Nel's New Day

October 25, 2011

Reason for Wall Street Protesters

Filed under: Uncategorized — trp2011 @ 6:29 PM

Wall Street workers claim that they are in trouble too, in fear of losing their jobs. (Protesters have offered a place in their tents!) Other people say that everyone benefits from Wall Street because they have retirement funds. The conservatives scream that privatizing Social Security will give people more money. Is Wall Street helping all these people who don’t have jobs or are having their salaries reduced? No.

The average money manager for mutual-fund investors skim 1.4 percent a year from stock funds and 1 percent from bond funds. One percent sounds like a small piece, but consider this example. A hypothetical person who invested $1,000 every year for the past 30 years in a balanced portfolio of 60 percent U.S. stocks and 40 percent bonds will have $105,000. Without the fees, that person would have $137,000–$32,000 less. Wall Street got 40 percent of that person’s return. And that’s 40 percent for every investor.

Mutual-fund “choices” during the past decade didn’t offer a gold fund or an emerging markets fund. Gold made 19 percent during that time, emerging markets 16 percent. Meanwhile the “large-cap growth” went up a pitiful 2.4 percent each year while a “mid-cap blend” increased 6 percent. “Target-date” funds, heavily weighted toward stocks because they “always outperform” over the long term, went up only 30 percent over the past 14 years (a little more than 2 percent each year) as compared to 150 percent in overseas markets.

Hedge funds make Wall Street the most money. Marketed to the wealthy, managers of these funds charge 2 percent of assets each year—plus 20 percent of all profits, if there are any. Then these managers turn around and pay a maximum of 15 percent income tax on their income. In a typical year, a hedge fund has to beat a balanced portfolio of stocks and bonds by approximately 50 percent just to stay even. One study showed that between 1980 and 2008, investors in hedge funds made an average of 6 percent each year; the stock-market index fund increased about 11 percent during the same time.

People who follow Wall Street advice will be in even more trouble. Six months ago, analysts rated Netflix stocks a “buy” twice as often as those who recommended that owners sell these stocks. As of yesterday, buyers lost half their stake, and the stock went farther down today. In March 2000, Cisco Systems traded at 120 times its forecast earnings, causing Wall Street to recommend buying their stock. That stock has lost 75 percent since that time counting for inflation. At the peak of the housing market in 2005-2006, right before the sub-prime bubble broke, most Wall Street analysts said to buy. They kept recommending the purchase of bank stocks in 2007.  All these stocks took a big dive.

By now people who hold bank stocks are suffering.  During the past five years Goldman Sachs employees have pocketed $80 billion in pay, benefits, bonuses, and other goodies. During the same time stockholders have lost $25 billion.

Some corporations are still providing their stockholders with income, Nike, for example. The company sits on $4.5 billion. But it’s keeping most of this money without hiring anyone while they contemplate buying more companies and going more international.

Occupy Wall Street opposes these egregious excesses–the high income for financiers and the corporations that don’t need lowered taxes to survive and that keep firing people to make more money for themselves.

1 Comment »

  1. Someone wrote recently that there is good capitalism and bad capitalism. A new concept for me.


    Comment by Lynchly — October 25, 2011 @ 9:38 PM | Reply

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