Inequality: The best of the Bigs made $3.4 bn last year; Littles are cashing in their 401(k)s

Thanks to the ever-valuable Naked Capitalism (a good site to put into daily rotation), we find several pieces that, added together, paint quite the picture of wealth inequality.

Note I said “wealth inequality,” not “income inequality.” The numbers below are about income, yes, but income is just change to wealth, to the balance sheet of individuals and households. So this is a wealth story.

First this, about the best of the Bigs — the hedge fund managers.

The Rich List: Highest-earning hedge fund managers of 2013

This article by Wolf Richter in Naked Capitalism tells us about billionaire hedge fund manager Stephen Cohen borrowing what could be a billion dollars against his art collection — “impressionist, modern, and contemporary art estimated to be worth $1 billion” — and wonders why borrow, if Cohen is already so wealthy. The answer? Because he can pay interest of 2.5% on the loan, from Goldman Sachs no less, and earn 8% on the money. Richter:

In the rarefied air where these art loans take place, they have unique advantages: clients get to keep their art on the wall, and interest rates are about 2.5% – thanks to the Fed’s indefatigable efforts to come up with policies that enrich this very class of success stories. This is where the Fed’s otherwise illusory “wealth effect” is actually effective.

So why borrow money?

“A number of hedge fund guys who manage their money wisely, they look to put their art collections to work,” explained Michael Plummer, co-founder of New York-based consultant Artvest Partners and former COO at Christie’s Financial Services. “If you can get liquidity out of your collection and pay only 250 basis points,” he said, “it just makes sense.”

So Cohen will invest it. Cheap leverage, the holy grail these days. It’s the driver behind the asset bubbles all around. … Cohen, using these multiple layers of leverage, might earn a return of 8% a year on his art loan that costs him 2.5% a year. Multiply that out to a billion, and it’s a money machine. That would be on top of the art itself that has seen phenomenal increases in value under the Fed’s money-printing binge.

The main point of Richter’s article is that the world of the Bigs is over-leveraging itself (again). My point is about the benjamins, the bucks. A return of 5.5% on $1 billion is actual money — $55 million — in this man’s world anyway. I’d settle for half that. Yet for Cohen that’s pocket change.

Here’s what the best of the Bigs, the top hedge fund managers like Cohen, made as personal income in 2013:

Rank Name Firm Earnings
1 David Tepper Appaloosa Management $3.5 billion
2 Steven Cohen SAC Capital Advisors $2.4 billion
3 John Paulson Paulson & Co. $2.3 billion
4 James Simons Renaissance Technologies $2.2 billion
5 Kenneth Griffin Citadel $950 million
6 Israel (Izzy) Englander Millennium Management $850 million
7 Leon Cooperman Omega Advisors $825 million
8 Lawrence Robbins Glenview Capital Management $750 million
9 Daniel Loeb Third Point $700 million
10 Raymond Dalio Bridgewater Associates $600 million
10 Paul Tudor Jones II Tudor Investment Corp. $600 million
Click to view the full ranking of the top 25 money earners

Again, this isn’t what the funds made. This is what the managers made, personally. And thanks to the special tax break that hedge fund managers have purchased for themselves, this is taxed at no more than 15%, unlike your own money.

Notice that Mr. Cohen is only number 2 on the list. Better luck next time, sir.

Raiding 401(k)s replaces home equity withdrawals as way to make ends meet

At the other end of the spectrum, where the whole rest of the country lives, the following is going on. First, Yves Smith (my emphasis):

It’s been creepy to see economists and the financial media cheering the re-levering by American households as a sign that they economy is on the mend and consumers are regaining their will to shop. But ordinary Americans took huge balance sheet hits in the crisis: the loss of home equity, which only in some markets has come all the way back; job losses and pay and hours reductions, which led many to run down savings as they readjusted; declines in stock market portfolios; lower income thanks to ZIRP for retirees and other income-oriented investors.

While the top wealthy are borrowing [see the Cohen “art collection” story immediately above], in contrast to the behavior of the rich predecessors, on the other end of the spectrum, many are still struggling for survival. The latest job report showed that the number of long-term unemployed, reflected in the level of people who’ve given up looking for work and are counted as no longer in the workforce, only continues to rise. Food stamps and extended unemployment benefits have been cut. And with soup kitchens under stress too, one wonders how people who are in such dire financial straits manage to get by.

With the home equity “piggy bank” depleted, cash-strapped citizens are turning to their 401(k)s to help them in emergencies. Smith again:

A Bloomberg story gives the sobering details of how prevalent 401 (k) withdrawals have become. For the latest year in which data is available, 2011, 4% of all households paid early withdrawal penalties. A Federal Reserve study found that 9.3% of taxpayers with retirement accounts paid early withdrawal penalties, an increase from 7.9% in 2004. …

The article points out that one-third cashed out their 401 (k)s when they changed jobs. … It’s also worth comparing the magnitude of these withdrawals to median 401 (k) balances: $24,000 overall, and $65,300 for those over 55 (click to enlarge):

Workers who cashed out their 401(k)s when changing jobs (click to enlarge)

Workers who cashed out their 401(k)s when changing jobs (click to enlarge)

Stop and reflect — median 401(k) balances are $24,000 overall, and $65,300 for those over 55. Neither of those is a large number. If you’re retiring with, say, $70,000, which has to stretch to the end of your life, what are your odds of staying out of poverty before the first five years is up? Or even the first two years?

This is a wealth inequality story

This is why I say this is about wealth inequality, not income inequality. Because the growth in wealth (income is just “change of wealth”) is so great at the top, the money is just piling up like lint in the pockets of the Bigs. At the same time, us Littles are raiding our meager retirement stashes, hastening the day when poverty knocks at the door.

Does that put another spin on that push by Mr. Chained CPI (sorry, President “Hope and Change” Obama) to cut benefits to retirees after kowtowing to one of the princes of the “1% Project” — CitiBank’s own Robert Rubin? Careful with that legacy hunt sir; you may not catch the bird you want to catch.

The Rich and the Rest, a tale for our times

And to tie all this together in a nice short video, here’s a look at how we got here. Again, from a Naked Capitalism article. See what I mean about putting this site into rotation?) Watch:

The absolute must-watch of the whole piece is the segment starting at 3:15 (I won’t tell you what it is). But the piece is short; feel free to take a few minutes to get there.

In the graph at 1:20, when you see “Corporate Profits,” think “CEO Compensation.” It’s why those profits are generated and where they end up.

The trade deficit graph at 1:52 tells you all you need to know about where the money went … back to executive compensation, of course. That’s the whole point.

Consider: When a CEO sends our manufacturing jobs overseas, she adds the difference in cost to the corporate coffer, which she then loots. Since differences in manufacturing cost between Asia and the U.S. are pennies on the dollar, what’s retained by the corp is savings is far greater than what’s paid out to Asia in expenses.

Thus an increase in the trade deficit of, say, $100 million (the expense side of manufacturing in Asia), could easily be the low-low price of not spending four times that, or $400 million, in the U.S. That’s $400 million that the American economy was denied, much of it denied to workers; $400 million that went instead to the pockets of the corp — ready for easy looting by the CEO class and their crony boards of directors (do click; it really does work that way).

Finally, at 2:53, from the mouth of John Maynard Keynes, a sentence that says it all:

Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.

Can you say “job creators”? I can’t either.

Here’s to the “most wickedest of men” — and the men and women who serve them. Their sun, I suspect, will not shine forever. Certainly not after the climate bill comes due.


Twitter: @Gaius_Publius
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Gaius Publius is a professional writer living on the West Coast of the United States.

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35 Responses to “Inequality: The best of the Bigs made $3.4 bn last year; Littles are cashing in their 401(k)s”

  1. kieraeastedi321 says:

    parents in law just got an awesome black Chevrolet Corvette ZR1 by working
    part-time at home… view it F­i­s­c­a­l­p­o­s­t­.­C­O­M­

  2. F U Bill !! says:


  3. Aren't you dead yet? says:

    Boy they’re really kicking your ass over at JMG tonight. GOOD!
    YAY 4 Sam’s Mom!!

  4. 4th Turning says:

    First class section is always up front.
    Weird seeing so many metaphors packed into 2 minutes.
    Great take of on disney movie to begin with.

  5. Bill_Perdue says:

    Thanks. I’ll make a point of seeing it.

  6. 4th Turning says:

    Mother’s Day gift to you… (In case you haven’t heard about it yet?)

  7. Guest says:

    Feel free to drop dead at anytime.

  8. Guest says:

    Aren’t you dead yet? If not, why not? If there’s anything I can do to help this process along please let me know.

  9. Guest says:

    Aren’t you dead yet? If not, why not?

  10. Guest says:

    Please die.

  11. Guest says:

    Aren’t you dead yet? If not, why not? If I can do anything to help expedite your demise, just let me know. I’d be happy to help.

  12. Guest says:

    Aren’t you dead yet? If not, why not? If I can do anything to help expedite your demise, just let me know. I’d be happy to help.

  13. billy perdoo-doo says:

    I’d rather YOU work for a living

  14. Guest says:

    Aren’t you dead yet? If not, why not? If I can do anything to help expedite your demise, just let me know. I’d be happy to help.

  15. Guesty says:

    At 87 shouldn’t you be dead?

  16. Aren't you dead yet? says:

    Bill Perdue: The world’s most elderly communist. lol!!

  17. Guest says:

    Aren’t you dead yet? If not, why not? If there’s anything I can do to help expedite this process, please let me know.

  18. 4th Turning says:

    You must’ve heard how testy spurned love can make one.
    easily irritated; impatient and somewhat bad-tempered.
    synonyms:irritable, tetchy, cranky, ornery, cantankerous, irascible, bad-tempered,grumpy, grouchy, crotchety, petulant, crabby, crusty, curmudgeonly, ill-tempered, ill-humored, peevish, cross, fractious, pettish, prickly, short-fused, waspish, snappish, snippy More

  19. 4th Turning says:

    Don’t forget heir apparent for Carter’s horsehair weakness cardigan.

  20. Bill_Perdue says:

    You vastly overestimate Obama’s importance. He’s a class B lap dog who was hired by Goldman Sachs to fool people. He only fooled a few people on a permanent basis and all things considered he’s not very good at it.

    Two years after his 2008 election 30 million voters deserted him and his party in the 2010 Congressional races. By now he’s nearly as impotent as Bush was in his second term.

    Sic, semper est fraudulentus.

  21. masaccio68 says:

    I hope everyone reads Piketty’s Capital in the Twenty-First Century. It is a very readable book, quite unlike any economics book I’ve read since Yves Smith’s ECONned; and on practically every page you find something that confirms what you already know about the inequality that confronts all of us every day.

  22. THEferd says:

    Nope. That vid is neither hammer blow powerful, nor crystal clear and simple.

  23. THEferd says:

    I think these truths have to be made even more succinct. Somebody, please put them into short, pithy, CRYSTAL CLEAR AND SIMPLE, memorable, repeatable phrases.

  24. Bill_Perdue says:

    That’s not a political answer and doesn’t deserve a response.

  25. Ford Prefect says:

    The wealthy are stupid because they can afford to be. There’s no downside to being stupid in a system that will bail the rich out no matter how dumb they turn out to be. As it is now, they no longer view the middle-class as necessary to their getting richer. Now that rent extraction is the new economy, as opposed to consumerism, they can simply take what they want and we will be punished for not complying.

    Indeed, if anything, they view a healthy middle-class as a socio-political threat to their hegemony. So it’s better if their numbers are culled–poor people have no power, so more poverty is a good thing from their standpoint. See Tom Perkins et al. These people are not unusual in their disdain for human beings not just like them. They have all the power and they’re quite content to use it. Simply criticizing them is now “just like the Holocaust.”

  26. GarySFBCN says:

    I’m not at all upset. But the amount of crap you spew is, when not humorous, somewhat distressing. That and your attitude that there is only ONE WAY to solve these problems which is YOUR WAY. Where have I heard something like that before? Oh, here it is:

    John 14:6 “Jesus saith unto him, I am the way, the truth, and the life: no man cometh unto the Father, but by me.”

    Who would have guessed that you and Jeesbus have so much in common? Same arrogance. Same bullshit. Same ‘my way or the highway’ attitude.

    Your lengthy and often-straying screeds remind me of one of my favorite Hawaiian proverbs:

    I ʻola ʻolā no ka huewai i ka piha ʻole

    Translation: The water gourd gurgles when not full.

    Meaning: A person not very well informed talks more than one who is.

  27. Lawerence Collins says:

    Where’s that curator of doom and gloom, miss Bill. I’m sure he’ll lay all the blame on Obama.

  28. Bill_Perdue says:

    Ahh, you’re upset. Next time I’ll clearly label humor and snark and maybe you’ll get it. If you think that socialists and revolutionist won’t be harsh with the ruling class for the death and destruction they’ve caused then you’re mistaken.

    Please be so kind as to explain why you think that constitutionally guaranteed wages, socialized medicine, instead of Obama’s scam insurance care, which you support, interest free housing, free education all the way are extreme. They’re eminently reasonable and that’s one of the reasons socialists propose them. The other is that we know that the right wing Democrats and their Republican cousins will never go for it.

    As for the GPs post, it’s confirms, for those with a basic understanding of the dynamics of capitalist society that reformists and others who put their faith in Democrat snake oil sellers and their Republican competitors have no real solution except to repeat their gross error and choose the next in a long line of hopelessly rightwing “lesser evils”. It reformism worked at all we’d never have gotten here. Reformism is a failure.

    The reformist solution, which is to vote for Obama over and over and then make the same mistake with Elizabeth Warren or Hillary Clinton, all lapdogs of the rich, created much more pollution, a WH that claims it can detain and murder American citizens on a whim, new wars in Libya, Bahrain and Yemen, escalation of wars, declared and undeclared, in Palestine, Afghanistan and Pakistan, the gift of trillions to the rich looters and banksters and attacks on unions and the Bill of Rights.

  29. The problem is not this reality, the problem is what to do about it!

  30. Indigo says:

    My needs are modest . . .

  31. GarySFBCN says:

    There’s much to digest in this post. But something is missing – discussion about the snow job and ‘cultural conditioning’ that took place – and is still happening – that made most among us dupes to this con.

    What I can’t understand is how the wealthy can be so stupid. The wealthy class needs a healthy middle class to continue to feed their wealth. But their greed has taken over their sensibility and while it is having a horrible impact upon millions of people, it is akin to giving them enough rope.

    While Bill Perdue is often correct in his assessments, his solutions are so extreme that they will never get any traction. What we need is a deliberate and well-executed campaign to counter the years of conditioning.

    I’m 100% sure that the socialist elected in Seattle would disown Bill Perdue’s support if she knew that he advocates punishment such as “digging a canal from LA to Charleston. Or being sent to the regions their pollution has destroyed to terraform them.”

  32. 4th Turning says:

    “Since too much inequality can foment revolt and instability, the CIA regularly updates statistics on income distribution for countries around the world, including the U.S. Between 1997 and 2007, inequality in the U.S. grew by almost 10 percent, making it more unequal than Russia, infamous for its powerful oligarchs. The U.S. is not faring well historically, either. Even the Roman Empire, a society built on conquest and slave labor, had a more equitable income distribution.”

  33. Bill_Perdue says:

    I’d rather make them work for a living. Say, digging a canal from LA to Charleston. Or being sent to the regions their pollution has destroyed to terraform them.

  34. Bill_Perdue says:

    The United States is owned by the rich. They call the shots. As for managers however rich they get, and many top managers manage to steal tens of millions from the companies they control, the real wealth is in the hands of the .01%. The .01% control the commanding heights of the economy, they own and fund the political prostitutes who administer it and control virtually all the media, including the ‘liberal’ media.

    The rich, their manager hirelings, the political prostitutes who service them and their apologists constitute the enemies of working people. Now their rule, which they assumed was absolute and immutable is being successfully challenged by growing numbers of socialists and by the union left.

    Last year a socialist defeated a long term Democrat (sweet) with close to 100,000 votes in a Seattle city council race. She was running on a campaign of $15 and hour which has been expanded by some to $15/40 or fight ($15 dollars and hour minimum and 40 hours a week minimum). In Ohio dozens of union candidates beat Democrats (sweeter) in local elections and in spite of the fact that they were labeled ‘independents’ the truth is that they’re a workers party.

    Those elections were a reaction against Obama’s miserly proposal for a $10.10 an hour minimum wage and the Republicans opposition to any increase. Unions in Seattle began to line up for the fight and now the Democrat mayor has capitulated and is endorsing a $15.00 minimum wage. Socialists and unions also won a referendum for $15 an hour in the working class town of SeaTac and now the momentum for a $15.00 an hour minimum is spreading across the nation. Even liberals are for it.

    The problems created by the private ownership of the economy, politics and the media long ago destroyed our chances for real democracy under the current inadequate and and antiquated Constitution.

    The Constitution needs a basic overhaul that eliminates the power of the rich by taxing them for any income over $250,000.00 per year and limits their wealth accordingly through expropriation without compensation. And we need constitutional provisions that makes it a capital crime to plot and lie to start wars of aggression for profit and that applies to plots or gross negligence by corporate owners and managers that substantially increases environmental degradation.

    We need a new Bill of Rights that empowers and protects working people, people of color, women and children and retired workers with constitutional guarantees of wages at high trade union levels, free education all the way. interest free quality housing, month long paid vacations, yearlong maternal and paternal leave, socialized medicine and 40 hours pay for 30 hours work.

    We’ll get all that with workers parties leading a workers state.

  35. pricknick says:

    It will be a great day when guillotines return to town squares.

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