How The Federal Reserve Helped The Rich Become Super Rich!
Here’s an incredibly interesting video about how the Federal Reserve Chairman Alan Greenspan directly helped the rich become Super Rich by keeping interest rates artificially low. The low interest rates and easy liquidity caused a spike in asset prices (ever wondered what causes inflation?).
I’ve long maintained that globally, assets are no longer a function of value but a function of liquidity. The video explains how leverage has helped home borrowers become incredibly wealthy. I didn’t become super wealthy, but I did profit by using the same idea. Unfortunately, instead of growing a million into a billion, I started out with Zero and made proportionally less. (although technically, I made an infinite return of return!).
In England there are currently 30,000 people earning over half a million pounds a year, and over 50 Billionaires. All of them work in finance related industries like hedge funds and private equity firms.
10 hedge fund managers pulled in 500 million dollars last year with a lucky few pulling nearly 1 Billion dollars!
It also explains the discrepancy in risk-adjusted returns for these finance wizards. They made obscene amounts of money without taking on any risk. Their financial wizardry is what caused the financial crisis with the subprime loans. Of course, they weren’t left holding the bag! It was the shareholder and maybe at the end of the day it might even result in the US tax payers having to bail large investment banks like Bear Stearns.
Check out this video by the BBC starring Robert Preston - its very enlightening.
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April 18th, 2008 at 7:11 am
Good post. This reminds me of the onion video comparing the rich and super rich. It makes you want to keep growing to break into this caste.
April 18th, 2008 at 8:05 am
Another great posting.
April 18th, 2008 at 12:38 pm
I’ve gone back and read quite a few of your older posts. Always food for thought. Thanks for sharing.
April 21st, 2008 at 9:26 am
The video was very truthful. The middle class always pay the price of the wealthy.
Another reason to buy assets, instead of liabilities and always manage your risk level and debts.
May 5th, 2008 at 3:38 am
Got here from the Carnival of Wealth, Money, and Life, and had a comment:
Here’s an incredibly interesting video about how the Federal Reserve Chairman Alan Greenspan directly helped the rich become Super Rich by keeping interest rates artificially low.
Tell me we’re not headed there again RIGHT NOW! Now’s your chance to “break into that caste.” From here, interest rates will only go up, because now the Fed’s sole chore will be to fight off inflation–that will be done with higher interest rates. Watch the video I submitted to the Carnival and add interest rates to it.
June 4th, 2008 at 12:31 am
[…] But the key thing to remember is that in these times of cheap and easy liquidity, borrowers are rewarded and savers are punished! […]
June 20th, 2008 at 6:32 pm
[…] ND has more about the details of the underlying factors of our current recession caused by unsafe lending practices. […]