patrick.net

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

NJ state senator loses $1.3M life savings
Wednesday December 24, 11:03 am ET

New Jersey state senator loses $1.3 million life savings in Madoff scheme

TRENTON, N.J. (AP) -- New Jersey Sen. Loretta Weinberg's nest egg had grown to about $1.3 million before investments with disgraced Wall Street investor Bernard Madoff wiped her out.

The 73-year-old grandmother believed she was financially secure until recently, when an accountant phoned a relative to say the Weinberg family's investments -- including the senator's and those of many in her family -- were now worth nothing.

The Weinbergs, like New Jersey Sen. Frank Lautenberg's charitable foundation and scores of others, were victims of a multibillion-dollar Ponzi scheme masterminded by Madoff

Why do Madoff investors all seem to have European-sounding names?

Wonder if we will see some sort of government bailout for Madoff "victims."

Let the Madoff victims eat cake. They made their investments on their own free will. They are now on their own. Financial Darwinism makes the world better.

L’Oreal Heiress Bettencourt Invested With Madoff (Update3)

Dec. 24 (Bloomberg) -- Liliane Bettencourt, the world’s wealthiest woman, entrusted part of her $22.9 billion fortune with Bernard Madoff through the fund manager found dead in New York yesterday, two people familiar with the matter said.

The 86-year-old daughter of L’Oreal SA founder Eugene Schueller was the first investor in a fund managed by Access International Advisors, the people said, speaking on condition of anonymity because her investment isn’t public. The body of Access co-founder Thierry Magon de La Villehuchet, 65, was found in his Madison Avenue office yesterday. Police said he probably killed himself.

Bettencourt, a Parisian, joins wealthy individuals from around the world, including Spanish billionaire Alicia Koplowitz, U.S. moviemaker Steven Spielberg and Nobel laureate Elie Wiesel, among victims of what Madoff, 70, told investigators was a $50 billion Ponzi scheme.

“More high-profile names who have been victimized by Madoff will start to become known now,” said Ron Geffner, who represents hedge funds at the New York-based law firm Sadis & Goldberg LLP. “There’s a strong sense of anguish, fear and distrust.”

30 Percent Stake

Bettencourt, the only child of Schueller, holds a 30 percent stake in Paris-based L’Oreal, the world’s largest cosmetics maker, according to Bloomberg data. She inherited L’Oreal in 1957 when her father died and holds a seat on its board.

Bettencourt rarely speaks to the media. She gave her first interview in 20 years this month to the weekly Figaro Magazine.

Access, which oversaw $3 billion, raised money mainly from wealthy European investors.

Access said in a Dec. 12 letter to clients that funds including its LUXALPHA SICAV-American Selection invested solely with Madoff’s eponymous investment firm. The fund had $1.4 billion in assets as of Nov. 17, according to data compiled by Bloomberg.

Access says it carries out “extensive” due diligence on the funds to which it allocates money, a process that can take as long as six months and cost $100,000. It also hires private investigators to run “extensive background checks” on fund managers, including searches on professional credentials, regulatory filings and bankruptcy, according to marketing documents dated September.

Suicide

New York police are working on the assumption that de La Villehuchet’s death was a suicide, Commissioner Raymond Kelly said yesterday. The fund manager was found “with his feet propped up on his desk, a trash pail nearby to collect blood,” and no sign of a second person, Kelly said in the interview.

He had cuts made by a box-cutter in the area of his biceps and his wrist, and pills were found nearby, Kelly said at a news conference. No suicide note was found. His body was found at his desk early yesterday morning by a security guard who had been called by an employee unable to enter the office, Kelly said.

An autopsy was conducted today, New York City Medical Examiner spokeswoman Ellen Borakove said in an interview. The results won’t be known until a toxicology report is returned next week, she said.

De La Villehuchet founded Access in 1994 with Patrick Littaye. One of the firm’s partners was Philippe Junot, according to the marketing documents. Junot is the former husband of Princess Caroline of Monaco. Prince Michel of Yugoslavia is an investor relations executive, according to the documents.

International Background

Prior to Access, de La Villehuchet was chairman and CEO of Credit Lyonnais Securities USA, the U.S. investment banking arm of the French bank. He had joined Credit Lyonnais in 1987, and before that ran Interfinance, an international brokerage firm specializing in French, Belgian and Italian stock markets that he founded in 1983. He worked at Banque Paribas from 1970 to 1983.

Access, which had 26 employees, said in a statement on Dec. 12 it was working with lawyers to assess its exposure to Madoff. UBS AG, LUXALPHA’s administrator until this year, is no longer involved with it, said Karina Byrne, a UBS spokeswoman.

De La Villehuchet’s death comes as lawsuits mount in connection with investors victimized by Madoff. Fairfield Greenwich Group, a hedge-fund firm that had $7.5 billion invested with Madoff, has been sued for allegedly failing to protect its clients’ assets. Madoff was arrested on Dec. 11 and is now under house arrest at his apartment in New York.

Very amusing sarcasm on another blog:

“Funny, there is no Fannie Mae, Freddie Mac, or CRA in the UK. However can we explain their boom, bust and credit collapse?”

Three valid explanations:

1) Bill Clinton - attended Cambridge.
2) Jimmy Carter - spoke English.
3) Barney Frank. - lived.

http://www.ritholtz.com/blog/2008/12/bank-of-england-allowed-crazy-borrowing/

4) LABOUR PARTY!!!

No laws, no institutions, no strawmen needed? Just "labour party"?

I suppose the analysis is par for the course...