Why would they fix the problem. Every crash is a redistribution of wealth.
When there's a recession, if you're wealthy and have diversified assets you can buy everything at a discount rate during a stock crash and sell when the recession recovers. Meanwhile, the poor and middle class often find themselves unemployed, their savings accounts massively depleted and in a constant crush for cash.
If you're wealthy AND you have the ability to create risk in the market, then even better. You can actually help trigger more "stock discounting" events, and dominate any emerging technology company with your bootstrapped companies while everyone is dying for credit.
It's a kind of extortion on a national or even global scale. "Nice economy you have there. Shame if anything would happen to it."
Nassim Taleb's suggestion is to simply deny institutions the option of growing large enough that their demise would threaten the system. Once an entity gets too large to fail it should be split so that the remaining pieces can fail individually without dragging entire system with it. This would get rid of the moral hazard "heads I win, tails someone else loses".
>Nassim Taleb's suggestion is to simply deny institutions the option of growing large enough that their demise would threaten the system.
If we are specifically talking about the financial institutions, then good luck getting in on some of the biggest deals over banks without the same constraints.
I love the idea of breaking up google. I don’t think it will happen though as they have a lot of political power, much more than the users whom they extort.
Exactly why it makes sense to limit corporation size. Honestly, I think things would be much better off with a progressive tax on the number of employees and contractors a corporation has.
Anything up to 10000 is 0%, and after that, the brackets go up to 80% (for 1 million or over).
The 2008 financial crisis affected everyone, including the wealthy. In terms of reported net worth, young (<40) White, Asian or other Minority college grads were affected the most with a decline of 54.1% of wealth, compared to that of young African-American or Hispanic non college grads (15% decline).
That's not to say the pain felt was greater or even the same as those with less, but it is simply not true that somehow the wealthy remain unscathed from financial crisis. It doesn't even make sense at face value considering they have a large percentage of their wealth in the market and likely have a higher risk tolerance. In fact financial crisis reduces wealth inequality precisely because it affects the wealthy capital owner more
I think parent poster is talking about wealthy people, not college grads with good jobs. They're talking people who can see a market opportunity and invest a few spare million, then make a 100% profit when the market rebounds a few years later.
mean while, all their existing investments plummets. Unless you see them pull out of their investments prior to the crisis, there's very little evidence to support this claim that a financial crisis is good for the wealthy.
If the wealthy has any choice, they would overwhelmingly choose not to have a financial crisis.
These wealthy people don't have a crystal ball and we're likely highly invested in the market at time of crash.
> The top 1% had an average income of $1.26 million in 2014, a 19.1% decrease compared to $1.56 million in 2007, according to an analysis of tax data from researchers at the University of California, Berkeley, and the Paris School of Economics. It’s even worse news for the top 0.01%, whose average income fell to 27.4% from 2007 to a mere $29 million in 2014.
Talking about taxable incomes for the top .01% is silly. You should google the paradise papers or just do some basic reading. Wage workers have incomes that are a function of their job, the top .01% have income from a variety of sources and probably have tax specialists to help them adjust their income up or down to be most favorable given prevailing economic situation.
> You should google the paradise papers or just do some basic reading
Saying "you should google ..." is not a source. If you want to provide a source for your claim about some group, back it up. You're not making meaningful contribution to the discussion.
Yes, the very wealthy have a variety of sources of income (e.g. stocks) and those dropped greatly in value. Unemployment peaked at maybe 10% during the crisis. So some percentage of people lost jobs while the wealthiest who have most their wealth in capital that dropped 30%.
Ironically, having tax exempt investments hurts when your portfolio drops in value as you won't be able to write those off.
You are talking about the middle class. I am talking about people with more wealth than Bill Gates. The people who don’t have accountants and advisors, only own a one or two properties and maybe a million or so stashed for retirement; these people suffered more than Soros or Buffett.
The risk is social, the profit is private. Same as 2008. The entire sector needs to be completely rethought of, and regulated aggressively if they are to provide any public good.
Right, and doesn't the echo of CLO and CDO give the whole thing a feeling of intent? "How could we make a thing similar to 2008 happen and capitalize?" E.g.:
"Randal Quarles, who oversees Wall Street supervision and regulation at the Federal Reserve ...takes comfort from the fact that Wall Street banks are offloading risky loans to investors."
If those "investors" are pension funds or even 401ks, isn't this just a clever way of looting them disguised as a market phenomenon?
Also:
"That’s not the way the markets are supposed to work."
The wealthy disproportionately have their money invested in equities. The ultra wealthy are also typically highly concentrated in specific companies, think Jeff Bezos and Amazon. They tend to lose more when the market crashes.
The wealthy are able to wait out recessions without having to panic sell their equities and in the end they become even richer because inevitably the bull market that comes after the crash will make them come out on the top. All the while collecting dividends. Working class people who don't own equities don't gain anything from bull markets such as the one that's been going on for last 10 years.
I am not sure that's the case. I read that when you look at the top billionaire list through times (80s, 90s, 2000s, now), there is a lot of turnover. Over long economic cycles, the fate of the companies that made people rich can evolve in both directions.
Let's say I'm a billionaire. There's a market crash. A lot of my money is tied up in the market, but luckily, a lot of it isn't. A lot of it will be safe investments or shares in profit-generating companies that issue dividends. So, while the commoner is destitute, while I may have lost 50% of my wealth, I have safe money (and passive income) I can use to pour into the market buying post-crash cheap investments. Also, because my cost of living is minuscule compared to my income, I don't have to panic-sell during the crash.
When the market bounces back four years later, I'm now 1.5x wealthier than I was before the crash (thanks to all the cheap investments), and all I had to do was move some money around.
Don't forget that wealthy people also own a lot of real estate and are rentiers so they have plenty of passive income sources to easily cruise through a recession while buying up cheap stuff which will go up in price heavily once economy gets back on track.
Yes, they lose more.
They lose proportionally less. They're not winding up on the streets. It's disingenuous to pretend that it has anywhere near the impact on their lives as it does the other 99.9% of the participants in the economy.
They definitely can end up in the streets. Some of the wealthiest people suffered the most during past crashes, most killed themselves before taking the streets. Read Devil Take the Hindmost.
Edit: I’m not going to search through this book to find sources that fit some criteria you’re looking for. Get off HN comments, read a book, and learn some financial history lessons.
I haven't read it, but I have a feeling we're not talking about the same people. I'm not talking about successful investors and millionaires. I'm talking specifically about net worth north of $200M in today's dollars. Not the people who jumped from their windows during the Depression. The ones who bought their stock and waited it out.
Edit: I've now read a few reviews and summaries of Devil Take The Hindmost. Its subtitle is "A History Of Financial Speculation," and it appears that its subject matter is not focused on ultra-wealthy persons with diversified portfolios being ruined by market corrections, but specifically speculators and frauds. At a glance, it doesn't look particularly relevant to this conversation.
Batista is currently under arrest and has been sentenced to 30 years in prison for bribing disgraced Rio de Janeiro governor Sérgio Cabral, in order to secure public contracts, according to Wikipedia[0].
I'd prefer an example that isn't somebody who wound up in prison.
Citing an entire book as a source is quite frankly a ridiculous suggestion. You are suggesting that the poster should spend hours proving your position for you when you wont spend a few minutes.
My criteria didn't change. I was talking about people who were ruined by the market, and your example seems to be someone who was ruined by his own crimes.
I would like to know of one ultra-wealthy individual who ended up possessing nothing and was made homeless; I don't intend this to be callous but while committing suicide is a tragedy but it does't mean some rich person was going to end up homeless. Being homeless means you're at a point where no one can or will take you in, and I have a very hard time imagining a hedge fund billionaire in that position.
IMO schools should stand surety for students. Would solve many, many societal problems by putting their skin in the game, rather than using government subsidized loans that can't be defaulted.
>They lose proportionally less. They're not winding up on the streets.
Yes, but the implication of OP is that these ultra-wealthy are crashing the system so they can then buy up everything around them. Where is the data to support this? The rich suffer during a recession too; no one is claiming they end up on the streets.
Have you checked the Oxfam reports? When you take a look at the last years, there is very clear trend. If it continues like this probably in few decades the richest one percent will own as much as the rest 99%.
I believe we're thinking of different definitions of the word "suffer." The qualitative difference to which I refer is that for one class of people, the "suffering" is restricted to numbers on ledgers going down, and for another class of people, said suffering can literally involve ending up on the streets.
Furthermore, someone else in these very comments is claiming the ultra-wealthy can wind up on the streets as a result of market forces.
Correct. Profiteering off of chaos is a business model. Except now the ultra-rich are moving from financial instability into political one. The more chaos, the better, and with political instability you can also gain power, not only money.
The article has nothing to do with wealthy-vs-poor...but your argument is "the rich are better prepared to deal with a market downturn". Jimmy: the rich are better prepared to deal with everything.
With all the talk about the wealthy coming out on top or not...are we actually clear on who these people are? I'm inclined to think that the people that come out on top are the traders and their bosses who pick up the bonuses. Well, provided they're not the ones left with worthless assets :-)
Yay, diversification. They have stable investments they can draw from to purchase the now-insanely-discounted investments in the market, and come back in a much stronger position than before the crash.
So, no, you sell at a stable rate to buy at a discount rate.
Real estate was down in line with equities in the last crisis, so switching from one to the other was not selling a "stable" asset to buy a "discounted" one.
This has to be one of the most backwards comments I’ve read on HN. Read Devil Take the Hindmost and educate yourself. The wealthiest people in modern history lost the most and some drove themselves to absolute poverty. Many couldn’t even mentally handle the extreme quality of life change so they killed themselves.
Because Flat Earth levels of incorrectness should be pointed out. Or maybe we should just grab our pitchforks and make up other random conspiracies to justify how everything works rather than read history books?
When there's a recession, if you're wealthy and have diversified assets you can buy everything at a discount rate during a stock crash and sell when the recession recovers. Meanwhile, the poor and middle class often find themselves unemployed, their savings accounts massively depleted and in a constant crush for cash.
If you're wealthy AND you have the ability to create risk in the market, then even better. You can actually help trigger more "stock discounting" events, and dominate any emerging technology company with your bootstrapped companies while everyone is dying for credit.