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« FMF March Money Madness, Round 2, Posts 9-12 | Main | Reader Profile: AW »

March 13, 2012


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"Couldn’t we cap the earnings of the rich at $50 million? Or even $100 million?"

Who is suggesting that? That seems like a straw man argument.

The congress is currently trying to push versions of a bill that would limit t he spread between CEO salary and those at entry level. It's definitely not a cap. What do you all think?

As shown in the statement "But, again, having a lot of money no more makes you rich than growing up next door to the Greenwich Country Club gives you class", the author seems to be trying to re-define the word rich from its commonly accepted definition of "having alot of money" into "creates great wealth". I think this attempted re-definition is disingenuous because looking at Forbes list of the 10 richest Americans three of them Jim Walton, Alice Walton and Christy Walton largely inherited their wealth as opposed to creating it. Two David Koch and Charles Koch inherited part of it (though they did increase it significantly). Finally Sheldon Adelson got his fortune almost entirely through building and running casinos and though it's debatable gambling is more of a transfer of wealth than the creation of wealth. So if we follow the authors definition of "rich", then almost half of the top ten wealthiest people in the U.S. are not "rich", they just have alot of money.

This article presents a very well written and succinct summary of the corruption in the financial sector that I have read about many times in some of the market letters that I receive. This is why I refer to the period where I was very fortunate, 1960-2000, as the good old days. The playing field used to be fairly level in those days but sadly, lack of regulation and government oversight allowed some of the most powerful institutions to get away with gross dishonesty. Of course these institutions were too big to fail so naturally the government bailed them out.
Bottom line - The rich are getting richer and the poor are getting poorer, but of course everyone knows that now.

The problem that we have is that the so call "rich" in our society are lumped in together and become vilified. It seems that if someone falls into a category of earning a certain amount (often described as making over $250,000 a year) means that these people somehow are part of problem and should be punished with higher taxes.

I have a substantial investment income but I am nowhere remotely close to being rich. I consider the rich to be those people that wield a lot of power and have annual incomes in the several million dollar range as well as receiving high bonuses. Usually these would be people very high up in financial companies such as Goldman Sachs, AIG, Fannie Mae, Freddy Mac, Countrywide Mortgage, BofA, CITI, Lehman Brothers, Bear Stearns etc. In other words, the top executives in the companies that played a major role in creating the great recession.

Old Limey,
Then why use the word "rich" to describe those people? Rich has a simple standard definition - possessing great wealth. Obviously the level of wealth required to constitute "rich" will vary with your perspective, but by pretty much anyone's definition, you are very rich. Why say only people working high up in the financial sector (who you earlier vilified as dishonest) are rich? Instead, why not come up with a different word for people who make a lot of money in a way you perceive as dishonest? The word that comes to mind is "crook." Your comment, with the new word, makes more sense:
"I have a substantial investment income but I am nowhere remotely close to being a crook. I consider crooks to be those people that wield a lot of power and have annual incomes in the several million dollar range as well as receiving high bonuses. Usually these would be people very high up in financial companies such as Goldman Sachs, AIG, Fannie Mae, Freddy Mac, Countrywide Mortgage, BofA, CITI, Lehman Brothers, Bear Stearns etc. In other words, the top executives in the companies that played a major role in creating the great recession."

JimL , The reason it "feels" as though people who make 250k or more are part of the problem is because of the current lacking of the justice system to prosecute and convict the defrauders (i.e. crooks). I truly believe it is the rich and powerful who pad the right people's pockets to get away with murder. Is this all done on the backs of the hard working rich? Yes, because the defrauders need honest businesses to hold up the economy to make their stolen money worth something.

Going back to what I was saying, people making over 250k are not part of the problem, they not only help our GDP but they pay more income taxes too. Those multimillionaires who do not work and pay less than 15% taxes on "carried" interest are, in my opinion, part of the problem for the economic sludge we are in. The difference is that if they were honest financially, then they are not the cause for all our problems today.

The following article released this morning substantiated my statement.

By CHRISTINA REXRODE | Associated Press – 1 hr 27 mins ago.
NEW YORK (AP) — An executive resigning from Goldman Sachs, the powerful investment bank, said in a blistering essay that the company had lost its "moral fiber" and said managing directors there referred to clients as "muppets."

Greg Smith, an executive director at Goldman, said the company needs to "weed out the morally bankrupt people" and suggested the erosion of Goldman's culture threatened its survival after 143 years.

Correct me if I'm wrong but it is my understanding that the only income taxed at a flat rate of 15% is income from longterm capital gains. This is why Warren Buffet's tax bill is so low and why some famous hedge fund managers have been able to make over a billion dollars in one year and pay such little tax.

I have had zero capital gains since I switched to income producing investments in 2007. I was in the 28% bracket for 2011. The largest taxable income I had in 2011 was the mandatory required distribution from our IRAs, there's no getting around that once you go over 70.

Old Limey,
That article lent credence to your statement that top executives played a major role in creating the recession, but has nothing to do with your attempt to redefine the word "rich."

There are many uses of the word "rich" in Webster's dictionary, for example "Rich foods", or "A rich fuel mixture". However the following one comes close to my defintion of wealth.

"Rich is the general word for one who has more money or income producing property than is necessary to satisfy his normal needs."

Just visit any US shopping mall (including the parking lot) and watch the people for a while, I think anyone from countries other than Europe might well conclude that all of the Americans they see are rich. Even an American on unemployment and foodstamps is richer than most of the people we see from other countries on our nightly news stories.

@Old Limey - Help me understand what changed in 2000 to make the playing field not level? I'm not a banker but it seems that those on the "in" always had the upper hand and that there was corruption even before 2000.

For example, the S&L scandal of the 80's comes to mind and most of the Enron crimes occurred in the late 90s. Also all the dot com IPOs pre-2000 are a big one. Most of those failed to pass any business model yet were allowed to go public. The only folks who made out on that were your Goldman Sachs of the world.

I just think there will always be the rich and always the poor. One's behaviour is the biggest impact on their socio-economic status. And yes health, birth family, luck, fortune, and circumstance also play a huge part.

What the author of these posts doesn't seem to understand is that the transfer of wealth over the last 20 years was DELIBERATE and caluclated. That's and indictment of not only both political parties, but the small cabal of globalists who are imposing this massive transfer of weal not only on Americans but the world as a whole.


Why 2000 was a pivotal year in my memory was that after retiring in 1992 just as the Internet was starting to make its presence known to the majority I lived through the bubble.

The Nasdaq 100 index experienced a 596% increase between 4/11/97 and 3/27/2000 and then dropped precipitously, giving it all completely back by 10/7/2002. What followed was the "Lost Decade" where the Nasdaq 100 index lost another half of its value. Fortunately I was using fund selection and market timing throughout that period and there's nothing better than huge market swings when you are timing the market.

To get back to your question, before I retired, back in the 60's, 70's, and 80's I used a stockbroker. He would call me at work and tell me what to buy or sell. Sometimes at lunch my friends and I would visit his office to watch the market. They had a huge blackboard with people on ladders using chalk to change the quotes on popular issues while we watched. In those days the typical volume on the NYSE was 3-5 million shares. After I retired and the Internet revolutionized the market and every Tom, Dick, and Harry was in it, the volume of shares traded daily soon rose into the billions. Program trading appeared and the little guy lost his edge to the big firms with the big computers. These days the best of the computer whizzes graduating from schools like MIT go to work for companies like Goldman Sachs and with real time information on all market orders and trades available to them are able to program supercomputers to make thousands of trades/day following every small move the market makes.

@ Old Limey I now know for certain how those in position of wealth to avoid taxes to the tune of 13.9% per annum. Romney's 2010 taxes is posted online for anyone to see. All of his income was capital gains and factoring other deductions he came out well below 15%. I don't have any beef personally with 15% capital gains rate as that is a risk account, but to get deductions beyond that it is absurd. I want to learn a little more about Romneys trust accounts and overseas account to see how taxes are handled. Now if he would only release his previous years taxes for us to find out....

"And yes health, birth family, luck, fortune, and circumstance also play a huge part."

I couldn't agree more with your statement.
Health - still excellent at 77.
Birth family - Poor but hard working, frugal, and were good role models.
Luck - That's my big winner, looking back I couldn't have been luckier.
Circumstances - I seemed to always be in the right place at the right time.

OK then why not say that anyone making over $500K/year is rich and should pay more taxes?

The $250K/year cutoff is a low straw-man argument, that was designed precisely in order to generate dissent for the proposed taxes on the wealthy.

But most of the wealthy make far more than that--just set the bar a bit higher at $500K/year. It's pretty hard to argue that making over $500K/year is just middle class.

What is interesting to me is that the government defines wealth based on income -- which we all know does not necessarily lead to a high net worth (which determines true wealth IMO.)

@Old Limey - I see what you mean. It seems that computers leveled the playing field by allowing everyone access to the trading but now the only one's with an advantage are the brokerage houses...

BTW, your timing is great!! I love your story - riding the CA housing boom from cheap to expensive and riding the stock market as well. Now that the world is globalized I doubt that will ever happen again.

@Mark - I don't understand what you mean by the "transfer of wealth over the last 20 years was DELIBERATE and calculated". That's a pretty bold statement. Who is getting the wealth and who is receiving? Please provide evidence of this.

Old Limey you said : "I am nowhere remotely close to being rich."

Aren't you a mult-millionaire?

Unlike "Reader profile DV", I also actually have my own chef, it's my wife who loves to cook, last night she prepared Alaskan king crab legs with a Ceasar salad. Of course, she would tell you that she has a live-in gardener that keeps everything beautiful as well as managing her investments and seeing that her bills get paid. She also has a chauffeur - how about that? She gave up her license recently because of eyesight issues. I guess you could say we are both rich.

MC, the $250k figure would put a household in the top 2%. Hard to argue the top 2% is the 'middle' of anything. I'd call that 'high income'.

The short answer is "Yes", but I don't live like one nor do our children. I never planned on it but I used my engineering talent to teach myself how to become a very good investor after retiring and the market cooperated so it happened in 1999, 7 years after I retired, and has continued on to this day without ever a losing year.

I drive a 21 year old car, our house chardonnay wine costs me $23.88/case, I buy my shirts and sweaters on eBay, our entertainment is provided by NETFLIX, and I also wash & clean my car, grow lots of our own fruits and vegetables, do the more strenuous house cleaning, and do my own plumbing & electrical work when needed.

My youngest daughter (51), divorced 4 years ago, has a $2.7M investment portfolio and supplements her huge alimony and keeps busy by selling used books on Amazon.

Her twice divorced sister (53) has a $1.9M investment portfolio, recently moved to Maui and telecommunicates to San Jose, CA to do the billing for her attorney boss as well as taking care of her two adopted baby girls (2 & 3). They bought an ocean front fixer upper, her third husband (a builder) is almost finished renovating it.

Limey, I'm sorry but if you're a mult-millionaire then I don't think you can really claim you aren't "rich". Just because you don't act or 'feel' rich doesn't mean you aren't in the category based on your very high net worth.
The age of your car and the cost of your wine is not relevant.

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