Proof That The Top 0.1% Create Crashes – Jeff Nielson, Sprott Money

Our markets and economies are marched up and down in “bubbles” and “crashes”, with the duration of these cycles of financial crime now seeming to be fixed at about once every eight years. As the dust settles after each of these eight-year operations, the Fat Cats at the very, very top are found to have gotten much, much wealthier, while almost everyone else ends up significantly poorer.

With this pattern of crime now being obvious, and the pattern of “winners” and “losers” being equally obvious, it doesn’t require a rocket scientist to suspect that the Winners have been orchestrating these bubbles and crashes. It is obviously considerably easier to be on the winning side of your (supposed) gambling, when you know in advance what will transpire in the Game.

Previous suspicion of guilt has focused upon “the Top-1%”, a small sub-set of the wealthy whose wealth has been soaring higher at a rate never before seen in the history of our societies. However, upon closer scrutiny, it has more recently been determined that even this small sliver of our population is too large a demographic upon which to focus our attention (and criminal prosecutions?).

U.S. Wealth Inequality – top 0.1% worth as much as the bottom 90%

It is a headline which denotes an obvious economic crime against humanity . A mere 1/1000th of our population holds as much wealth as the bottom-90% combined, roughly half of all the wealth of our societies. Did this 1/1000 th micro-sliver earn half of all our societies’ wealth? Of course not. They stole it.

Previous commentaries have described and explained various means by which these ultra-wealthy oligarchs have stolen half of all wealth – and now hoard it in their vaults, while our economies literally starve from lack of capital.

  1. The financial crime known as “inflation”.
  2. Bank bail-outs (and now “bail-ins”).
  3. Other corporate “subsidies” (i.e. welfare).
  4. Corrupt taxation policies.

We’ve long suspected that the Ultra-Wealthy have been systematically stealing our wealth. What has previously been lacking is hard evidence of this. Until now. Recent research into the most-recent “crash” of our markets (the Crash of ’08) provides us with a key piece of evidence:

“We find that, starting in September 2008, the share of sales volume attributed to the top 0.1 percent of income recipients and other top income groups rises sharply until the beginning of 2009, and in 2008 and 2009 the sales of these groups are relatively more associated with stock market tumult as measured by the VIX,” they wrote.

Here it must be carefully noted that what is described in this empirical evidence is what is known in statistical terms as “correlation”. We have evidence that the Top 0.1% are associated with “stock market tumult”. What this evidence does not show, by itself, is whether the Top 0.1% were actually guilty of causing that Crash.

To reach that conclusion, we need to look further into the research, and get to the hard numbers that are provided:

Using average selling volumes by the various wealth classes, the authors estimated that the effect might have accounted for roughly $142 million of excess selling by the 0.1 percent group on the day of the Lehman’s collapse alone, and $1.7 billion [of excess selling] in the 10 days after what was then history’s biggest bankruptcy filing. [emphasis mine]

These numbers require additional explanation. At a time when everyone was selling; the Top-1% were engaging in additional “excess” (excessive) selling, which exceeded $100 million per day. This is a market anomaly for which there is no reasonable explanation. We see this demonstrated as the authors of the research attempt their own explanations for this excessive selling.

One explanation for the divergence is that rich people have more at stake per person and are more sensitive to shocks, though it’s only speculation, Reck said. Another is that they believe they’re better market timers. A third possibility is that investors who earn less are reluctant to sell at a loss, a cognitive tendency known as the disposition effect.

Pure nonsense.

By definition, the rich are less sensitive to any/all economic shocks, because their margin for survival is much greater than those with less wealth. Are the Top 0.1% greedier than all other people? Yes. Do they love their money more than all other people? Yes.

Are they “more sensitive” to financial shocks than the Little People? Of course not. What makes people really “sensitive”? Threatening their survival.

Equally, the second attempted explanation is also nonsense. No one epitomizes the market behavior of these oligarchs more than fellow-oligarch Warren Buffett (and the ultra-wealthy clients/unit-holders he represents). The Oracle of Omaha is well-known to be a “long-term, value investor” – the precise opposite of a market-timer.

The last suggestion is simply academic mythology. Investors who “earn less” have a common nickname in our markets: sheep. They acquired their nickname through their propensity to be herded, spooked, and then sheared. If anything, we would have expected the selling by this class of investors to exceed selling by other classes.

Most importantly, the empirical evidence itself doesn’t support any of these attempted explanations. If the Top 0.1% were engaging in their excessive selling out of fear, or to attempt to “time the market”, we would have expected the heaviest selling to have occurred on the day of the Lehman collapse, and then begun to taper off from there. That’s not what we saw.

Selling by the Top 0.1% on the day of the collapse was actually slightly below their average volume of excessive selling during the first ten days after the Lehman event. Furthermore, as indicated earlier in the research, the excessive selling by the Top 0.1% persisted right through until the end of 2008. This is not indicative of either “fear” or “market-timing”. Rather, it is exactly what we would expect to see if some group was deliberately creating a crash: relentlessly pounding the markets with excessive selling day after day, week after week, month after month.

Then we have this additional, important information:

Other investor demographics, from gender to marital status to place of residence, showed no signs of being related to the volatility sensitivity of stock sales, the study showed.

This is definitive. No matter how one sub-divided investors demographically during the Crash of ’08, everybody behaved the same – except for one small-but-significant group: the Top 0.1%. One anomaly. One group of investors, who relentlessly pounded markets with excessive selling, for months. Think of a hammer. Think of a nail. That was the Crash of ’08. This research indicates who was holding the hammer .

Furthermore, this was a “psychological study”. It proceeded on the naïve assumption that no one caused the crash. The intent was purely to study the (supposed) “reactions” to the Crash. What this means is that the research only examined direct selling by the Top 0.1%.

In other words, the data only covers what the Top 0.1% sold out of their own holdings. It doesn’t examine, for example, how much additional short-trading was done by these Predators. Also, large corporations and institutions are significant shareholders in our markets. The Top 0.1%