dcdecoder:

Editors Note: This begins a weekly series of talks between Decoder and The Motley Fool columnist Morgan Housel. You can find all of Housel’s Fool columns - including his most recent, “50 amazing numbers about the economy,”here.

In our first chat with Motley Fool columnist Morgan Housel, we take on the “1 percent” of the Occupy Wall St. protests, how the financial sector could get back into society’s good graces and whether now - with economists growing bleaker on the economy by the day - might mean that things are just about ready to turn around.

1. In your piece “Meet the 1%” you look at some stats that hit big on Tumblr recently - just what professions make up that top 1 percent. What do you think about how the composition of that top tier of American wealth has changed over the last thirty years or so?

Housel: It turns out, a lot of the one percent do not hail from high finance. It’s about 14 percent today, it was eight percent in 1979. Many of the top one percent are people you would consider average Americans - farmers, entrepreneurs, blue collar workers, doctors and others. But when you look at the growth from 1979 until today, you have had a huge explosion in the number of corporate executives and financiers [in the 1 percent]. Even though those are still a minority, you’ve seen a huge amount of growth in that section. And then when you look at the actual amount that those groups are earning, you’ve seen an explosion of income within the corporate executive and financial professionals over the past 30 years and basically no growth in the income of all the other professions in that one percent. 

The question from there is why are they paid so much more now? And is that growth deserved? That is really at the heart of the occupy debate. It’s not that these people are making so much more money. Most of the people in the Occupy debate are not anti-capitalist at all. They are looking at the income inequality and saying, “It’s not that they make $10 million a year, it’s that they make $10 million per year destroying the economy.” 

When you look at corporate executive compensation… you’ve seen this explosion in salary without real tangible results from that.  But you have all these tangible downsides, financial crisis, bank bailouts and recessions. So you look at this: very little upside, very tangible downside and their reward for that has been an explosion in compensation.

2. Is there anything Wall St. could do to get back in Main St.’s good graces?

Housel: What’s sort of unfortunate is that Wall St. is viewed so negatively that people aren’t looking for change, they’re more or less just looking for blood. There are real changes that could take place that would make Wall St. a really good, admirable place…

The whole purpose of the financial system is to allocate capital property. Over the last 20 or 30 years, [Wall St.’s] goal has moved from allocating capital to trading capital back and forth. Rather than pushing capital to where it’s the most productive, it’s “Let’s see how many times we can trade this back and forth so we can extract the maximum amount of fees.” 

It’s hard to say what could move them back in [toward a focus on allocating capital]. I personally think one of the things that could help that is stronger regulation and of course that’s a very controversial topic. My basis for that is looking historically and saying, when did the financial system allocate capital most efficiently? And it was probably the period from the mid-1950s until the mid-1990s, which happens to be one of the most heavily regulated periods in the financial sector. But I’m extremely well aware that that is extremely controversial. There’s really no agreement on what the problem was let alone how we’re going to fix it.

3. With some pundits giving the American economy a 50/50 chance of falling into another recession, Decoder read your piece about defying the conventional wisdom (“Everyone believes it, but most will be wrong”) and was struck by this - maybe now is the moment to start looking for green shoots, to be optimistic about the economy?

Housel: The whole history of financial forecasting is the story of being perfectly wrong. The booms start whenever conventional wisdom is bearish and the busts start when everyone is bullish. One way you can look at that is to look at how things have fared in relation to peaks and troughs of different levels of consumer confidence. When you look at market returns, two years hence, and you compare that to consumer confidence, you see that when consumer confidence bottoms, those next two years are going to be terrific for the stock market. It would be unprecedented for us to be at this level of consumer confidence and not have a fantastic five years. 

[The American economy] could go either way. But the people who are making the black sheep calls, the people who are sticking their necks out, those are the people right now who are saying the next five years are going to be a lot better than people think [are more likely to be right]. But certainly anything could happen.

4. What’s one story or theme that isn’t getting enough attention regarding the American economy right now?

Housel: One point that [Warren Buffett] makes that people aren’t paying enough attention to right now is that the biggest weight on the economy is housing. Then you ask, what is going to get housing going again?

From 2001 to 2006, household formations were at one million per year and new home construction was two million per year. Right now it’s completely flipped, with one million household formations and new home construction is going at 500,000 per year… It’s difficult to tell what the shadow housing inventory is today, but at least some regions in the US could be facing a housing shortage within the next two or three years. That’s really fascinating. That changes the dynamics of everything [in the economy]… Buffett’s been hammering about this for about six months now. 

But it’s hard for people to hear that people housing is going to make a big rebound when they see its so incredibly low right now. But the fact that it’s so incredibly low plants the seeds for something to happen within the next few years.

Want more?

• Find out why Gallup’s economic numbers may foreshadow a boost in the economy in October. 
  
• Read Housel’s 50 amazing numbers about the US economy.
• Follow Morgan Housel on Twitter.

(Source: dcdecoder)

dcdecoder:

Louisiana Representative John Fleming (R) is being torched in the blogosphere for the following interview on MSNBC. The quote being pulled by several news sources is as follows:

“By the time I feed my family, I have maybe $400,000 left over.”

Here at DC Decoder, we value you, our Tumblr friends and blog readers. As such, we figured we would do you the courtesy of actually clicking the big “play” button in the middle of the video instead of just believing the still-motion image and the quote everybody else pulled.(Also, his name is John Fleming, not Flemming, as in the title of the video).

Here’s what Fleming said, in full:

The amount I have to reinvest in my business and feed my family is $600,000 of that $6.3 million [of total revenues, which was where the conversation started]. And so, by the time I feed my family, I have maybe $400,000 left over to invest in new locations, upgrade my locations, buy more equipment.

Reading Fleming’s biography, he’s a physician as well as an owner of assorted other small businesses. If we take Fleming at his word that he reinvests the $400,000 a year into his various businesses, a doctor making about $200,000 a year isn’t exactly out of the American mainstream. That’s not to say ordinary Americans are all too worried about the potential for Rep. Fleming’s economic plight, if you could call it that, with higher taxes. But the fact of the matter is that listening through to the end of the soundbite gives you a much different picture than someone grousing over their $600,000 in income. 

Want more?

• Find out what you need to know about President Obama’s deficit reduction plan. 
• Read about how the Obama administration has coupled entitlement reform and higher taxes in his dual push for jobs and deficit reduction.

(Source: dcdecoder)

Business Insider:

Yes, the rest of the world is watching this embarrassing debt ceiling nonsense, and it is growing dismayed.

Der Spiegel has a roundup of commentary in German newspapers about the fight, and the universal message is this:

The US is holding the entire world hostage, and it’s the Republicans that are playing with fire.

Hard to accuse the Germans (who are no fans of fiscal profligacy) of being motivated by politics, or of having some inherent reason to attack Republicans. This is just the reality of what they’re doing.

Here’s the passage from Bild, the newspaper of the masses:

“Playing poker is part of politics, as is theatrical posturing. That’s fair enough. But what America is currently exhibiting is the worst kind of absurd theatrics. And the whole world is being held hostage.

“Irrespective of what the correct fiscal and economic policy should be for the most powerful country on earth, it’s simply not possible to stop taking on new debt overnight. Most importantly, the Republicans have turned a dispute over a technicality into a religious war, which no longer has any relation to a reasonable dispute between the elected government and the opposition.”

“If it continues like this, the US will be bankrupt within a few days. It would cause a global shockwave like the one which followed the Lehman bankruptcy in 2008, which triggered the worst economic crisis since the war. Except it would be much worse than the Lehman bankruptcy. The political climate in the US has been poisoned to a degree that is hard for us (Germans) to imagine. But we should all fear the consequences.”

The 400 wealthiest families in the U.S. aren’t just filthy rich, they are downright dirty. Collectively, these households own $1.37 trillion dollars; a number so high that it’s nearly impossible to comprehend. Here are 11 shocking things $1.37 trillion can buy that you can’t.

• The richest 400 households can pay off every student loan for every single student in the entire United States. No more paying for an education, so that you can get a good job so that you can… well, pay off your education.

• The richest 400 could pay your rent, and the rent of every single renter in the entire United States for three years.

• The richest 400 could pay the mortgages of every house in the whole country for 14 full months. 

• The richest 400 households can buy every single house that was foreclosed on in 2007 and 2008.

• The richest 400 households could pay the annual salaries of 19 million families for one year. So go ahead, take that year-long, family vacation around the world you’ve always dreamed of.

• The richest 400 can pay off all credit card debt for every single person in the entire United States. Imagine that! No more credit card debt looming over your shoulders!

• The richest 400 households can afford to give a $10,000 bonus to every single worker in the entire country. What would a hardworking person like you do with that extra money?

• The richest 400 can afford to buy a new car for every family in the United States. Meanwhile, many of us must ignore the flashing check engine light.

• The richest 400 can pay for 3 ½ years worth of gas for every driver in the country.

• The richest 400 households can afford to triple the number of teachers in the United States, then give every single one a $30,000 raise. Teachers are being laid off everywhere, their salaries are being cut, and they are suffering. Teacher-to-student ratios in schools are abysmal. But what can we do about it when so much wealth is in the pockets of so few families?

• The richest 400 families alone could replace 70% of all money lost in the Great Recession, for everyone! How much money did you, your parents, or grandparents lose in the Great Recession of 2008? 30%, 50% of your portfolio? Not only do the rich still have enough money to fund their wildest dreams, but they can also fund your retirements.

(Source: sarahlee310)