Wealth, Power and Common Sense

[Sibling Zono (anon1mat0)]

Today I had lunch with my crazy cousin who's getting married next week and as usual he was trying to 'illuminate' me about the conspiracy of the bankers to take over the world. While I'm skeptic about the world government conspiracy etc, some of his arguments usually remain in my head after wards because they kinda make sense, which got me thinking: if the world's wealth has finally concentrated enough in the hands of a few, it would be perfectly logical for them to coordinate their efforts and directly or indirectly take over. It could be argued that the period of peace between wealthy nations of the so-called western world is the result of this concentration (it wouldn't make sense to bombard my neighbor if my plants are in it's backyard), and considering that after the end of the cold war previously closed markets opened, that same wealth has been making inroads there lowering the 'threat' level from those countries.

But if that's really the case wouldn't they take better care of their "farm"? While you have chaos small players benefit, but the big players benefit with stability and in consequence the logical path for those who own 50%+ of the wealth of the world would be to actively seek that stability, and while some efforts on the subject are mentioned, there don't seem to be very effectual at the moment.

IOW the big conspiracy that is supposedly taking place would make sense but -unless I'm missing something- isn't happening, which begs the question: why?

Any takers? 

[Scriblerus the Philosophe]

I've wondered that myself. I think it's the mentality of must-have-profit-now-now-NOW! rather than looking into the long term and trying to encourage profitability in sensible ways.


Random historical tidbit:
The US curiously [ ] avoided bombing Ford's plant in Cologne in WWII.

[Swatopluk]

This was even more blatant in WW1. A British pilot was courtmartialed because his bombs fell on a factory in Germany with business ties to Britain. And both Germany and Britain paid the other side licence fees for the use of certain weapon parts the patent lied on the other side of the channel (e.g. fuses).

[Aggie]

But if that's really the case wouldn't they take better care of their "farm"? While you have chaos small players benefit, but the big players benefit with stability and in consequence the logical path for those who own 50%+ of the wealth of the world would be to actively seek that stability, and while some efforts on the subject are mentioned, there don't seem to be very effectual at the moment.

IOW the big conspiracy that is supposedly taking place would make sense but -unless I'm missing something- isn't happening, which begs the question: why?

Any takers? 

Ayuh, because I can't see how the ones at the top wouldn't be playing the markets like a fiddle.  It doesn't matter if the market is going up or down, as long as you know where it's headed (I've made some pretty nice gains using SKF and other ultra-inverse ETFs since the collapse started; OTOH, I just got stopped out of UYG for a 67% gain over about 10 days, so you can still play the upside in a down market.  Too bad these positions are tiny amounts of money; my main long-term investment portfolio is solidly in the red  ).

Check out the S&P500 over the last two boom-bust cycles (http://www.google.com/finance?q=INDEXSP:.INX); while the tech boom/bust was relatively symmetrical, this time around we had a protracted bull market followed by a short, sharp crash (i.e. it's more skewed).  If you were controlling the markets, you'd profit nicely from a long run up, and then pull your cash out (starting the panic, as we are talking large sums here) and wait until prices are at a fraction of what they were to flood it back in (jump-starting the recovery).  Wash, rinse, repeat. 

There's a perception out there that even the moderately massive institutional investors are regularly sparking moves up or down in the market to fleece the average individual retail investor out of their money.  Easy enough; if you have plenty of cash on the sidelines, you can spark a sell by cashing out large volumes of any position, and then picking it back up once the retail investors jump ship.

I am expecting this boom-bust pattern to repeat every decade or so; I'll be looking for the next bubble, riding it up for a while, then flipping to the short side when the first rumors of trouble start.

[Sibling Zono (anon1mat0)]

Doesn't that prove that wealth hasn't reached critical mass? For instance short selling may give you nice profits but given it's destructive nature it's usually used in small scale fundamentally because the transaction doesn't make sense for the original owner of the stock*; longer considerations (like the one you just suggested) are likely to give only moderate profits if you consider the time involved**. IMO even a moderate volatility can bring more profits that big boom-bust cycles mostly because of the same law of unintended consequences the @$$holes that abhor regulation like to quote.

I guess the point is that IMO stability should benefit the large players more than the smaller ones (they already own the infrastructure) and if they were rational they should be actively rooting for it.

* how is it that naked (loaning shares by the broker without the knowledge of the owner) shorts are legal?
** a boom-bust cycle can take months or years depending on how large is the bust which would defeat the purpose of short term profits of large speculators.

[Aggie]

IMO even a moderate volatility can bring more profits that big boom-bust cycles mostly because of the same law of unintended consequences the @$$holes that abhor regulation like to quote.

I guess the point is that IMO stability should benefit the large players more than the smaller ones (they already own the infrastructure) and if they were rational they should be actively rooting for it.

True - if you are small and nimble, short-term volatility within long-term stability will make the most over a short period of time.  But steady, continual growth is unsustainable and needs to be pruned back every once in a while.

It's the small to mid-size players that pile money onto a bull market and flee screaming during a bear market, so macroeconomic swings shake a lot of cash out of the pockets of individual savers at the top, and provide great opportunities to buy in at profitable levels at the bottom.  If you can significantly influence top and bottom, it's like shooting fish in a barrel.  Also consider that there's other ways to profit off a market drop than just shorts & their ilk*; for example, gold is traditionally regarded as a safe haven and tends to go up nicely when fear is high. 


*I don't actually short, I stick to the inverse ETFs.

[Swatopluk]

One thing we should not forget: The very people that would gain a position from where they "could play the market like a fiddle" are the type that is highly uncooperative with their peers. They are natural inhabitants of the shark tank. Compare people at the top of dictatorships keeping their position by permanent infighting only. Really cooperative people do not usually end up in those positions of power. That puts a certain limit on a "rational" world domination (both political and economical).

[Sibling Zono (anon1mat0)]

That was actually my first guess, but also that suggests that most of that wealth would have to be practically concentrated in one family to have some semblance of rationality and even then it wouldn't be assured.

More arguments in favor of the world ruled by psychopaths. 

[Sibling Chatty]

One thing we should not forget: The very people that would gain a position from where they "could play the market like a fiddle" are the type that is highly uncooperative with their peers. They are natural inhabitants of the shark tank.

Quoted for absolute truth.

The uber-wealthy do NOT try to get more because they NEED more. They try to get it to have someone ELSE from having it. 30 plus years ago, I heard a very wealthy Texas oilman tell another one that "It ain't the gettin' no more, it's the knowin' that some other sumbitch ain't gonna have it."

Then he and the other 3 men at their table finished their lunch, and left me a 25 cent tip, although I had busted my butt to serve them well, promptly, attentively, and had gone the extra mile (Honey, kin you brang me that Heinz 57? Oh, wait, this ain't the one. I don't remember the brand, but it's one of them popular steak sauces... in a green bottle! As in Worcestershire sauce...green bottle, my Aunt Fanny...) As the 'young guy' was bringing the car around, I took the quarter out and shoved it in his hand, and told him if his Gaaahdamn money was so important to him that he could practically stiff a waitress in a small town, although he'd NEVER do that in Dallas or Houston, then maybe he'd best keep that quarter... because that way he'd know that THIS sumbitch didn't have a f'ing cent of his money.

One of the people in his party was Ben Barnes, the former Lt. Governor of Texas, and a hardcore alcoholic at the time. (I'd thrown him out of the restaurant twice for being drunk and abusive to the waitstaff.) Ben came in the door about 5 minutes later and handed me a $50 bill. The 2 Mr. Hunts in the party had chosen to beat the crap out of one another to provide the tip. These were men in their late 40's at the time.

Mr. Hunt(s) were VERY sorry that they'd not paid attention to the excellent service... The Hunt family is a prime example of WHY the wealthy won't ever actually do what you've said. They bicker so much among themselves that cooperation with others is a pipe dream. I've seen large gatherings of the very wealthy in Houston. They'd probably be happier if they were actually baboons and could solve the dominance issue by literally showing their bright red asses, than having to do it the way they do, through subtle put downs and condescending actions. (That's one reason why GWB had so much trouble at first at large meetings of different government's leaders. He couldn't stop the posturing that he was accustomed to doing to establish dominance---thus the Andrea Merkel should rub and some of his other idiotic stunts.)

Really aggressive dominant personalities can only be lone dictators, they DO NOT cooperate, not for love, money OR power.

[Kaliayev]

Yeah, the problem is economics and finance, played for political reasons, soon becomes a zero-sum game.  You can only gain power at the disadvantage of others, and vice-versa.  If I become more powerful, and you stay the same, then what actually happens is that you've become less powerful, in relative terms, to me, even though from an "objective" viewpoint you may still be very powerful or rich or whatever.

Ah, game theory, your sociopathic prescriptions never fail to illustrate the worst in humanity.

Also, as Scriblerus mentions, they're not very smart, normally.  While they may be geniuses at getting production up, or creating new ways of packaging debt to sell onto other banks, or buying and bullying politicians into more deregulation, they're not big picture people, and they're often reacting to events they have little control over.  If anyone has read any of the books by Nassim Taleb about luck. randomness and the markets, they may know that many of those who work in the financial services have an amazingly narrow and short-sighted viewpoint, and yet believe themselves to be near omniscient geniuses, instead of lucky schmucks who have not (yet) got their comeuppance.

[Swatopluk]

And none of them has ever heard of the gambler's ruin theorem or taken it seriously.

[Sibling Zono (anon1mat0)]

But in a fair game (as if those played fair  ) the probability to win is higher if you have more chips. They're biased because their experience in previous games with smaller players tend to go their way.

[Kaliayev]

Reductionism will kill us all, one fine day.