Tuesday, May 12, 2009

Show Me the Money!

Greetings good citizen,

The banks (after having been injected with 700 Billion dollars worth of government funds) are now being required to raise nearly 70 Billion more on their own.

And so far, the banks that have offered billions of dollars worth of new debt (shares, bonds or whatever) have had no problem finding subscribers.

Naturally, what has me scratching my head is ‘where is this money coming from?’

After being soaked big time in the derivatives scam, do pension funds and the money markets still have enough ‘liquidity’ to make such risky bets?

Interestingly enough, pensions and other ‘institutional investors’ are prohibited by law from investing in anything less than AAA rated securities (not that this means much anymore.) Understand good citizen there ‘were’ only seven US companies that had AAA ratings and I’m guessing we’re down to five since GE and Berkshire Hathaway both lost theirs…

So, Show Me the Money!

To get an idea of how many folks have what in their bank accounts, we have this article from Michael Panzer’s site, Financial Armageddon.

He begins this piece with a rather curious choice of titles:

Not So Different

Let me tell you about the very rich. They are different from you and me.
-- F. Scott Fitzgerald

The current crisis has proven many apparent truisms wrong.

Among other things, we've learned that there are few, if any, industries, including health care and consumer staples, that are truly recession-proof.

We've seen how closely tied the rest of the world is -- up until now, at least -- to economic circumstances in the United States, despite the assertions of the decoupling-ists.

We've also discovered that, contrary to popular belief, the rich are not immune to the pressures of a broad-based economic downturn.

Indeed, in "How the Wealthy are Spending Their Money This Year," the Luxist blog reveals just how much the attitudes of those who still have the cash and those who don't have converged.

[Original article begins:]

Last week, I sat down with representatives from American Express Publishing and Harrison Group to see a presentation and discuss a question which is on many of our minds: How are the wealthy reacting to the recession?

Well, to start with, more than half (53%) are worried they could run out of money. Dr. Jim Taylor, vice chairman of Harrison Group, and Cara David, senior vice president of corporate marketing and integrated media of American Express Publishing spent approximately an hour display charts that showed the results of countless hours spent crunching the first-quarter responses of 1,300 Americans with discretionary incomes over $100,000 (that means income after tax, mortgage, home maintenance, and child education costs are subtracted.)

This year there are 120,000 fewer households that fit in that range. The number of households with a discretionary income over $500,000 went from approximately 118,000 to 92,000 -- the first drop since 1997. [You will note that the number of $100k households is missing the ‘total’ number so we have no clue what the 120,000 household drop is subtracted from. The $500k ‘discretionary’ figure is complete at 92,000.]

Of these 1,300 moderately-to-very wealthy Americans, 70% believe that the recession will last longer than a year, and 35% think this could be a long term depression. 78% report that the crisis has affected their sense of financial security.

So how does their spending look? "Luxury is not dead, there's simply a filter on risk," says Taylor. 77% said they are buying fewer "big ticket items" this year -- so it's a safe bet that they're buying brands they trust. There seems to be a trend among the wealthy of pride in their willingness to not buy things. This goes beyond the usual chatter of talking about great bargains you got; people are actually feeling an increase in their self-esteem related to their ability to take control of their own lives. Believe it or not, spending less is making people happier. People checking the "Very Happy" box went from 58% last year to 66% this year -- women up 10%, men up 4%.[snip]

All right, I cut off the last couple of paragraphs because the rest isn’t germane to the topic at hand, Show Me the Money.

While we remain ignorant of how many households currently enjoy ‘excess income’ of $100,000 per year, we do know that 92,000 of them enjoy $500,000 a year worth of ‘mad money’.

So, less than a hundred thousand households and we will also assume that this number considers only US residents.

You know that a handful of this 92,000 has $500,000 a MONTH in ‘discretionary income’ but at that point we’re really in ‘rarified air’.

I believe the statistics shake down like this, one percent of US households control 55% of all the wealth in the US, and one percent of those people control 80% of that figure!

Working with the one-percent and the hundredth of a percent figures, our 92,000 is only a third of the ‘top’ income households. The top third, but still only a third.

For more ‘math fun’ our 92,000 that had in excess of $500,000 in ‘free cash’ only totals $46 billion. At last look, total US ‘payroll’ was $17 trillion…which is a pretty neat trick considering GDP only weighed in at $13 trillion (no wonder we’re in hock!)

I believe the $17 trillion figure was from 2006, so it probably doesn’t apply today.

Worse, the damn BLS keeps ‘updating’ its charts as well as its metrics so it has become impossible to track down old data. Any link more than a month old is likely to produce a ‘page not found’ message.

But this is an entirely different issue.

I read somewhere recently that (slightly) more than a million households filed returns on income in excess of $5 million dollars. This contrasts rather curiously with a tidbit from a couple of years ago where it was reported that 7 million households filed returns in excess of a single million dollars.

Considering this latest incarnation of the (ongoing) global financial crisis has left no nation and no sector unscathed, it really is a mystery where this money is going to come from.

But not to worry, Timmy has promised that no ‘major’ financial institution will be allowed to fail.

So it looks like when all else fails, we’re going to see some more ‘hocus pocus’!

Thanks for letting me inside your head,


No comments:

Post a Comment