Let's Drink to the Hard-Trading People

[phantom power]

I don't know if anybody else has noticed this, but my impression is that over the last 20 years or so, the idea that "big rewards can require big risks" has gradually been replaced with the much-less-reality-based meme "big risks == big rewards", or "I deserve big rewards for taking big risks." The actual definition of "risk", as "something which has a significant probability of failing" got lost in there somehow.

I don't want to get into a lengthy response to the Bloomberg article about Wall Streeters whose reduced bonuses mean they have to limit the three-bedroom vacation rental to one month rather than four, or who can't ski Aspen this winter. Nor do I want to go point by point through Megan McArdle's reply ("Are the Rich Completely Undeserving of Sympathy?&quot . I just want to talk about this comment from an attorney that's appended to McArdle's post:

Another factor I've noticed with my bankruptcy clients is that a very rich person whose income takes a sudden precipitous drop to a still-pretty-good income can actually wind up in more financial trouble, faster, than a very poor person whose income drops to zero. If you were making $300k a year and spending $200k of it on fixed expenses, and your household income drops to $125k a year, unless you have substantial liquid savings or are able to sell your house and your car and your boat yank your kids out of private school REALLY fast, you're going to wind up in bankruptcy in a fairly short space of time....

I guess what I want to ask is: why don't these people have "substantial liquid savings"? Why don't they have a plan for a possible calamitous economic downturn? Isn't understanding the volatile nature of financial markets their freaking job?

Aren't they supposed to comprehend this kind of risk much, much better than the rest of us? And, by the way, isn't risk the reason they and their Masters of the Universe superiors supposedly deserve the big bucks in the first place? Isn't that the heroic myth of big-time capitalism -- that, unlike us paper-pushing, ditch-digging, wage-slave drones, they accept the potential for tremendous harm to their own economic well-being in order to be the Randian heroes who keep our economic engine chugging along?

http://www.boomantribune.com/story/2012/2/29/182345/489

[HughBeaumont]

1. Yep. Most of us simply don't have the means to save.

If people are such market "experts" and are trained to "see things coming", then yes, they can very much be blamed for living outside of their means (wasn't financial management something they paid good money studying up on?) and not having liquid savings despite their very real ability and liquid resources to do so.

It amazes me that some of the wealthy in these recent articles act like someone put a gun to their head and said "Buy that Lexus, buy that Benz, send the kids to tawny private schools, get the more expensive domicile, GET the cleaning lady, take yearly trips to Gstaad, etc".

[rfranklin]

2. It sort of feels like that when you run in that crowd...

People never compare themselves to those who have less. They look to those who have more and aspire to that level. And there is constant competition between those at the same level. Their self esteem and identity is wrapped around their wallets.

Also, big earners usually believe that the money will never stop flowing. They are the masters of the universe. Read Bonfire of the Vanities by Tom Wolfe for a great depiction of the mindset.

[tech3149]

3. I had to fight that battle first hand with my ex

We dug a hole to move to the NY Metro area. We seriously underestimated living expenses. I took a job paying basically slave wages because I didn't want a high profile job. The job we relocated for her to accept went bust in not much more than a year. She had made a name for herself so she got another good paying job right away.
Since her pay was great, she thought it was OK to spend most of it. Country club membership? Seriously? I don't even play golf! Nothing wrong with that four year old 320 IS that's bought and paid for, now you want a 320 SLK? $30 K for renovations to a perfectly fine house. $5K for a weekend getaway, $10K to take a not so close family on a NYC jaunt.

I think there is a destructive mental influence from exorbitant compensation. It's like all of a sudden that compensation bestows some level of privilege that can never ever be taken away.

We walked away from our marriage with some pretty good money in the bank. It's kept me from working since 2002. She on the other hand burned through most of it in the first year.

[MisterP]

4. those they interviewed were accountants who don't know how to handle $, FFS!