Why the 99% should resent Zuckerberg's 1% mortgage

Don't know about Mark Zuckerberg's 1% mortgage on his seven million dollar home? You can read Bloomberg's article about it. Or start where I did with this blog post.

I like the blog post. It's well written, it uses sound financial logic, and it attempts to clarify that this is NOT a fixed rate. Zuckerberg has signed up for one of those fancy floating rate mortgages and it will probably work out for him. The bubble's burst, after all. I also completely respect his defense of the mortgage company. For the firm this was simply good business and I completely agree.

None of that changes that this is a pretty blatant example of the inequality problem our society faces today. I see three problems with Mark Zuckerberg getting a lower mortgage rate than lesser mortals.

1. Our financial system rewards the wealthy for nothing more than liquidity.

Liquidity is a very powerful thing. When I first graduated college and got a real job, I could get all kinds of things cheaper just because I could pay more (or pay in full) up front: cell phones, gym memberships, appliances, and cars - just to name a few off the top of my head. The concern is that this benefit scales - with most of the benefit accumulating at the top. Like all forms of leverage, what saved me hundreds of dollars will save a wealthier individual hundreds of thousands of dollars or more.

Related to this is the idea of risk tolerance. Sure, Mr. Zuckerberg holds the interest rate risk on this mortgage, so what? It's not like he couldn't just buy the house outright. Such liquid capital increases his risk capacity in a way that would be impossible for a poor person. He gets the benefit of an insanely low rate and the benefit of all that free cash and what does the average person get? The same opportunity, scaled down to his or her disposable income level. Good luck closing the gap with that math.

What is he doing with that free cash anyway? Starting a new business? Charity? Mr. Zuckerberg has a real PR problem if the best reason I could find was his resentment of Morgan Stanley.

"My investment bank botched my multibillion dollar IPO so I have to find time to shop for a new manager for my millions." #firstworldproblems #lifeishardfortheonepercent

2. The crisis + bailout that caused these record low rates becomes a problem when the wealthy fashion their own recovery while the lower classes wait for jobs.

I believe the bailout was a good option. I believe we would be in a worse position had our government done nothing. However, I resent being told that these record low interest rates will benefit the middle and lower classes while simultaneously watching the 1% benefit more. So what if I can finance a house at less than 4% - apparently the wealthy can finance for 1%. And with low interest rates practically guaranteed for as long as it takes the economy to recover I have a feeling Mr. Zuckerberg will do pretty well with his floating rate mortgage. And he'll have a pretty good idea when to consider refinancing because the Fed will all but call him up personally.

3. LIBOR? Hey, isn't that the rate the banks have been manipulating for years? How fair is this?

I am not enough of a conspiracy theorist to say that Mark Zuckerberg fixed LIBOR rates to secure a better mortgage rate. However, it is essential to the American Dream that the average person believes the system is fair. We could always conclude that there is no longer a ladder to the top and mercilessly raise taxes. Wall Street should be grateful that the European model looks so dysfunctional these days - it takes the pressure off. Lately, the financial news shows a surprising ignorance of how important it is to maintain the appearance of fair play. For example, I was more or less ok with the idea that Barclays fudged LIBOR rates to reduce the risk of a panic in the system. But then the Fed had to go and point out that they knew about this in 2007. This stinks and everyone should know it stinks.

I'm a horrible champion for the 99% (full disclosure: I think I'm in the 8%). I know enough about finance to leverage the money I have and invest it as well as I can. I take advantage of tax breaks I think are unfair. Hell, I sometimes even vote for them. I will not fault a wealthy man for a wise investment.  However, the average American should think long and hard about what it says about equality of opportunity in the financial system.