Wealth going to the 1%

Obviously Jeff Bezos doesn’t have a mountain of gold bars or Halloween candy or anything like that. What he does have is an understanding that society is in debt to Jeff Bezos to the tune of around a quarter trillion dollars.

Who actually bears the burden of servicing that debt load is where problems may arise.

So does the cost basis reset on inheritance to current market value, or do those shares continue to carry a baggage of original market price?

In Canada, if I use my RRSP (tax free retirement savings) as collateral for a loan, then it is deemed to have been redeemed when I used it, and taxes are due immediately.

I think the same should apply to stocks held by someone and used as a loan that goes into the owner’s pocket, instead of as re-investment. When you pledge any asset except your personal dwelling then any capital gains apply. (I.e. asset resets to current market value, and accrual is deemed income) More interestingly, make it 100% income tax rate instead of capital gains at 50% - an incentive to cash in rather than collateralize. Maybe a lifetime $1M exemption so average people don’t get hit with it for remortgaging the family cottage. But basically it should be when money goes into your pocket to pay for luxuries like groceries or a Bentley, that should be taxed no matter how it got there.

Yes, look at the board of any major corporation and it’s a circle jerk of assorted hired hands (CEO’s) approving largesse to that CEO because for some reason, all those CEO’s think CEO’s are worth millions (or tens of millions). Even if they drive the company off a cliff (or into one) the CEO still gets a golden parachute and golden handshake. Quite often the board is selected by the CEO and his flunkies, with some input from a few large institutional investors - so there’s minimal number of people rocking the boat.

I say hired hand because someone like Bezos, or Musk, or Gates, or even Buffet, made the company what it is today. You might suggest they lucked into their wealth, but they easily could have been the Lotus-123 or WordPerfect of our time also. They are rich because they managed to not drive off that cliff. However, the CEO of US Steel gets $16M, the head of Anheuser Busch got $40M, John Deere $26M etc. to pick random examples. They did not take those companies from a garage operation to a billion dollars capitalization.

John Hammergren, the CEO of healthcare giant McKesson Corporation (NYSE:MCK), saw his salary fall by almost half last fiscal year (this was 2015). Let’s not pass the hat for Hammergren just yet, though.
The CEO still took home $25.9 million in salary and stock options, not to mention his reportedly record-setting pension, which was slated to total $159 million, before investors protested. After 78% of shareholders voted against the plan, the company agreed to reduce the pension to $114 million.

Sounds like nonsense to me.

How does Bezo’s control of billions cause ,say, Oklahoma State University to charge 20 times more tuition than it did when you and I were college aged ?(1975 ish ). The price of tuition is determined by a hundred issues ,some national (political needs of bloated administration, compliance officers, Pell grants), and some local (cost of building dorms). But the 1% don’t affect these issues.

And how does Bezo’s wealth cause the price of housing to increase? That’s determined by very localized decisions of average, middle class people. The 1% don’t care. It’s our neighbors, average people who sit on local zoning boards, and vote NIMBY (not in my back yard) when granting building permits.

Okay I’ll give Jeff Bezos a pass. Let’s look at Steward Healthcare, a private equity firm that squeezed hospitals until people died, while the CEO and major shareholders made millions

Hmm, some of them give piles of money to scotus justices, so they can manipulate society, and form it to their liking. They don’t have to bother with all that silly voting nonsense. Much more efficient.

The way you describe it sounds as if Bezos is raking in $7.9m in cash per hour, then decides to invest it in assets because he doesn’t know what to do with it. But that’s not what’s happening. The $7.9m, or at least the vast majority of it, isn’t coming in as cash flow. The vast majority of Bezos’ wealth is Amazon stock, and the $7.9m are increases in the share price. Of course there are ways for Bezos to turn this into cash if he needs it; he can sell it, or he can borrow against Amazon shares as collateral. But either way, the $7.9m don’t come in as cash to then be converted into assets; they were assets to begin with, and exist on paper in the form of an increased value of these assets.

Moderating

While this started out as a basically factual question about how the economy works with the top 1%, the thread has drifted a lot into speculation, opinion, and a lot of interpretation of facts. This puts is squarely in IMHO territory.

Moving thread from FQ to IMHO.

Any factual information on the topic is of course still welcome.

There’s always a great deal of imprecision in conversations like this that smear “the 1%” and “the 0.1%” and “billionaires” and “Jeff Bezos/Elon Musk” as they all fall into one big lump such that we end up talking about outliers.

Even within the billionaire class, there’s like, maybe 30 - 50 people who legitimately can’t spend down their wealth on goods but you’d be surprised at just how much you can spend when you really set your mind to it and the sheer degree of excess waste and extravagance of pure consumption that can happen.

One of the YT channels I follow is a guy who critiques all the fancy mansion tours on Youtube and there’s a video of his that sticks in my mind of this $80M mansion built in the middle of nowhere in Branson, Missouri in the 90s and has basically been sitting there untouched since then:

You watch them go through room after room of beds that have never been slept in, liquor that’s sat on a shelf unopened, gardens that have been lovingly maintained by a crew of landscapers for the benefit of a non-existent audience. All of this consumption in service of essentially nothing. And the end result, according to the video is, that the remaining value only comes from the land, anyone who buys this property will have to tear down the entire thing. From reading about the guy who built it, he was worth about $1B - $5B when he died and he was a “philanthropist” in that he gave a portion of his remaining wealth to charity but every dollar that went into building this place was a dollar he threw into a fire instead of giving to charity and $80M is not nothing even within a $1B fortune.

There was a fascinating piece in the New Yorker a few years ago about how the most expensive yachts in the world now exceed the prices for the most expensive homes and why homes, even among the uber wealthy, reach a natural capping point but there’s still a desire to consume more yacht

Saying that Jeff Bezos can’t possibly spend all his money on yachts is hiding there’s an entire class just below him that is pouring a substantial part of their global wealth into pure, unadulterated consumption of absolutely trivial baubles.

There’s also this common misconception that the rich are just an opportunity to be grifted and the things they spend on must have outrageous markups and aren’t produced in a manner than different from one tier below but largely also isn’t that true. The rich didn’t get rich by being bad with their money and once you dive into the actual details what they spend on, for the most part, they’re expensive because they have to be expensive, not because someone in the chain is making a large, undeserved fortune. That house in the middle of Branson, someone had to ship all that steel in and hire the people to put it all together and those people couldn’t have been working on building houses for ordinary people while they were doing this. Those mattresses cost $10,000 a piece not because someone got scammed but because it legit costs that much to hire the people to make them and they couldn’t be doing anything else. Every single person involved in the project could have been making something that benefited a real person and instead they wasted a part of their life on a folly.

We’ve seen what the end state of this is, we’ve lived that end state through all of history. You wander through Europe and see all the castles and art and jewelry that was consumed by the nobility while the population lived as serfs. You wander through Egypt and see pharaohs piling up pointless rocks into tombs as a way to sop up their excess labor. Future historians will see our increased wealth inequality from that exact same lens and it will be simply obvious to them from the benefit of hindsight. The only reason we’re fooled today is because the same powerful interests have an investment in making us fooled.

Can’t edit my previous post but the part in the New Yorker Article I was referring to:

In 2019, the hedge-fund billionaire Ken Griffin bought a quadruplex on Central Park South for two hundred and forty million dollars, the highest price ever paid for a home in America. In May, an unknown buyer spent about a hundred and ninety-five million on an Andy Warhol silk-screen portrait of Marilyn Monroe. In luxury-yacht terms, those are ordinary numbers. “There are a lot of boats in build well over two hundred and fifty million dollars,” Jamie Edmiston, a broker in Monaco and London, told me. His buyers are getting younger and more inclined to spend long stretches at sea. “High-speed Internet, telephony, modern communications have made working easier,” he said. “Plus, people made a lot more money earlier in life.”

A Silicon Valley C.E.O. told me that one appeal of boats is that they can “absorb the most excess capital.” He explained, “Rationally, it would seem to make sense for people to spend half a billion dollars on their house and then fifty million on the boat that they’re on for two weeks a year, right? But it’s gone the other way. People don’t want to live in a hundred-thousand-square-foot house. Optically, it’s weird. But a half-billion-dollar boat, actually, is quite nice.” Staluppi, of Palm Beach Gardens, is content to spend three or four times as much on his yachts as on his homes.

A better economy helps the middle class only if money generated by the better economy flows to their pockets. This thread is about how so much of that money doesn’t go there.

Yes, when you inherit stock the cost basis is reset to the current price on the date of death. So, if Bezos recieved it all very early for $0.25/share and it’s now worth $200/share, that $199.75 per share gain is magically erased. Theoretically, if you could sell it instantly you would not incur any long or short term gains, no taxes, just free cash. If it went down a dollar, you’d sell it at a loss and use that loss as a deduction.

CEOs making money despite doing shitty, is like sports stars. They sign huge contracts and they all get paid a lot of money. Some pan out, some don’t. If you want their pay all based on performance and no guaranteed money, then put it in the contract. But then some other team would offer guaranteed money and so it goes.

Not a perfect analogy, but CEOs are like the players. The owners (or US Steel, Anheuser Busch, Johh Deere) are not losing much sleep over $50million contracts. You of course want it to work out and that player/CEO be a good investment, but if not, whatever. Taking the risk on talent was the right call whether it works out or not (or, the more you fail the likelier it is you’ll succeed). You just need one success to make it worthwhile.

The big payouts is only outrageous from my (not rich) perspective.

I think at one time or another they may have been the richest man on earth, and it’s hard to keep up with these things.
And that’s for some of the reason that @CoolHandCox is getting at, in fact: many of the richest are based on an extrapolation of their current share holdings, not what money they actually have in a vault somewhere, or even concrete assets. So this is how they can “lose” $40 billion in a day or whatever; they didn’t really have that money in the first place.

It also worth noting that probably the most rich people in the world do not need to declare their assets and will never show up on these lists.

I don’t generally have a problem with them personally, unless they have done immoral things to get that wealth.
But a billion dollars is a ludicrous amount of money, and having a comparative large number of such uber-rich is an indication of legislature that heavily favors companies over employees and wider society, and likely monopolistic practices.

Take a step back and look at the implications. He has a huge incentive to run his company in such a way that the share price goes up, and nothing else. Cut worker pay as much as possible, share price goes up. Maybe that hurts production, safety, and even future profitability, but those things don’t matter, because share price goes up. Outsource and contract away as much as possible. so he can gain the benefits of the labor, but someone else assumes the risks.

This is an argument from someone whose life would not be changed by $1000. Here is an experiment that gave groups either $12000, $5600, or $600 per year. All of those groups showed significant gains in housing, fewer nights on the street, and less reliance on emergency services.

Even an extra $50/month can make an impact if given to the right people.

This is too simplistic a view of the way companies work. It’s not that there’s an automatic mechanism that anything that cuts present costs will push up the share price. A share is worth what people are willing to pay for it, and in determining how much they’re willing to pay for it they may well take a long-term perspective. Amazon itself was continually loss-making for much of its history after it was founded in 1994, but Bezos continued with the strategy of trading short-term profits for long-term growth. The company is the antithesis to shorttermism in corporate management.

IMO, the fact that our country can produce many billionaires is an indication we have a robust economy. These billionaires create thousands & thousands of jobs, including jobs for lower-middle class and middle-class folks.

Why yes! Billy stops hiding that dollar under his mattress, and instead gives it to kindly old Mr. Jompers the Banker. Mr. Jompers lends a dollar to Jimmy. Jimmy agrees to pay Mr. Jompers twelve cents interest after a year, and Mr. Jompers pays Billy eight cents if he leaves his dollar sit for a year. So you see children, that dollar can become two dollars and twelve cents! Yay Capitalism!

That’s what they tell children

Like I said, there really isn’t that much feasible investments out there compared to the amount of money available.

I didn’t mention the Big Bubble. Investments in investments in investments … .

One of scarier investments for rich people are certain types of hedge funds. They don’t go bankrupt very often but when they do it’s spectacular. A “higher than expected” withdrawal requests and kapow, the thing can just crater. And some of these manage an immense amount of money. We’ve been very lucky in avoiding a major domino crash with these.

Note that a traditional investment is to buy a new stock offering in a manufacturing company looking to expand. It needs the cash to build new factories and such. With the export of a lot of our manufacturing base overseas that option went downhill. (Thankfully it’s coming back.)

In fact, the wisdom of expanding by stock sales is considered old-fashioned. Loans and such are the way to go. That moves the pressure point onto the bank.

Note that certain “investments” don’t really create jobs. Oftentimes, the opposite. Take short selling and similar strategies. How does betting (and it is basically gambling) that a stock is going to sink help anybody except the bettor? How many jobs does this create? And sometimes there’s a gangup on shorting a company despite it being healthy and it hurts the company’s finances. (E.g., a company has a loan from a bank that requires that it’s stock price be above X. The short sellers cause it to sink below X, the bank calls the loan in, refinances it at a higher rate or whatever.)

Money has to move to do any good. Rich people are lousy as making money move. E.g., they buy a $50 million painting. Maybe loan it out to a museum, etc. But that painting isn’t doing anything to help the economy. If these paintings were being resold every month there could be a small benefit but since the strategy is to hold for a good while, get a vastly inflated valuation for it, donate it to a museum, take a really big tax deduction, lather rinse repeat. How does this create jobs comparable to the $50 million investment?

Short term versus long term is 90s talk. The goal now is infinite growth[1] People watched things like Amazon go from nothing to huge, it will grow forever! People watched Apple go from the brink of bankruptcy to the highest market cap in the world (for a time), it will grow forever! Similar Facebook, Google, Tesla.

All massive amounts of growth that is eventually unsustainable. You don’t get rich earning a few percent on dividends, you get rich by 1000 fold growth in your investments. So burn the good employees and suppliers to save a bit more money, which is used to buy back stocks. That is win for the people holding the stock, and a loss for everyone else. Don’t invest in good products that might have incremental growth, but hype crypto, VR, metaverse, AI, etc. each as the next 1000 fold growth area. Entice people to buy in now, FOMO, to keep the infinite growth cycle running.


  1. Don’t tell me it’s impossible, tell the people promising it that it’s impossible. ↩︎

Many users of Google’s, Tesla’s and Apple’s products would disagree with the claim that these companies don’t invest in good products. Google has the best (in terms of usefulness of its results) search engine in the world, at least for now (AI rivals such as Perplexity might jeopardise its position). Tesla pioneered the electric car for the mass market. Apple has a marketing scheme that I don’t like, but there’s no denying that they make very fine electronic devices. And all of these companies are known for paying their engineers good salaries.