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Modern Ponzi Schemes: Underfunded Pensions

December 31, 2009 4 comments

Anybody with the ability to perform grade school-level arithmetic can see the major problems with public or private pension plans in western countries.

1. The generation after baby boomers is smaller than them, and even the echo is, well, not quite as big. Given that the earning peak of people in western countries is in the 5th decade of their life, what is going to happen to the tax base? The fallback position for paying pensions involves using tax revenues.

2. Which stable and well-paying jobs are awaiting the generations after baby boomers? Selling each other houses, used cars, uncollectable insurance, innovation stifling regulation, writing worthless and harmful guidelines, arresting and guarding each other? Seriously…

and what will people work for? Maintaining marriages? Educating kids? Looked at the marriage and divorce rates recently? Ever considered the percentage of educated and never married men? What motivation or opportunities do they have to work hard? We overtly reward sociopaths and believe that others will just keep working hard and live honest, “law-abiding” lives.

3. Which idiot came up with the idea that a (per annum) 8% plus return, with simultaneous sub 2% inflation, on investment was possible over an extended period of time. Who is going to keep on propping up this asset/ equity/ debt bubble? Asian countries are busy devaluing their currency to increase exports. How can you extract money out of investments when everyone wants to sell them at around the same time (for paying pensions)? Who is going to buy them? And with what income or currency?

4. With the partial exception of the US, legal immigrants have poor earning abilities for reasons that are related to racial discrimination. The one group that could have stopped the tax base from collapsing have poor income, job stability and are generally not eager to help those who are perceived as mistreating them. Are older whites expecting a gift of unlimited money from extraterrestrial aliens to pay for their retirements?

Do older westerners believe that their system can stay solvent? Can even government pensions be paid with a shrinking tax base? Who will lend unlimited amounts of money, forever, to countries with shrinking tax bases? What about poor resource prices after a prolonged global slowdown? What about domestic deflationary spirals?

In my opinion, the economic effects of magical thinking over a prolonged period of time are greatly over rated.

Modern Ponzi Schemes: An Introduction

December 30, 2009 Leave a comment

The last couple of years has marked a resurgence in public understanding of ponzi schemes. Whether it is individuals (Madoff) or institutions (federal reserve, ‘wealth’ management, underfunded pension plans, housing bubbles and various other bubbles) there is no doubt that people are becoming more cognizant of the effects of a particular series of actions/ choices originating in the late 1970s-early 1980s. However ponzi schemes have been a feature of human history, culture and civilization since the beginning. Indeed it is not possible to understand the success of ponzi schemes unless one understand the mental calculus that enables them.

If you want a brief ‘official’ understanding of the concept and history of ponzi schemes, the following links are useful: Ponzi Schemes (wikipedia), List of Ponzi Schemes (wikipedia) and the similar Pyramid Schemes (wikipedia).

While the preceding links give you a good basic introduction to the concept, they tend to concentrate on money related ponzi schemes that failed. Discussions about successful financial ponzi schemes and non-financial ponzi schemes are either absent or mentioned in passing. This attitude gives the casual reader an impression that ponzi schemes are never too successful when the converse is true.

At their core, all ponzi schemes are based on the following basic concept:

A socially ‘respectable’ group convinces a much larger group of persons to accept their control (or give them goods/ services) on the promise of future benefit derived from esoteric concepts which these group pretends to understand and control.

The real kicker is that these socially ‘respectable’ groups are neither knowledgeable nor in control of what they claim, and depend on sophistry and various frauds to perpetuate their illusions of power over reality.

It is now obvious that many ‘respectable’ institutions and accepted practices are in fact just ponzi schemes, albeit successful ones. Whether we are considering the investment decisions of your ‘wealth’ management expert, doctors treating diseases with ineffective, harmful (and expensive) modalities and protocols, religions promising an afterlife if you follow their teachings and priests, universities that charge you over 50k-200k for a degree that promises nothing, ‘experts’ who can predict trends/ futures, intellectuals who pretend to understand their field very well, but resent explaining it to ‘outsiders’.

All of the above examples, and ponzi schemes in general, suck away money and resources from people (and ideas) that actually have a non-zero chance of improving the status quo. They cause heavy malinvestment, sabotage efforts to correct it and help perpetuate the status quo which is just another facet of zero sum thinking and behavior.

The mental calculus that motivates the followers of such ‘faiths’ is equally interesting and also based in a zero sum view of the world.

People follow such groups because they think that such actions will allow them to gain advantage over others, a view distinctly based in a zero sum mentality. They do not care about the validity of their ‘priests’ beliefs, nor question their actions (or honesty). Indeed, the same people who seek an unfair advantage over others, also believe that leaders of these cults have the best interest of their followers at heart. The irony of this mentality is hard to miss.

Followers rarely question, contest or disobey cult leaders because:

1. Accepting that they have been conned is painful.
2. They want to avoid ostracization, loss of social status etc.
3. Hope of rising up through the ranks (of their cult) is a motivator.
4. If feels better to pretend conning somebody else, even if that is not the case.

A fifth reason is the topic of another discussion.

Most people find it necessary to believe in an extrinsic ‘ordered’ universe with independent meaning in order to justify their existence.

There will be many posts on this topic (or related to it) in upcoming weeks and months.

Update: My next post in this series is now up- Modern Ponzi Schemes: Underfunded Pensions

Thoughts on Zero Sum Behavior- III

December 30, 2009 9 comments

In a previous post on this topic I had promised to trash a few more industries that pretend to be productive and capable of creating wealth. The difference between wealth and money will however be tackled in a future post.

Law and order industry: A holy cow of our age, and one many commentators avoid criticizing for fear of being considered less american or non-mainstream. This attitude itself should serve as a warning about its true nature. Any branch of the government that evokes such a response cannot be considered a public service or good. People freely criticize departments of the government that deal with more essential services such as water, electricity, sewage, EMTs, fire or even the judiciary. Heck, people will criticize their elected head of state or soldiers who fight for their nation with more enthusiasm.

So why the absence of open criticism about the “law and order” system. Is it not supposed to protect us from the “evildoers” amongst us? Are the laws they enforce not written and approved by elected representatives? Then why are they treated with the deference accorded to “domestic security agencies” in totalitarian regimes? Need I say more on that subject? Whose interests are they serving anyway? Maybe just perpetuating those of the ones with power?

Many whites traditionally supported the “law and order” system because in the past it hurt non-whites far more than whites. Essentially a form of ‘beggar thy neighbor’ and lynching became unfashionable. However the expansion in this system since the 1980s has made it bigger with each year. Ultimately it outgrew its old hosts (non-white people) and had to expand to non-traditional hosts (whites) to keep growing.

Given the number and percentage of people incarcerated or paroled, are americans intrinsically more violent and criminal? Or is it just another cynical ploy to make soccer moms and traditionalists feel ‘safe’. How many people are in the penal system because they cannot get out of it (for a variety of reasons) and what are their offences (mostly non-violent). What is the social expediency of using so much personal and money to prosecute crimes that cost a fraction of that sum? Why do many blue collar towns with outsourced manufacturing welcome prison construction? Our society celebrates you if defraud the taxpayer of billions and trillions and prosecutes you if you steal a few hundred dollars, or make money in victimless ‘crimes’. When is the last time a dope, crack or meth dealer destroyed your life savings, charged you 10k for a broken finger or fired you from a job that allowed you to support your family for 20 years?

Is your fear of a desperate non-white or poorer white worth it? Why not decriminalize victimless ‘crimes’? Why not stop imposing your own morality on others? Is the feeling of control and domination worth it? Who is going to pay their ever-increasing salary, benefits and pensions? Your kids and grandkids? with what job? Why not just give even the poorest slacker a lower middle class lifestyle? It is not going to cap your lifestyle.. just make him much less likely to steal from you.

EPA and other enforcement agencies: These agencies make and enforce laws and regulation without being elected. They write their own funding, and what do they do?

Has anything more than basic enforcement of laws and regulations made your life safer or happier? Nobody begrudges meat inspection, preventing factories from dumping toxic waste in lakes or policing drug companies. But do these agencies perform their basic roles effectively nowadays? I would point out that such useful enforcement is actually the minority of their current roles.

They spend most of their effort and budgets on projects that are based on whim, charisma and poor science than reality. Their modus operandi is creating scares based on exaggerations to justify a bigger budget, more jobs, better benefits and bigger pensions. They, if anything, hinder good and rational science.

I do not have to give you a long list of scares that never materialized or were blown out of all proportions- just remember any 6-month period since the late 1970s (or even earlier). Who benefits from them? certainly not YOU. They take away resources from real innovations, stifle others and generally make your life more cumbersome and poorer without any compensatory benefits. I am not against regulatory agencies, merely their lack of accountability and unchecked power.

Contractors to the government: A group that revels in Ayn Rand worship and lip service to free enterprise while sucking at the teat of taxpayers and protecting their turf. While I do not seem them as particularly evil parasites, they have reached my list for two reasons: Hypocrisy and facilitating malinvestment.

The hypocrisy of such free enterprise supporters is almost unmatched, considering their actions. Only banksters can match them in the department of cognitive dissonance. It is easier to forgive honest shysters than hypocritical shysters. These people spend ever waking minute of their life trying to come up with the next rent-seeking type scam.

Which brings me to next reason I have singled them out: causing malinvestment. While intentional malinvestment and scams cannot be eliminated, the current levels are not compatible with a functional society for any extended length of time. Projects in China and India are done with more diligence and fewer cost overruns than we are accustomed to. The depression-era infrastructure built in the USA or pretty much everything built upto the 1970s could not to be built today because of our patronage of such shysters. While they have always existed, we had ways to keep them relatively honest (in the past). Not anymore!

So I will repeat the assertion from my previous post on this subject:

The biggest parasites are rent-seeking privileged whites, but the average white person cannot/ does not want to accept that reality. Looking at the world in that manner would pose even more inconvenient questions about themselves, ranging from the welfare-like nature of most government generated jobs that employ them such as the defense sector, health care, home building/ selling, contractor to various levels of governments, the law and order system, jobs created by tax breaks to corporations, peculiar accounting rules etc. Furthermore many government programs that have benefitted whites such as SS, Medicare, GI Bills, post WW2 house buying programs are a form of affirmative action/welfare. People do not like looking in an undistorted mirror, for they fear what they might see.

Linkfest (December 29, 2009)

December 29, 2009 Leave a comment

In other news..

Next Decade Will Be Good One for Stock Investors: Matthew Lynn Some connected guys (and gals like abby cohen- of GS)are paid big bucks to lie.

Thousands to be saved from losing homes by closure of legal loophole I thought you required a court order to foreclose and seize a home, on the other hand UK is a quaint country.

Housing Recovery Fails to Bolster Broker Commissions First of all, there is no sustained recovery in home prices.. never mind.

Calpers Restricts Contacts Between Board and Money Managers Calpers has demonstrated a level of incompetence that would shame a drunken chimp.

The decision follows disclosure by the pension fund that former board member Alfred Villalobos earned more than $50 million in a five-year period acting as a middleman between firms seeking stewardship of some of Calpers $200 billion in assets and the fund’s board and staff.


CalPERS expected to report losing nearly one-quarter of investment portfolio

The estimated $56.8-billion drop at the U.S.’ largest pension fund, the second annual loss in a row, would have a huge effect on what state and local governments must shell out to support retirees.

Goldman Sachs Takes Biggest Share of $923 Million U.S. IPO Fees GS can do what it wants, as it “owns” the Fed and your elected legislators. You have a problem with that?

Fannie, Freddie, Heading to Zero Guess who is paying for their unlimited creditline? You!

Fannie, Freddie exec pay suggests stock worth nothing

Fannie Chief Executive Michael Williams and Freddie CEO Charles Haldeman got $6 million annual compensation packages, according to regulatory filings last week.

Higher-End Homes Still Declining Turns out the ‘rich’ are not rich.. but don’t expect that to dampen their contempt of “poorer” people.

Despite Subsidy, Cobra’s Bite Still Stings for Many No socialism for you.

Categories: Economy, Linkfest, MSM Idiocy

Linkfest (December 28, 2009)

December 28, 2009 Leave a comment

In other news..

President Obama, It’s Time To Fire the TSA A Must read!

Today, DHS’s Napolitano’s response to the crotchbomber: “We’re looking to make sure that this sort of incident cannot recur.” But the TSA’s response to Abdulmutalib’s attempt makes one thing clear: We must stop pretending the TSA is making us safer.

The TSA isn’t saving lives. We, the passengers, are saving our own.

Pomboy: A Looming New Credit-bust a commentary on A Jolly Good Year

Stephanie speculates that one reason for their reluctance could be that while stocks have rallied, thus enriching their portfolios, dividends have been relentlessly shrinking: the $775 billion-plus annual dividend windfall the affluent had grown accustomed to has been slashed by a third or so. Or, it just may be that “even for the high-end, housing deflation outweighs equity inflation.”

Tanker Glut Signals 25% Drop as 26-Mile Queue Overwhelms Demand and crude is still 70-80 $/ barrel.. Guess who (IBers, speculators) are busy screwing YOU

How not to solve a financial crisis Another good guest post by By Edward Harrison at nakedcapitalism.com

One can only assume that alternative policy solutions were rejected because the Bush and Obama Administrations preferred the solutions they crafted to these.

2009: The Year Wall Street Bounced Back and Main Street Got Shafted

But if Wall Street is back on top, the everyday lives of large numbers of Americans continue to be subject to overwhelming trauma, chaos and disruption.

Fannie, Freddie Backstop May Foreshadow Mortgage Forgiveness If it does not work, keep on trying harder.

Through November, servicers had permanently modified 31,382 mortgages under the Home Affordable program, which was announced in February as targeting 3 million to 4 million loans, the Treasury said Dec. 10. A total of 728,000 of the modifications were under way.

Berkshire Eliminates 21,000 Jobs as Manufacturing, Retail Slump But Buffett is still the seer… right?

Berkshire and its subsidiaries have about 225,000 workers, the Omaha, Nebraska-based company said this week in regulatory filings. That’s 8.6 percent lower than the 246,083 disclosed in the 2008 annual report.

War on Wall Street as Congress Sees Returning to Glass-Steagall Who has hurt us more, swarthy “evildoers” or immaculately suited sociopaths?

The Recession Begins Flooding Into the Courts It is too bad that average people have not got the memo about our “great recession” ending.

Oh wait..

Krugman: ‘Reasonably High Chance’ the Economy Will Contract The “great recession” does not want to end..

Categories: Linkfest, MSM Idiocy

Thoughts on Zero Sum Behavior- Part II

December 27, 2009 10 comments

This post examines a peculiar secondary effect of zero sum thinking, namely the willingness to scapegoat groups whose contribution to scams is much less than the elites of that given society. To put it another way:

Why are whites so willing to believe that a black man or woman abusing a particular system is more deserving of punishment than a white man/ woman who has destroyed their savings, livelihood and faith in the system.

My conclusion, near the end of this post might not be palatable to some readers.

One recurring theme on the blogosphere is an idea that somehow the biggest parasites on “western” society are non-whites. However an objective look around you will demonstrate that is not the case, and I will illustrate it with specific examples.

Banksters: While bankers have always been seen as rent-seeking parasites to one degree or another throughout history, the magnitude of their effect in the post-1980 west has been on a scale unmatched in recorded human history. Banks have two roles, namely: a low-profit/ low-risk commercial banking role (loans, savings etc) and a high-profit/ high-risk investment banking role. The banksters initially used the low-profit/ low-risk part to fund their high-profit/ high-risk games. However they soon exhausted that possibility and started creating worthless financial instruments (SIVs etc) and complex insurance policies (Derivatives) to leverage a few trillion into hundreds of trillions of virtual money. When the system collapsed last year, they got their paid lackeys (our elected representatives) to bail them out with government debt issued on the faith of future increases in taxpayer receipts. The bill for that is over a few trillion and increasing as we speak (did I mention that government backing is a few times more than that sum). We are living in a world based on extend and pretend (hoping that the ‘real’ economy, which they have almost killed, will somehow resurrect itself and grow at a hitherto unmatched pace- demographics be dammed).

Some readers might point out that banks serve useful roles, to which I agree. However the system as it operates now does not serve socially useful roles because those roles are not very profitable. Virtual games, contracts and bailouts provide most of their profits . These institutions are no longer interested in the ‘real’ economy because short-term thinking, high profits and hubris enslave them to their current business model, which happens to be a virulent form of rent-seeking parasitism.

MBAs: If one particular degree is blamed for the fall of the “west”, this is it. MBA curriculums are supposed to teach people ‘universal’ management techniques, however in practice they nurture sociopaths with a focus on short-term profiteering. The whole concept of ‘universal’ management techniques is a scam for the simple reason that different sectors have unique product life cycles. What works in Burger King won’t work for Pfizer. However many people are in awe of these new priests. Events in the last year has deflated their brand somewhat, but much more needs to be done.

The focus on short-term results combined with rewarding such behavior produces perverse long term results. Would you want to develop a long term R&D program if your compensation and status was linked to your ability to outsource, adopt six-sigma or any other fashionable scam. In any case you could always desert the company you screwed over, find the next host, infect it, kill it and move on – not unlike a virus.

Some might point out the supposed efficiencies that MBAs have brought into various industries. My question is two fold: How do those ‘efficiencies’ benefit you? and How many of those ‘efficiencies’ were based on financial chincanery and three-card-monty shell games? Do the research for yourself and do not be intimidated by big words, because that is one of the ways sophists hide their bullshit.

I plan to devote a few posts in the future to highlighting the role of MBAs in creating the dystopia we live in.

The Legal Profession: The need for civil and criminal legal assistance is a social good, as it the ability to enforce contracts. The question then is: What are the majority of lawyers employed in, and where do they make the most money. The answer is: corporate law and overseeing regulatory requirements.

There is a lot I have to say about the effects of sophism and legalism on innovation (future posts), but the bigger question is: Are these expenses productive? Do they create social good or perpetuate sclerotic monopolies/ oligopolies? Who writes these laws (lawyers working for lobbyists and legislators) and for what purpose? Does spending money on untangling self-inflicted legal chicanery help with innovation or productivity? Aren’t most rules and regulations created specifically to employ more lawyers and do they not make a system sclerotic and unresponsive to new challenges?

Medical Care: Only since ww2 has going to doctors increased the chances of your survival. Previous increases in life expectancy were mainly due to better sanitation, enforcement and public health measures. However we now pay an increasingly larger amount of our money for very marginal improvements in health care. Why?

We spend much more on updating the ‘look’ of hospitals than on research to stop aging. Even then doctors are the fourth leading cause of death. Given that many are motivated into these professions by the promise of easy money, playing god and poor accountability, are you surprised? While the entrance exams and procedure to these professions try to portray an image of selecting for intelligence, they select for unimaginative, intellectually lazy sophists who can memorize well and jump through some hoops.

It certainly does not help that they indulge in anti-competitive behavior. How much do these people know anyway? Given the scandals with rofecoxib (Vioxx), olanzapine (Zyprexa), Clopidogrel (Plavix) and a host of other toxic or marginally effective drugs.. not much. How much do they really know.. consider the fanatical support for low fat diets, demonization of fat, high protein diets, misleading type 2 diabetics on the non existent efficacy of current drugs on reducing the risk of macrovascular effects.. I can go on…. Many people have noted that rare diseases are easier to diagnose with google than a specialist.. why? And how many surgical procedures have no effect on morbidity and mortality of the condition they were meant for?

I have a few other industries to trash in my next post on this topic, but my conclusion (below) remains the same.

The biggest parasites are rent-seeking privileged whites, but the average white person cannot/ does not want to accept that reality. Looking at the world in that manner would pose even more inconvenient questions about themselves, ranging from the welfare-like nature of most government generated jobs that employ them such as the defense sector, health care, home building/ selling, contractor to various levels of governments, the law and order system, jobs created by tax breaks to corporations, peculiar accounting rules etc. Furthermore many government programs that have benefitted whites such as SS, Medicare, GI Bills, post WW2 house buying programs are a form of affirmative action/welfare. People do not like looking in an undistorted mirror, for they fear what they might see.

Part III of this series has been posted here: Thoughts on Zero Sum Behavior- III

Linkfest (December 27, 2009)

December 27, 2009 Leave a comment

In other news..

What Iceberg? Just Glide to the Next Boardroom A virus infects a healthy cell, hijacks it, makes copies of itself, kills host cell and moves on to other healthy cells.

You might think that board members overseeing businesses that cratered in the credit crisis would be disqualified from serving as directors at other public companies. You would, however, be wrong. Directors who were supposedly minding the store as disaster struck at companies like Countrywide Financial, Washington Mutual or Fannie Mae have not all been banished from other boardrooms. In many cases, directors just seem to skate away from company woes that occurred on their watch.

In Search of Work, but at What Cost? An article that talks about the perils and scams awaiting those who try operating their own business.

How Overhauling Derivatives Died But we have the best system money can buy.. Seriously, were you thinking that IBers would let rationality and causality derail their money-making scams?

Lobbying by Wall Street has blunted efforts to step up regulation on derivatives trading by carving out exceptions or leaving the status quo in place. Derivatives took blame for some of the worst debacles of the financial crisis. But a year after regulators and critics began calling for an overhaul in the way they are traded, some efforts have been shelved and others have been watered down.

How the status quo can kill: the example of free trade

I see more of a class divide than does Greenwald and others. Seems to me that people who have secured comfortable positions in “managerial class” and “creative class” occupations tend to support the President and an incrementalist approach to addressing the nation’s problems. They tend to be reflexively hostile to any sweeping changes, such as actually annihilating the health insurance companies, or actually doing away with the big financial houses like Goldman Sachs, Citigroup, and Morgan Chase. They seem to insist on solutions that rely as much as possible on market mechanisms, such as cap and trade to deal with climate change. They recoil in horror at the suggestion that “the system” itself is the problem. Generally, they appear to be economic neo-liberals, who have actually become acclimated to the results of the Reagan Revolution.

Another Team Obama Present to Corporate America: Health “Reform” Bill Favors Big Pharma Over Generics More change you can believe in!

Does Golden Pay for the CEOs Sink Stocks? If you reward people for playing zero sum games, they play them with more enthusiasm. The new priests (ivy leaguers) are piling in on their old benefactors. If you require a degree to say what is common sense, we are fucked!

The first study, led by corporate-governance expert Lucian Bebchuk of Harvard Law School, looked at more than 2,000 companies to see what share of the total compensation earned by the top five executives went to the CEO. The researchers call this number—which averages about 35%—the “CEO pay slice.” It turns out that the bigger the CEO’s slice of the pie, the lower the company’s future profitability and market valuation. “These CEOs,” says Prof. Bebchuk, “seem to be trying to grab more than they should.”

Put Down That Shovel! Andy Kessler cannot do math or understand the need for both “old” and “new” infrastructures. I have no hope that our corrupt system can build anything on time, on budget or withou legal wrangling due to special interest groups.

Socialized Risk, with Still Highly Leveraged Survivors Too Big To Fail! Many free market supporters still believe that CEOs, board members and other assorted MBA scum deserve their compensation.

Zack Carter on OCC Chief John Dugan in The Nation: “A Master of Disaster “

Writing in The Nation, the banking reporter for SNL Financial News describes the wreckage left behind by John Dugan, the Comptroller of the Currency and the primary regulator for most of the US banking industry. To say that Dugan is the lackey of the largest banks is really an understatement. The former lobbyist and Treasury official has been the defacto advocate for the largest dealer banks through the crisis, opposing regulatory reform initiatives on Capitol Hill and even from the FDIC, every step of the way.

“Top Ten Reasons to Kill the Senate Health Care Bill” More evidence that the PTB are still conducting business as usual, Must read!

Categories: Economy, Linkfest, MSM Idiocy