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.