Tag Archives: investment

The Root Of America’s Rising Wealth Inequality: The “Lawnmower” Economy (and you’re the lawn)

This predatory exploitation is only possible if the central bank and state have partnered with financial Elites.

After decades of denial, the mainstream has finally conceded that rising income and wealth inequality is a problem–not just economically, but politically, for as we all know wealth buys political influence/favors, and as we’ll see below, the federal government enables and enforces most of the skims and scams that have made the rich richer and everyone else poorer.

Here’s the problem in graphic form: from 1947 to 1979, the family income of the top 1% actually expanded less that the bottom 99%. Since 1980, the income of the 1% rose 224% while the bottom 80% barely gained any income at all.

Globalization, i.e. offshoring of jobs, is often blamed for this disparity, but as I explained in “Free” Trade, Jobs and Income Inequality, the income of the top 10% broke away from the bottom 90% in the early 1980s, long before China’s emergence as an exporting power.

Indeed, by the time China entered the WTO, the top 10% in the U.S. had already left the bottom 90% in the dust.

The only possible explanation of this is the rise of financialization: financiers and financial corporations (broadly speaking, Wall Street, benefited enormously from neoliberal deregulation of the financial industry, and the conquest of once-low-risk sectors of the economy (such as mortgages) by the storm troopers of finance.

Financiers skim the profits and gains in wealth, and Main Street and the middle / working classes stagnate. Gordon Long and I discuss the ways financialization strip-mines the many to benefit the few in our latest conversation (with charts): Our “Lawnmower” Economy.

Many people confuse the wealth earned by people who actually create new products and services with the wealth skimmed by financiers. One is earned by creating new products, services and business models; financialized “lawnmowing” generates no new products/services, no new jobs and no improvements in productivity–the only engine that generates widespread wealth and prosperity.

Consider these favorite financier “lawnmowers”:

1. Buying a company, loading it with debt to cash out the buyers and then selling the divisions off: no new products/services, no new jobs and no improvements in productivity.

2. Borrowing billions of dollars in nearly free money via Federal Reserve easy credit and using the cash to buy back corporate shares, boosting the value of stock owned by insiders and management: no new products/services, no new jobs and no improvements in productivity.

3. Skimming money from the stock market with high-frequency trading (HFT): no new products/services, no new jobs and no improvements in productivity.

4. Borrowing billions for next to nothing and buying high-yielding bonds and investments in other countries (the carry trade): no new products/services, no new jobs and no improvements in productivity.

All of these are “lawnmower” operations, rentier skims enabled by the Federal Reserve, its too big to fail banker cronies, a complicit federal government and a toothless corporate media.

This is not classical capitalism; it is predatory exploitation being passed off as capitalism. This predatory exploitation is only possible if the central bank and state have partnered with financial Elites to strip-mine the many to benefit the few.

This has completely distorted the economy, markets, central bank policies, and the incentives presented to participants.

The vast majority of this unproductive skimming occurs in a small slice of the economy–yes, the financial sector. As this article explains, the super-wealthy financial class Doesn’t Just Hide Their Money. Economist Says Most of Billionaire Wealth is Unearned.

“A key empirical question in the inequality debate is to what extent rich people derive their wealth from “rents”, which is windfall income they did not produce, as opposed to activities creating true economic benefit.

Political scientists define “rent-seeking” as influencing government to get special privileges, such as subsidies or exclusive production licenses, to capture income and wealth produced by others.

However, Joseph Stiglitz counters that the very existence of extreme wealth is an indicator of rents.

Competition drives profit down, such that it might be impossible to become extremely rich without market failures. Every good business strategy seeks to exploit one market failure or the other in order to generate excess profit.

The bottom-line is that extreme wealth is not broad-based: it is disproportionately generated by a small portion of the economy.”

This small portion of the economy depends on the central bank and state for nearly free money, bail-outs, guarantees that profits are private but losses are shifted to the taxpaying public–all the skims and scams we’ve seen protected for seven long years by Democrats and Republicans alike.

Learn how our “Lawnmower Economy” works (with host Gordon Long; 26:21 minutes)

source: ZeroHedge

Buying A Condo For Your Child Near His Or Her College Is Often A Sound Investment

Source: LA Times

Giving your offspring a place to live eliminates the cost of rent. And if the condo is large enough — say, two or three bedrooms — the extra rooms can be rented to other students to help defray the cost of ownership.

Moreover, over the four-year span until your child graduates — and often a year or two longer these days — your investment is likely to appreciate. Although rising values are not guaranteed, housing near universities and colleges is usually scarce. If that’s the case where your child chooses to matriculate, the law of supply and demand is the rule, not the exception.

If there has been mismanagement or the building is in financial distress, you could wind up paying dollars to replace the dollars someone else squandered. – Dan S. Barnabic, author of ‘The Condo Bible for Americans’

Still, although buying a condo as an investment near a college is not terribly different from buying one elsewhere, more thorough diligence is often required.

Here’s one caution that probably never entered your mind: Is the campus likely to remain where it is and not move to another location?

Most likely it will stay put. But it’s not unheard of for a campus to close in one place and reopen somewhere else, says Dan S. Barnabic, author of “The Condo Bible for Americans” (Neon Publishing Corp., 2013).

It’s fairly simple to find out whether a move’s afoot. Simply call the registar’s office, or the school’s president, and ask.

But remember, the time frame that you hold the place might be somewhat longer than four years, and even longer if owning a rental apartment turns out to be a strong investment.

Toronto-based Barnabic, a former real estate agent, broker, manager and condo developer, also wants you to beware of buying into a financially troubled or poorly managed property.

“If there has been mismanagement or the building is in financial distress,” he says, “you could wind up paying dollars to replace the dollars someone else squandered.”

To prevent that, he suggests standing outside the building and asking residents as they walk in and out about their experiences. Are there any maintenance deficiencies? Is management responsive? Are battles raging among neighbors — or perhaps more important, among board members who are elected to run the complex and make sure the rules are followed?

Next, obtain an estoppel certificate, a document similar to a survey for a single-family property, that shows the unit, the maintenance fees, the amount of the building’s debt and any assessments that are either contemplated or set in stone.

It is most important to pay attention to the annual budget. If the budget or reserve is underfunded, you as the owner will be responsible for making up your share of the shortfall.

The author also advises potential condo buyers to obtain a status certificate on the unit they are thinking about buying and submit it to a knowledgeable attorney for a thorough investigation. Here, it is worth paying $100 or more to the board to cover your lawyer’s fees to determine whether there are any outstanding liens against the unit, and whether you will have to pay them.
If there are liens for unpaid monthly or quarterly dues, the board might be open to negotiations to wipe the slate clean. This would let them turn an otherwise non-paying apartment — a drag on the books — into one that pays its dues and assessments on time without a peep.

Similarly, Barnabic says you should gain approval from the board, if necessary, to check with the municipal zoning and planning department to ensure there are no pending work orders or infractions against the condo complex for violations of building codes.

While you’re at it, ask the zoning or permit department whether there are any new buildings planned in proximity to yours, either in this complex or adjoining ones. If there are, your unit’s value could be diminished not only by obstructed views, but also because newer units are more desirable.

Consider investing in any new properties as they go up. But remember, even budgets for brand-new buildings are underfunded, especially if the developer wants his place to look as good on paper as possible. If that’s the case, your share could double or even triple when the builder finally turns the property over to the condo board.

One more thing: People who buy larger units with the idea that their sons or daughters will act as their on-site property managers sometimes find out later that that kind of arrangement doesn’t work. That’s especially true, says Barnabic, when the people who lease the extra bedrooms are friends.

Kids, even those of college age, are not usually very good property managers, he says. “To do a proper job, they must be diligent in collecting rent, maintaining the apartment and refereeing inevitable disputes between roommates. In other words, they must be responsible, and that’s not always the case.”

lsichelman@aol.com Distributed by Universal Uclick for United Feature Syndicate.
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