Sunday, January 20, 2019

Two Ways the System Is Rigged: HFT and Oligarchic Inheritance

The net result of a rigged system is the vast majority of the gains in income and wealth flow to the very tippy-top of the wealth/power pyramid.
We often hear how the system (i.e. our economy) is rigged to benefit the few at the expense of the many, but exactly how is it rigged? Longtime correspondent Zeus Y. recently highlighted two specific mechanisms that favor the top 0.01%: high frequency trading (HFT) and oligarchic inheritance, the generational transfer of immense wealth and the power it buys.
High frequency trading (HFT) is a mechanism only available to the few at the top of the wealth/power pyramid to skim money from markets--please watch the videos below for further explanation of how HFT works.
As for inheritance--we're not talking about leaving a house or a small business to one's offspring, or even a couple million of dollars; we're talking about tens of millions or hundreds of millions of dollars. Some states impose an estate or inheritance tax, but at the federal level, the exemption of $11 million per person means a married couple can leave $22 million tax-free.
The number of people with more than $11 million to pass on is extremely small:
In 2018, the exemption doubled to $11.18 million per taxpayer due to the Tax Cuts and Jobs Act of 2017. As a result, only approximately 2,000 people (or 0.0006% of the population) in the US are currently liable for estate tax.
The mega-bucks families and billionaires practice the fine art of philanthro-capitalism, leaving their vast fortunes in so-called charitable trusts that enable power and wealth to be transferred generationally.
Here are Zeus's video recommendations and comments:
These two videos, four and two years old, brought something that had escaped my attention about the fundamental distortion of high frequency trading (HFT). These consequences have not come due yet, but it is a preview for how it will happen (flash crash).
Here is another video (Bill Moyers interviewing Paul Krugman) on Thomas Picketty's book Capital in which Krugman admits he did not see the most important feature of systemic inequality-- inherited wealth, which combined with the above, since wealth gives access to asymmetric information that blatantly rigs the system, generates oligarchy.
Both of these points really forecast a financial collapse in which the separation and concentration of wealth reaches critical levels, and as Yanis Faroukakis says "idle cash" has no where to go, as all the avenues of wealth generation are monopolized by predators and regular people either become moribund or victimized.
This goes back to what my book Transforming Economy: From Corrupted Capitalism to Connected Communities forecast that the real change and turn will come when people are "exhausted" in two senses:
1) "used up" as all pension funds become savaged to pay fees and pretend to be solvent without having backing capital to meet obligations when people actually start drawing on them (which creates sell orders, received first by HFT and then amplified as they sell first, leading into a death spiral), and
2) "being tired" as in fatigued to play and hope to win and stay in a rigged game, thus bringing down the illusion of a sunny retirement. This is just a matter of time, which is always the case when fundamentals no longer exist and are increasingly substituted with opportunistic illusion. As with all con schemes and pyramid games, they become unmasked and the illusory wealth evaporates to be replaced by IOUs that can never be paid.
Once that happens, it will be interesting to see how we respond.
I don't think we have very many years until this reckoning thanks to Trump's almost autistic savant abilities to unmask and blow up the facades surrounding the global elites.
This does not mean I favor him or the inevitable pain that will result from this unmasking, but I can appreciate anything that casts light on our currently bankrupt system.
The net result of a rigged system is the vast majority of the gains in income and wealth flow to the very tippy-top of the wealth/power pyramid where it concentrates ownership of productive assets and political power.
Please note that this is an apolitical reality; neither party has made any serious move to eliminate HFT and similar skimming operations, or limit philanthro-capitalism or onshore/offshore tax evasion--another mechanism that's only available to the top .01% and above.
Net Worth Percentile   2016 Dollar Cutoff
90.0%                           $1,182,390.36
95.0%                           $2,377,985.22
99.0%                           $10,374,030.10
99.5%                           $16,115,373.00
99.9%                           $43,090,281.00
My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format.

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