The Financial Con Of The Decade Explained So Simply Even A Congressman Will Get It

Tyler Durden's picture

Sometimes, when chasing the bouncing ball of fraud and corruption on a daily basis, it is easy to lose sight of the forest for the millions of trees (all of which have a 150% LTV fourth-lien on them, underwritten by Goldman Sachs, which is short the shrubbery tranche). Luckily, Charles Hugh Smith, of oftwominds.com has taken the time to put it all into such simple and compelling terms, even corrupt North Carolina congressmen will not have the chance to plead stupidity after reading this.

Of course, to those familiar with the work of Austrian economists, none of this will come as a surprise. 

1. Enable trillions of dollars in mortgages guaranteed to default by packaging unlimited quantities of them into mortgage-backed securities (MBS), creating umlimited demand for fraudulently originated loans.

2. Sell these MBS as "safe" to credulous investors, institutions, town councils in Norway, etc., i.e. "the bezzle" on a global scale.

3. Make huge "side bets" against these doomed mortgages so when they default then the short-side bets generate billions in profits.

4. Leverage each $1 of actual capital into $100 of high-risk bets.

5. Hide the utterly fraudulent bets offshore and/or off-balance sheet (not that the regulators you had muzzled would have noticed anyway).

6. When the longside bets go bad, transfer hundreds of billions of dollars in Federal guarantees, bailouts and backstops into the private hands which made the risky bets, either via direct payments or via proxies like AIG. Enable these private Power Elites to borrow hundreds of billions more from the Treasury/Fed at zero interest.

7. Deposit these funds at the Federal Reserve, where they earn 3-4%. Reap billions in guaranteed income by borrowing Federal money for free and getting paid interest by the Fed.

8. As profits pile up, start buying boatloads of short-term U.S. Treasuries. Now the taxpayers who absorbed the trillions in private losses and who transferred trillions in subsidies, backstops, guarantees, bailouts and loans to private banks and corporations, are now paying interest on the Treasuries their own money purchased for the banks/corporations.

9. Slowly acquire trillions of dollars in Treasuries--not difficult to do as the Federal government is borrowing $1.5 trillion a year.

10. Stop buying Treasuries and dump a boatload onto the market, forcing interest rates to rise as supply of new T-Bills exceeds demand (at least temporarily). Repeat as necessary to double and then triple interest rates paid on Treasuries.

11. Buy hundreds of billions in long-term Treasuries at high rates of interest. As interest rates rise, interest payments dwarf all other Federal spending, forcing extreme cuts in all other government spending.

12. Enjoy the hundreds of billions of dollars in interest payments being paid by taxpayers on Treasuries that were purchased with their money but which are safely in private hands.

Charles' conclusion does not need further commentary as it is absolutely spot on:

Since the Federal government could potentially inflate away these trillions in Treasuries, buy enough elected officials to force austerity so inflation remains tame. In essence, these private banks and corporations now own the revenue stream of the Federal government and its taxpayers. Neat con, and the marks will never understand how "saving our financial system" led to their servitude to the very interests they bailed out.

The circle is now complete: in "saving our financial system," the public borrowed trillions and transferred the money to private Power Elites, who then buy the public debt with the money swindled out of the taxpayer. Then the taxpayers transfer more wealth every year to the Power Elites/Plutocracy in the form of interest on the Treasury debt. The Power Elites will own the debt that was taken on to bail them out of bad private bets: this is the culmination of privatized gains, socialized risk.

In effect, it's a Third World/colonial scam on a gigantic scale: plunder the public treasury, then buy the debt which was borrowed and transferred to your pockets. You are buying the country with money you borrowed from its taxpayers. No despot could do better.

As for part two of this epic con we are all living through, Charles explains as follows:

The Con of the Decade (Part II) meshes neatly with the first Con of the Decade. Yesterday I described how the financial Plutocracy can transfer ownership of the Federal government's income stream via using the taxpayer's money to buy the debt that the taxpayers borrowed to bail out the Plutocracy.

In order for the con to work, however, the Power Elites and their politico toadies in Congress, the Treasury and the Fed must convince the peasantry that low tax rates on unearned income are not just "free market capitalism at its best" but that they are also "what the country needs to get moving again."

The first step of the con was successfully fobbed off on the peasantry in 2001: lower the taxes paid by the most productive peasants marginally while massively lowering the effective taxes paid by the financial Plutocracy.

One Year Later, No Sign of Improvement in America's Income Inequality Problem:

Income inequality has grown massively since 2000. According to Harvard Magazine, 66% of 2001-2007's income growth went to the top 1% of Americans, while the other 99% of the population got a measly 6% increase. How is this possible? One thing to consider is that in 2001, George W. Bush cut $1.3 trillion in taxes, and 32.6% of the cut went to the top 1%. Another factor is Bush's decision to increase the national debt from $5 trillion to $11 trillion. The combination of increased government spending and lower taxes helped the top 1% considerably.

The second part of the con is to mask much of the Power Elites' income streams behind tax shelters and other gaming-of-the-system so the advertised rate appears high to the peasantry but the effective rate paid on total income is much much lower.

The tax shelters are so numerous and so effective that it takes thousands of pages of tax codes and armies of toadies to pursue them all: family trusts, oil depletion allowances, tax-free bonds and of course special one-off tax breaks arranged by "captured" elected officials.

Step three is to convince the peasantry that $600 in unearned income (capital gains) should be taxed in the same way as $600 million. The entire key to the U.S. tax code is to tax earned income heavily but tax unearned income (the majority of the Plutocracy's income is of course unearned) not at all or very lightly.

In a system which rewarded productive work and provided disincentives to rampant speculation and fraud, the opposite would hold: unearned income would be taxed at much higher rates than earned income, which would be taxed lightly, especially at household incomes below $100,000.

If the goal were to encourage "investing" while reining in the sort of speculations which "earn" hedge fund managers $600 million each (no typo, that was the average of the top 10 hedgies' personal take of their funds gains), then all unearned income (interest, dividends, capital gains, rents from property, oil wells, etc.) up to $6,000 a year would be free--no tax. Unearned income between $6,000 and $60,000 would be taxed at 20%, roughly half the top rate for earned income. This would leave 95% of U.S. households properly encouraged to invest via low tax rates.

Above $60,000, then unearned income would be taxed the same as earned income, and above $1 million (the top 1/10 of 1% of households) then it would be taxed at 50%. Above $10 million, it would be taxed at 60%. Such a system would offer disincentives to the speculative hauls made by the top 1/10 of 1% while encouraging investing in the lower 99%.

Could such a system actually be passed into law and enforced by a captured, toady bureaucracy and Congress? Of course not. But it is still a worthy exercise to take apart the rationalizations being offered to justify rampant speculative looting, collusion, corruption and fraud.

The last step of the con is to raise taxes on the productive peasantry to provide the revenues needed to pay the Plutocracy its interest on Treasuries. If the "Bush tax cuts" are repealed, the actual effective rates paid on unearned income will remain half (20%) of the rates on earned income (wages, salaries, profits earned from small business, etc.) which are roughly 40% at higher income levels.

The financial Plutocracy will champion the need to rein in Federal debt, now that they have raised the debt via plundering the public coffers and extended ownership over that debt.

Now the con boils down to insuring the peasantry pay enough taxes to pay the interest on the Federal debt--interest which is sure to rise considerably. The 1% T-Bill rates were just part of the con to convince the peasantry that trillions of dollars could be borrowed "with no consequences." Those rates will steadily rise once the financial Power Elites own enough of the Treasury debt. Then the game plan will be to lock in handsome returns on long-term Treasuries, and command the toady politicos to support "austerity."

The austerity will not extend to the financial Elites, of course. That's the whole purpose of the con. "Some are more equal than others," indeed.

h/t Andrew

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anarkst's picture

It's the ultimate 'something for nothing' scam.

fightthepower's picture

I had to stop reading when he started talking about income in equality.  Why the hell should income be equal?

Why should the government steel money from productive people and give it to people that for one reason or another don't make much money?

Mr. Anonymous's picture

Indeed. Far better the government steal from the middle class and give to the plutarchs.  Equality is for pussies.

B9K9's picture

I've always liked reading CHS, and have occasionally exchanged emails with him on various topics. If it appears he has left out the last, "final" step, it may be for a reason: he is relying on the readers' knowledge of history to conclude the ultimate outcome.

As usual, there's a lot of good comments on this thread, with more than a few hinting at what happens during the end-game as well. For those who don't understand the point to which I am driving, you may understand recent history, but what do you know about 1290 or 1492?

The final stage isn't austerity, it's when debtor nations go Icelandic. In all previous versions of this tale, the power-elite don't end up with real assets; rather, they flee with their lives & a few possessions. It's why they have an anchor in the ME.

It's only a matter of time.

JR's picture

I remembered this from reading my dad’s college textbook, A History of England and The British Empire by Walter Phelps Hall, Princeton University, and Robert Greenhalgh Albion, Harvard University:

“The king (Edward) meanwhile cut off one old source of royal revenue in 1290, when he banished all Jews from England.  The earlier kings (see page 86) had allowed them to make fortunes at lending money and then had fleeced them regularly.  Edward’s edict, which met with popular approval, kept the Jews banished until about 1650…”  p. 151

Page 86:

“The pipe roll reveals some additional sources of revenue which throw little credit on the ‘Lion of  Justice.’ In addition to the usual fines from regular and forest courts, Henry accepted bribes to influence court judgments.  In a case where a Norman was being sued for a debt by three Jews, the king was offered £133 by the former and got  £24 cash from the latter.  We do not know who won the case, but it was understood that the loser’s bribe would be returned.  The Jewish moneylenders, who began coming to England in the Conqueror’s wake, and whose usurious interest rates sometimes reached 86 percent a year, were called the ‘king’s sponges’ because they were tolerated by Henry at the price of frequent heavy fines on trivial pretexts.  They had a monopoly of moneylending in the early middle ages because the Church forbade Christians to lend money at interest.”

illyia's picture

There will be nowhere to hide.

No mountain will be high enough,

no river will be wide enough,

no ocean will be deep enough,

To keep [US] away from you...

;o)

crosey's picture

"If anything in this life is certain, if history has taught us anything, it is that you can kill anyone." - Michael Corleone

 

These epic thieves will die, that is a certainty.  They can only enjoy what time they have left.

Big Corked Boots's picture

Sorry to disagree but these epic thieves have survived generations and centuries; the vile cycles they have created will come again. My only hope is to stay from thier wake.

G-R-U-N-T's picture

You may be right Big Corked Boots, however the "Epic Thieves" of old have not seen knowledge, and information transfer so clearly, and directly to the masses of the world as the internet.

 

SheHunter's picture

Touche G-R-U-N-T.  Flagged it perfect.

NOTaREALmerican's picture

Re:  My only hope is to stay from thier wake.

 

Sadly, this is too true.   I'm hoping for the same thing.  I've only got 30 more years to go, and no kids.   (Keeping my fingers crossed)

Bear's picture

To say this is a 'Jewish Problem' is absolutely nuts. This is a universal problem that transcends one group. The repeal of Glass-Steagall in 1999, set this in motion and those that promoted this wicked repeal were not Jews, nor controlled by them. They were power hungry politicians who were more interested in getting reelected (Congress) and a Library (Clinton), than they were in the welfare of those they were elected to serve. Greed is a human weakness that is not exclusive to anyone.

Of course there is no one in this thread that would try to make as much as they could on their investments.

I am not making excuses for anyone with this comment, since everyone associated with this Con should be incarcerated. Expelling the Jew (as in 1290 and 1492) is nuts.  

WaterWings's picture

You know it's a funny thing. Why can't people, throughout all history, get along with them Jews? What's up with that?

http://www.theoccidentalobserver.net/articles/MacDonald-Solzhenitsyn-200...

http://www.youtube.com/watch?v=U62c5Tccj0I

Apocalypse Now's picture

There is no end to this game, history and future is constantly unfolding, but the private international financial central bank franchise is a game like monopoly.  The best analogy to the structure of this entire game is the story of the grain of rice on a square of a chess board, with a request from the lender to double it for each square - after doubling for 63 squares the number exceeds all the grains of rice in the world.  This is what we are witnessing with quadrillions in derivatives and compound interest, the same force that Einstein said was the most powerful force in the Universe.  The game has been won in its current structure, and there are no challengers. 

Capital and intelligence agencies are symbiotic, and human progress since the creation of the system has been impressive.  On one hand, if everyone was hoarding their own gold in vaults there would most likely be less industries and jobs since credit creation (out of thin air) has helped business models that are essentially ponzi schemes that operate on extreme leverage.  I have no problem with income inequality since people do not apply themselves equally, and there is a big difference between banking and other productive industries.  Structurally there is an issue with wealth without work - this is the difference between a goldman sachs and Apple.

We need to add #13: Banks that create loans with no deposits/reserves out of thin air can foreclose and take posession of real assets from a paper loan the moment a homeowner/borrower misses a payment.  As long as this is backstopped by the government, it is an organized takeover - they did nothing to acquire the real assets except create a loan out of thin air - there is no bankruptcy risk for the TBTF since they are backstopped - 10 times more dangerous than a bank with risk of potential bankruptcy, it is no longer about profit but the game of Monopoly - Acquire as many real assets from paper assets as possible.  This is not the first time, they have done it many times before:

James Buel, American Bankers Association meeting, 1877 - in a letter to ABA members to do everything to prevent the U.S. returning to Greenbacks It is advisable to do all in your power to sustain such prominent daily and weekly newspapers, especially the Agricultural and Religious Press, as will oppose the greenback issue of paper money and that you will also withhold patronage from all applicants who are not willing to oppose the government issue of money. ... To repeal the Act creating bank notes, or to restore to circulation the government issue of money will be to provide the people with money and will therefore seriously affect our individual profits as bankers and lenders. See your Congressman at once and engage him to support our interests that we may control legislation. American Bankers Association, 1891, as printed in the Congressional Record of April 29, 1913 On September 1st, 1894, we will not renew our loans under any consideration. On September 1st wee will demand our money. We will foreclose and become mortgagees in possession. We can take two-thirds of the farms west of the Mississippi, and thousands of them east of the Mississippi as well, at out own price... Then the farmers will become tenants as in England.
hbjork1's picture

Grains of rice doubled 63 times amounts to about 9.2 million trillion.

Isn't that the projected national debt for a few years from now?

 

aurum's picture

if you believe in an excecutive to non management compensation ratios of 300 or 400 to 1 then i can understand your feelings...theres absolutely no reason for the disparity other than greed. in the end (as we now see approaching) it is a contributor to the downfall of our society. if the ratio was cut in half or better yet to 100-1 at most and dispersed back to the employees which in turn would push the newly found earnings back into the economy, we would we all would be better off. greed at the top has provoked revolutions since the onset of civilization. if things do not change, the result will be the same. 

trav7777's picture

You are both correct.  A big problem is this income disparity.  Outsourcing didn't lower costs for consumers.  It increased profits for corporations which executives and their cronies decided to pay to themselves for gutting our industrial and economic base.

CEO payscales at 25:1 were sane and were what were the norm throughout most of the heyday of this nation. 

But the answer is not government, it is actually unions.  The problem now is that union leadership sold out to the executive class and now forms an interlocking directorate with corporations.

Another wrinkle is the fact that in reality, pensions and mooch funds truly own US corporations.  Their directors have sat back and allowed this to occur when several companies own enough shares on behalf of 401ks that they could seat their OWN directors just by voting their beneficial shares.  Yet, they sat and let companies like CSCO pay an entire DECADE's worth of profits to directors, instead of paying dividends.

It appears everyone got caught up in the stock ponzi; the share price appreciation was "good enough" for mgmt to provide to shareholders, as opposed to real cash flow and real income.

The executives TOOK the real cash and they left price ponzi gains to owners.  Those gains have now been unwound and they are not coming back.  Never ever trade ponzi price for real cashflow.  Ever.  I cannot fathom how supposedly conservative, professional investment managers the likes of John Bogle fell for this shit.  He's Mr. Vanguard and he constantly talks about dividends and cashflow and income yet his funds own companies that pay meager or no dividends and he depends upon price ponzi for his gains despite knowing in his core philosophy that this .com phenomenon is total bullshit.  I guess perhaps the mooch fund and pension directors are in on the scam in some way.

Honest unions were the only entities which forced disgorgement by directors and owners to employees of a greater share of profits.  Unfortunately, the former have all now been corrupted.  Consequently, there no longer remains any labor pricing power.  Corporations these days will cut their own foot off and show you the door rather than pay you a growing wage, even for high-skilled work that cannot be replaced.  But, at the same time, executives constantly "negotiate" ever more lucrative "compensation" packages with their cronies on the boards.  It's like pro athletes.  Ticket sales are in the shitter but the salaries keep going up up up.  Corporations make that up by cutting wages in the lower levels and by reducing staffing.  Anything they can to keep the executive bonuses and payscales rising.

fightthepower's picture

Unions just make workers lazy.  I'm trying hard, but I can't think of any example where I would rather be a customer of of a company that is unionized.  Unions always provide higher cost and lower quality.  Please help if you can think of any exceptions?

Muir's picture

"Please help if you can think of any exceptions?"

 

Did you forget the "/sarcasm" switch?

Hmmm... I guess the myriad of Chinese non-unionized products are to your taste and workmanship standard.

NOTaREALmerican's picture

So true.

 

One thing I love about the last 2 years is how the peasants are STILL more pissed off at other peasants getting loot from the system (via unions - which are only 10% of the population) than they are the nobility that is getting most of the loot.

 

You can lead a peasants to knowledge, but you can't make the think.

Muir's picture

Yeap!

Amazing these madhatters.

Been saying this for a while, but stupid is as Palin does.

They don't get it. Worry about the few unionized and forget about the top .1%(tenth)

amazing

hbjork1's picture

This issue of getting lazy is apparently a human problem.  At a certainly large diesel engine manufacturer, the management worked with the union to train and migrate mentally qualified (and sufficiently senior) union personal into skill jobs in quality assurance functions previously occupied by salaried workers. Routine dimensional measurement of critical parts sampled from the assembly line bins assured that critical parts such as pistions, and rods actually being installed were OK. The union guys applied their intelligence to the task and came up with an improved method.  They figured out how to assign the measurements of a part that had already passed quality check to the results report for every serial number part that came in for measurement. 

Not only did this make for happier more relaxed workers but resulted in improved reliability reports as well. 

Understand also that these people cannot be fired because who exactly did it is hard to prove.  They must be disiplined by the union.

IMO, it is not that Unions make workers lazy.  It is lack of management creativity in rotating jobs and assigning responsibility that tends to make employees lazy.  In the example above, the union heirarchy decreed that the most senior people got the choice of jobs.

 

SWRichmond's picture

But the answer is not government, it is actually unions.  The problem now is that union leadership sold out to the executive class and now forms an interlocking directorate with corporations.

+ 1.  This will be seen just as the pendulum swinging, I think.  When we return to a production-based economy (we have no choice) the need for actual labor unions as a counterbalance to the corporatocracy will be obvious.  Public sector unions, though, are nothing more than voting bloks of the bloodsuckers that comprise the satrapy.

Bear's picture

This will take inspired, confident leadership that will be able to explain what has been going while simultaneous exposing the Media that conspires to laud (drool over) our current set of statist leaders (President, Congress).

Unfortunately, this would most likely be a fascist mind who would lie, cheat, and maim to punish the evil as a means of grabbing power. Or:

1.) Create Congressional Term Limits

2.) Eliminate 'influence' before and after public service. With seven year specific restriction and severe penalties.

3.) Reinstate Glass-Steagall

4.) Expand corporate governance via the internet and not 'elected' boards

5.) Audit the FED

These would provide a good start and a good platform for going forward. When drugs are involved, you have to strike the source of the drugs or the source of its funding or both.    

goldfish1's picture

My lay suggestion for a start to the fix:

 

Take the top 1 percent of Americans and reduce their wealth by 65%

Take the next 9 percent and reduce their wealth by 47%

Take the next 10 percent and reduce their wealth by 39%

Implement a 50% inheritance tax for the top twenty percent.

THEN...reduce ALL taxes across the board by 50%, exempting the top twenty percent of individuals and corporations in the income tax section.

Increase ALL corporate taxes for the top 20% of corporations to 75%.

Use all proceeds to:

Eliminate all credit card debt and student loans.

Reduce all single family residence mortgages to 1998 property valuation levels and 3% fixed interest over 30 years and roll back property taxes.

Then mandate a balanced budget for all federal, state and local governments of which physical infrastructure projects must account for 50% of expenditures.

 

Nikki's picture

Taking 39% of peoples wealth who earn 80-100k is your proposal ?. The top 20-10% bracket. That is wealthy ?. Between property value decrease and 401k losses I'd say I already gave, and I give handsomely every pay day to SS and unemployed do nothings.

Please come over to collect what you think my fair share is. I've got a present for you at the end of a barrel.. I am pretty sure you'll never make it past too many houses to get to me, but I'll keep my share waiting in case you do think I owe more...

goldfish1's picture

People who own only the top twenty % of all wealth only make 80-100K?

oldbold's picture

Gee, sounds good for you. Welcome to the United States of "me want".

Tell me again why the top 20% will stick around for your plan? 

People with assets have already established residences and citizenships overseas, as well corporations. US Embassies overseas can't keep up with the number of expat americans wanting to turn in their passports...in some countries there's a 4 year waiting list to renounce US citizenship, which is truly sad. I'm not endorsing that behavior, but it is a fact that it's happening, and will probably accelerate. Until you place a wall around the country, people will flee forced redistribution of their assets.

US Corporations have even fewer holds on their country of residence. Check on Venezuela lately to see how well this kind of fiscal land grab works, or is that where you're posting from?

goldfish1's picture

People with assets have already established residences and citizenships overseas, as well corporations.

 

A good many of these are the people who have capitalized on the laws made so they could steal from the middle class. I say they should return a portion their ill gotten gains. Perhaps my percentages are off.

fightthepower's picture

People like you are why I own guns, as state above, if you or your government thugs come for me, I have a nice lead gift for you. 

goldfish1's picture


Yeah, well if your wealth has been transferred to you ala the Ken Lay and other thugs method, I think it is wise you have protection from the proletariat.

 

When the top percent has stolen everything from the middle and bottom, I hope there will be redistribution...it's the way things balance themselves.

WaterWings's picture

I'm with fightthepower. Come and take it. We already know what happens when you try to "redistribute". How about get back what was ours in the first place and then let us decide what we want done with our own sweat.

I am a Man I am Forty's picture

Yeh, great idea, give a bunch of money to the government.  They deserve it, they are great money managers.  

francis_sawyer's picture

The "FIX" is already in... Capiche? (More correct [in Italiano]: "Ai capito bene?")...

MsCreant's picture

I have an alternate plan. Prosecute these fuckers and clawback the ill gotten goods. Freeze their assets and then seize those assets upon conviction. Now that is what I call a workable redistribution of the wealth.

Bear's picture

Wow welcome to the USSA ... Obama-Pelosi on steroids ... just what we need more Govern redistribution of wealth. No, evaluate the actions of the Robber Barons and punish the criminal acts. I have amassed a million dollars over a lifetime of private enterprise, hard labor and prudent risk taking and you would steal this in some misdirected effort to punish the rich ... Why?

merehuman's picture

of course you sincerely NEED THAT MUCH money all by your lonesome?

I once had a thousand ounces of silver as that was my goal.Since then i have given away 250 oz  one at a time to various folks in my community. No point me having all that and others got none! We are family after all in the larger view and that is where i live.

Its well bejond time to care about others as you would have them care for you.

My busyness is shut , retiring, 10 bucks in the bank and about to sell truck and equipment to buy silver , lumber and fertilizer for my most excellent garden.  Turnips, peas and radishes today! taste great!

nedwardkelly's picture

He didn't say he needed it and there's absolutely no reason he shouldn't have it if he wants it bad enough to work for it.

You don't NEED much at all if you're going to be a turnip farmer, but until they absolutely have to be one most people like to be able to afford the comforts of modern life.

Nels's picture

The problem of high management wages isn't one that is integral to capitalism.  It's caused by government.  The causes are in the laws that limited hostile takeovers, and otherwise limited the ability to throw the bums out.

AllYourBaseAreBelongToUs's picture

Um, what?  So now it's a government problem that boards of directors don't vote out their own (corrupt CEOs)?

 

People like you who place all blame on the government (or on the flip side, solely on capitalism) are part of the problem.

Nels's picture

The boards of directors are the 'bums'.  No, I don't expect them to throw themselves out.

I'm talking about the rules against hostile takeovers, and rules permitting the boards of directors to reward some stockholders and punish others, or having staggered terms on the board so it takes multiple years for a shareholder majority to make it's will felt.

amusedobserver's picture

Nels, you are absolutely right.  This is something I have seen and hated for a long time.  In a capitalist society, a hostile takeover is the one event that will clean out the corrupt bastards in charge and put corporate assets back in competitive hands.  I've never understood how all shares can be "equal" if the BoD can declare that if someone buys X% of the stock, then that triggers a poison pill that gives the rest of the shareholders stock or warrants except the X% owner doesn't get them too.  How did that even come about in a democratic society?  I don't invest in companies that have poison pill arrangements.

 

The other thing I always vote against is employee stock ownership plans, ever since I found out that that is the reason stock is diluted so badly these days.  Shares that go into an ESOP don't have to have equivalent rights offerings to existing shareholders.  A long time ago I bought stock in a company that had about 9 million shares outstanding at the time.  Over the next ten years the shares outstanding about doubled to 17 million, cutting my proportionate ownership in half without ever getting the right to buy on the same terms as the ESOP.  Blatant unfairness.  If the employees want stock, let them buy it with their own money, cash on the barrelhead, like everyone else.

chrisina's picture

1. Explain what you call "productive people" ? Is a brick layer who builds a house more or less "productive" than the guy who packages and sells MBS ?

2. The author didn't suggest that incomes should be equal. He noted however that government policies over the last decade had made incomes even more unequal than they already were a decade ago.

fightthepower's picture

I say again, why should incomes be equal or even be at some ratio?  The government shouldn't care either way.  The government shouldn't redistribute wealth.

chrisina's picture

Nobody here suggested that incomes should be equal. But government and central bank policies affect income disparity, either postively or negatively, and not only fiscal policies but all economic policies.

After WWII in the West income inequality decreased over time, reaching a minimum around the 70s as the rich had gotten richer as well as the middle class and the poor had gotten wealther. Then it went in the opposite direction, and the middle class is gradually getting squeezed. The crisis is actually accelerating this process. History shows over and over that when such a degradation occurs for too long and too much of the middle class loses their perceived status to the benefit of the rich, then comes a revolution.

The main redstribution of wealth that is taking place right now is that of the middle class being transfered to the rich. As a matter of fact, exactly the opposte of what Obama had been advocating.

I agree that Government shouldn't be in the business of redistributing wealth, but over the last 3 decades that's what has been taking place, and not in the direction that you say it is.

Things that go bump's picture

Yes, and they know history as well as you do.  I think they think it is different this time.  Everyone always thinks it is different this time.  People  see trouble coming and they say to themselves they will get out in time and then they don't.  

 

You know, the French monarchy and nobility were aware there were problems brewing well before the revolution.  After all, Louis the XV said "Apre moi le deluge," but they just couldn't bring themselves to make the necessary changes and they died for their greed.   I don't much care about the ruling class getting what they have coming to them, but you know, once things like this start going down it isn't just the ruling class that winds up with their heads rolling, either.  Before the Terror was over, housewives heard complaining in the market about the price of bread were condemned and sent to the guillotine.   The ruling class may be the first up against the wall when the revolution comes, but they won't be the last. 

goldfish1's picture

"""The government shouldn't redistribute wealth."""

But alas, it has.