patrick.net

Isn’t gold a sort of ponzi or pyramid scheme? Just a thought.
I don't know Frank -- it seems to have done pretty well as a "when the SHTF" hedge.

Frank:
No, gold isn't Ponzi, because 1) there is a real commodity involved, and B) it isn't dependent on an ever-broader base of buyers, and probably also iii) you only realize your gain/loss when you sell.

Most Ponzis are buy-and-hold-a-paper-promise, like Soc1al1st Security.
Most Ponzis require an ever-broader base, like SS
Most Ponzis give great payout to initial investors for extremely small investment (like SS did), payout that is direct infusion from the current revenue from the new investors (like SS always has been), and then crash when the pool of investors stops growing, like SS in 3... 2...

Which is my ultimate answer to the question "Why are They (Demopubs and Remocrats) letting illegal immigration happen?" 'Cause they need new pyramid base, of course! To cover the promises to the Boomers, you need aout half the population of the planet paying in.

Gold? It'll be here when you get back.

BTW, that is also the answer to the question of why the Europeans are letting a culture that is inimical to the tenets of "Pluralistic Society" take over theirs. They need the warm bodies to finish paying out the promises of European Welfare State SoC!AL!Sm to this generation, and then who gives a damn what happens. Kids? What are those? All hail solipsistic nihilism!

Cathedrals will become Mosques, 'cause nobody is around who cares what a nave was for in the first place. You can watch it happen almost-real-time on youtube. Enjoy!

On equity stripping

Dunno how to do it. I feel as long as we are in a crisis and putting things on the table like our unfunded socialt security and medicaid liabilities, I shold bring up the ruin caused by equity stripping. It enrches the few to the great risk and probable harm to the many.

frank,

>>In a free market (i.e. less regulation), the job would have been filled by the best qualified guard dog who offered the best price.

Unfortunately, it somehow happened that it was the foxes that ended up hiring the guard dogs (foxes and dogs are close cousins), and the guard dogs struck a deal with the foxes that they would look the other way when convenient. In return the guard dogs would get some chicken scraps when nobody was looking. Dogs like chicken just as much as foxes do.

Case in point:

Hens = buyers of Mortgage Backed Securities
Foxes = investment banks that package said MBS for sale
Guards = the bond ratings agencies

Does this simple and very significant counterexample falsify your thesis? I think so.
The bond ratings agencies (Moody, S&P, etc) are exactly the form of private guard that we are talking about, and look how miserably they failed.

Bap33,

Dude, you really need to stop obsessing about Barney Frank's sexual orientation. I'm starting to wonder what is the underlying cause of this strong preoccupation, if you know what I mean.

For the record: Barney Franks's former boyfriend was a low-level manager (middle manager) at Fannie or Freddie, and no more than that.

You really should stop spreading these lies and propaganda, which by the way are the staples of the right wing echo machine.

I don't know why people still blame Free Market or the right wing for this mess. The problem was clearly caused by attempts of social engineering in the housing and financial markets.

DennisN,

And I 'still' maintain it was "THE" cause. The problem with "going there" is that it invariably gets lost in the political discussion that ensues and I have 'yet' to invite?

We can get wrapped around the axle of playing the chicken or the egg and endless partisan finger pointing but I've seldom had an adult conversation on this issue. Let's face it, why blame a hole in the tax code you can drive a Mac truck through when it's so much more juicy to blame now defunct mortgage firms?

It's the same people that insist it wasn't a factor at all that lobby to maintain it ( just in case they stumble into a windfall down the road? ) Again, this is something that by it's very nature wouldn't likely be discovered until -after- the "autopsy". I'm more than comfortably vindicated. With or without that "$10,000 shower curtain moment". :)

And I ’still’ maintain it was “THE” cause. The problem with “going there” is that it invariably gets lost in the political discussion that ensues and I have ‘yet’ to invite?
I still think a "turn in cousin Fred the speculator" program at the IRS (maybe an 80/20 split with the whistleblower) would do wonders for the federal gov't coffers and give us a start on understanding how much this indeed contributed.

So what's the difference between pay as you go and ponzi? For example, for college tuition, I am planning pay as you go, since I don't have an excess of cash and I don't want to borrow anything. That seems like a reasonable approach. But since so many of you equate social security with ponzi, perhaps you can answer. I always hear this charge, but to me it is a very reasonable approach if you have a reliable stream of income, and don't want a lot of money sitting around doing nothing.

EBGuy,

Pffftt, even at 90/10 I'd never have to work again. We'll never know how many MEW/Walk $'s evaporated into thin air? Basically the same scam only you got the money "fronted" to you and didn't pay tax on it.

Course now we're ALL f@cked until the end of time ( and a day ) It's also assured that bottom-feeding will be pretty much pointless as we continue to bottom grope and the only people that 'might' be able to take advantage of it haven't been born yet. The rest of us won't have any lead left in our pencil and will have long since given up on trying to impress women. ( The primary reason for having choice diggs )

The gals that were hoping to one day own the "envy of the neighborhood" will be more concerned with their oxygen delivery guy making it in time.

Dinor,

I have read your posts here before and shared your overall view of things since I was introduced to patrick.net.

I also figured that remarks like yours coming from persons like you would signal a bottom. I remember such gloom expressed here about residential real estate in 1994.

sybrib,

Thanks, I've learned a lot from the many other posters over the years as well. I certainly wouldn't want to leave anyone w/ the impression I've got everything figured out? I don't.

When you do a Column A/Column B side by side comparison of an IRA and a "primary residence" there's simply no freaking way an IRA can compare. If people had to wait until 59 1/2 to access their home equity or face some pretty stiff penalties, maybe their would be some parity?

It's just a good thing that it's even part of the discussion at all. Where I feel the one study that David Leonhardt cited was a little "off" was the one w/ 19 different cities all within commuting distance to freaking BOSTON! Uh... unlike Portland, OR they actually have j-o-b-s in Beantown and you can count the people on the west coast with a Boston accent on both hands. Those people are born there ( and 'most' will die there! ) Then add in all the old money where they needn't "tap" their home's equity just to take a vacation.

Where's the Equity Decimation Meter currently? 2 tril? At that rate it puts the debate on the back, back burner. So while things have cooled considerably it by no means indicates it wasn't a factor.

The bond ratings agencies (Moody, S&P, etc) are exactly the form of private guard that we are talking about

Quite the contrary! The bond rating agencies are a government sponsored cartel and you're right about how miserably they failed, proving my point.

Hey, Lost:

your College Tuition is a price for a commodity: the privelege of being in those classes, and, one assumes, the eventual certification of your competence. It comes to an end. It is a single thing, and you are a single payer. $X for $Y class time, and that's it. You can choose to pay cash "as-you-go", or you can take out a loan, or your state can offset some of your tuition through taxes on the populace, which many do. It is a pretty simple value for value transaction.

Now instead, think about getting a bunch of kids working their lemonade stands to support your going to school. Lets say you need 30 kids (entrepreneurial little suckers!) to tithe to the Lost Cause College Fund and get you through your four years, you paying nothing. This is the usage of pay-as-you-go that is current: they pay, you go. Now that younger generation comes up for their college years, and they expect the same deal. Now you need 900 lemonade entrepreneurs to cover it. Now you see the pyramid. That third generation need 27,000 fourth-generation lemon squeezers to make it work. Etc. The first in line get a sweet deal, the bottom of the pyramid gets screwed.

This is exactly the situation with Soc1al1st Security. The first recipients only paid in very minimal amounts, and received great benefits, made possible because there were thirty workers to every one SS recipient paying-as-they-went. Now there are four. In twenty years there will be two or fewer. We have been spending the supposed SS surplus on other things for the last 40 years, and there isn't anything in the "Surplus" but further fiat debt instruments.

Not only will that last generation be paying each for his own personal retiree, but they'll also be redeeming the debt for the last 50 years of spendspendspend.

It can't work. It's gonna break. Period.

No matter how you slice it, the retirees have to supported by those who are working.

Whether prefunded, underfunded, or not funded, the consumption by retirees and workers comes from the same pool of goods and services that the workers produce. And more retirees and fewer workers means less for everyone to consume. We cannot consume that which is not produced.

"It is stunningly ridiculous to expect regulation to solve major problems when it is regulation that caused every major problem we have!"

Mish

http://globaleconomicanalysis.blogspot.com/

We cannot consume that which is not produced.

So true, and where deflation comes in. It was so easy during the runup to use bubblebucks to acquire the big screen and other trinkets produced by modern day coolies. Add to that the ability to bill to your future self (or to your children) for present day consumption of bigger bling, such as pools, pergraniteel, SUVs and mufferless Fat Boys for fat boys.

The excessive expansion of credit will cure itself with the rapid contraction of credit. This deflation will occur despite the politicos attempts to stop it. Thier two main tools seem to be to either (1) spend our way out (infrastructure repairs) or (2) devalue the currency through OO style "raw print." That seems to me to be like a drunk trying to prevent a hangover by either (1) continuing to drink, or (2) increasing the proof of his beverages. The only hope for the drunk is to get the hangover over with, and vow not to drink so much the next time.

Companies like Dell, Buget/Thrifty and UPS seem to get the idea. They are using devices like across the board pay cuts, lessening of benefits, and a week of mandantory unpaid vacation rather than layoffs to trim costs. I think that instead of the massive unemployment the politicals keep screaming that deflation will bring, I think we will just see pay cuts, and a rebound back from an unemployement that will only hit about 8%.

For the "Big Three" to stay in business, they had better find a way to produce cars that people can afford. "Afford" meaning able to buy with prevailing wages and a lack of absurdly easy financing.

A report at CNN/Money this afternoon notes the sharp increase in sales of trucks and SUVs in recent months, the combination of cheap energy and huge dealer incentives apparently pushing hesitant buyers over the edge - at least those who managed to survive the last year with their job and credit intact.

Trucks and SUVs are now outselling those gas-sipping hybrids that dealers couldn't keep in stock just a few months ago. Prius owners don't look nearly as smart as they did over the summer when Hummers would sit and sit in their owners' driveways, the once-proud driver of the monstrosity not able to summon the courage to watch those number spin round and round at the filling station as others looked on.

At the peak, it cost between $150 and $200 to fill up one of those big Suburbans or Lincoln Navigators (see the SUV Fill Up Index from July 16th), but now you can fill up a bone-dry tank for $50 or less.

now you can fill up a bone-dry tank for $50 or less.

True, and that $50 will still fill the tank in summer 2009. But that $50 will represent a larger share of one's disposable income in 2009 than it did in 2007. I wouldn't write off economy cars just yet, nor would I think "low" gas prices will cause a resurge in the SUV/Pickup market.

Frugal will be the new "black."

I just filled up my car for $19.50. A lovely experience.

Some of us love little gas-sipping cars. Though mine is not a Prius.

Fuzzymath said: "Note that I do not believe police protection nor education are human rights. However, they provide a safe and productive breeding ground for future prosperity. How does health care provide that?"

Access to healthcare is valuable in a couple of ways. First, it keeps workers and students healthy and productive. Secondly, increased access may reduce overall costs, since a minor problem that would have been cheap to fix can become a major, expensive problem when left alone--and not just expensive to fix, but expensive in terms of lost work, social services, the whole nine yards. Thirdly, access to health care and health insurance not tied to a specific workplace allows people to seek the work that best suits their skills, as opposed to work that allows them to pay their bills and see a doctor if needed. (For example, I know a young woman with an advanced degree and skills in the area of robotics. She does dispatch for a cable company. Why? Because for the usual messed up reasons, that's how she can get health insurance for herself and her kid. Let's talk about how reduced access to health insurance is wasting the resources of the UC system that educated her.)

Access to healthcare is very important. Health insurance is financing for healthcare, not access. However, our healthcare system is built around the use of insurance, with preferential negotiated rates for insurers. So if you pay on your own you pay far more for the same services.

So the woman with advanced skills in robotics cannot get health insurance from the employers in that field? I thought engineering type employers would provide such benefits. And would she not make more money in her robotics field? Enough more to pay for her own health insurance? I realize that health insurance is expensive. But a person with an advanced degree in robotics should have significantly greater earnings potential than being a dispatcher.

Eliza,

i know i know. There are going to be some examples of how wonderful the state health care is run...

I could go into a rant about how at this point it's just keeping old people alive who are using even more state resources... but it's Christmas. So I'll leave it alone.

The point remains though... EVERYONE CANNOT HAVE EVERYTHING. I'm sure you can also make an argument that buying a sports car for every person in CA would make us all more productive. But the state is already bankrupt yo.

Get it? CA IS FUCKING BANKRUPT.
We can't afford it.

I get the feeling in 2009 alot of people are in for a harsh awakening.

Oh wait! We can just raise state taxes to 50%, and then we can all have health care! Why didn't we think of this sooner?!?

frank,

If you want to get into the business of quoting authorities and authority-figures (not always the same thing), here is one (Barry Ritholz) that disagrees with yours.

http://www.ritholtz.com/blog/2008/12/what-does-regulation-regulate/

Oh wait! We can just raise state taxes to 50%, and then we can all have health care! Why didn’t we think of this sooner?!?

You mean the biggest exodus since the second book of Moses? :)

Wow, I must say this really sums it up nicely:
Even the former investment banks are still hiring for certain jobs, he said. For example, one student [quant] has been hired by Morgan Stanley to price and assess counterparty risk, something that was "hardly on anyone's radar last year." WTF? I guess they were to busy designing exotic securitization schemes to be bothered...

TOB,

thanks for the lesson. They don't teach debate nor latin where I went to school, Sometimes I think that was an advantage.

In fact, I wonder if the US of A would be a much better place if children did not learn in school that the purpose of debate is for someone to win it, rather than using it as a process for finding or teaching the correct answer.

Same thing goes for "competition". It has become all about winning at any cost, whereas it really should be about being BEST (best product, best results, etc). Unfortunately, people do not care about truly being best, they only care about "winning".

But I digress...

Happy Christmas, Hannukah and all that,...

In fact, I wonder if the US of A would be a much better place if children did not learn in school that the purpose of debate is for someone to win it, rather than using it as a process for finding or teaching the correct answer.

Huh? The purpose of a debate is not about winning nor about finding the correct answer. It is about making a point.

There is no such thing as a "correct" answer. And "winning" is worthless without gains.

Merry Christmas. God bless America.

MST,

>>Why are They (Demopubs and Remocrats) letting illegal immigration happen?” ‘Cause they need new pyramid base, of course!

Right on target,. Could not agree more..

In fact, the US is the biggest pyramid scheme in history.

The problem with this country is that every 2nd generation Tom, Dick and Harriet have only one aspiration, which is to sit on their fat ass and own real estate that they rent out to new immigrants, who also do all the real work.

In the big scheme of things, why do economies always have to grow? Answer: To keep the pyramid scheme going.

And why do we need business cycles? Because exponential growth cannot be sustained and we need to reset and re-flatten the (bottom of the) pyramid every few years.

Peter P,

You may have made my point :-)

Merry Christmas.

why do economies always have to grow?

Yeah, we need to come up with a new economics on this board.

I am still not clear what is wrong with pay-as-you-go finiancing like social security, except that it doesn't work with a declining population. Does the Untied States have a declining population? It is like just-in-time production, but only with money.

Social security is one big ponzi scheme.

I am against free health care for anyone over 70. Life beyond 70 is a luxury and if old people want to live, they better pay up.

How about this fair plan:

Anyone can withdraw from his retirement account at any time. However, from that point on, free health care, including critical emergency care, will cease to be free.

I don't think I am saying that the state needs to pay for health care or health insurance for everyone. But government is in a good position to broker a more reasonable arrangement, even if people had to pay in and pay copays and all of that. Because the current system is messed up, inefficient, expensive, and unkind.

The biggest problem I see is the preexisting condition bit. Take, for example, cancer. That tends to be a one-in-three proposition, and it is survivable, and it does not always strike the old and non-productive. And you can't always blame people for getting cancer--sure, it will probably get you if you smoke two packs a day, but it might still get you if you never smoke, sleep well at night, go to the gym every day, and eat organic food. But try getting solo health insurance after that diagnosis. Nope, if you get really sick with anything just once, you will definitely have to work for an employer who provides group insurance for the rest of your life, or you will have to find a way to become wildly wealthy and pay your own way--because paying your own way will cost a lot more. This restriction on access to insurance, which becomes a restriction on access to healthcare, is bad for business insofar as it prevents workers from moving around freely and starting new enterprises.

As for the robotics chick, her tiny start-up does not provide group health insurance, and she has a pre-existing condition, so solo insurance would not happen for her. So the start-up gig has to be a side gig.

Eliza,

Right on. Good analysis.

The bond ratings agencies (Moody, S&P, etc) are exactly the form of private guard that we are talking about

Quite the contrary! The bond rating agencies are a government sponsored cartel and you’re right about how miserably they failed, proving my point.

We certainly do not need specialized bond rating agencies. Investors should be responsible for the research. So much for public good.

Rating agencies are over-rated. Haven't we seen enough to know that supposedly "safe" investments (Fanron, AAA MBS, Madoff, etc.) are the most prone to failures?

Perhaps prudent speculation will turn out the be the only safe strategy.

Not investment advice

Big Madoff Investor Found Dead
French Financier in Apparent Suicide in New York Office; Fund Lost $1.5

The co-founder of an investment advisory firm that lost $1.5 billion in the Madoff scandal was found dead Tuesday in an apparent suicide in his Manhattan office, police said.

Thierry Magon de La Villehuchet, 65 years old, was pronounced dead about 8 a.m. New York City police said they believe the death to be a suicide but were awaiting results of an autopsy to be completed Wednesday.

Workers discovered Mr. de La Villehuchet's body about 7:30 Tuesday morning at the Madison Avenue offices of Access International Advisors, police said. Mr. de La Villehuchet had lacerations on his arms, and police