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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
by jimmy_ruska 8y ago
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.
- sprafa 8y agoThe 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.
- RubberbandSoul 8y agoIt'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".
- DataWorker 8y agoI 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.
- orthecreedence 8y ago> they have a lot of political power 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).
- navigatesol 8y ago>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.
- chosenbreed37 8y agoWith 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 :-)
- kgwgk 8y agoSo you sell everything at a discount rate to buy everything else at a discount rate?
- orthecreedence 8y agoYay, 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.
- kgwgk 8y agoWhat are those “stable investments”? Investing is easy in hindsight, but the only “stable” asset is cash, and waiting for the entry point can be costly. Exit: to be clear, I’m a huge diversification advocate. But each crisis (and each bull market) is different and rebalancing is not always helpful.
- orthecreedence 8y agoStable investments: stocks in profitable companies that pay dividends, rent from property ownership, bonds, etc.
- kgwgk 8y agoReal 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.
- bko 8y agoThe 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 https://www.stlouisfed.org/publications/regional-economist/july-2012/household-financial-stability--who-suffered-the-most-from-the-crisis https://www.stlouisfed.org/publications/regional-economist/j...
- taneq 8y agoI 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.
- bko 8y agoThese 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. http://money.com/money/4264052/great-recession-impact-rich-1-percent/ http://money.com/money/4264052/great-recession-impact-rich-1...
- DataWorker 8y agoTalking 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.
- jmh530 8y agoThe 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.
- ceejayoz 8y agoThey tend to be able to wait out the crash, though, and be in better position to take advantage of the recovery.
- richardknop 8y agoThe 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.
- cm2187 8y agoI 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.
- ceejayoz 8y agoHigh turnover at the very top isn't shocking - there'll always be new ones like Zuckerberg and Bezos shooting up as new markets are found/created. There's a big difference between "no longer richest person in the world" and "lost everything".
- orthecreedence 8y agoLet'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.
- ataturk 8y agoLook to your left, look to your right. If you can't spot the sucker, guess what? Heard an ad on the radio for what sound like a day trading brokerage. Was thinking "man, every ten years they get a new round of idiots."
- papito 8y agoCorrect. 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.
- almost_usual 8y agoThis 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.
- umadon 8y agoWhy leap to the defense of the ultra rich? They certainly don't need it.
- almost_usual 8y agoBecause 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?
- unknownkadath 8y agoAbsolute poverty, you say?
- almost_usual 8y agoHow about being worth -1 billion dollars?
- unknownkadath 8y agoI can't tell if I missed earlier subtle sarcasm or if you're serious. If the former, we'll, ya got me!
- deleted 8y ago[deleted]
- almost_usual 8y agoI guess it’s easy to forget about The Great Depression.
- umadon 8y agoRight, 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." Forgive me, but, lol.
- iambateman 8y agoThe 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.