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CC 2008 Flynn-Burhoe

“Mortgage Meltdown” a digitage on Flickr

see also related webliography

1965-2005 Between 1965 to 2005 there was no national US real-estate bust as home prices surpassed inflation by a percentage point or two on average. However local reversals have taken place and some cities have never recovered (Christie 2005).

1973-5 US investors in the S&P 500 lost 14% in 1973 and 26% in 1974 but gained 37% in 1975 (Mann 2000).

1970s “The additional grades or risk have arisen from the willingness to underwrite mortgages for more risky borrowers, encouraged by the democratization of credit since the 1970s. Lending to more risky borrowers is, by definition, more risky. More loans to risky borrowers increases the total amount of risk to be sold in the marketplace” (Mason and Rosner 2007).

1980-1990 In Los Angeles real estate was turbocharged for nearly 10 years (Christie 2005).

1985 In Peoria, Ill. a more traditional area the average home price fell from $60,800 in 1981 to $51,400 in 1985 partially because of strikes and lay-offs at Caterpillar, the city’s biggest employer (Christie 2005).

1987 Canadian families saved 20 percent of their take-home pay (Ed 2007).
1987 Stock market crash
1988 In “oil patch” cities like Oklahoma City prices plummeted 26 percent from 1983 to 1988. They only returned to 1983 levels in 2003 fifteen years later. In Oklahoma City, the inflation-adjusted price in 1983 was $196,600. Today, it’s just $135,100 (Christie 2005).

1988 Houston home prices fell 22 percent from $111,000 in 1983 to $86,800 in 1988 rebounded only in 2003. Counting inflation, the average Houston home, which cost just $159,700 in 2004, is actually worth less [in 2005] than it was [in 1983]. When, adjusted for inflation, a home cost about $219,000 in 1983 (Christie 2005).

1988 – 1990s Real estate prices fell in Northern California first followed by the rest of the state “as employers fled, incomes dwindled, quakes rumbled, sales fell and prices slipped. [. . .] Silicon Valley’s housing market crashed into recession along with the state’s economy (Perkins 2001).

1989-90 The notorious price bubble of 1989-90 was linked to central banks specifically the Bank of Japan. “The Japanese economy continued to suffer during the early 1990s, and remained in recession until the end of 1993. Nominal GDP growth rates, which had been around 7 percent during the bubble period, fell beginning in 1990 and by 1991-93 were close to zero. Profits in the manufacturing sector fell 24.5 percent in 1991 and 32.1 percent in 1992. Bankruptcies began to rise starting in the latter half of 1990; by 1992, bankruptcies with debt more than Y10 million totaled 14,569 cases. Failures of real estate firms or of firms engaged in “active fund management” constituted more than half the corporate bankruptcies in 1991 and 1992 (Miller 2001).”

1991 Inflation-adjusted take-home pay in Canada froze to this level (Ed. 2007).”

1992 A new car in Canada cost $20, 000.

1992 – 2000 “Japan remained pretty stagnant in the last eight years, with the majority of the loss coming in the first two, when it eventually fell by more than 60%. There was never a big drop, just a constant and inexorable drift downward. Real estate prices plummeted, almost no Japanese company ended 1992 higher than it started 1990. In the interim, banks have failed (and if it weren’t for the financial props of the Japanese government, many more would have), and companies have had to reassess some of their basic assumptions, such as lifetime employment and large benefit packages” (Mann 2000).

1996 There was a housing market reversal in Los Angeles with average house price dropping from $222,200 in 1990 to $176,300 in 1996, a loss of 20.7 percent. “Furthermore, those are nominal prices, not real values. To calculate the loss more realistically you would have to figure in the cost of inflation: $222,200 in 1990 would have been worth $266,700 in 1996 dollars, which means the actual loss for homeowners buying in 1990 and selling in 1996 was closer to 34 percent (Christie 2005).”

1994- 1996 “In 1994, [Japanese] banks wrote off non-performing assets of Y5.7 trillion, exceeding the previous high of Y4.3 trillion in fiscal year 1993. As yet, no major bank has failed, although a number have reportedly encountered serious difficulties. In December, 1994, the Bank of Japan supervised the takeover of two credit cooperatives, the Tokyo Kyowa Credit Cooperative and the Anzen Credit Cooperative, through the creation of a bridge bank with government support. The Bank’s decision not to let these institutions fail and pay off depositors under the deposit guarantee program was based, largely, on concern for the potential systemic effects of a deposit payoff on public confidence in the banking system in general. The “jusen,” or housing finance banks, suffered the most serious problems; these institutions, which were typically organized and sponsored by major commercial banks and staffed, in part, by former officials from the Ministry of Finance, lost tens of billions of dollars as a result of the collapse of the price bubble, and became one of the most contentious political issues of the day during 1995-86 (Miller 2001)”.

1996 “How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability. Indeed, the sharp stock market break of 1987 had few negative consequences for the economy. But we should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in asset prices particularly, must be an integral part of the development of monetary policy.” – Alan Greenspan (December 5, 1996)**

1998 There was a market correction in the United States in October of 1998.
1992 – 2000 “Japan remained pretty stagnant in the last eight years, with the majority of the loss coming in the first two, when it eventually fell by more than 60%. There was never a big drop, just a constant and inexorable drift downward. Real estate prices plummeted, almost no Japanese company ended 1992 higher than it started 1990. In the interim, banks have failed (and if it weren’t for the financial props of the Japanese government, many more would have), and companies have had to reassess some of their basic assumptions, such as lifetime employment and large benefit packages” (Mann 2000).
2004 British Columbia graduates from university have an average debt of $20, 000.
2005 Real-estate investing spiked, pressuring prices upward. In Phoenix, according to Bill Jilbert, president and COO of the Coldwell Banker brokerage there, investors from Nevada and California have invaded the Arizona market, and “affordable housing has been pushed to extremes (Christie 2005).”
2000 In Tampa Bay Florida, high risk adjustable-rate mortgages (ARM) made homes “seem affordable when wages stagnated as prices soared. They were just the ticket for cash-out refinancings and home equity credit lines that bought cars and swimming pools and paid off credit card debt. “What happened in a lot of expensive real estate markets is that first-time home buyers who felt they could not afford a home otherwise, took on a loan that had lower monthly payments than a traditional mortgage would have,” said Allen Fishbein, director of housing policy for the Consumer Federation of America. “They weren’t being underwritten on the basis of the borrower’s reasonable capacity to handle these loans.” The payments started out manageable, especially since many loans offered teaser rates. But borrowers are getting a lesson in what the word “adjustable” means. More than $130-billion in mortgages payments were reset in 2006″ In 2006 nearly a third of Tampa Bay mortgages were the high-risk varieties, up from 10 percent in 2003 (Huntley 2006).
1991- 2005 “[I]ncreased complexity from increased grading of risk can also result in increased opacity. Risk that is more difficult to see, by virtue of complexity, is risk just the same. There are plenty of reasons to believe that the amount of risk in the marketplace has increased. Figure 3 shows that defaults on ABS and residential mortgage-backed securities (RMBS) increased substantially between 1991 and 2005″ (Mason and Rosner 2007).
2006 Fitch Global Structured Finance 1991-2005 Default Study revealed that, “the overwhelming majority of global structured finance defaults over the 1991-2005 period were from the U.S., accounting for more than 97 percent of the total. While the 1,000 U.S. defaults were mainly concentrated in the Asset-Backed Securities._ (ABS) sector, the 27 international defaults were primarily from the collateralized debt obligations (CDO) sector.” See Mason and Rosner (2007) warn that risk continues to increase, as ratings agencies revise their loss expectations to account for the dynamics of the mortgage meltdown. For instance, on March 27, Standard & Poor’s raised its expectation for losses on
2006 In Florida millions of homeowners were warned of the mortgage meltdown in which they will “face a financial nightmare brought on by a combination of higher interest rates, risky mortgages and a housing market gone cold (Huntley 2006).
2007 Since 1991 inflation-adjusted hourly wages rose only 10 cents (Ed. 2007).”
2007 A new car in Canada cost $32,000 a 60 percent increase from 1992 (Ed. 2007).”
2007Canadians collectively owe three quarters of a trillion dollars in personal debt. Canadian families not only have no savings, they draw on pension savings to make ends meet.

“The result of the easy credit is that an average family now owes far more than it takes in. That means we remain solvent only so long as the book value of our assets — things like our home, pension funds or investments — continue to increase (Ed. 2007).”

2007 British Columbia graduates from university have an average debt of $27, 000.

2007 It is now acceptable for Canadian families to pay 60 percent of income to pay monthly payments of their home mortgages (Ed. 2007).

2007 The British Columbia government will allow home owners who are over 55 to defer property tax payments for as long as they live. The government will claim unpaid taxes after you die or sell effectively placing the tax burden on the children (Ed. 2007).

2007 “The number of corporate failures in Japan rose for the third month in a row totaling 896 cases in December up 18.2%. November flops were up 6.5% and the number of companies going belly up in October were up 7.8%. The amount of debts the insolvent companies left behind were up 30.6% to 463.09 billion yen (Belew 2007).

2007 In March Bob Lawless reported in his blog that, “The folks at Automated Access to Court Electronic Records or AACER regularly collect data from all the bankruptcy courts for creditors and attorneys. They have a wealth of information that does not show up in the mainstream media. Most recently, they tell me that there were 58,640 total U.S. bankruptcy filings in February 2007 as compared to 55,088 total U.S. bankruptcy filings in January 2007. OK, that looks like a slight increase, but looks are deceiving. It’s actually a fairly hefty increase. The February filings were spread over only nineteen business days while the January filings were spread over twenty-one days. On a daily basis, the February filings were up 17.7% as compared to January (Lawless 2007).”

2007 Jayson Seth analysed data in National Association of Realtors (NAR) June 24, 2007 report. Seth argues that “America’s easy-credit, quick-flipping, borrow-now-and-forget-the-consequences lifestyle is coming to an increasingly painful, grinding halt” and the “confidence of homebuilders is at a 16-year low (Seth 2007).”

2007 Lawrence Yun, National Association of Realtors announced that the real estate market is softening due to psychological factors, tighter credit for subprime borrowers. NAR’s Lawrence Yun explained that since late 2006 housing sales have slowed as buyers double up with family, friends or just mortgage helper units in their homes to be able to pay for higher-priced homes.

2007 Mason and Rosner (2007) warn that risk continues to increase, as ratings agencies revise their loss expectations to account for the dynamics of the mortgage meltdown. For instance, on March 27, Standard & Poor’s raised its expectation for losses on 1. “Residential mortgage-backed securities (RMBS) market has experienced significant changes [from 1997-2007]” Furthermore they caution that “structural changes in mortgage origination and servicing have interacted with complex RMBS and highly volatile CDO funding structures to place the U.S. housing market at risk. Equally as important, however, is that housing market weaknesses feed back through financial markets to further weaken financial instruments backing today’s CDOs. Decreased housing starts that will result from lower liquidity in the MBS sector will further weaken credit spreads and depress CDO and MBS issuance. This feedback mechanism can create imbalances in the U.S. economy that, if left unchecked, could lead to prolonged domestic economic implications for U.S. standing in the world economic order [. . .] The potential for prolonged economic difficulties that also interfere with home ownership in the United States raises significant public policy concerns. Already we are witnessing restructurings and layoffs at top financial institutions. More importantly, however, is the need to provide stable funding sources for economic growth. The biggest obstacle that we have identified is lack of transparency.” (Mason and Rosner 2007).

2007 In a Marketplace interview Amy Scott asked interviewees about the disturbing consequences of the interconnections between banks, hedge funds, high risk mortgages and pension funds. In June two major hedge funds managed by the investment bank Bear Stearns, who purchased securities that were essentially a “repackaging of all kinds of risky mortgages” to tap into the subprime mortgage market are now verging on collapse as the number of borrowers defaulting on these mortgages increases. Joseph Mason explained that “this isn’t just a Wall Street problem. Your 401k or pension fund may be invested in similar mortgage-related securities.” The investor-base is broad and it is difficult to know who is at risk. “Investment managers don’t have to report their holdings. And unlike stocks, these securities aren’t quoted on an open market.” Mason has been a firm proponent of more transparency in financial dealings (Scott 2007).

2010-05-06 According to a report entitled “The Microstructure of the ‘Flash Crash’: Flow Toxicity, Liquidity Crashes and the Probability of Informed Trading” in The Journal of Portfolio Management, “The ‘flash crash’ of May 6th 2010 was the second largest point swing (1,010.14 points) and the biggest one-day point decline (998.5 points) in the history of the Dow Jones Industrial Average. For a few minutes, $1 trillion in market value vanished.” Report authors argued that the ‘flash crash’ was the result of the new dynamics at play in the current market structure.”

Easley, David, Lopez de Prado, Marcos M. and O’Hara, Maureen, “The Microstructure of the ‘Flash Crash’: Flow Toxicity, Liquidity Crashes and the Probability of Informed Trading.” (November 19, 2010). The Journal of Portfolio Management, Vol. 37, No. 2, pp. 118-128, Winter 2011. Available at SSRN: http://ssrn.com/abstract=1695041

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1695041

See also article was written by Heather Stewart and Simon Goodley, for The Observer on Sunday 9th October 2011 00.06 Europe/London

Credit crunch, Financial crisis, Financial sector, Banking, Global recession, Stock markets, Business, Lehman Brothers, Margaret Thatcher,

HDI (Human Development Index)

The HDI is comprised of three equally weighted sub-indices: a life expectancy index (based on life expectancy at birth), an education index (based on adult literacy, school enrollment and university enrollment), and a GDP index (based on GDP per capita in US dollars at purchasing power parity) (Leigh and Wolfers 2005).

The authors compare how subjective states such as happiness, satisfaction, with life which depend on qualia (folk psychology) can be used as datasets to decide the ranking of countries in terms of Human Development not just Economic Development. Different studies use different datasets. Eg, World Values Survey (Leigh and Wolfers 2005).

The GDP as economic measure was considered by some to be inadequate. Amartya Sen developed alternative indicators for measuring human development called the “capabilities approach” and the Human Development Index (HDI) . His work was honoured with the Nobel Memorial Prize in Economics in 1998. In his speech he noted that social choice relating social judgments and group decisions to the views and interests of the individuals who make up the society or the complex, heterogenous group we speak of when we say “of the people, by the people, for the people.”

Selected Bibliography

Leigh, Andrew, Wolfers, Justin. 2005. Critique of Blanchflower and Oswald (2005) “Happiness and the Human Development Index: Australia Is Not a Paradox,” The Australian Economic Review, vol. 39, no. 2, pp. 176–84. http://econrsss.anu.edu.au/~aleigh/pdf/CommentBlanchflowerOswald.pdf

Sen, Amartya. 1998. “The Possibility of Social Choice: Nobel Prize Lecture to the memory of Alfred Nobel.” The Sveriges Riksbank Prize in Economic Sciences.  December 8, 1998. 

The authors compare how subjective states such as happiness, satisfaction, with life which depend on qualia (folk psychology) can be used as datasets to decide the ranking of countries in terms of Human Development not just Economic Development. Different studies use different datasets. Eg, World Values Survey

From one of the tops on my blogroll http://www.readwriteweb.com reports on reporter Todd Bishop at Seattle P-I newspaper, who used a ‘gizmo’ to generate this tag cloud of Bill Gates’ address to the International Electronics Show. Readwriteweb provides the link to the full talk

ReadWriteWeb is delivered to my PC through my gmail every morning. I chuckled when I read the article and Dugg it immediately.

One of the things that I really appreciate about your way of working is the strenuous efforts you make to provide all relevant references. So I read Bill Gates’ key note address and I used ClearForest Gnosis
to tag cloud Gates’ article and I came up with a different cloud.

I am quite sure that I learned about Gnosis from your blog? Anyhow I think the device of tag clouds, that is also a feature of deli.cio.us and my favourite feature in WordPress, is one of the best conceptual tools being explored on Web 2.0. (I inserted my delicious tag roll or tag cloud into my Blogger page, which is very much work-in-progress inuitartwebliography). I haven’t yet been able to figure out how to insert it into the widgets on my two (free) WordPress blogs. However, WordPress use of Featured Tags has been particularly kind to my 2 blogs speechless and papergirls and they actually generate reliable tag clouds with each of these Featured Tags. This will actually help me in writing articles since the tags clouds themselves become the article.

I have been using tag clouds as a thumbnail image of my own work and for complex texts.

For complicated texts like a book on Western political philosophy I prefer to generate my own using a pencil and paper. For this one of the Fraser Institute, a think tank in Canada similar to the Cato Institute in Washington, I used a cut and paste method while reading through their web site and annual reports. This is the tag cloud imageproduced in Adobe Photoshop and hosted on my Flickr account.

read more | digg story


Flynn-Burhoe, Maureen. 2007. “Tag clouds with shaft of light: Playing tag with the Fraser Institute.”.
You may copy and use this image and text by following the Creative Commons License 2.5 BY-NC-SA guidelines.
Tag clouds with shaft of light over the Canadian topography, or playing tag with the Fraser Institute.

This tag cloud was merged with a Google Earth view from West Coast mountains towards Ottawa and Washington in the East. The beam of light in the background is the Enron tower.

In the Adobe Photoshop toolbar under Filter > Liquify > I maximized the brush to create powerful wind patterns effects in the clouds hovering over the Canadian topology.

I studied the Fraser Institute’s on-line annual reports and web pages to piece together the following categories, tags or folksonomies to introduce mass media users to one of the most highly cited think tanks which emerged in 1974 at the height of Thatcherism. These are the tags in the cloud:

Economic Freedom, Milton Freeman, Education, Environment and Risk, Privatizing Correctional Services (1998), Alan Greenspan, Skeptical Environmentalist by Bjørn Lomborg, Fiscal Policy, Sally Pipes, T. Patrick Boyle, MacMillan Bloedel, Governance, Csaba Hajd, Ralph Klein, Private vs. Public Health, Can the Market Save Our Schools? (2000), Law and Markets, Caring For Profit: Economic Dimensions of Canada’s Health Care Industry (1987), Non-profit Studies, Adam Smith, Atlas Foundation, Sir Antony Fisher, Regulatory, Pharmaceutical Policy, The Illusion of Wage and Price Controls, Preston Manning, Entrepreneurship and Markets, Michael Walker, IEA, Alan Campney, Social Affairs, School Report Cards, Thatcher, economic conscience, Bill Emmott, George Shultz, John Raybould, Trade and Globalization, Schumpeter, The Economist, Cato Institute- Washington, Rent Control: A Popular Paradox

See also Think Tanks: Corporate Director Board Interlocks: Fraser Institute

2012-01-21 “Steve Kaplan of the University of Chicago thinks finance explains much of the rise in inequality. Updating a series developed by Thomas Piketty and Emmanuel Saez, Mr Kaplan notes that the share of income going to the 1% reached an 80-year high of 23.5% in 2007, only to sink to 17.6% in 2009 as the financial markets deflated. The trend is even more pronounced for the top 0.1%, whose share of total income rose to 12.3% in 2007 but sank to a still disproportionate 8.1% in 2009 (The Economist 2012-01-21).”

2012-01-16 While the gap between rich and poor in Canada continued to increase, Canada, along with Denmark, Norway and other Scandinavian countries, is a world leader in economic mobility. Americans have less economic mobility than their peers in Canada. … “Canadians shouldn’t be complacent. Ottawa and most of the provinces are running large budget deficits, and education and health care are already targets as governments hunt for savings (McKenna 2012-01-16).”

2011-12-02 New York Gov. Andrew M. Cuomo and legislative leaders, consider raising income taxes on wealth while cutting them for the middle class as they seek ways to shore up a state budget strained by the weak economy. He was partly influenced by the Occupy movement (Kaplan 2011-12-02).

2010-03 “On average Canada is up to three times more mobile than the United States. Or another way of putting it, up to three times as much inequality is passed across the generations in the United States than in Canada. Furthermore, these differences arise from differences in the extremes of the earnings distribution: there is notably less mobility at the very top and the very bottom of the American income ladder.” . . Education is a provincial responsibility in Canada but financial resources are not linked to property taxes but to the province-wide income tax unlike the United States. Poorer neighbourhoods fare better with the Canadian method. However, as income inequality rises opportunities for upward mobility for future generations may be in jeopardy as wealthy Canadians form American-style exclusionary institutions and as cities like Toronto become increasingly polarized. In Toronto, Vancouver and Calgary neighbourhoods are becoming more sharply divided along income and ethnic lines (Corak, Curtis and Phipps 2010-03).

2006-12-16 Wealth disparities are a serious concern and will intensify in 2007 according to TD economists Drummond and Tulk. The net worth of the lowest quintile fell to a negative net worth from zero while national net worth grew 2.8% in the last quarter of 2006. Less than 10% of families who hold at least 53% of total Cdn. net worth ($4.8 trillion). read more | digg story

This is a draft is being written on line back and forth between articles, EndNote, zotero and the slow world. It is currently being updated.

2011

OECD Record inequality between rich and poor

According to TD Bank Financial Group Economists Drummond and Tulk (2006) wealth disparities will intensify. They paint a dismal picture for Canadians excluded from the top quintile. Prospects are bright for Canada’s 22 billionaires and others in that elusive group of Ultra High Net Worth (UHNW) ie c. .004 % of Canadian families (Stenner et al., 2006), who hold more than $10,000,000 in assets. In sharp contrast to Canadians in the four lower quintiles, the UHNW benefited with large increases in wealth since 1984. Unlike real estate held by the lower quintile, these rare families saw their luxury homes, properties, businesses and collections rise in price. With these additional assets they were able to invest, many in tax-free RRSPs, so their net worth grew. “If investment returns rise the trend towards growing wealth disparities will likely intensify. This could be compounded by sluggish wage gains in the low end and the financial challenge of immigrants – the main source of growth in the younger, less affluent population (Drummond and Tulk, 2006).”

Considerable wealth was accumulated in Canada between 1999 and 2005. In 2005 net worth increased by 41.7% to nearly $1.5 trillion (US?). The most recent Statistics Canada report revealed today that the Canadian national net worth reached $4.8 trillion by the end of the third quarter. While in terms of an economist’s algorithm this translates into an average of $146,700 per person. In reality only the a tiny number of Canadian households benefited. “The gain in net worth resulted from an increase in national wealth (economy-wide non-financial assets) as well as a sharp drop in net foreign debt. National net worth grew 2.8% in the third quarter, the largest increase in more than two years (Statistics Canada 2006)”.

Drummond and Turk are concerned that in spite of the dramatic growth in Net Worth, there is a significant portion of the population with little or negative Net Worth (debts/assets ratio) in 2005. Although Drummond and Turk cite the World Institute for Development Economics Research as their source in regards to situating the seemingly overwhelming disparity between the 10% of households that are extremely wealthy and the lower quintiles. (I believe they refer to reports by Senior Researcher of the World Institute for Development Economics Research (WIDER) of the United Nations University, Mark McGillvray(2005) whose research is available only on the deep Internet — an exclusive members-only club.) For the first time however, 165 of the UNHW families accepted to be interviewed by the Stenner Group. The True Wealth Report (Stenner 2006) reveals that the most popular past times of UNHW are traveling (particularly to London, Paris, Vienna, New York and Vancouver staying in ), playing golf and taking part in other sports, collecting art and antiques, drive BMW’s, Volvo’s or Porsches. They claim their philanthropy is tied to both their religious faith and strategic money management (Stenner et al., 2006) (Morissette and Zhan, 2006). According to Stats Can economists in their recent report who refer to research by Western University Economist James B. Davies and Shorrocks, Economist with the United Nations World University, it is to measure the actual holdings of the uber-wealthy. Forty-eight percent of Canadian wealth might be held by less than 1% of the Canadian population(Davies and Shorrocks, 2000, Davies, 2003). Western University Economist and co-author of publications with Shorrocks, editor for the United Nations World University publications and Financial Post journalist (Chevreau, 2003) both cited Shillington’s C.D. Howe Insitute report (2003), revealing an unintended disincentive for the those who earn under $50,000/annual to save. “Shillington (2003) has used Statistics Canada’s 1999 Survey of Financial Security to illuminate what he calls the “futile saving” problem. He looks, first, at the savings of “near-seniors”, those households where the older spouse is aged 55 – 64. He finds that 21% of these households have no retirement saving, and in total 53% have retirement savings of less than $100,000. On the grounds that savings of $100,000 would not permit the purchase of an annuity of more than about $10,000 Shillington believes that the majority of these people will be GIS recipients in retirement. Their savings are thus “futile”, since they will be at least half confiscated by the GIS taxback.17 Turning to actual GIS recipients, Shillington reports that about 23 percent have an RRSP, with an average value of $43,000; 29 percent have an RPP, with an average value of $65,000; and about 40% have either an RRSP or RPP. In Shillington’s view this represents the result of a gigantic fraud, however unintentional.

Governments and financial institutions have advertised the importance of saving for retirement very heavily, and the annual campaign to get RRSP contributions is a vigorous one. The voices warning low-income people that this is in no sense an “investment” are tiny ones (Davies 2003:28).” Shillington concluded that, poor seniors dependent on the federal Guaranteed Income Supplement (GIS) and its means-tested provincial and municipal counterparts should not bother with RRSPs. To do so means losing GIS benefits, rent subsidies, drug benefits, provincial aid programs like Ontario’s GAINs and similar welfare programs.” Once RRSPs create income from Registered Retirement Income Funds after 69, $1 in income reduces GIS benefits by 50¢. Since half of GIS recipients pay income tax, they face an effective marginal tax rate of 75% on extra income. In some cases involving dividend gross-ups, the effective top-rate savings may pass 100%, Mr. Shillington said. For them, “RRSPs are a terrible investment. They are victims of a fraud, however unintentional.” Saving $100,000 in RRSPs may be futile if that is your target. However, it does not mean younger people with $100,000 already saved should stop, as long as they are on the way to accumulating several hundred thousand dollars by the end of their working lives. “RRSPs can be dangerous to your financial health” is the subtitle of Free Parking, a self-published book by “reformed financial planner” Alan Dickson. “I totally agree with the report,” Mr. Dickson said. Citing 2001 Statistics Canada data, Mr. Shillington said of $1-trillion in retirement assets, $600-billion is in employer pensions, $340-billion in RRSPs and $70-billion in RRIFs (Chevreau, 2003).

“National net worth reached $4.8 trillion by the end of the third quarter, or $146,700 per person. The gain in net worth resulted from an increase in national wealth (economy-wide non-financial assets) as well as a sharp drop in net foreign debt. National net worth grew 2.8% in the third quarter, the largest increase in more than two years (Statistics Canada 2006)”. Clever people like Derek Foster who know how to work the system trigger angry responses against publicly-financed assistance for the lowest quintile. (Heinzl, 2005) Foster (born c. 1961) began making astute investments while still in university. He learned from finance gurus Peter Lynch and Warren Buffett. In 2005 he continued to earn enough from his total investments (which total six digits) in Starbucks, Colgate-Palmolive, Rothmans Inc., Royal Bank of Canada, Corby Distilleries Ltd., Manulife Financial Corp., George Weston Ltd., Pembina Pipeline Income Fund, Canadian Oil Sands Trust and a dozen or so others, that he and his family of four can live modestly without ever having to work again. Their low income c. $30, 000/annual actually allows them to enjoy certain publicly-financial benefits designed for low-income earners with no assets (Heinzl, 2005). Others include Dianne Nahirny’s Stop Working, Start Living (http://www.smartmakeovers.com) and Alan Dickson’s Free Parking and Advance to Go (http://www.freemoneypress.com)(McGillivray, 2005)

With more than a billion people living on less than one dollar per day, some evidence of increasing gaps in living conditions within and between countries and the clear evidence of substantial declines in life expectancy or other health outcomes in some parts of the world, the related topics of inequality, poverty and well-being are core international issues. More is known about inequality, poverty and well-being than ever before as a result of conceptual and methodological advances and better data. Yet many debates persist and numerous important questions remain unanswered. This book examines inequality, poverty and well-being concepts and corresponding empirical measures. Attempting to push future research in new and important directions, the book has a strong analytical orientation, consisting of a mix of conceptual and empirical analyses that constitute new and innovative contributions to the research literature.Mark McGillivray is a senior researcher with the World Institute for Development Economics Research (WIDER) of the United Nations University.

Selected webliography

Carroll, James. 2011-01-03. “Now the rich get richer quicker.” Boston Globe.

CBC. Billionaires of the World.

Chevreau, Jonathan (2003) RRSPs a bad option for low-income earners Financial Post.

Corak, Miles; Curtis, Lori; Phipps, Shelley. 2010-03. “Economic Mobility, Family Background, and the Well-Being of Children in the United States and Canada.” IZA DP No. 4814. Discussion Paper No. 4814. Forschungsinstitut zur Zukunft der Arbeit/Institute for the Study of Labor.

Davies, James B. (2003) Social and Economic Risks to Seniors in Ontario. Ontario Panel on the Role of Government (OPRG). Toronto.

Davies, James B. & Shorrocks, Anthony F. (2000) “The Distribution of Wealth.” In Atkinson, A.B. and Bourguignon, F. (Eds.) Handbook of Income Distribution.

Drummond, Don & Tulk, David (2006) Lifestyles of the Rich and Unequal: an Investigation into Wealth Inequality in Canada. TD Bank Financial Group.

The Economist. 2012-01-21. “Income inequality: Who exactly are the 1%?

Frank, Robert H. 2010-10-16. “Income Inequality: Too Big to Ignore.” New York Times.

Heinzl, John (2005) The ‘Youngest Retiree’ Tells How To Punch Out Of The Workplace. Globe and Mail.

Kaplan, Thomas. 2011-12-02. “Income Taxes for Wealthy May Increase in Albany Deal.” New York Times.

Krugman, Paul. 2010-09-19. “The Angry Rich.” New York Times.

McGillivray, Mark (2005) Inequality, Poverty and Well-being, Helsinki, Finland, Palgrave Macmillan.

Mcgran, Kevin (1998) Anti-poverty activists take case to the United Nations. The Canadian Press. Toronto, ON.

McKenna, Barrie. 2012-01-16. “In Canada, unlike the U.S., the American dream lives on.” Globe and Mail.

Mcquaig, Linda (1995) Shooting the Hippo: Death by Deficit and Other Canadian Myths, Toronto, Viking

Mcquaig, Linda (1998) The Cult of Impotence: Selling the Myth of Powerlessness in the Global Economy, Toronto, Penguin Books

Morissette, René & Zhan, Xuelin (2006) Revisiting Wealth Inequality. Perspectives on Labour and Income. Ottawa, ON, Statistics Canada.

Shillington, Richard (2003) New Poverty Traps: Means-Testing and Modest-Income Seniors. C. D. Howe Institute. Backgrounder. 65.

Statistics Canada. (2006). “National balance sheet accounts: Third Quarter”. Press Release. Ottawa, ON. December 15, 2006.

Stenner, Thane, Bower, Rod, Currie, John & O’connor, Rory (2006) True Wealth Report: Values and Views of Ultra-Affluent Individuals, Vancouver, BC, T. Stenner Group ™.

Flynn-Burhoe. 2007. “Wealth Disparities Will Intensify as UHNW Get Richer.” http://docs.google.com Flynn-Burhoe. 2007. “Wealth Disparities Will Intensify as UHNW Get Richer.” Papergirls Blog. December 16, 2006. Creative Commons License 2.5 BY-NC-SA

Child poverty in Canada is almost six time that of Denmark. Overall poverty rates are also high. 10 % of Canadians live in poverty – a stark contrast to Denmark’s 4.3 % and Sweden’s 5.3. (Rothman, Laurel. 2006. “Report of a Standing Committee on Finance,” www.campaign2000.ca) Recommendations: minimum wage $10 per hour; Employment Insurance reform.

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CBC, 2006. Aboriginal children face terrible poverty in Canada: report: B.C. and Newfoundland have highest rates; Alberta and P.E.I. have lowest rates. Last Updated: Friday, November 24, 2006 | 2:04 PM ET, Accessed November 24, 2006 11:19 PT.

http://www.cbc.ca/canada/story/2006/11/24/child-poverty.html?ref=rss

Flynn-Burhoe, Maureen. 2006. “Canada’s nasty secrets revealed to OECD: Child Poverty in Rich Countries,” last updated November 24, 2006 11:05 am. papergirls.wordpress.com, accessed (YY/MM/DD) http://papergirls.wordpress.com/2006/11/25/canadas-nasty-secrets-
revealed-to-oecd-child-poverty-in-rich-countries

Laurel Rothman, Laura. 2006. “Reducing Child & Family Poverty in a Time of Prosperity: The Roles of Tax Benefits, Public Investments and the Labour Market Submission to Standing Committee on Finance Pre-Budget Consultation,” http://www.campaign2000.ca/rc/rc06/06_C2000NationalReportCard.pdf Last updated YY/MM/DD Accessed November 24, 2006.

Campaign 2000

Selected webliography on Status of Women Canada generated from my Endnote bibliography, compiled from (1992?-present)

Dion-Stout, Madeleine & Kipling, Gregory D. (1998) Aboriginal Women in Canada: Strategic Research Directions for Policy Development. http://www.swc-cfc.gc.c/publish/research/abwom-ehtml

Dion Stout, Madeleine & Kipling, Gregory D. (1998) Aboriginal Women in Canada: Strategic Research Directions for Policy Development. Ottawa, ON, Status of Women Canada. http://www.swc-cfc.gc.ca/pubs/0662634314/199803_0662634314_e.pdf

Frulla, Liza (2005) Statement of Canada. United Nations Commission on the Status of Women 10-year Review of the Implementation of the Beijing Platform for Action. http://www.swc-cfc.gc.ca/newsroom/news2005/0302_e.html

Gender Equality, Aboriginal Women (2000) Roundtable Report. Ottawa, Aboriginal Women’s Roundtable on Gender Equality. http://www.swc-cfc.gc.ca/publish/table/010914-e.pdf

Jenson, Jane (2004) A Decade of Challenges; A Decade of Choices: Consequences for Canadian Women. Montréal, Canadian Policy Research Network-Family Network. http://www.cprn.com/en/doc.cfm?doc=558

Kenny, Carolyn, Faries, Emily, Fiske, Jo-Anne & Voyageur, Cora (2004) A Holistic Framework for Aboriginal Policy Research. http://www.swc-cfc.gc.ca/pubs/0662379594/200410_0662379594_1_e.html

Kipling, Dion-Stout and Gregory D. (1998) Aboriginal Women in Canada: Strategic Research directions for Policy Development. http://www.swc-cfc.gc.c/publish/research/abwom-ehtml

Lindsay, Colin, Almey, Marcia & Statistics Canada (2004) A Quarter Century of Change: Young Women in Canada in the 1970s and Today. Ottawa, Status of Women Canada (SWC) Policy Research Fund. http://www.swc-cfc.gc.ca/pubs/0662388976/200412_0662388976_1_e.html

Press Release (1998) Fry welcomes gender breakthrough in APEC. Manilla, Phillipines. http://www.swc-cfc.gc.ca/newsroom/news1998/1019-2_e.html

SWC (1995) Setting the Stage for the Next Century: The Federal Plan for Gender Equality. Status of Women Canada

SWC (1998) Human Rights for All. http://www.pch.gc.ca/progs/pdp-hrp/docs/cedaw5/nt_e.cfm?nav=2

SWC (1999) Highlights of Federal Government Initiatives to Address Violence Against Women: Legislative Reforms That Assist in Addressing Violence Against Women in 1999: Bill C-79. Status of Women Canada. http://www.swc-cfc.gc.ca

Voyer, Jean-Pierre (2003) Introduction: Social Capital: A Useful Tool for Public Policy? in Initiative, Policy Research Horizons. Public Works and Government Services Canada. http://policyresearch.gc.ca/v6n3_e.pdf

Economist Milton Friedman, propagated 18th century values in the Post-WWII global economy. Like Adam Smith he preached the gospel of minimal government, laissez-faire. The triad, Hayek’s The Road to Serfdom (1944), Ayn Rand’s Atlas Shrugged (1957), and Milton Friedman’s Capitalism and Freedom (1962) pit economic efficiency against social justice. Social responsibility of business is to increase its profits

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Footnotes

I compiled this digitized collage, inspired by Deborah Barndt’s Tangled Routes: Women, Work and Globalization on the Tomato Trail on November 16, 2006. I used a Google earth generated globe to situate as a kind of circumtomato globe. I developed the concept of John Elkington’s Cannibals with Forks for the image of a world being devoured by those who choose to make decisions based on only one bottom line.

See also speechless.wordpress.com

Barndt, Deborah (2001) Tangled Routes: Women, Work and Globalization on the Tomato Trail, Aurora, ON, Garamond Press.

Davis, Ian. 2005. “The biggest contract: By building social issues into strategy, big business can recast the debate about its role, argues Ian Davis.” The Economist. May 28.

“The great, long-running debate about business’s role in society is currently caught between two contrasting, and tired, ideological positions. On one side of the current debate are those who argue that (to borrow Milton Friedman’s phrase) the “business of business is business”. This belief is most established in Anglo-Saxon economies. On this view, social issues are peripheral to the challenges of corporate management. The sole legitimate purpose of business is to create shareholder value. On the other side are the proponents of “Corporate Social Responsibility” (CSR), a rapidly growing, rather fuzzy movement encompassing both companies which claim already to practise CSR and sceptical campaign groups arguing they need to go further in mitigating their social impacts. As other regions f the world—parts of continental and central Europe, for example— move towards the Anglo-Saxon shareholder-value model, debate between these sides has increasingly taken on global significance. That is a pity. Both perspectives obscure in different ways the significance of social issues to business success. They also caricature unhelpfully the contribution of business to social welfare. It is time for CEOs of big companies to recast this debate and recapture the intellectual and moral high ground from their critics. Large companies need to build social issues into strategy in a way which reflects their actual business importance. They need to articulate business’s social contribution and define its ultimate purpose in a way that has more subtlety than “the business of business is business” worldview and is less defensive than most current CSR approaches. It can help to view the relationship between big business and society in this respect as an implicit “social contract”: Rousseau adapted for the corporate world, you might say. This contract has obligations, opportunities and mutual advantage for both sides.” See The Economist premium content.

Elkington, John (1997) Cannibals with Forks: The Triple Bottom Line of 21st Century Business, New Society Publishers, Limited.

Elkington, John (2003) Chrysalis Economy: How Citizen CEOs and Corporations Can Fuse Values and Value Creation, Wiley, John and Sons, Incorporated.

CBC, 2006. “In Depth: Wealth Canada’s super-rich,” CBC News, Last Updated December 4, 2006, accessed December 12, 2006.
Canadian Business magazine lists 1. the Ken Thomson family (media) $24.4 Billion Cdn or 19.6 Billion US); 2. Galen Weston (groceries) $7.1 $24.4 Billion Cdn; 3. The Irving family (oil) $5.45 Billion Cdn; 4. Ted Rogers Jr. (media) $4.54 Billion Cdn; 5. Paul Desmarais Sr. (Power Corp.) $4.41 Billion Cdn; 6. Jimmy Pattison (entrepreneur) $4.35 Billion Cdn; 7. Jeff Skoll (eBay) $3.93 $4.41 Billion Cdn; 8. Barry Sherman (Apotex drugs) $3.23 Billion Cdn; 9. David Azrieli (real estate) $2.44 Billion Cdn; Fred and Ron Mannix (mining) $2.38 Billion Cdn as ten of the 22 Canadian families who are part of the uber wealthy group of 793 billionaires who control $2.6 trillion US of the world’s wealth. Others include Alexander Schnaider (steel) baron, Calvin Ayre (online gambling), John MacBain (classified ads), Guy Laliberté (Cirque du Soleil) 1 Billion Cdn. of this group of 22 billionaires their money came from pharmaceuticals, media, oil and gas, food retailing, printing, money management, construction and the BlackBerry. Five of the 22 are in their forties.
Danko, William D. The Millionaire Next Door
Danko, William D. Richer Than A Millionaire
Drummond, Don, Tulk, David. 2006. “Lifestyles of the Rich and Unequal: an Investigation into Wealth Inequality in Canada.” Special Report. TD Bank Financial Group. December 13, 2006. Accessed December 14, 2006.
Drummond explains how the wealthier quintile of the Canadian population will continue to become wealthier while the middle quintiles will suffer with lower wage gains intensifying wealth disparities. The assets of of the lowest quintile fell by 9. 1% since 1999. This is the group which includes single women, Canada’s children who live in poverty and seniors.

What is also interesting is that there is a significant amount of inequality within the highest wealth quintile of Canadians. One can get an appreciation of this fact by noting the pronounced difference between the mean and median asset holdings. While median net worth for the top 20% is $862,900, the average stands at $1,264,200 suggesting a significant skew towards the extremely wealthy. This difference is even more pronounced when holdings of individual assets are compared for those who hold them within the highest quintile. The largest source of the skew towards the wealthy comes from the holdings of bonds which has a mean-median ratio of 7.9 (the larger the ratio, the greater the share of the asset is held by the top segment of the wealthy). The nebulous category of “other non-financial assets” also has a significant concentration in the super-wealthy. Included within this category are such items as the contents of the residence, valuables, collectables, as well as such high value and sparsely-held items as copyrights and patents. […] Within this category, the share of employer-sponsored pension plans (18.5%) is twice as large as individual pension assets (10.5%) such as Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), and Locked-in Retirement Accounts (LIRAs). Holdings of non-pension financial assets (10.4%) and equity in business (10.5%) each represent a comparatively smaller portion of total asset holdings.

Morissette, René, Zhang, Xuelin. 2006. “Revisiting wealth inequality: Perspectives on Wealth and Income,” Statistics Canada. http://www.statcan.ca/english/freepub/75-001-XIE/11206/high-1.htm
Vol. 7, no. 12. December 13, 2006. Accessed December 14, 2006.
“When all families are considered, real average wealth rose 70% from [1999 to 2005] however wealth inequity increased as well. Real average wealth increased between 51% to 70% reflecting large increases for the wealthiest 10% of Canadians who held 58% of the wealth, a percentage that continues to rise as it has since 1984. For fifteen years prior to the deep cuts made in the post-1984 period of deficit panic wealth inequity fell then plateaued. Canadian families will continue to become more at-risk to social exclusion as their debts increase, equities are reduced and they face little or no wage increase.Morissette and Zhang (2006) reveal how challenging it is to estimate the share of total wealth controlled by the upper quintile, particularly the UHNW. See also Davies (1993). While 10% may control 58% of Canadian wealth less than 1% of Canadian families may in effect hold up to 46% of the wealth.While Morissette and Zhang (2006) claim that elderly unattached individuals saw their median wealth double, from roughly $48,000 in 1984 to $100,000 in 2005, they did not qualify that the extremes of wealth and poverty skew the statistics. See the article on the large number of senior Canadians who live below the poverty line.While the wealthiest quintile, particularly the top 1% benefited since 1984, the lowest quintile, mainly female lone-parent families remain as by far the most financially vulnerable. “In all years, more than 40% of persons in these families were in low income and would have stayed in that state even after liquidating their financial assets.” This is where Canada’s children who live in poverty in a rich country live. Lower quintile included those with median wealth no higher than $7,000, families with no assets at their disposal to lessen the impact of unexpected expenses or earnings disruptions. The average wealth of the most vulnerable families fell to -$1000 between 1999 and 2005 from zero assets/debt ratio through the 1980s to negative (about -$1,000) in both 1999 and 2005. The value of their real estate, for those who did have a modest home, did not rise. “it fell substantially among those in which the major income recipient was aged 25 to 34. In 2005, these families had median wealth of $13,400 (in 2005 dollars), much lower than the $27,000 and $17,400 registered in 1984 and 1999 respectively.” While in the middle quintile there was a modest rise of average wealth rose of about $19,000, families in the most wealthy quintile experienced a substantial increase in the value of their real estate. They allocated more of their financial assets to RRSPs and LIRA holdings. They sharply increased their investments in RRSPs between 1986 and 2003. “Median wealth more than doubled between 1970 and 2005, having grown by c.20-25% since 1984. While the median wealth of young families fell by half between 1984 and 2005, it rose by almost 40% for those in which the major income recipient was a university graduate aged 35 to 54.”
Stenner, Thane, Bower, Rod, Currie, John, O.Connor, Rory. 2006. “True Wealth Report: Values and Views of Ultra-Affluent Individuals,” http://www.truewealthreport.com/downloads/2006_TWR_low.pdf.
Researchers for the True Wealth report surveyed 165 Ultra High Net Worth (UHNW) individuals, those whose assets are over $10.
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