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Trickle-Down Lives at the New York Times

We’ve heard about the problems facing the merely rich. Now the New York Times wants us to care about the problems of the super-rich, the families that control the nation. Possibly anticipating derision, the writer, Paul Sullivan, provides this warning:

Before you start laughing up your sleeve, be advised that this is not a good thing. When the super-rich get cold feet, the rest of America gets swine flu. They are, after all, the people who might finance new companies that create jobs, make big investments to support existing companies and spread their wealth throughout the economy.

Here is the difference between bloggers and the opinion reporters of the New York Times. If I said trickle-down economics was good for America, I’d provide a link to some evidence that it might be true. If I couldn’t find a link, I would at least offer some reason for the statement. Mr. Sullivan doesn’t provide evidence for his assertion, in the face of an obvious fact that contradicts his assertion. If the rich had invested in productive assets before the great crash of 2008, we’d have something to show, maybe a manufacturing sector like we used to have, or maybe something new like a green industry. I don’t see any new industries.

I’d say the first great crash of the 21st century was caused by those super-rich families, whose greedy search for impossible returns led to investments in pools of fake mortgage notes, wild-eyed gambling on the credit of other people, and the Ponzi schemes of Bernie Madoff.

And, as you are entitled to expect, there’s evidence for my assertion. Consider hedge funds. The rich people who threw money at these masters of the universe agreed to pay 2% of assets and 20% of returns for the purported expertise. You’d have to expect enormous returns to do better than a mutual fund, and indeed, it didn’t happen. In fact, the superrich seem to have lost confidence in this idiotic arrangement: assets under management by hedge funds dropped from $2.5bn to $1.3bn since last year.

What were those hedge funds doing with the money? One of their investments was pools of mortgages and debt instruments, Collateralized Mortgage Obligations and Collateralized Debt Obligations (CMOs and CDOs). Some of the funds bought CMOs and then sought protection by buying credit default swaps from the likes of AIG. Others wanted to bet against the pools, using credit default swaps and other complicated strategies, so their bank counterparties bought AIG credit default swaps. It was the CDS part that worked out, since taxpayers bailed them out of the AIG disaster.

The NYT tells us that Paul Sullivan “writes about strategies that the wealthy use to manage their money and their overall well-being.” This link carries you to a Wall Street Journal article which reports on a paper from the Kennedy School of Government of Harvard. The WSJ tells us:

Trickle-down economics, a centerpiece of conservative economic thinking for many decades, failed to deliver its promise of distributing wealth across the economy….

So, Mr. Sullivan of the New York Times, All the Opinions that are Fit to Print, where’s the evidence for your assertion about trickle-down?

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I read a lot of books.