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Measure content performance. Develop and improve products. List of Partners vendors. Your Money. Personal Finance. Your Practice. Popular Courses. Business Company Profiles. Key Takeaways AIG was one of the beneficiaries of the bailout of institutions that were deemed "too big to fail. AIG survived the financial crisis and repaid its massive debt to U. Compare Accounts.
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. These findings are discussed in detail near the end of this document. In the United States, wealth is highly concentrated in relatively few hands.
Table 2 and Figure 1 present further details, drawn from the careful work of economist Edward N. Wolff at New York University Total assets are defined as the sum of: 1 the gross value of owner-occupied housing; 2 other real estate owned by the household; 3 cash and demand deposits; 4 time and savings deposits, certificates of deposit, and money market accounts; 5 government bonds, corporate bonds, foreign bonds, and other financial securities; 6 the cash surrender value of life insurance plans; 7 the cash surrender value of pension plans, including IRAs, Keogh, and k plans; 8 corporate stock and mutual funds; 9 net equity in unincorporated businesses; and 10 equity in trust funds.
Total liabilities are the sum of: 1 mortgage debt; 2 consumer debt, including auto loans; and 3 other debt. From Wolff In terms of types of financial wealth, in the top one percent of households had The only category which is not skewed severely toward the upper class is debt. There is a perception that a large number of Americans own stock -- through mutual funds, trusts, pensions, or direct purchase of shares. Figures on inheritance tell much the same story. According to a study published by the Federal Reserve Bank of Cleveland, only 1.
Another 1. On the other hand, Thus, the attempt by ultra-conservatives to eliminate inheritance taxes -- which they always call "death taxes" for P. It is noteworthy that some of the richest people in the country oppose this ultra-conservative initiative, suggesting that this effort is driven by anti-government ideology. In other words, few of the ultra-conservative and libertarian activists behind the effort will benefit from it in any material way.
However, a study Kenny et al. For more infomation, including the names of the major donors, download the article from United For a Fair Economy's Web site. Actually, ultra-conservatives and their wealthy financial backers may not have to bother to eliminate what remains of inheritance taxes at the federal level. The rich already have a new way to avoid inheritance taxes forever -- for generations and generations -- thanks to bankers.
After Congress passed a reform in making it impossible for a "trust" to skip a generation before paying inheritance taxes, bankers convinced legislatures in many states to eliminate their "rules against perpetuities," which means that trust funds set up in those states can exist in perpetuity, thereby allowing the trust funds to own new businesses, houses, and much else for descendants of rich people, and even to allow the beneficiaries to avoid payments to creditors when in personal debt or sued for causing accidents and injuries.
You can read the details on these "dynasty trusts" which could be the basis for an even more solidified "American aristocracy" in a New York Times opinion piece published in July by Boston College law professor Ray Madoff, who also has a book on this and other new tricks: Immortality and the Law: The Rising Power of the American Dead Yale University Press, For the vast majority of Americans, their homes are by far the most significant wealth they possess.
Figure 3 comes from the Federal Reserve Board's Survey of Consumer Finances via Wolff, and compares the median income, total wealth net worth, which is marketable assets minus debt , and non-home wealth which earlier we called financial wealth of White, Black, and Hispanic households in the U.
Besides illustrating the significance of home ownership as a source of wealth, the graph also shows that Black and Latino households are faring significantly worse overall, whether we are talking about income or net worth.
In , the average white household had more than 15 times as much total wealth as the average African-American or Latino household. If we exclude home equity from the calculations and consider only financial wealth, the ratios are more than And for all Americans, things got worse during the "Great Recession": comparing the numbers to the numbers, we can see a huge loss in wealth -- both housing and financial -- for most families, making the gap between the rich and the rest of America even greater, and increasing the number of households with no marketable assets from It's a number I haven't even mentioned so far, and it's shocking: the lowest two quintiles hold just 0.
Americans from all walks of life were also united in their vision of what the "ideal" wealth distribution would be, which may come as an even bigger surprise than their shared misinformation on the actual wealth distribution. In fact, there's no country in the world that has a wealth distribution close to what Americans think is ideal when it comes to fairness. So maybe Americans are much more egalitarian than most of them realize about each other, at least in principle and before the rat race begins.
NOTE: In the "Actual" line, the bottom two quintiles are not visible because the lowest quintile owns just 0. But it wasn't as bad in the 18th and 19th centuries as it is now, as summarized in a article in The Atlantic. The wealth distribution was fairly stable over the course of the 20th century, although there were small declines in the aftermath of the New Deal and World II, when most people were working and could save a little money.
There were progressive income tax rates, too, which took some money from the rich to help with government services. Then there was a further decline, or flattening, in the s, but this time in good part due to a fall in stock prices, meaning that the rich lost some of the value in their stocks. It has continued to edge up since that time, with a slight decline from to , before the economy crashed in the late s and little people got pushed down again.
Table 4 and Figure 5 present the details from through Thanks to a study by the World Institute for Development Economics Research -- using statistics for the year -- we now have information on the wealth distribution for the world as a whole, which can be compared to the United States and other well-off countries.
The authors of the report admit that the quality of the information available on many countries is very spotty and probably off by several percentage points, but they compensate for this problem with very sophisticated statistical methods and the use of different sets of data. That compares with a figure of For the figures for several other Northern European countries and Canada, all of which are based on high-quality data, see Table 5.
What's the relationship between wealth and power? To avoid confusion, let's be sure we understand they are two different issues. Wealth, as I've said, refers to the value of everything people own, minus what they owe, but the focus is on "marketable assets" for purposes of economic and power studies. Power, as explained elsewhere on this site , has to do with the ability or call it capacity to realize wishes, or reach goals, which amounts to the same thing, even in the face of opposition Russell, ; Wrong, Some definitions refine this point to say that power involves Person A or Group A affecting Person B or Group B "in a manner contrary to B's interests," which then necessitates a discussion of "interests," and quickly leads into the realm of philosophy Lukes, , p.
Leaving those discussions for the philosophers, at least for now, how do the concepts of wealth and power relate? First, wealth can be seen as a "resource" that is very useful in exercising power. That's obvious when we think of donations to political parties, payments to lobbyists, and grants to experts who are employed to think up new policies beneficial to the wealthy.
Wealth also can be useful in shaping the general social environment to the benefit of the wealthy, whether through hiring public relations firms or donating money for universities, museums, music halls, and art galleries.
Second, certain kinds of wealth, such as stock ownership, can be used to control corporations, which of course have a major impact on how the society functions. Tables 6a and 6b show what the distribution of stock ownership looks like. Note how the top one percent's share of stock equity increased and the bottom 80 percent's share decreased between and Third, just as wealth can lead to power, so too can power lead to wealth.
Those who control a government can use their position to feather their own nests, whether that means a favorable land deal for relatives at the local level or a huge federal government contract for a new corporation run by friends who will hire you when you leave government.
If we take a larger historical sweep and look cross-nationally, we are well aware that the leaders of conquering armies often grab enormous wealth, and that some religious leaders use their positions to acquire wealth. There's a fourth way that wealth and power relate. For research purposes, the wealth distribution can be seen as the main "value distribution" within the general power indicator I call "who benefits. And philosophical discussions don't even mention wealth or other power indicators Lukes, If you have heard it all before, or can do without it, feel free to skip ahead to the last paragraph of this section.
Here's the argument: if we assume that most people would like to have as great a share as possible of the things that are valued in the society, then we can infer that those who have the most goodies are the most powerful.
Although some value distributions may be unintended outcomes that do not really reflect power, as pluralists are quick to tell us, the general distribution of valued experiences and objects within a society still can be viewed as the most publicly visible and stable outcome of the operation of power.
In American society, for example, wealth and well-being are highly valued. People seek to own property, to have high incomes, to have interesting and safe jobs, to enjoy the finest in travel and leisure, and to live long and healthy lives.
All of these "values" are unequally distributed, and all may be utilized as power indicators. However, the primary focus with this type of power indicator is on the wealth distribution sketched out in the previous section.
The argument for using the wealth distribution as a power indicator is strengthened by studies showing that such distributions vary historically and from country to country, depending upon the relative strength of rival political parties and trade unions, with the United States having the most highly concentrated wealth distribution of any Western democracy except Switzerland. For example, in a study based on 18 Western democracies, strong trade unions and successful social democratic parties correlated with greater equality in the income distribution and a higher level of welfare spending Stephens, And now we have arrived at the point I want to make.
And then we set out to see if the same set of households scores high on other power indicators it does. Next we study how that power operates, which is what most articles on this site are about. The income distribution also can be used as a power indicator. That's up from This is further support for the inference that the power of the corporate community and the upper class have been increasing in recent decades.
Most amazing of all, the top 0. But the increase in what is going to the few at the top did not level off, even with all that. As of , income inequality in the United States was at an all-time high for the past 95 years, with the top 0. However, in an analysis of tax returns for the top 0. And the rate of increase is even higher for the very richest of the rich: the top income earners in the United States. According to another analysis by Johnston a , the average income of the top tripled during the Clinton Administration and doubled during the first seven years of the Bush Administration.
To meet this demand for higher returns, the U. Ratings agencies, like Moody's or Standard and Poor's, gave high marks to the processed mortgage products, grading them AAA, or as good as U.
Treasury bonds. And financiers regarded them as reliable, pointing to data and trends dating back decades. Americans almost always made their mortgage payments. The only problem with relying on those data and trends was that American laws and regulations had recently changed. The financial environment of the early 21st century looked more like the United States before the Depression than after: a country on the brink of a crash.
An employee of Lehman Brothers Holdings Inc. To prevent the Great Depression from ever happening again, the U. Franklin Roosevelt had campaigned on this issue as part of his New Deal in , telling voters his administration would closely regulate securities trading: "Investment banking is a legitimate concern.
Commercial banking is another wholly separate and distinct business. Their consolidation and mingling is contrary to public policy. I propose their separation. He and his party kept this promise. Then, with the Banking Act of a. For decades afterward, such restrictive regulation ensured, as the adage went, that bankers had only to follow rule pay depositors 3 percent, charge borrowers 6 percent, and hit the golf course by 3 p.
This steady state persisted until the latter s, when politicians hoping to jolt a stagnant economy pushed deregulation. Over several decades, policymakers eroded Glass-Steagall separations. Most of what remained was repealed in by act of Congress, allowing big commercial banks, flush with the deposits of savers, to lumber into parts of the financial business that had, since the New Deal, been the province of the smaller, more specialized investment banks.
These nimbler firms, crowded by bigger brethren out of deals they might once have made, now had to seek riskier and more complicated ways to make money.
The level of wealth decline in those groups … You could write a whole reparations article just off what happened in the past eight years. Yet if you look at the statistics, real worker wages have continued to be flat for this period. The crisis itself was the greatest looting of the public purse in history. The crisis itself was a huge wealth transfer. The Obama administration should have forced a lot more recognition of the losses.
These losses were real. They should have forced more loan write-downs. And recognition of the loss to the financial system. And they should have had a huge stimulus to offset the downdraft of recognizing those losses. And in fact the Japanese, early in their crisis, they said the biggest mistake we made was not writing down the bad loans in the banking system.
And we did this in a more indirect manner by having the Fed engineer these super-low interest rates that were a transfer from savers to the financial system. So that reduction of income right there, you see today. It used to be that if you were a saver or an asset holder, you could get a decent positive return doing something not crazy. And the Fed took that away. The big reason the pensions are in crisis is because the way we dealt with the crisis.
We have this fallacy that normal people should be able to save for retirement. Why do you think we have Trump? What you hear from these coastal elites: People over 40, even over 35, are basically non-hirable.
Are you gonna train them? This is one of my criticisms of the Obama administration, but now appears to be true of the Democratic Party generally, that they think the solution for every problem is better PR.
Boots Riley Musician and filmmaker The quote-unquote real-estate boom was all bullshit. You should be buying a house. And that any other view was an irresponsible view! To bring it up as this being a contradiction was to be thought of as some sort of conspiracy theorist. Steve Rattner Financier I think the job that was done by both the Bush administration and the Obama administration was really remarkable in retrospect.
They were operating in real time, with banks literally close to failure over a weekend, banks having to be merged over a weekend to be saved. I suspect that if I looked at the auto thing, I might think of some things we should have done differently, but not many. So I think we should all be pretty grateful.
The key decision in the case of both the banking crisis and the auto crisis was the decision that government needed to step in. Remember, there were people who argued that the market should work and capitalism should be allowed to function and government had no business investing in banks or saving banks or saving auto companies.
The pressure to not intervene was particularly acute during the Bush administration. I think is too often left out precisely because it does pose a tremendous challenge to the Democratic Establishment. Paul Romer Economist Did you get a chance to look at this looting paper?
This is a couple of crises ago. In effect, what [economist George Akerlof and I] showed is that seemingly small weaknesses in your regulatory system can open up enormous risks, and enormous opportunities for private profit.
So what it tells you is that under-regulating or mis-regulating is much more dangerous than people generally accept. Everybody disliked that paper. This is what worries me, people are kind of heading back to the pre-crisis worldview. Regulation is never perfect. You can always kind of complain about imperfections. You know, how much harm could it cause? Stephanie Kelton Economist The knock-on effects that arose as a consequence of failing to keep people in their homes impact everything from academic performance of the kids who were in those families to the health of the parents, the balance sheets, the credit scores.
When you lose your home and you lose your job, the aftereffects that stay with you make it difficult for tens of millions of Americans to even take advantage of the policies that were designed to bring about a recovery. Low interest rates, for example. Now you graduate and you enter into the labor market at the worst possible time in 35 years or whatever since the recession of the early s.
By Christopher Caldwell. The quarter-century leading up to the crash was a golden age not just of financial gambling but of gambling more generally. Until the election of Ronald Reagan in , playing the ponies or numbers had in many places been a vice and playing the slots a crime. Casinos and sports betting were banned everywhere but Nevada and Atlantic City.
By , gambling was a hundred-billion-dollar industry touching every state except Utah and Hawaii. Riverboat gambling was reestablished, especially in the Midwest. Indian tribes opened gambling resorts in 29 states. Vast regional and national lotteries flourished alongside state ones. Gambling was in the Spirit of the Age. But what did it actually mean? Partly it had to do with an erosion of character.
The rewards of capitalism had, in the public mind, come unbundled from the set of virtues once called the Protestant work ethic. Getting rich had as much to do with luck or effrontery as sustained effort.
Partly it had to do with irresponsibility. Right up until the early fall of , many Americans had been comfortable with the notion that a well-functioning economy looked a good deal like a well-functioning casino. No longer. By Timothy Shenk. During the financial crisis, the most important lie that political elites told themselves was that they had no other option. The crash was an act of creative destruction, and the once unimaginable is now the stuff of cable-news roundtables.
On the left, Democrats are debating Medicare for all, tuition-free college, and a federal jobs guarantee. On the right, Fox News is fulminating over the deep state and conservative intellectuals are mainstreaming the case for repealing birthright citizenship.
All this is taking place while unemployment is hovering around 4 percent and economic growth is steady. Does anyone want to guess what will happen when the good times stop? If the difference between Mitt Romney and Barack Obama seemed vast in , imagine what will happen when the generation of Stephen Miller and Alexandria Ocasio-Cortez takes power. For all their differences, Miller and Ocasio-Cortez both demonstrate the central lesson from the last decade of crisis: There is always another option.
The question is whether we will choose a better one. But sometimes you only recognize something when you have a name for it. How did we ever talk about the economy before? Kickstarter, GoFundMe, Patreon When did we give up hope that the market would provide us with the things we cherished most, from art to entrepreneurship to health care? In retrospect, the answer seems obvious. Bitcoin How could you even trust the Fed anymore? The older folks hoovered up gold, which basically doubled in value in the four years after the crash.
Younger folks dove into cryptocurrency; bitcoin, the first, was registered as a domain in August The problem was, the recovery was also the slowest. Occupy It felt like a revolution, for a minute at least. Survivalism What do the elites do in the twilight? Retreat to their end-of-the-world bunkers, behind their electrified fences, on their New Zealand estates. Gaming In , economist Erik Hurst proposed that so many young men were missing from the workforce because they were choosing to spend their days playing video games instead.
Your skin especially. Which was important, because the ambient anxiety takes a toll. Instagram Probably not an accident that the representative social-media platform of the past decade is powered by envy. The Death of News It began with Craigslist killing classified revenue, but the death of American newspapers rapidly accelerated after — the number of jobs in the industry falling from about , before the crash to well under , today.
The Sharing Economy Why own anything when you could just rent it? In an earlier era, this would not have seemed a wise question. Millennials As the decade has worn on, every single aspect of the generational stereotype — the narcissism, the self-salesmanship, the earnestness and the entrepreneurship — looks less like a feature of coddled youth and something more like its opposite: the survival instincts of a desperate generation with nothing to sell but themselves.
How did this happen?
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