Flutterby™! : 2% Illusion 2009-02-26 22:44:34.301384+00

2% Illusion

2009-02-26 22:44:34.301384+00 by Dan Lyke 7 comments

Wall Street Journal: The 2% Illusion: Barack Obama's Expensive Domestic Agenda Will Cost America's Middle Class:

But let's not stop at a 42% top rate; as a thought experiment, let's go all the way. A tax policy that confiscated 100% of the taxable income of everyone in America earning over $500,000 in 2006 would only have given Congress an extra $1.3 trillion in revenue. That's less than half the 2006 federal budget of $2.7 trillion and looks tiny compared to the more than $4 trillion Congress will spend in fiscal 2010. Even taking every taxable "dime" of everyone earning more than $75,000 in 2006 would have barely yielded enough to cover that $4 trillion.

Via.

Would that Murdock's Journal had been as critical of the cowboys on Wall Street whose misbehavior brought us to this pass!!

Cowboys on wall street.. Investors ranging from mom and pop retirement funds to young asians saving money to buy a house someday... Realtors eyeing 3-7% commissions... HGTV urging "Flip this house!" and people who really needed that McMansion they couldn't really afford...

Wasn't it interesting that one of the superbowl ads was for a "buy your gold jewelry" outfit? Pawn shops - the wave of the future!!

Not quite sure how I can read that investors trying to save for retirement, house or education are our internal enemy, but I'll accept it for the sake of argument

I think anyone who invested in the stock markets post about 1995 without understanding that at that point it was one big game of high stakes poker (for years I've been pointing people back to Greenspan's "irrational exhuberance" comment and asking how much efficiency the internet has brought to the market; when put in those terms the highest DOW anyone could justify was 8500 or so), or anyone who participated in the house-buying orgies of the first half of the naughties (and, yeah, we're culpable, but we got our mortgage by stating a bit over half our income and did so expecting inflation) bears some responsibility.

I think a good portion of the stock market bubble was also related to the 401k marketed notion that rather than investing in our lives and our communities we should turn our money over to professional ~~scamsters~~ money managers.

And, yeah, those jewelry buying outfits, along with the jewelry buying parties that extend that notion to an MLM sort of operation, are sheer brilliance in their slime.

#Comment Re: made: 2009-02-27 22:54:34.881728+00 by: andylyke [edit history]

Yeah -- "money managers", just like "CEOs" impose a huge "agency cost", which is the difference between what a wise person might do with his own property and what a hired gun, who doesn't have the long term health of the investment as his personal interest, might do. Call me stupid, but I was amazed to learn that myriad retirement plans were deeply involved with Bernie Madoff's hedge fund. I thought the whole idea of a hedge fund was that it was only for people of great wealth who could afford to lose a bundle. The CEO of <fill in the name of your favorite investment bank, energy trading company,...> doesn't give a s**t about the investors' well-being if it doesn't align exactly with his own. I think that's called Objectivism.

This is particularly irksome to me when the CEO is insulated from the investor by a mutual fund, so that the investor hasn't even a shareholder's vote on the corporate governance.

As a slight change of topic, but an interesting side note, I ran across a discussion of why nationalizing the banks is off the table: If you bail them out, you're taking tax dollars, which are billed progressively. If you nationalize them, the market tanks and you're taking money from Wall Street investors which, allegedly, is distributed far less progressively than tax income. So, this theory says, taxpayer funded bailouts take from those with higher incomes.

Back to the topic at hand, I've been shocked at how many people were investing with people who were investing with people who just put it all into Madoff. I think the notion that somehow you could get something for nothing by paying someone else to manage your investments has been trampled pretty heavily now, and we're all going to pay for it.

I think the lesson for me is that I've been taking way too much personal risk in my various endeavors.

As to whether or not this is Objectivism, I don't think so, but then one of the several things that has pushed me away from that philosophy is thinking about where one draws the line on outright lies versus withholding information (the others involve things like real estate and asset allocation in static economies and the realization that above a population density of about 1 person per square mile, having children is an act of violence).

A loan or preferred stock is in line before the common shareholders at bankruptcy, so would put the government (read: taxpayers) at less risk of loss than taking equity, as I believe they (read: government) have chosen to do, swapping preferred for common. This, while it dilutes the common stock, relieves the common shareholders (read: Wall Street) somewhat of the default risk, and shoulders that risk on the people (read: succeeding generations) more broadly.