Anyone who followed the Madoff debacle probably thinks about Ponzis as being deliberately concocted frauds. Instead of using investor money to fund a productive business venture, the con artist channels the proceeds from new investors to pay interest to earlier ones. But economists have started to realize that this type of behavior can also occur spontaneously, even unconsciously, simply by having one expectation feed on another, creating a frenzy of speculation, an inflating economic bubble that is doomed to eventually crash.
Scientific American goes on to muse about “camouflaged” Ponzi schemes that allegedly “break no laws.”
Except…. they all do, if the law is predicated on mathematical impossibility — and it is.
So why not prosecute them all and stop it?
That’s simple: Government in its current form depends on them.
Schiller claims there are “naturally-occurring” Ponzis that feed not on manipulation but “market forces.”
Really Robert? Really?
What “natural market forces” powered the Housing Bubble? Were explodo-mortgages natural market forces? Was intentionally not verifying an income and asset statement a natural market force, or did someone (or a lot of someones!) know that only through intentional and direct concealment of material facts could those securities be formed and sold to unwitting investors? How do you fund a mortgage that nobody will buy?
How about government spending? Is it a natural market force when we blow over $2 trillion a year on “social spending” when for one quarter of that, or just under $500 billion a year, we could guarantee every household in this country a $32,000 a year after-tax income?
Where did the other $1,500 billion — three times as much as is required to guarantee that income to every household — go? Is it a natural market force that caused it to be extracted through both taxation and dilution of purchasing power, funneled to powerful people in Washington DC and their patrons through the United States and beyond, or is an active fraud upon the public that results in more than three quarters of that $2 trillionnot going to the claimed purpose?
How about the stock market today? Is it a natural market force when interest rates are manipulated at the same time deficit spending guarantees purchasing power destruction, such that mathematically money is allegedly being lent intentionally at a loss? That of course doesn’t happen (nobody intentionally flushes money down the toilet) so there has to be an artifice — outright trickery and fraud — somewhere, yes?
I think so.
How do you change this?
You start with recognizing what has been done since the 1980s, that it’s destructive and intentional, and you put a stop to it.
You accept that this will result in some “too big to fail” institutions failing, because they were dynamically and intentionally unstable — an instability created on purpose by their management. There is nothing natural about such a state and encouraging it to continue is foolish.
You vigorously expose those who run such nonsense as “houses are a good investment/store of value/appreciating asset” as fraudsters and, if they won’t cease and desist, you lock them up.
You demand that our schools teach exponents and what happens over time to all exponential growth curves, without exception. Nobody gets out of a High School without understanding that all such claims are inherently frauds — every one, every time.
The problem is that we’re not ready to do any of that…. are we?
Go to responses (registration required to post)