the creation of money and where losses are not socialized but punished by bankruptcy.

 
At 6/07/2012 7:11 AM, Blogger VangelV said...

I, frankly, care far more if they paid it back than that they got it.

But as I said, you ignore the fact that they were able to dump assets that were valued at a 75% discount at par. Those assets are now the problem of the taxpayer. Shouldn't you care about that?

 
At 6/07/2012 7:29 AM, Blogger Methinks said...

Vange,

I started a response, but I realized that I don't have the time to devote to educating you. It would take way too much effort because I'd be starting not at zero but at negative 50.

I'm not ignoring anything. I just understand how my industry works and you are hopelessly clueless. I mean, you understand literally nothing. I'm quite amazed by your depth of ignorance.

But, of course, like every good statist, you have now qualms about prescribing changes and punishments for things you don't even bother attempting to understand. Get out the pitchforks!

 
At 6/07/2012 8:35 AM, Blogger VangelV said...

I'm not ignoring anything. I just understand how my industry works and you are hopelessly clueless. I mean, you understand literally nothing. I'm quite amazed by your depth of ignorance.

Your industry is in the business of stealing purchasing power from savers while it is protected from losses by government. When you can sell to the Fed for $1.00 what the market values at $0.25 or lend out money that you don't have on deposit because you can always run to the Fed to bail you out when you make an error you don't need any intellect and ability to prosper. It is a rigged system designed to rob the many for the benefit of the few.

But, of course, like every good statist, you have now qualms about prescribing changes and punishments for things you don't even bother attempting to understand. Get out the pitchforks!

Let us not forget that your industry represents the pinnacle of central planning and statism. It has the monopoly power to create purchasing power out of nothing and is protected from competition by laws that were designed to give it advantage over others.

Your problem, again, is that you do not understand the nature of money and property rights. You see nothing wrong with a fiat money system that is based on fractional reserve lending and cannot seem to understand how such a system is the enemy of free market capitalism. That lack of understanding is giving the pitchfork crowd on the left the support that it needs to attack the free market competition that you claim to support but do not tolerate in your own industry.

 
At 6/07/2012 8:55 AM, Blogger Methinks said...

Good Lord! you're even more aggressively ignorant than I originally imagined. And that's really saying something.

 
At 6/07/2012 9:36 AM, Blogger VangelV said...

Good Lord! you're even more aggressively ignorant than I originally imagined. And that's really saying something.

Nonsense. The ignorance is yours. You still see no problem with the creation of purchasing power out of thin air and bailouts by the government yet you imagine that you are not a statist. Without government protection your industry as you know it would die very rapidly because its value added component, while vital, is a tiny portion of what it actually does. Wall street firms are closer to being casinos then to traditional banks. Let competition in and they would collapse like dominoes.

 
At 6/07/2012 10:02 AM, Blogger Methinks said...

Vange, it's generally a better idea to keep your mouth shut and let everyone think you're an idiot than to open it and remove all doubt.

 
At 6/07/2012 10:03 AM, Blogger Methinks said...

I look forward to your next display of aggressive stupidity.

 
At 6/07/2012 1:58 PM, Blogger VangelV said...

Vange, it's generally a better idea to keep your mouth shut and let everyone think you're an idiot than to open it and remove all doubt.

That is it? I guess it is hard to argue that the banking system is not really benefitting from the ability to have the government and Fed backstop its stupid bets so you make statements about how people don't understand how it works. Like I said, I understand it very well. Your problem is that others are also beginning to understand it and there is less and less of a place to hide when defending the corruption that is an integral part of the system.

The fact that you still have no clue how the fiat money system robs workers and savers while it transfers wealth to the financial system speaks volumes.

 
At 6/07/2012 3:13 PM, Blogger Methinks said...

Oh, yeah. I'm shaking in my boots that you've got it all figured out. Because when I say that I'm founding partner of a Broker Dealer, a dull tool like you will quickly "figure out" that's code for "CEO of a bailed out commercial bank who got paid a billion dollar bonus consisting of my money" because that's all you think you know. And, of course, the whole "financial industry" is confined to TBTF banks. I spend several posts explaining to Morganovich why I consider TARP an unacceptable bailout, which you obviously take to mean that I'm all for bailouts. Pretty much, you've worked very hard to present yourself very convincingly as a total moron. Bravo!

And, of course, like all idiots with more opinions than brains, you become apoplectic when I refuse to waste time explaining to you how a vast and complex industry works. Hell, you can't even wrap your mind around how the compensation works.

Face it, honey, all you really want to do is launch into one brilliant display of your bombastic idiocy after the other. So, I say go for it! Just don't expect me to take you seriously.

 
At 6/07/2012 4:04 PM, Blogger morganovich said...

v-

she has you there.

accusing methinks of being in favor of bailouts is absurd.

she has made it very clear that she believe the opposite.

where on earth are you getting that?

 
At 6/07/2012 4:06 PM, Blogger morganovich said...

"
In fact, I would go a lot further. I would not allow the banks a monopoly on the creation of money and credit. I would get rid of the legal tender laws and let the market choose the money that would be used to settle debts without government meddling. Obviously, you would not tax a gain in purchasing power any more than you would subsize a loss in purchasing power."

translation:

i'd like to return to the 12th century.

 
At 6/07/2012 4:09 PM, Blogger morganovich said...

"No, there is no fuzzy line between i-banks and commercial banks"

come on. you can't be serious.

jp morgan chase?
citicorp?

these are not deposit taking institutions coupled to investment banks and one income statement, stock, board, and investor base?

 
At 6/07/2012 4:52 PM, Blogger Methinks said...

Morganovich,

Yes, I'm serious, Morganovich.

It's very simple, actually.

JPM and Citi are bank holding companies.

The holding company owns a commercial bank and an investment bank. But, the commercial bank is a separate entity from the investment bank.

I'm not sure how hedge funds are organized, but I think it must be somewhat similar to BDs. Say that I have one holding company called Methinks Capital. Maybe all of my investors are invested at the holding company level. That holding company wholly owns several broker dealers - an options dealer, a stock dealer and a commodity derivatives operation. Each of these is a separate entity, each has their own regulations and different regulators. And the regulators makes sure you don't co-mingle funds or treat the entities like they're just one big company.

Similarly, the investment bank can't use deposits to trade in its prop trading operations, for example. The commercial bank doesn't pitch investment banking clients.

Where it might get fuzzy is that the Fed acts as lender of last resort to the holding company that owns a commercial bank, not specifically just the commercial bank. So, in that way, an investment bank can end up taking advantage of the LLR function meant for commercial banks (not that Bernanke cares. He's happy to find any excuse). But, I'm not sure I'm correct about how that works because I've never had to find out. Although, that seems to be what Goldman did in 2008.

 
At 6/07/2012 5:02 PM, Blogger Methinks said...

BTW, it's possible I just don't know what you mean by "fuzzy line".

The fact that both banks are owned by a bank holding company does not blur the line. But, perhaps you have something else in mind.

Management does try to find synergies between them. There are apparently a lot fewer than most thought there were. I was unhappily employed by what became Citigroup at the time Sandy dreamed up the merger between Smith Barney and Citibank to create a financial superstore (I was at Solomon Brothers when Smith Barney bought us. No way I would have volunteered to work at Smith Barney). I skipped to Lehman shortly after that final merger, but that superstore didn't end up being even a fraction of what Sandy dreamed it would be. Corporate clients just didn't want one stop banking.

 
At 6/07/2012 6:53 PM, Blogger VangelV said...

Oh, yeah. I'm shaking in my boots that you've got it all figured out. Because when I say that I'm founding partner of a Broker Dealer, a dull tool like you will quickly "figure out" that's code for "CEO of a bailed out commercial bank who got paid a billion dollar bonus consisting of my money" because that's all you think you know. And, of course, the whole "financial industry" is confined to TBTF banks. I spend several posts explaining to Morganovich why I consider TARP an unacceptable bailout, which you obviously take to mean that I'm all for bailouts. Pretty much, you've worked very hard to present yourself very convincingly as a total moron. Bravo!

Your inability to pay attention is not my problem. It is yours. I have pointed out that the financial system does have some legitimate value added functions. But I have also pointed out that the bulk of the profits have come from practices that had nothing to do with those functions. That is why the system needed a massive bailout. Had the government not intervened most of the players left standing would have been the regional banks.

And the big problem with the banking system comes down to its contribution to inflation. By constantly creating purchasing power out of thin air the system keeps increasing the money supply. In fact, the math demands that the money supply increase because a contraction means insolvency. (At 25:1 or more leverage there isn't much room for error.)

And, of course, like all idiots with more opinions than brains, you become apoplectic when I refuse to waste time explaining to you how a vast and complex industry works. Hell, you can't even wrap your mind around how the compensation works.

I keep this simple. When the bonuses are based on fraud they do not belong to the people who received them. End of story.

Face it, honey, all you really want to do is launch into one brilliant display of your bombastic idiocy after the other. So, I say go for it! Just don't expect me to take you seriously.

As I have said before, what you need is an education on the nature of money and on the banking system. All fiat money goes to zero. The banking system helps get it there faster. Which is why I expect to see an explosion in the PMs some time in the future.

 
At 6/07/2012 7:02 PM, Blogger VangelV said...

accusing methinks of being in favor of bailouts is absurd.

she has made it very clear that she believe the opposite.


I agree with most of her comments. But I think that she has still missed the big problem with the bonuses that were paid out thanks to fraud. The employees who received these bonuses are not at all entitled to them because they were supposed to be based on real profits, not the mark to model profits that were made up by the executives. The fact that the executives committed fraud does not mean that the people who got the unearned bonuses get to keep them.

I also have a huge problem with defending the industry when that industry is instrumental in robbing workers and savers or purchasing power and is essential in the funding of the warfare/welfare state. Now I may go a bit too hard at times but that is usually based on the music that I am listening to.

 
At 6/07/2012 7:04 PM, Blogger VangelV said...

translation:

i'd like to return to the 12th century.


Not at all. I want to see competition and the preservation of purchasing power. You do know that money is supposed to be a store of value, don't you? But that is not possible in a fiat based fractional reserve system.

 
At 6/07/2012 9:03 PM, Blogger Methinks said...

Ah, yes! There it is again "Financial system" = "Banks" and commercial banks at that! And now we discover Vange doesn't know what the word "fraud" means. But, lucky for us, we have Vange playing the role of judge, jury and executioner to decide that everything in the "financial system" from trade execution to investment banking services is all "fraud" and he's ready to claw back the comp he doesn't understand!

The squirrels in my yard have a better understanding of the "financial system".

this is precious: not the mark to model profits that were made up by the executives. Vange, you couldn't mark a book if your life depended on it. And since when do executives mark books! LOL! Your "expertise" is truly...uh...hilarious?

I also have a huge problem with defending the industry when that industry is instrumental in robbing workers and savers

Yeah! That's right. Everybody in the industry is all about raping and robbing grandma. Asset managers, traders, investment bankers, equity and fixed income analysts who publish research, bank tellers, hedge fund managers, financial advisers, brokerage, trade clearing, securities exchanges etc. We're all just defrauding savers with the evil fractional reserve system!

Because I know you don't want to miss a single opportunity to make a fool of yourself, Vange, I'll ask you to flesh out one of your aggressive assertions by asking the following: What percentage of profits in the "financial system" come from whatever it is you're misunderstanding to be "value-added" and what percentage comes from evil fractional reserve "fraud"?

I mean, I'm assuming since you keep repeating this like a parrot, you're not just pulling that out of your ass and you've run the numbers. When you weren't busy deciding that it's never appropriate to mark to model even when there is no active market to provide data to reliably mark to market. I mean, if an asset on your book hasn't traded in four days, you are not to mark to model, you are supposed mark to...what? Vange? LOL!!

I can't wait until we get the benefit of your "expert" opinion on the pitfalls of brain surgery and rocket building.

 
At 6/08/2012 7:21 AM, Blogger VangelV said...


Ah, yes! There it is again "Financial system" = "Banks" and commercial banks at that! And now we discover Vange doesn't know what the word "fraud" means. But, lucky for us, we have Vange playing the role of judge, jury and executioner to decide that everything in the "financial system" from trade execution to investment banking services is all "fraud" and he's ready to claw back the comp he doesn't understand!


When you claim that your assets are worth $100 but you can't even get $30 in the market, or there is no market for them and you pay bonuses to yourself that is fraud.

And when you have $10 available but lend out $300 that is also fraud. While in that case the fraud is actually legal the legality cannot change the fact that there are real consequences that will have to be faced eventually.

Yeah! That's right. Everybody in the industry is all about raping and robbing grandma. Asset managers, traders, investment bankers, equity and fixed income analysts who publish research, bank tellers, hedge fund managers, financial advisers, brokerage, trade clearing, securities exchanges etc. We're all just defrauding savers with the evil fractional reserve system!

It is inherent in the system. A fiat based fractional reserve system has to have constant inflation that robs savers of purchasing power. You may think that is perfectly fine but all those fools who were robbed and have little left to lose may have something to say about it eventually. All fiat money becomes worthless eventually. That is why the world has used commodity money for most of history.

I actually look forward to seeing how the frauds try to move to an all digital monetary system and see how useful idiots try to defend such moves.

 
At 6/08/2012 8:17 AM, Blogger Methinks said...

Uh-huh. As I suspected, you don't know what the word "fraud" means.

When you find a willing buyer for your assets and that buyer happens to want to pay more than anyone else (and that is, incidentally, ALWAYS the buyer to whom you sell), then that is not "fraud". That is normal. That the Fed decides to grossly overpay for those assets is an issue with the Fed and the government in general. The banks are merely responding predictably to incentives - i.e., selling assets to the highest bidder.


And when you have $10 available but lend out $300 that is also fraud.

You gotta stop parroting Rothbard and start thinking for yourself. Everybody understands that when they deposit money at their local bank that bank is going to lend out money out. For that reason alone, it is not fraud. If you could figure out how to use google to look up the word "fraud", you'd know that. "fraud" is a clearly defined legal term. Now, of course, I'm afraid you'll treat us to a tsunami of complaints about "court lawyers".

You are free to get 100% reserve right now, btw. Just go stick your money in the bank's safety deposit box. Problem solved!

FRB isn't perfect, but it's not the problem you imagine it is. The bigger problem is monopoly currency.

Now, what percentage of "financial industry" profits come from "value-added" activity and what percentage from what you misunderstand as "fraud"? You were happy to repeated that it's small percentage in every post. Why are you squirming now that you're asked to specify? Why the sudden discomfort?

And do entertain us by fleshing out your dim view of marking to model (don't forget to mention why you're under the impression that executives mark the book - that's news to me). You may want to explain to the readers of this blog how one marks a structured product where there is only one counterparty (like a swap) and the product doesn't trade at all if in one's benighted opinion it is wrong (fraud even!) to mark to model.

Go on. I'm waiting to be dazzled by your genius understanding of all things finance.

 
At 6/08/2012 8:30 AM, Blogger VangelV said...

Uh-huh. As I suspected, you don't know what the word "fraud" means.

When you find a willing buyer for your assets and that buyer happens to want to pay more than anyone else (and that is, incidentally, ALWAYS the buyer to whom you sell), then that is not "fraud". That is normal. That the Fed decides to grossly overpay for those assets is an issue with the Fed and the government in general. The banks are merely responding predictably to incentives - i.e., selling assets to the highest bidder.


If you go to the marketplace and find a sucker who will buy your worthless assets then you are right; there is no fraud. But when the Fed does it, that is exactly what is going on. The Fed is bailing out the banking system by taking bets that have failed. To do so it gives the banks treasury paper that it is holding. What this does is back those dollars that people save in with overvalued mortgage paper.

And it was certainly fraud to show a profit when there was no market for the instruments. The Fed's actions were a last resort attempt to save an insolvent system from collapsing.

Thanks for showing just how shallow a pool you swim in when considering morality. As far as you are concerned there is nothing wrong with robbing people of their purchasing power and lying about the value of assets is not a problem as long as the Treasury or Fed come in and bail out the losing bets. So much for not being a statist.

 
At 6/08/2012 8:33 AM, Blogger VangelV said...

You gotta stop parroting Rothbard and start thinking for yourself. Everybody understands that when they deposit money at their local bank that bank is going to lend out money out. For that reason alone, it is not fraud. If you could figure out how to use google to look up the word "fraud", you'd know that. "fraud" is a clearly defined legal term. Now, of course, I'm afraid you'll treat us to a tsunami of complaints about "court lawyers".

No. People don't even think about it because there is a government program that supposedly protects deposits. As I said, the math does not work because you have to keep increasing the fiat money supply (and credit) to keep all the balls in the air. This is why countries destroy their fiat currencies every once in a while and why their banks need to be constantly bailed out. Most people don't know just how little money there is in the system to back their deposits. If they did you would see many bank runs, particularly in zero interest environments where inflation is higher than the rate given to savers.

 
At 6/08/2012 8:35 AM, Blogger VangelV said...

Now, what percentage of "financial industry" profits come from "value-added" activity and what percentage from what you misunderstand as "fraud"? You were happy to repeated that it's small percentage in every post. Why are you squirming now that you're asked to specify? Why the sudden discomfort?

I imagine that most of the regional banks make most of their money from lending activities. But in the case of the large Wall Street firms such activity is not a big contributor because the money is made by other means.

 
At 6/08/2012 8:57 AM, Blogger Methinks said...

And it was certainly fraud to show a profit when there was no market for the instruments.

ROFLMAO!!!!!

Hey, Vangie, here's a question for ya': If, as you claim, there's no market for the securities you claim the Fed took off the banks' books, how do you know the Fed overpaid?

of course, you never answered my question about marking. Go on. Dazzle us with your insights. You make so many assertions. Explain to us why what you say is true. Hint: repeatedly insisting that it is true is not an argument. It's a tantrum.

People don't even think about it because there is a government program that supposedly protects deposits

Uh-huh. That still doesn't make it "fraud" - a word that has a very clear legal definition which doesn't change when you pout about morality or my shallow pool. I'll take a little pity on you and clarify that "fraud" is not synonymous with "things Vange doesn't like".

Now, if people were really that upset about the faux fraud of fractional reserve, they'd just get 100% reserve by sticking their money in a safety deposit box instead of a bank account. So, you know, the 100% reserve option is open to you any day. Take advantage of it! Somehow, I doubt you are.

 
At 6/08/2012 9:19 AM, Blogger Methinks said...

I imagine that most of the regional banks make most of their money from lending activities. But in the case of the large Wall Street firms such activity is not a big contributor because the money is made by other means.

Oh! You "imagine". I see.

So, when you authoritatively declared (and then repeated - ad nauseum) that "[The financial industry's] value-added component, while vital, is a tiny portion of what it actually does." it was merely something you imagined to be true. Even though you can't seem to imagine an understanding of what the "financial industry" is.

Do flesh out for us the following: "But in the case of the large Wall Street firms such activity is not a big contributor because the money is made by other means."

Define all the "value-added activities". Define "other means" and list them all. Explain which and why these "other means" are illegitimate. Don't forget to define exactly what you mean by "large Wall Street firm" and don't forget to explain to us why you "imagine" that large Wall Street firms like investment banks and asset management firms like Vanguard, hedge funds, the securities, brokerages, clearing firms and securities exchanges should be engaged in "lending activities" in the first place and why you think the activities they are engaged in are illegitimate. I'm assuming that you carefully imagined your way through all of those things to arrive at your conclusion.

Your weren't just vomiting up BS, right?

 
At 6/08/2012 7:44 PM, Blogger VangelV said...

Hey, Vangie, here's a question for ya': If, as you claim, there's no market for the securities you claim the Fed took off the banks' books, how do you know the Fed overpaid?

Nobody would buy the securities even at 75% off. The Fed paid the full price. It is a big fat scam run by the banksters who rob the many as they help the few. I can see that since you are one of the few you like to ignore the obvious but that does not change the reality.

And let me point out here that yours is the statist position. You favour the setup in which a monopoly like the Fed can choose to save bankers who made reckless bets and lost.

 
At 6/08/2012 7:47 PM, Blogger VangelV said...

Uh-huh. That still doesn't make it "fraud" - a word that has a very clear legal definition which doesn't change when you pout about morality or my shallow pool. I'll take a little pity on you and clarify that "fraud" is not synonymous with "things Vange doesn't like".

They valued assets well above their market price to get nice fat bonuses. That is fraud. Even our very compliant accounting rules do not allow people to pick number out of thin air without any reasonable justification.

As I said, as one who likes to get bonuses you may not like the idea that you can't get them if the proper valuations were recognized. But that does not justify outright fraud.

 
At 6/08/2012 7:51 PM, Blogger VangelV said...

Define all the "value-added activities". Define "other means" and list them all. Explain which and why these "other means" are illegitimate. Don't forget to define exactly what you mean by "large Wall Street firm" and don't forget to explain to us why you "imagine" that large Wall Street firms like investment banks and asset management firms like Vanguard, hedge funds, the securities, brokerages, clearing firms and securities exchanges should be engaged in "lending activities" in the first place and why you think the activities they are engaged in are illegitimate. I'm assuming that you carefully imagined your way through all of those things to arrive at your conclusion.

Your weren't just vomiting up BS, right?


Absolutely not. Value added are activities that would be purchased in an unhampered competitive system. That would include a market for loans. But it would not include a market when you bundle a bunch of bad paper, pay someone to say that it is great and safe, and sell it without disclosing the risks.

Note that I do not have much sympathy for most of the foreign banks who bought the crappy paper that the frauds on Wall Street were selling. After all, they must have known that you can't make a profit by bundling a bunch of loans made to people with bad credit who paid higher interest because they could not show that they could afford to pay the loans back. But claiming that the paper was good is still fraud.

 
At 6/08/2012 9:08 PM, Blogger Methinks said...

Have you ever been successful in passing off your bullshit on people with at least an average IQ by just repeating yourself like Rain Man?

I'm just wondering because you keep employing that "technique". I'm starting to feel bad for egging you on.

 
At 6/09/2012 7:04 AM, Blogger VangelV said...

Have you ever been successful in passing off your bullshit on people with at least an average IQ by just repeating yourself like Rain Man?

My 'success' depends on seeing things as they are and acting accordingly, not in convincing other people.

But on this issue it looks as if most people are on my side of this debate. It is clear to anyone willing to look that the banks were holding bad paper that had much less value in the market than it did on the books. If they were left alone their huge leverage would have led to bankruptcy. So the Fed and Treasury stepped in to bail them out and buy their impaired assets. The taxpayer got screwed while the bonuses still got paid out. The simple fact is that the overvaluation of 'assets' had been a regular part of business for years and if proper accounting that reflected the actual value of the assets were used is also known. This means that the bonuses paid out were based on accounting games, which is why many analysts have suggested paying bonuses in stock that does not become vested for a number of years into the future.

 

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