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Citigroup’s plutonomy memos

August 30, 2012

Maybe I’m the last person who’s hearing about the Citigroup “plutonomy memos”, but they’re blowning me away.

Wait, now that I look around, I see that Yves Smith at Naked Capitalism posted about this on October 15, 2009, almost three years ago, and called for people to protest the annual meetings of the American Bankers Association. Man, that’s awesome.

So yeah, I’m a bit late.

But just in case  you didn’t hear about the plutonomy memos (h/t Nicholas Levis), which were featured on Michael Moore’s “Capitalism: a Love Story” as well, then you’ll have to read this post immediately and watch Bill Moyer’s clip at the end as well.

The basic story, if you’re still here, is that certain “global strategists” inside Citigroup drafted some advice about investing based on their observation that rich people have all the money and power. They even invented a new word for this, namely “plutonomy.” This excerpt from one of the three memos kind of sums it up:

We project that the plutonomies (the U.S., UK, and Canada) will likely see even more income inequality, disproportionately feeding off a further rise in the profit share in their economies, capitalist-friendly governments, more technology-driven productivity, and globalization… Since we think the plutonomy is here, is going to get stronger… It is a good time to switch out of stocks that sell to the masses and back to the plutonomy basket.

The lawyers for Citigroup keep trying to make people take down the memos, but they’re easy to find once you know to look for them. Just google it.

Nothing that surprising, economically speaking, except for maybe the fact that their reaction, far from being outrage, is something bordering on gleeful. But they aren’t totally complacent:

Low-end developed market labor might not have much economic power, but it does have equal voting power with the rich.

This equal voting power seems to be a pretty serious concern for their plans. They go on to say:

A third threat comes from the potential social backlash. To use Rawls-ian analysis, the invisible hand stops working. Perhaps one reason that societies allow plutonomy, is because enough of the electorate believe they have a chance of becoming a Pluto-participant. Why kill it off, if you can join it? In a sense this is the embodiment of the “American dream”. But if voters feel they cannot participate, they are more likely to divide up the wealth pie, rather than aspire to being truly rich.

Could the plutonomies die because the dream is dead, because enough of society does not believe they can participate? The answer is of course yes. But we suspect this is a threat more clearly felt during recessions, and periods of falling wealth, than when average citizens feel that they are better off. There are signs around the world that society is unhappy with plutonomy – judging by how tight electoral races are.

But as yet, there seems little political fight being born out on this battleground.

This explains to me why Occupy was treated the way it was by Bloomberg’s cops and the entrenched media like the New York Times (and nationally) – the idea that people are opting out and no longer believe they have a chance of being a Pluto-participant is essentially the most threatening thing they can think of. Interestingly, they also say this:

A related threat comes from the backlash to “Robber-barron” economies. The
population at large might still endorse the concept of plutonomy but feel they have lost out to unfair rules. In a sense, this backlash has been epitomized by the media coverage and actual prosecution of high-profile ex-CEOs who presided over financial misappropriation. This “backlash” seems to be something that comes with bull markets and their subsequent collapse. To this end, the cleaning up of business practice, by high-profile champions of fair play, might actually prolong plutonomy.

This is what Dodd-Frank has done, to some extent: a law that makes things seem like they’re getting better, or at least confuses people long enough so they lose their fighting spirit.

Finally, from the third memo:

➤ What could go wrong?
Beyond war, inflation, the end of the technology/productivity wave, and financial collapse, we think the most potent and short-term threat would be societies demanding a more ‘equitable’ share of wealth.

Note the perspective: what could go wrong. Lest we wonder who inititated class warfare.

Categories: #OWS, finance, rant
  1. Tara
    August 30, 2012 at 9:18 am

    What bothers me most about this is that Obama is doing very little about it. He has the same cadre of economic advisors as GWB and they have convinced him that the financial industry can patrol itself with no need for any significant new regulation. So while Romney is clearly playing to Pluto-participants, I don’t really see that Obama isn’t/won’t.

  2. Bertie
    August 31, 2012 at 3:25 am

    Speaking of inequality, you did highlighting that Gangnam clip from Korean in a (much) earlier post, which was great fun by the way!

    http://opencitymag.com/beyond-the-horse-dance-viral-vid-gangnam-style-critiques-koreas-extreme-inequality/

  3. dp
    September 1, 2012 at 6:26 pm

    But, don’t things like creativity exist _because_ we want to be better than the rest? What incentive is there to strive to do better if you _know_ you can’t.

  4. Scott Carnahan
    September 1, 2012 at 7:11 pm

    Their strategy seems to be rather short-sighted. If you’re going to be a soulless greedhead, history suggests you’re much better off exploiting large numbers of poor people for a little cash at a time in some vaguely automated way than going after the spending money of rich people who, as far as I can tell, prefer to accumulate numerical wealth, and mostly spend on very labor-intensive services like individual tutors for their children, and custom-made items.

    Upon further consideration, if “plutonomy basket” means financial services for rich people, that might be consistent with what I said. Perhaps that is their vision of a growth sector.

  5. Michael Thaddeus
    September 3, 2012 at 12:09 pm

    Didn’t Nick Levis go to Hunter High School? The name is familiar.
    Also, the word “plutonomy” is hardly new; anyone who has read academic transcripts from Peking University (and who hasn’t?) will recall the course “Principles of Marxist Plutonomy,” in which grades seem to correlate inversely with academic merit…

  6. Ralph
    February 7, 2013 at 4:12 pm

    I checked all the stocks listed in the documents. They all crashed just like everything in 2008 so I’m sure the whole “plutonomy” thing was just a fad among rich people. Don’t worry, they lost all their money with everyone else.

    • Nick
      September 9, 2013 at 5:49 am

      Ralph – you need to do a bit more of that checking. The rich have come back richer than ever. The GFC resulted in massive transfers of dollars from ordinary taxpayers to the wealthy via the bail-outs (when the big financial institutions momentarily embraced socialism). 93% of the post-GFC economic gains in 2009-10 went to the richest 1%. The top 1% own 40% of the wealth. In 1980, the average CEO’s salary was 42 times that of the average worker. In 2012, it was 380 times. Meanwhile, 40% of workers make less than a full-time US minimum wage worker made way back in 1968 (indexed for inflation).

  7. March 22, 2013 at 1:27 am

    Hahahaha!
    “Don’t worry, they lost all their money with everyone else.”
    Who are you trying to fool, Ralphy boy?

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