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The Citigroup Plutonomy Memos

The ongoing agony of the Great Recession has focused public discussion on the dramatic increase in the inequality of income and wealth among Americans. The real cash incomes and wealth of middle class and working class have stagnated since 1973 while there has been a spectacular rise in income and wealth for the owners, managers, and servants of capital. Realitybase readers know that I think this is in large part due to unbalanced foreign trade and even more to globalization by exposing Americans to foreign labor competition. That view is vigorously denied in public by banks, other business organizations, their trade groups, editorial boards, economists, policy elites, and other guardians of conventional wisdom. So it's interesting when we catch them agreeing with me when they give private advice to the investor class. In one of the two memos made famous in Michael Moore's film Capitalism: A Love Story, Ajay Kapur, then Citigroup's chief global equities strategist, says this:

Back in October, we coined the term 'Plutonomy' (The Global Investigator, Plutonomy: Buying Luxury, Explaining Global Imbalances, October 14, 2005). Our thesis is that the rich are the dominant drivers of demand in many economies around the world (the US, UK, Canada and Australia). These economies have seen the rich take an increasing share of income and wealth over the last 20 years, to the extent that the rich now dominate income, wealth and spending in these countries. Asset booms, a rising profit share and favorable treatment by market-friendly governments have allowed the rich to prosper and become a greater share of the economy in plutonomy countries. . . . [T]he lawyers and bankers who intermediate globalization and productivity, the CEOs who lead the charge in converting globalization and technology to increase the profit share of the economy at the expense of labor . . . contribute to plutonomy.

. . . .

[W]e think that global capitalists are going to be getting an even greater share of the wealth pie over the next few years, as capitalists benefit disproportionately from globalization and the productivity boom, at the expense of labor.

. . . .


. . . . [A] policy error leading to asset deflation, would likely damage plutonomy. Furthermore, the rising wealth gap between the rich and poor will probably at some point lead to a political backlash. . . . At some point it is likely that labor will fight back against the rising profit share of the rich and there will be a political backlash against the rising wealth of the rich. This could be felt through higher taxation (on the rich or indirectly though [sic] higher corporate taxes/regulation) or through trying to protect indigenous laborers, in a push-back on globalization—either anti-immigration, or protectionism.

From Citigroup, Equity Strategy, March 5, 2006 (emphasis added). The October 2005 memo is here.

Do we think this is what Citi, through its trade associations, lobbyists, and flacks, was contemporaneously telling lawmakers and the public and, if not, which should we believe? Here's a clue: The last 4 pages of this 18-page report consist of conflict disclosures and disclaimers, starting with this "Analyst Certification."

We, Ajay Kapur, Niall MacLeod and Narendra Singh, research analysts and the authors of this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

The SEC requires this so investors will not be misled. No such requirement applies when Citi speaks to the rest of us—we expect to be lied to, and we are seldom disappointed.

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December 10, 2011 | Unregistered Commenterplato

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