Tuesday, January 10, 2012


Der Untergang Starts Somewhere

As everyone gets so excited about the pending "vote" in New Hampshire to determine which Retrograde Tool Of Capital gets the Cream Pie in this month's Rethug Clown Contest...

Just a few months before two of Bear-Stearns' Real-Estate-Derivative Investment Funds began to implode, as Barry Ritzholtz's The Big Picture reminds us: On January 10, 2007, Little Rupert's Newsy-Truthy Wall Street Journal published an article entitled "Plutonomics" (I don't like linking to any of Rupert's crap on principle, but if you must, go read it here).

"It was written by of all folks, Citigroup global strategist Ajay Kapur", Ritzholtz writes. "In 2005, Kapur’s research team “came up with the term ‘Plutonomy’ ... to describe a country that is defined by massive income and wealth inequality."

According to Kapur's research team, their definition meant that the United Statesis a Plutonomy, along with the U.K., Canada and Australia.”
What are the basic characteristics of Plutonomies? According to Kapur:
  • They are all created by “disruptive technology-driven productivity gains, creative financial innovation, capitalist friendly cooperative governments, immigrants…the rule of law and patenting inventions. Often these wealth waves involve great complexity exploited best by the rich and educated of the time.”
  • There is no “average” consumer in Plutonomies. There is only the rich “and everyone else.” The rich account for a disproportionate chunk of the economy, while the non-rich account for “surprisingly small bites of the national pie.” Kapur estimates that in 2005, the richest 20% may have been responsible for 60% of total spending.
  • Plutonomies are likely to grow in the future, fed by capitalist-friendly governments, more technology-driven productivity and globalization.
Kapur also noted the impact massive income and wealth inequality had on other aspects of the economy: Savings rates, national debt level, spending patterns, reaction to high commodity prices, and more. All of these, he claimed are substantially affected by the ultra wealthy.

Note that this was from 5 years ago today — circa January 2007 was, ten months before the market peaked, 11 months before the Great Recession began, and 15 months before Bear Stearns, 21 months before Wall Street (AIG BAC C FNM LEH, etc.) collapsed, and about 55 months before Occupy Wall Street began.
Interestingly, in February of 2007, a month after publishing this article, Kapur quit Citigroup to found a Hong-Kong-based hedge fund, First Horse Capital. Sixteen months after opening, the firm shut down on June 17, 2008. Kapur now works for DeutscheBank in New York.

As Goethe once wrote, We do not have to visit a madhouse to find disordered minds; our planet is the mental institution of the universe.

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