Jon Bakija
Williams College
November, 2010
Abstract:
This paper presents summary statistics on the occupations of taxpayers in the top percentile of the national income distribution and fractiles thereof, as well as the patterns of real income growth between 1979 and 2005 for top earners in each occupation, based on information reported on U.S. individual income tax returns. The data demonstrate that executives, managers, supervisors, and financial professionals account for about 60 percent of the top 0.1 percent of income earners in recent years, and can account for 70 percent of the increase in the share of national income going to the top 0.1 percent of the income distribution between 1979 and 2005.

As a former bond trader with Bankers Trust Company (formerly located at 16 Wall Street but now long gone) I have two reactions to this “sobering, Oscar-winning documentary that presents in comprehensive yet cogent detail the prevasive and deep-rooted corruption that led to the global economic meltdown of 2008″ (from the Netflix liner notes).

1. I think this documentary is very insightful and revealing.

2. My heart is broken that a profession I loved has been so perverted.

If you want to understand the influence of Wall Street on our global economy watch this documentary. And after you have seen it, let’s discuss it.

- Mike

Student-Loan Debt Surpasses Credit Cards

Copyright 2008 Dow Jones & Company, Inc.

NEW YORK – The credit scores of millions more Americans are sinking to new lows.

Figures provided by FICO Inc. show that 25.5 percent of consumers — nearly 43.4 million people — now have a credit score of 599 or below, marking them as poor risks for lenders. It’s unlikely they will be able to get credit cards, auto loans or mortgages under the tighter lending standards banks now use.

Because consumers relied so heavily on debt to fuel their spending in recent years, their restricted access to credit is one reason for the slow economic recovery.

“I don’t get paid for loan applications, I get paid for closings,” said Ritch Workman, a Melbourne, Fla., mortgage broker. “I have plenty of business, but I’m struggling to stay open.”

FICO’s latest analysis is based on consumer credit reports as of April. Its findings represent an increase of about 2.4 million people in the lowest credit score categories in the past two years. Before the Great Recession, scores on FICO’s 300-to-850 scale weren’t as volatile, said Andrew Jennings, chief research officer for FICO in Minneapolis. Historically, just 15 percent of the 170 million consumers with active credit accounts, or 25.5 million people, fell below 599, according to data posted on Myfico.com.

Read the rest here

Greater Fools

by James Surowiecki

The depth of our financial ignorance is startling. In recent years, Annamaria Lusardi, an economist at Dartmouth and the head of the Financial Literacy Center, has conducted extensive studies of what Americans know about finance. It’s depressing work. Almost half of those surveyed couldn’t answer two questions about inflation and interest rates correctly, and slightly more sophisticated topics baffle a majority of people. Many people don’t know the terms of their mortgage or the interest rate they’re paying. And, at a time when we’re borrowing more than ever, most Americans can’t explain what compound interest is.

Financial illiteracy isn’t new, but the consequences have become more severe, because people now have to take so much responsibility for their financial lives. Pensions have been replaced with 401(k)s; many workers have to buy their own health insurance; and so on. The financial marketplace, meanwhile, has become a dizzying emporium of choice and easy credit. The decisions are more numerous and complex than ever before. As Lusardi puts it, “It’s like we’ve opened a faucet, and told people they can draw as much water as they want, and it’s up to them to decide when they’ve had enough. But we haven’t given people the tools to decide how much is too much.” …

The Small Business Administration’s Office of Investment published a Request for Information (RFI) on Thursday, June 10, 2010 to collect input from the public on ideas for creating and leveraging existing entrepreneurial mentoring and education programs for early stage, high-growth companies.  To see the description in the Federal Register, copy and paste the following url into your browser. Be sure to include the black type as well as the blue.

http://frwebgate2.access.gpo.gov/cgi-bin/PDFgate.cgi?WAISdocID=nonCNu/0/2/0&WAISaction=retrieve

High-growth, early stage entrepreneurs face long odds; however, certain programmatic initiatives could significantly increase their chances to succeed. Mentoring relationships between seasoned entrepreneurs and early-stage entrepreneurs, as well as entrepreneurial education programs geared towards the high-growth community can help these companies reach higher probabilities of success and encourage a sustainable, innovation-based ecosystem.

The objectives of the RFI are the following: 1) to understand if the needs of high-growth companies and entrepreneurs differ from “main street” businesses; 2) how successful models for entrepreneur mentoring and education can be applied to this group of early-stage companies; and 3)how to scale successful entrepreneur mentoring and education programs more widely.

Responses to the RFI will be due on Monday, July 12, 2010 and will be used to inform policy discussions on entrepreneurial mentoring and education.  For any questions on the RFI, please email RFI_Entrepreneurship@sba.gov

** To sign up for Advocacy updates via RSS feed, visit http://www.sba.gov/advo/rsslibrary.html **

WSJ Blogs Real Time Economics

By Mark Whitehouse

122%: U.S. household debt as a share of annual disposable income

U.S. consumers are paring down their debts faster than many economists had expected. To understand what that means, though, it helps to know how they’re doing it.

As of the end of March, the average U.S. household’s total mortgage, credit-card and other debt stood at 122% of annual disposable income, meaning it would take a bit more than 14 months to pay it all off if everyone stopped spending money on anything else. That sounds like a lot, but it’s better than it was before: At its peak in the first quarter of 2008, the debt-to-income ratio stood at 131%. Economists tend to see 100% as a reasonable level, so we’re almost a third of the way there.

The falling debt burden conjures up images of a nation seeking to repent after a decade of profligacy, conscientiously paying down mortgages and credit-card balances. That may be true in some cases, but it’s not the norm. In fact, people are making much more progress in shedding their debts by defaulting on mortgages and reneging on credit cards.

Since household debt hit its peak in early 2008, banks have charged off a total of about $210 billion in mortgage and consumer loans, including credit cards. If one assumes that investors suffered at least that much in losses on similar loans that banks packaged and sold as securities (a very conservative assumption), then the total — that is, the amount of debt consumers shed through defaults — comes to much more than $400 billion.

Problem is, that’s more than the concurrent decrease in household debts, which amounts to only $372 billion, according to the Federal Reserve. That means consumers, on average, aren’t paying down their debts at all. Rather, the defaulters account for the whole decline, while the rest have actually been building up more debt straight through the worst financial crisis and recession in decades. …

Read the whole article here .

Business Plan Versus Business Models
Where did the idea that startups write business plans come from?  A business plan is the execution document that large companies write when planning product-line extensions where customer, market and product features are known. The plan describes the execution strategy for addressing these “knowns.”  In the early days of venture capital, investors and entrepreneurs were familiar with the format of business plans from large company and adopted it for startups. Without much thought it has been used ever since.

… The Alternative – Business Model Competitions
I’ll offer that to be useful for startups Business Plan competitions need to turn into Business Model competitions. A Business Model competition has a radically different goal than writing a business plan.  The Business Model competition measures how well students learn how to Pivot by getting outside the building (not by writing a plan inside one.)

Read the rest here

The Mixergy Mission is to introduce you to doers and thinkers whose ideas and stories are so powerful that just hearing them will change you.

The Mixergy Mission is to give you an alternative to the “know-it-all, professional gurus.” I want to convince you that no single person knows it all. I want to show you that the best way to grow is to learn from a mix of smart people who are willing to share their expertise and experiences.

The Mixergy Mission is to infect you with a passion for business and then help you build your business.

The Mixergy Mission is to encourage YOU to have a mission, not just a startup, not just a company, but a calling.

The Mixergy Mission is to act as a counter-weight to all the venture capitalists who’ll try to convince you that the only reason to build a business today is so you can flip it tomorrow. The world isn’t changed by people who have an eye on the exit.

The Mixergy Mission is to convince you to follow a vision so big and important that you can’t do it alone. Then I want to give you a mix of wicked-smart people who will help you achieve it.

The Mixergy Mission is too big for me to achieve alone. If what I’m describing here calls to you, jump in and join me.

The number and worldwide diversity of these programs is absolutely amazing.

Thanks Robert!