That is if you put money in ten years ago it would have declined to a point now as if you had lost 3/4% each year. Of course all the losses at present are really due to the huge drop last year and the additional drop of 7% so far this year.

Judging by history some time in the next decade these numbers will all turn positive again and the long term average will return to the typical 7-8%. What this shows is that our economic system is willing to have a small lie to keep it going in normal times, that is that assets grow, after inflation, at about 4-5%, but that our system can't handle large shocks.

All the soul searching going on now still will not face up to the idea that asset growth is a fiction. Business can only expand in one of three ways: inflation, market growth, usually through population growth, and increases in productivity.

Not accounted for in all of this is the need to consume more raw materials to keep the growth sustained. As these are priced artificially low the growth fiction continues. Now that shortages are looming some are starting to realize that things can't go on as before.

Perhaps people will look back on this period in 30 years and realize that it was nothing more than another oil shock just like that of the 1970's. Blaming things on housing or derivatives or leveraging is like blaming your running nose on your handkerchief.

The lost of confidence may be the realization that the rules are changing and people don't see any good place to put their funds.

I won't repeat my mantra about the need for a steady-state economy, but if we had assured health care and old age care we would have no need for wealth accumulation has a hedge against such expenses and we could give up the fiction of the "magic" of compound interest.

Perhaps the lack of confidence is justified, but the lack of any signs of understanding on the part of world leaders.

Policies not Politics
---- Daily Landscape

Richest Americans' Income Doubled as Tax Rate Slashed

Jan. 30 (Bloomberg) -- The average tax rate paid by the richest 400 Americans fell by a third to 17.2 percent through the first six years of the Bush administration and their average income doubled to $263.3 million, new IRS data show.

The 17.2 percent tax rate in 2006 was the lowest since the IRS began tracking the 400 largest taxpayers in 1992, although the richest 400 Americans paid more tax on an inflation-adjusted basis than any year since 2000.

The drop from 2001's tax rate of 22.9 percent was due largely to ex-President George W. Bush's push to cut tax rates on most capital gains to 15 percent in 2003.

So increasing their tax rates would only bring us back to the late 90s, terrible times as we know.

In the long run, we're all dead. John Maynard Keynes

Perhaps you are like myself concerned by financial reporting encourages tax disincentives through distribution of profits to employees after calculating net income but before declaring taxable corporate income and retained earnings. EBT: earnings before tax or "net income." See also EBIT, earnings before interest and tax; EBITDA, earnings before interest, tax, depreciation, amortization.

Here is an example of how financial reporting comply with UK-GAAP and the International Accounting Standard (IAS) guidance on compensation structures -- to shelter profit reporting.

The Group operates a number of deferred share bonus and options schemes, the largest of which is the Deferred Share Bonus Plan (DSBP). Under this non-pensionable annual bonus scheme for Directors and senior executives, a part of the annual bonus, at the discretion of the Remuneration Committee, may be
awarded in the form of deferred conditional rights to ordinary shares in the Company, with the additional part of the bonus being paid out in cash. Annual bonuses are subject to the attainment of challenging performance targets which are specific to each individual and either relate to Group thresholds, subsidiary company targets or a combination of both for a period not exceeding the relevant financial year of the Company.  The annual bonus pool for the Group is fixed, based on pre-bonus profit based calculations.  The element of the bonus pool which is paid out in cash is determined by deducting share based payment charges made against income in the performance period from the bonus pool.

During 2004, the amount which was charged against the bonus pool for share based payments was the UK GAAP charge, and the balance of the bonus pool was paid out as cash bonus. The latter amount is not impacted in 2004 by the restatement of the share based payment charge to IFRS, but in the future it will be.  The adjusted EPS takes account of this one-off adjustment in 2004. ...

Employee Benefit Trust

The Company has established The Savills plc 1992 Employee Benefit Trust (the
EBT), the purposes of which are to grant awards to employees to acquire shares
in the Company pursuant to the Savills plc 1992 Executive Share Option Schemes and the Deferred Share Bonus Plan and to hold shares in the company subsequent to transfer to employees on exercise or vesting of the awards granted under the schemes. The assets and liabilities of the EBT are included in the balance sheets of the Group and the Company. Investments in the Group's own shares are shown as a deduction from shareholders funds.

I've no reason to believe that finance departments elsewhere do not utilize legitimate tax advantages and SPE capital to maximize "bonus" earnings, even if that requires shorting the company's stock.

And as I understand the GAAP schema, corporate revenue recognition and timing of employees' compensation tend to minimize rather than maximize taxable income in any given fiscal year. NB. In general in the US asynchronous reporting provides a crude incentive to defer compensation. The corporate fiscal year is 1 Oct to 30 Sept; tax reporting is 30 March, iirc, in the immediate calendar year following. The individual tax year is calendar Jan to Dec. So Q4 of the calendar year is the period to reconcile profits earned and deferred (excluded from quarterly corporate taxable income) over the prior 12 months. Typically, employee bonuses are paid (realize) profits between Jan and March in the following calendar year, therefore recognized in the next tax year.

Here is an example of "bonus pool" structures.

Diversity is the key to economic and political evolution.

This is where I've been somewhat confused.  Is it the little old ladies?  That would be my gut guess.  They have successfully argued to the trustees of the "widows and orphans" trusts that they deserve a big bunch of money, and my guess would be they are cutting in the trustees of the trusts somehow, so all the "guys" (is it unfashionable to blame it on men?) get theirs and the widows and orphans, in a boom time, get enough to be sufficiently coddled and quieted, so that there is no one left to raise much of a stink.  I think maybe the "owners," the capitalists have installed themselves as salaried managers (aka CEO's) and their friends as decision-making board members.  They all vote each other big packages.  This probably all was made possible when huge numbers of blind sheep were made "owners" through pension plans which put huge piles of money into the system (at least on paper)  for these manager/owners/directors to "play" with (stuff into their sacks) while the sheep people believed they had a stake in the "economic boom."

That being said, I don't really undestand why it should be so hard to control bonuses, unless you're saying that their undoing would somehow only be accomplished through the undermining of private contracts (oh, no, not that).

Any way, I agree, based on what I've seen in my life that those with bunches of money will not give it over unless they are utterly forced to, and the only way to do that in this day an age (I still believe it is possible, though I may be wrong) is through a very high tax rate.

perhaps I should have left gender out of the discussion.  Forgive me if I've offended.  Substitute strong-arming bruisers (could be male or female) and wealthy, but gullible dupes (again, could be males or females).  

Taken from this web-article:

How is the arts and culture sector responding to the crisis?

This will sharply limit their desire to create a bubble and will force them to focus on long-term growth.

... Isn't this the 19th century British banking?

I will become a patissier, God willing.

So I benefit from (i) dealing with large amounts (anything below a million is chump change), (ii) being very specialised (and thus harder to replace), (iii) being on the front line with the client (thus able to influence outcomes and claim credit) and (iv) actually getting deals done (hey, give us a little bit of credit!).

Let's compare that to a an operator in an oil refinery or other chemical plant, someone who literally controls the tap of a plant delivering millions of euros every day. But no one expects this person to receive 1% of the plants output, even if he has the ability to shut customers off.

Perhaps the " being very specialised (and thus harder to replace)" bit is important, but again I am quite sure that somewhere in the plant hierarchy there is going to be a highly educated plant manager with decades of experience who is hard to replace and highly critical for the plant operation, but still is not earning a poor banker's salary.

I mean, if bankers are keeping too much of the flow going past them, and that might well be true, what is keeping people from setting up another bank, with lower bonuses and lower prices to their customers for the same services?

And if bankers are using their special relation with customers to force their company to pay bonuses, why not fire them? Just imagine what would happen if VW's drivetrain engineers said "Without an engine the car won't run, so we need a bonus or we won't design engines"

I would really like to hear why bankers and banks have (had?) this apparent bargaining power that highly skilled people in other sectors do not seem to have.

Its because executives play in a renumeration tournament. It is relative pay and bonuses that count as motivation. take a grand slam tennis tournament. The winner in the final gets MUCH more than the beaten finalist and MUCH more in turn than the beaten semi-finalists.

The point of having a huge renumeration deal for the CEO is not to motivate that person to work extra hard. It is to motivate the half-dozen or so people who might reasonably aspire to succeed that person to work extra hard. On this theory they need to be paid a lot less than the top honcho. And in turn this motivates the small crowd of people who might succeed them (and who in turn need to be relatively lowly paid). Thus the culture of unimaginable bonuses and options for the people who make it through to the 'finals' in the renumeration tournament.

The incentive system would work even if the CEO did nothing else than play golf - provided there is a small army of furiously over-achieving underlings trying to win the tournament by promotion to the next level.

Over in the USA Obama apparently intends to cap renumeration for top executives of organisations getting state help. This will wreak the tournament incentive structure. This could be interesting. It might be helpful to read up on tournament theory to understand some of the inevitable shrieks at this move.

Tournament theory has stood the test of time and has been supported by many subsequent pieces of empirical research. It also makes a perverse kind of sense: the more grotesque boss's pay, and the less he has to do to earn it, the bigger the motivation for you to work with the aim of being promoted to have what he has... so there you have it. Economists don't even pretend that your boss deserves his salary.

Tim Harford ' The Logic of LIfe: uncovering the new economics of everything' pp 106-110 in my UK edition

Harford has some interesting discussions on how tournaments arise in business - which suggest that the problems will not go away even if the system is subverted or taxed.

Tournament theory was devised by economist Ed Lazear back in the 1980's.

'Rank Order Tournaments as Optimum Labor Contracts' Journal of political Economy 89, No.5 (1981)