You are font of information and sometimes a synthesis that can boggle the
mind. Where did you get the bit about HSBC understandably I guess that
information isn't flying around, some mighty bright faces and some pink
slips coming from the foot of Main St I suppose. Which is sad if it weren't
so damn funny. Fiduciary responsibility, due diligence, Hmmm.
Getting a Grip |
Ponzi Capitalismby Michael I. Niman |
|
|
Two names have been wed in the news this month: Charles Ponzi, the con artist busted in 1920, and Bernard Madoff, one of America’s most successful hedge fund managers and a reputable pillar of the Wall Street financial community. Madoff, whose name is actually pronounced “made off,” took the scheme that Ponzi made famous to new heights, conning some of the world’s biggest banks and richest personalities, making off with an incomprehensible sum of money over three times the size of the auto industry bailout.
But I’m confused. A Ponzi con goes like this: Some reputable crook sells an investment instrument that promises attractive returns. As new folks invest, the crook pays off previous investors, who actually see the promised returns on their investment. This continues on as new cohorts of investors buy technically worthless stocks or shares, the purchase of which fund payoffs to earlier investors. The actual stock or investment has no concrete value. It is not backed by a tangible item such as gold, real estate, or even a used car or a big lollipop. Nada. Nothing. It’s only value lies in the fact that people, for whatever reason, believe it has value. This belief creates a supply of fresh capital to keep the operation running while its crook-in-chief siphons his cut off the top. The early investors make out okay, as long as they cash out. The later investors, those mindlessly and greedily following the herd, are fucked.
I’m confused because I’ve also just described the global economy. The dollars in your pocket are what economists call “fiat currency.” While US currency was once redeemable for, and hence backed up by, a fixed amount of gold or silver, that system finally collapsed under the Nixon administration, which was essentially bankrupted by the costs of the Vietnam War. The US could no longer afford to back up its money with gold or silver since it had taken to printing money on an as-needed basis, essentially taxing the population by playing the margins on an inflating currency that it could print at will.
At the time, we had become so used to trading these paper slips for real goods that we forgot how this habit started. Words like “silver certificate” and any other indication of redemption value disappeared from our currency. We left “In God We Trust” on the bills, not because the masters of our economy necessarily trusted God but because it was good marketing for what essentially was a Ponzi investment. What, you got a problem with God?
Money has value not because it has any intrinsic worth. It has value because people value it. That’s it. People around the world continue to invest their worth in our conceptual currency, maybe because shaky as it is, it’s still better regarded than their own. In any event, as long as they keep investing in greenbacks, prior owners can keep trading them in, as with Ponzi’s and Madoff’s schemes.
Then there’s the stock market—global capitalism’s nest. Stocks have value? Well…
Okay, there are the fundamentals. Tangible things like factories and inventory. They have real value. And when you buy stock, you’re buying part of that value. But for the most part, those aren’t the hot stocks. Old economy accruements such as manufacturing plants are now seen as albatrosses. They require maintenance. Their operating expenses are susceptible to uncontrollable variables such as energy and labor costs. New economy corporations are rewarding for shedding the unwieldy weight of employees and buildings.
Wall Street’s stars are stars because they’re stars. That’s it. People invest in stocks because their values are going up, and the bet is that they will continue to go up. The rich are usually the first to get on and then off this train. The middle class, seeing how rich the rich got investing in air, then put their life savings into the roulette wheel, often in time for “bubble bursts” and “market adjustments.”
Like with any other Ponzi scheme, it’s a confidence game. It falls apart when the confidence ends. Right now we’re seeing a crisis of confidence.
Now let’s look at housing. When the tech bubble burst—meaning, when the romance of technology stocks wore off and people tried to assess their real value—the smart money pulled out early and took refuge in real estate. This gave us the era of McMansions, obese little castles wedging themselves onto the suburban landscape.
By 2000, real estate was well poised to be the new Ponzi. People burned by the revaluing of technology paper were looking for something real to invest in. Real estate is certainly real. And it’s a finite commodity—sort of like gold or silver. But the problem is that real and valuable as it really was, it wasn’t anywhere near as valuable as a frenzied market made it out to be—and up it shot. The collateral damage here came in the form of homelessness and personal bankruptcies as more and more poor and working folks got priced out of the housing market entirely.
For everyone else, euphoria about not being homeless blinded them as they signed off on bulging mortgages for real estate saddled by intangible conceptual values. These were still good investments because, costly as these homes seemed, they could always be sold to someone else for more. Ponzi!
In the end everyone bought into the global Ponzi scheme. This week we’re shocked to find out that HSBC Bank invested a billion bucks with con artist Madoff. Imagine this staid old opium bank making such an irresponsible buy. But let’s look, for example, at “fiscally conservative” M&T Bank. I’m using them as an example because last week they sent a letter to investors boasting that smart guy Warren Buffett is one of their major stockholders—so not to worry. M&T didn’t (at least so far as we know) hand over a billion dollars to a charismatic swindler. But their business plan moved money from the regions where it’s invested, into overheated housing markets in Florida and New York City where they’ll loan a half a million dollars for the purchase of a one-room apartment—securing their loan only with the belief that there will continue to be people who believe that a one-room apartment is worth a half million dollars.
So let’s get back to Madoff’s Ponzi scheme, and let’s look at his victims. Exactly what was it they were investing in again? No one knew. No one cared. They just wanted a piece of the action.
Madoff never claimed to run a Ponzi scheme. But he did admit to being a hedge fund manager. And people were cool with that because whatever a hedge fund is, it makes money. They didn’t care how it made its money. They just cared that it made money. That’s the real crime of the stock market. No one cares where the money comes from or how it’s made, or what the environmental and human costs are. They just want a piece of it so they could put the down payment on a new McMansion or Ferrari. Now they got burned. End of story.
Dr. Michael I. Niman is a professor of journalism and media studies at Buffalo State College. His previous Artvoice columns are available at artvoice.com, archived at mediastudy.com, and available globally through syndication.
Reader Comments
User Loser 25 Dec 2008, 14:23
Turin 26 Dec 2008, 23:06
The anti-globalists have been warning everyone about the fact that we were
taken off of the gold and silver standards for years. They've been
uniformly poo-pooed, by infotainers, away into the ranks of the Art
Bell'ers and X-files geeks. So what, if they have their despicable nationalist agendas? Set that aside for the moment. The (obvious) question is, Are they right? Along the way toward their conclusions - yes - the reasoning indisputably becomes corrupted toward promoting their protectionist ends. However, much of the intervening reasoning is still sound and can be put to mighty fine use. How the hell can a society base economics on revolving debt? ...Besides, through expansionist wars (which succeed...)? The line between Ponzi schemes and corporate capitalism is really too nebulous to make much of a distinction. Today's mentality certainly makes it too difficult. Even moving down to the pleb classes, we've had way too many blasé nobodies wanting to become hotshot-yuppies in business outfits who live off of paper transactions - which represent the sufferings of others who do real *work* in life - in the form of high consumeristic lifestyles. Yet, this stereotype has become the icon of success in today's top-heavy U.S. society. Few people want to understand where anything comes from, anymore, or why, or how it works underneath it's marketed exterior. And, anyone who asks questions into these areas is subjected to some sort of denigration, designed to cast him or her as "fringe". (...As though, American life allows only for one monolithic "mainstream" of thought and culture which is both united and prosperous in a mutually symbiotic way, and anyone who so much as looks askance at this is part of a "dustbin" of assorted totalitarian ideologies which threatens this immensely successful way of lie...how backwards.) But, capitalism can't sustain itself. Certainly not, corporate capitalism. So, now, we're seeing the results of this "mainstreamism" as the U.S. receives its come-uppance for systematically ripping off everyone it possibly can. In the end, the only currency that retains it's value against the U.S. dollar is the currency of throwing others to the dogs. I find it more telling that Madoff's wife played her part but will probably walk because she turned informer. A fundamental difference between Marxism and crapitalism is that Marxism measures value in terms of labor, rather than perception. Capitalist money measures ownership of people and their actions, as opposed to mere tangible wealth....
Anarchists Rule-Conservatives Drool 28 Dec 2008, 00:52 Like Dan, decades of the vapid spend spend spend orthodoxy have finally reached the natural limit and we're now plunging over the brink of an uncushioned fall of the US way of life. Loud stupidity and it's cult of ugly loser followers are finally being STFU by reality because they wouldn't be STFU by reason. I agree 100% Turin
Stam Broker 29 Dec 2008, 00:52
Thanks a lot for getting rid of the sanctimonious idiot, Turin.
an ephebe 30 Dec 2008, 02:13
The most curious aspect of the current zeitgeist against capitalism is the
incredulity of the public, who apparently believed our economic system was
safe and stable. We need only look at our history to see that people will
exploit the system given half a chance, but rather than changing the system
(revolution), we obstinately endure and appease the public's sense of
injustice by futilely punishing the few Madoffs we actually catch. It has been nearly two centuries since Marx layed out our options for us, yet we still live in economic dark ages. Some have raised their puny voices in protest, but they have been marginalized to the point of absurdity. To utter the word "socialism" in any positive sense is to have your voice /i/a priori/i/ invalidated. And what kind of change will this current crisis effect? To look at history again one would have to conclude 'not much'. The Democrats will have their chance to push through some progressive legislation, but the ever fickle public will again give the Republicans their turn in office and everything that was so sedulously accomplished by the dems will be eroded by the repubs, who will get away with it by giving the people the anodyne of a paltry tax refund or inciting some irrational nationalistic fervor. The real fools are those who think we are now a changed America; we are not, despite what the rhetoric of the left would have you believe. Wrists will be slapped and token reforms will be implemented, but at the end of the day the Democrats want the same thing as the Republicans--Power. At the end of the day, as hard as it is to stomach, it looks like Hobbes was right.
Dan 30 Dec 2008, 14:14
Dr. Niman does not have to work very hard to win over his audience, and
therefore he doesn't. This is a great example. Apparently his readers are
so excited at the concept of dogging on the corporate capitalist hegemony
(or whatever) that even the most tenuous analogy and guilt by association,
beautifully linked by the flimsiest of reasoning, is enough to sell the
point. The formula is simple: bad thing plus capitalism equals clear
demonstration of the flaws of capitalism, and if you are far more
interested in proving the point than actually considering it, you will buy
it hook, line and sinker. Likening the global economy to a Ponzi scheme is a great illustration of this. Fiat money is used to make the point, but the comparison is weak at best. Dr. Niman clearly betrays his economic ignorance when, speaking of our current money, he suggests that, "It is not backed by a tangible item such as gold, real estate, or even a used car or a big lollipop. Nada. Nothing." What Dr. Niman continuously assumes, but never proves, is that gold has real value, whereas our system of paper money does not. But why make this assumption? What real value does gold have? Its heaviness? Its shininess? The answer to this question is, of course, that gold was a treasured medium of exchange because there was a static amount of it, it was pretty, and it was useless. Why Dr. Niman believes it has some magical property called "intrinsic value" would baffle any economist at nearly any time in contemporary history. Of course, the most widely publicized rebuttal of the absurd belief that hoarding gold amounts to accumulating value is "An Inquiry into the Nature and Causes of the Wealth of Nations." In it, Adam Smith painstakingly makes the case that the efforts of European powers to stifle the movement of gold across political boarders, for fear that gold exiting the country constituted the country getting poorer, lead to less domestic prosperity. The lesson? Value is not a state of being; it is a process of doing. If money is not being put to good use, it does not really represent wealth. For more on this, see any movie where the villain obtains vast sums of money, but it placed in some condition where he is unable to spend it. But what about factories? Surely they have intrinsic value, right? If that were true, Buffalo would be the richest place in the world. The ratio of factories to population is pretty damn high here, yet we are one of the poorest cities in the US. Why? Because, again, value is not a state of being; it is a process of doing. Since people are not in the factories making things that other people want, the factories themselves do not have value. So then why have fiat money? Obama's current economic team could tell you. So could the most recent Nobel prize winning economist, Paul Krugman. Control over the money supply allows the government to use monetary policy to ease the effects of economic downturns. While everyone knows the dangers of hyperinflation (see Zimbabwe), an often underreported threat is deflation. When an economy is in a recession, people spend less. When people spend less, prices go down. When prices go down, people wait to buy things. When people wait to buy things, they take money out of circulation, which exacerbates the whole cycle. John Maynard Keynes posited that stimulus would ease the problem and there have been numerous example of this: the revaluation of the dollar against the gold standard by Roosevelt, the capital inflow to America right before WWII that lifted the US out of the depression, the Bretton Woods conference, and many others. Keynesianism allowed the sacrifice of price stability for the sake of monetary control, which itself is employed to ease the tumult of the business cycle. Following this discovery, the United States, with the notable exception of the last 12 months, has enjoyed fairly uninterrupted growth and prosperity. What about the larger question: is the global economy a Ponzi scheme? The answer to this is no. The average person in the world is richer now than he or she was 50 years ago, and the number of people has grown. This should be enough evidence to suggest that we are not simply rearranging wealth; we are, in fact, creating wealth. Calling the global economy a Ponzi scheme serves little purpose in this article other than to like something legitimate with something scandalous. Dr. Niman does not connect the dots because he cannot. If the Ponzi scheme requires Peter to be robbed in order to pay Paul, then where did Peter get the money to begin with? A Ponzi scheme can only exist in a world where actual returns on investments exist and new, legitimate money can be used to furnish the scam. If Dr. Niman thinks that the whole global framework of investment is, itself, a scheme, then he is at a loss to explain what powers the whole equation. I know he says frenzy is at the heart of this illusion, but frenzy don’t pay the bills. That nonsense can only go on for so long. So then what is this really? What is Dr. Niman trying to say? That bad shit happens? That people over-value goods and that market corrections are painful? So what? I am not sure how old Dr. Niman is, but I wonder if he will ever lose the youthful naivete that convinces him that citing flaws in something does not constitute a refutation of it. Has he never heard the aphorism, "The perfect is the enemy of the good"? Honestly, the best example of a massive Ponzi scheme of which I can think that seems to go relatively unnoticed is Social Security. Social Security is a system of payments where the young always pay for the old. The young are Peter; the old are Paul. Seems pretty clear to me. I know, I know; this won't fly because it does not tow the line politically with the left, so there will be a barrage of criticisms of this analogy. But I think it is at least as sound as Dr Niman's. The only remaining question would be, where do new Peters come from in the Social Security analogy? Isn't there a P.T. Barnum quote about this?
Art Lemasters 30 Dec 2008, 22:27
I'm normally one to respect erudition, but we have a troll here. I agree
that Niman is neither a Marxist nor a font of any meaningful ideology, but
our new comedian is simply a bag of slightly more sophisticated soundbites
who could learn a lot from Niman. He certainly isn't in the league of
informed posters like Turin. The continually empty bleat, week after week,
from his multiple nyms is that thinking people are really only making
assumptions without questioning. That we put faith in ideas instead of in
the kind of air that is leaking from his head. He provides nothing of
substance WRT his own political ideology except to balance opposing
strawmen against each other, while pretending to rant a bit against
rightwingers before playing his one and only card of falling back onto the
tired hyperbole of the lockstepping left .. whoever they're supposed to be.
The amusing thing is that the posturing buffoon can barely refute even his
own strawmen while his more leftist puppets write the most effective
posts.
an ephebe 01 Jan 2009, 18:29
As amusing as it is to believe 'Dan' is clandestinely posting under several
psuedonyms in order to confuse the few people who read these comments and
'win' the argument, I'll have to assert that I am not one of his possible
doppelgangers. If my post is more effective, as Art alluded, it is because
I am attempting to contribute to a dialogue, whereas Dan's posts are almost
humorously vengeful towards the author of the article and the other
commenters. Art notes--correctly in my mind--that Dan enjoys the act of arguing more than the actual synthesis of ideas that occur in a Hegelian dialectic such as this. In internet parlance we call this type of person a 'troll'. In my experience, trolls respond aberrantly to those who attempt to engage them in a dialogue. They become titallated, launch ad-hominem attacks, and spout sophistry that they know will upset the others engaged in the dialogue. This is an attempt to focus the attention squarely on themselves. A Freudian explanation for this may be that they were neglected as children, or failed to adequately deal with their Oedipal urges, but personally I believe that they are simply attention whores. How do we deal with these poor maladapted souls? They feed off of attention and anger, so we must not give them either. This can be difficult because they usually have become adept at pushing people's buttons, but despite how wrong they are (and how nasal they become defending their untenable position) one must exercise restraint and ignore them. So, friends, I propose that together we transcend the clutches of this wretched cur and engage in friendly and worthwhile discussion.
Robbie 02 Jan 2009, 00:45
Based on the troll's idea of trolling as a lack of civility and his
blindness to his own obsession with mechanics, I can agree that these
droning chaps are one and the same person probably seeking personal
validation in cyberland by pretending to be educated savants. Trolls like
to lay down a lot of ground rules of propriety that force others into
genuflecting to their egos and let them win a debate by respecting their
idiot notions without a challenge. No one can ever mount a serious
challenge with these fools because all they do is invalidate the substance
by diverting us with empty disputes about their personal parameters about
codes of coduct, and they like to use the Hegelian Dialectic in the same
way without ever getting into the actual SYNTHESIS that the Hegelian
Dialectic is all about. What I always find telling is that with all of
their highfalutin flourishes about discussion they still have these credos
against winning an argument. So who's arguing simply to enjoy an
opponent's reactions? If you're not here to win your point then you're
merely a misanthrope here only to argue against a person. It's probably
the closest to social interaction that you get while you're downloading
pictures of Ann Coulter and Sarah Palin.
Bubba 05 Jan 2009, 09:38
Research the Federal Reserve. It's not "federal". International bankers
hijacked the country under Woodrow Wilson's watch. If you control the
production of a country's currency, you control the country. Thomas
Jefferson said that if we ever allowed the international banks to gain
control over this country, we'd be screwed. Look at what's happening now.
Unfortunately, the last high-profile politician to argue in favor of
abolishing the Fed was Kennedy. Look what happened to him...
Jimmy Shortcut 05 Jan 2009, 16:24
Follow the money. It's socialism. (Failed and in the dustbin of history,
BTW). Liberal media paychecks are funneled through terrorist bank accounts
and signed by Osama Bin Laden, Kim Jong-il, Mahmoud Ahmadinejad, Vladimir
Putin, Al Sharpton and Ted Kennedy. If the media doesn't support cutting
taxes on job creators then there is no rising tide and the commies take
over. Just like slowly boiling a frog, by degrees. Read up on Antonio Gramsci. He theorized that if Marxists could capture the institutions of capitalism in the areas of culture and education then communism could be forced on the hardworking folks. Now we have liberal university educated Barack HUSSEIN Obama's recession and big government ...Gotta go! I think my boss just caught me playing on the PC with the company's surveillance software....!
Tired of the Formula 05 Jan 2009, 23:29
LOL if that isn't the truth. I guess that names the real conspiracy nuts
for us.
Turin
07 Jan 2009, 23:43
Awww, the misanthropic, atheist Libertarian seems to have run out of cookie
cutter responses. Lmao ....nice job, Dude. I love it whenever someone
exposes the lack of talent/brains that pervades the consumer programming of
for-profit media, including its whole lemming-trekkie-virgin fandom... ;D
Leave a Comment:
|
|
Issue Navigation> Issue Index > v7n52: The Year that 2008 > Ponzi Capitalism This Week's Issue • Artvoice Daily • Artvoice TV • Events Calendar • Classifieds |
Subscribe 