Welcome to the Plutonomy Backlash

November 7th, 2011
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Occupy Cleveland – circa 2011-10-21
“Welcome to the Plutonomy Machine,” began a 2005 report by three Citigroup analysts to their investor clients.1 The report called the United States a “plutonomy” — an “economy powered by the wealthy,” where “there is no such animal as ‘the U.S. Consumer’ …”
There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the ‘non-rich’, the multitudinous many, but only accounting for surprisingly small bites of the national pie.

And the report called today’s plutonomy the “Managerial Aristocracy,” and set its place in history:
The Managerial Aristocracy, like in the Gilded Age, the Roaring Twenties, and the thriving nineties, needs to commandeer a vast chunk of that rising profit share, either through capital income, or simply paying itself a lot.

The report backed its theory with the 2001 Federal Reserve Consumer Finance Survey, which showed the top 1% in income having more than the bottom 40%, and the top 1% in net worth having more than the bottom 80%. The analysts forecast that the plutonomy would strengthen, but that it would likely some day face a backlash from labor and society. Their forecast came true on the first count. The plutonomy did indeed strengthen, until the Bush Crash in 2008, with the top 1% in both categories stretching their shares.2 And after the crash, which was largely caused by Wall Street bank scams, the plutocracy (plutonomy’s cousin) revived the global financial system by pumping trillions of dollars into big banks, and blocking all but a little prosecution and regulation of the culprits.3 4 5 Those actions, and inactions, put the plutonomy back on its feet, and with the GDP and the stock indexes up, government statisticians declared the Great Recession to be over.6 7 But for the non-rich, the jobless rate stays high, the poverty rate climbs, college student debt deepens, and the home mortgage foreclosure wave rolls on.8 9 10 11 And now the Citigroup analysts’ forecast seems to be coming true on the second count. The day of backlash has come with the Occupy Wall Street action becoming the Occupy Movement, which strives to end the rule of the 1% richest, and make a society where the government and economy works mainly for the 99%.12 13 In other words, the Occupy Movement strives to end the plutocracy and the plutonomy. The Citigroup analysts’ report said:
Could the plutonomies die because the [American] dream is dead, because enough of society does not believe they can participate? The answer is of course yes. … There are signs around the world that society is unhappy with plutonomy … But as yet, there seems little political fight being born out on this battleground.

Now the political fight has been born, and the next Citigroup report to investors may begin with “Welcome to the Plutonomy Backlash.”

Sources

(1) Citigroup Plutonomy Report 1 2005-10 (pdf)

The 2007 Michael Moore movie, “Capitalism: A Love Story,” publicized the Citigroup plutonomy reports.

(2) Citigroup Plutonomy Report 2 2006-03 (pdf)— follow-up report upon the release of the 2004 Federal Reserve Consumer Finance Survey.

‘It’s the Inequality, Stupid’ By Dave Gilson and Carolyn Perot, Mother Jones, 2011-03
The following charts show the top 1% in income stretching its shares between 2001 and 2007, and the top 1% in net worth having more than the bottom 90% in 2007.

(3) ‘An Inside Story of Wall Street Bank Crashes’ – The Paragraph, 2008-12-26

‘Banks’ Self-Dealing Super-Charged Financial Crisis’ by Jake Bernstein and Jesse Eisinger, ProPublica, Aug. 26, 2010

Over the last two years of the housing bubble, Wall Street bankers perpetrated one of the greatest episodes of self-dealing in financial history.

Faced with increasing difficulty in selling the mortgage-backed securities that had been among their most lucrative products, the banks hit on a solution that preserved their quarterly earnings and huge bonuses: They created fake demand.

A ProPublica analysis shows for the first time the extent to which banks — primarily Merrill Lynch, but also Citigroup, UBS and others — bought their own products and cranked up an assembly line that otherwise should have flagged.

The products they were buying and selling were at the heart of the 2008 meltdown — collections of mortgage bonds known as collateralized debt obligations, or CDOs.

(4) ‘Sanders on The Fed Audit: This is socialism for the rich’ – vtdigger.com, 2011-07-21

The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression.

An amendment by Sen. Bernie Sanders to the Wall Street reform law passed one year ago this week directed the Government Accountability Office to conduct the study.

“As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world,” said Sanders (I-Vt.). “This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else.”

(5) ‘Obama’s Risky Business’ by Jeff Madick, New York Review of Books, 2010-07-15

The financial reregulation package just passed by Congress is far from a comprehensive reform of American finance. Despite the enormous threat to the world’s financial markets created by the failure of Lehman Brothers and the stunning excesses of insurance giant AIG and banking conglomerate Citigroup, the reforms are in truth modest. Neither the Obama administration nor Congress opted to cut banks down to size, and the bill is only placing mild limits on risky banking activities. The giant financial institutions, meanwhile, are as big—even bigger—than ever and bankers’ compensation is once again at stunning levels.

But the problem with the legislation is not merely its small scale. It is the way it is supposed to be implemented: to avoid controversy and get the bill passed, congressional reformers foisted the responsibility for setting most of the specific, sticky rules on federal regulators at the Fed, the Securities and Exchange Commission, and elsewhere, who are to make them over the next year or two. These are, for the most part, the same regulators who failed to stop the speculative excesses and ensuing credit crisis of 2008. While they now have a few more tools at their disposal, their already substantial tool box was barely touched in the years leading up to the housing and credit crash and severe recession. Will it be different next time?

(6) ‘Can the Middle Class Be Saved?’ by Don Peck, The Atlantic, September 2011

Income inequality usually shrinks during a recession, but in the Great Recession, it didn’t. From 2007 to 2009, the most-recent years for which data are available, it widened a little. The top 1 percent of earners did see their incomes drop more than those of other Americans in 2008. But that fall was due almost entirely to the stock-market crash, and with it a 50 percent reduction in realized capital gains. Excluding capital gains, top earners saw their share of national income rise even in 2008. And in any case, the stock market has since rallied. Corporate profits have marched smartly upward, quarter after quarter, since the beginning of 2009.

Even in the financial sector, high earners have come back strong. In 2009, the country’s top 25 hedge-fund managers earned $25 billion among them—more than they had made in 2007, before the crash. And while the crisis may have begun with mass layoffs on Wall Street, the financial industry has remained well shielded compared with other sectors; from the first quarter of 2007 to the first quarter of 2010, finance shed 8 percent of its jobs, compared with 27 percent in construction and 17 percent in manufacturing. Throughout the recession, the unemployment rate in finance and insurance has been substantially below that of the nation overall.

(7) ‘Great recession is over, officially’ – The Virginian-Pilot, 2010-09-22

Americans have plenty of reasons not to trust the Business Cycle Dating Committee of the National Bureau of Economic Research, which said Monday that the Great Recession was over.

In August, 27 states reported higher unemployment rates than the previous month – 7 million jobs lost during the recession. The number of people living in poverty – including one in five children – was higher last year than in the previous 50 years. One in 10 households has missed at least one mortgage payment, and one in five home-owners owes more on their home than it’s worth.

The declaration that a recession has begun or ended is technical and based on when the economy began a steady decline and when it reached its lowest point.

Officially, the recession began in December 2007 and reached its nadir in June 2009, the committee said.

The factors determining the start and end are gross domestic product, which has been growing steadily for a year; income, which has been increasing since June 2009; industrial production, now 6.2 percent higher than a year earlier; retail sales, up nearly 5 percent over a year ago; and employment.

Unemployment, now at 9.6 percent, was at its highest rate during this downturn in October 2009, when it hit 10.1 percent.

(8) ‘Unemployment rate dips amid sluggish jobs growth’ by Dan Burrows, CBS News, 2011-11-04

The economy added 80,000 jobs in October, the slowest pace of hiring in four months, while the unemployment rate ticked down to 9 percent from 9.1 percent.

The broadest measure of unemployment, which includes the unemployed, part-time workers in search of full-time work and so-called discouraged workers who have given up actively looking for jobs, fell to 16.2 percent from 16.5 percent in September, the Labor Department said.

(9) ‘Soaring Poverty Casts Spotlight on ‘Lost Decade’’ By SABRINA TAVERNISE, New York Times, September 13, 2011

Another 2.6 million people slipped into poverty in the United States last year, the Census Bureau reported Tuesday, and the number of Americans living below the official poverty line, 46.2 million people, was the highest number in the 52 years the bureau has been publishing figures on it.

The report said the percentage of Americans living below the poverty line last year, 15.1 percent, was the highest level since 1993. (The poverty line in 2010 for a family of four was $22,314.)

(10) ‘Student Debt and the Class of 2010’ – Project on Student Debt, November 2011 (pdf)

We estimate that two-thirds of college seniors who graduated in 2010 had student loan debt, with an average of $25,250 for those with debt, up five percent from the previous year.

(11) ‘U.S. Credit Conditions – Mortgage Delinquency Rate 90+ Days’ – Federal Reserve Bank of New York, 2010-Q3

The Federal Reserve considers the record rate of mortgage delinquencies, foreclosures and their impacts on communities an urgent problem. …

More red on the map points to delinquency rates being generally higher (2010 Q3) than a year before (2009 Q3).

Foreclosure Activity on Slow Burn – RealtyTrac, October 11, 2011

“U.S. foreclosure activity has been mired down since October of last year, when the robo-signing controversy sparked a flurry of investigations into lender foreclosure procedures and paperwork,” said James Saccacio, chief executive officer of RealtyTrac. “While foreclosure activity in September and the third quarter continued to register well below levels from a year ago, there is evidence that this temporary downward trend is about to change direction, with foreclosure activity slowly beginning to ramp back up.

“Third quarter foreclosure activity increased marginally from the previous quarter, breaking a trend of three consecutive quarterly decreases that started in the fourth quarter of 2010,” Saccacio continued. “This marginal increase in overall foreclosure activity was fueled by a 14 percent jump in new default notices, indicating that lenders are cautiously throwing more wood into the foreclosure fireplace after spending months trying to clear the chimney of sloppily filed foreclosures.”

(12) Occupy Together – Actions and Directory From Wall Street, the Occupy Movement has spread to hundreds of cities across the U.S., and more across the world.

(13) New York City General Assembly #occupywallstreet – FAQ

What is Occupy Wall Street?

Occupy Wall Street is an otherwise unaffiliated group of concerned citizens like you and me, come together
around one organizing principle: We will not remain passive as formerly democratic institutions become the
means of enforcing the will of only 1-2% of the population who control the magnitude of American wealth.

Occupy Wall Street is an exercise in “direct democracy”. We feel we can no longer make our voices heard
as we watch our votes for change usher in the same old power structure time and time again. Since we can
no longer trust our elected representatives to represent us rather than their large donors, we are creating a
microcosm of what democracy really looks like. We do this to inspire one another to speak up. It is a reminder
to our representatives and the moneyed interests that direct them: we the people still know our power.

* * *

By Quinn Hungeski, TheParagraph.com, Copyright Creative Commons License 2011

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