FDR
The biggest Ponzi Scheme perpetrated in America is known as "Social Security".
Posted on 12/25/2008 2:24:43 AM PST by dennisw
Derivatives consultant Janet Tavakoli is onto something. In a note to her clients, she says the biggest Ponzi scheme of all may be the one that brought the world financial markets to its knees. That’s the scheme that united Wall Street bankers with mortgage lenders in a bid to funnel more and more money into the market for supbrime homes loans. She says packaging of iffy home loans into securitized bonds that could be sold to insitutional investors—many of them relying on borrowed money—was a system born to fail.
“The largest Ponzi scheme in the history of capital markets is the relationship between failed mortgage lenders and investment banks that securitized the risky overpriced loans and sold these packages to other investors—a Ponzi scheme by every definition applied to Madoff,” says Tavakoli. “These and other related deeds led to the largest global credit meltdown in the history of the world.”
About a year ago, BusinessWeek made a similar point in an article about the two Bear Stearns hedge funds that collapsed in June 2007 and helped spark the credit crisis. The story focused on a novel type of collateralized debt obligation that the managers of the Bear funds used to tap funding from money-market funds. The CDOs which were widely copied on Wall Street helped fuel the market for these esoteric securities, along with the underlying housing boom.
In that article, BusinessWeek likened the new market that the Bear funds helped inspire a pyramid scheme. Or, as Tavakoli says, a Ponzi scheme.
Hallmark of Ponzi scheme is an investment vehicle that generates consistent, steady returns. This discourages investors from pulling too much money out of the fund—the event that ulimately causes a Ponzi scheme to collapse. Wealthy people showered money on Madoff because his fund generated predictable returns—rain or shine.
(Excerpt) Read more at businessweek.com ...
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In a column on the financial melt-down published around 11/30/08, New York Times columnist Thomas “The Earth is Flat” Friedman treated readers to yet more classic MISinformation so typical of the soon-to-be-bankrupt Times. Could their long history of historical revisionism be the reason they’re in trouble? But that’s a topic for another post.
Friedman portrayed the greedy bankers and Wall Streeters as the villains.
Yes, many of them may have gamed “the system,” bundling this “junk” into “derivatives” even PhDs in economics didn’t understand.
But if that “system” hadn’t been created in the first instance, the gaming would not have even been possible. Friedman conveniently failed to mention that the system was a creature of the 1977 Jimmy Carter sponsored “Community Reinvestment Act.”
Allegedly designed to make the American Dream of home ownership available to all, it was expanded in the Clinton years to include even those with virtually no prospect of repaying. Lenders who refused to “get with the program” were threatened with loss of their charters.
Until it unraveled, it was a brilliant Democrat vote-buying scheme.
And as it unraveled, Barney Frank, Chris Dodd, et al stood silently by and watched. These clowns are either too stupid to hold public office or the new poster boys for UNINTENDED CONSEQUENCES.
For all the pain they have caused with their idiocy, these alleged “leaders” should be hauled into a courtroom and tried. If found guilty, I think public hangings are in order.
Bin Laden and his ilk have long sought to bring this country down economically. With that job now done by Frank, Dodd, Reid, Carter, Clinton, et al, the Islamofascists can now devote themselves to full time bomb building.
And for those who think I exaggerate, here is some of the rare wisdom offered by a former President (with whom I have many problems but at least got THIS part right):
“At what point shall we expect the approach of danger? By what means shall we fortify against it? Shall we expect some transatlantic giant to step the ocean and crush us at one blow? Never! All the armies of Europe, Asia and Africa combined with all the treasure of the earth (our own excepted) in their military chest, with a Bonaparte for a commander, could not take a drink from the Ohio or make a track on the Blue Ridge in a trial of a thousand years.
“At what point, then, is the approach of danger to be expected? I answer, if it ever reach us it must spring up amongst us; it cannot come from abroad. If destruction be our lot we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.”
Abraham Lincoln, 1837
I’ll take one lifetime subscription to the Economics ping list please. :)
FDR
The biggest Ponzi Scheme perpetrated in America is known as "Social Security".
This is what happens when a country produces nothing. Why do you think we owe China over 600 billion in Tbills and they have another 1 Trillion in investments. They produce and manufacture goods. It seems we in the USA trade money around. and that is supposed to make us wealthy? It always amazes me, just about every other country in the world, protects their industry, while we cut our own throats for the next quarter profit.
IIRC, FDR’s vaulted Economic Policies also included some Housing bailout policies....
Here’s an excerpt from a recent article by Denninger, who seems to have an excellent grasp of wha’s really going on behind the scenes. Commenting on the bailout mania:
“The argument keeps being made that “we had to do this” to save the system. But what’s not being talked about is what the real problem was, and who we’re trying to save.
The political class keeps trying to tell us that “we have to do this for mainstreet” and “we have to help homeowners.”
Oh really?
Let’s look at a few facts, shall we?
First, total mortgage debt outstanding. Its about $14 trillion dollars.
With the $7 trillion dollars we have committed we could have literally given every homeowner with a mortgage a fifty percent reduction in the principal outstanding.
This would have instantaneously stopped all of the foreclosures by putting all (essentially) homes into positive equity - overnight!
So why wasn’t this done?
Because the goal was never saving homeowners or Main Street.
In point of fact the problem that the government is “trying to solve” is instead the unregulated bets that were made in the OTC CDS space which were backed by exactly nothing; there was no capital behind any of these bets!
There is no fix for this problem; your leverage is effectively infinite if you have no capital behind your positions. You are limited only by your testosterone level and there’s been far too much of that on Wall Street over the last decade.
This was not an accident; in fact Henry Paulson himself lobbied for the removal of the previous leverage limits as I have noted when he was Chairman of Goldman Sachs. Between that and the complete refusal to regulate anything or anyone by the SEC, OTS, OCC, The Fed or anyone else we have built what amounts to a pyramid scheme based on nothing other than debt.”
AAAAAAAYYYYY!!!
Reading this thread, of course FDR is the first thing that came to my mind. Intended to remark similarly to your post, but you’ve beat me to it.
The entire US government has become a giant Ponzi scheme, basically beginning with the creation of the Federal Reserve in 1913 and set up on a downhill snowballing ride by FDR in 1933.
Two or three generations now, depending on how you define the term, have been raised with the notion of the “Free Lunch”. I am constantly amazed at the ignorance of the majority of those I come in contact with who are in their 20’s or 30’s. They sense something is terribly wrong with US economic policy, but brainwashing in public schools and public/private colleges has them cheering on further pursuit of failed policies as the answer.
I see one possible benefit to the election of President Barry Soetoro, it would be the Mother of All Ironies if the 70 some years of accrued social welfare schemes blow up on his watch. It has to blow up sooner or later and by God, I hope it’s sooner rather than later, while I’m still relatively young enough (55) to handle the social unrest that’s going to accompany it.
Oh how extraordinary, “she says” the clairvoyant genius speaks
Where where these stories 4-8 yes ago
Same individuals if questionable intelligence where professing the belevolent ownership of sweet sweet homes by the most misfortunate ones
He says go pound sand
I could be wrong but I can’t help but think in the future when the economy and the stock market are booming it’s a sign there is some type of Ponzi scheme occurring that will eventually collapse taking the economy along for the ride.
The 8 years of Clinton was a giant Ponzi scheme. A constipated yak could have run the economy better. (I do not mean to demean the constipated yaks out there).
Paulson and Bernacke are both creatures from the world of finance not business....their money has always been made on interest charged on accumulated wealth or even better a percentage of the interest charged on the entire game.
They care nothing about the production of goods and even less about individuals or the little people they just want their slice.
The spectacle of Trillions being poured into financial markets without a peep while manufacturers like the auto industry are paraded before the cameras in a mock show trial should give you some idea of whose side the Big Media is on.
Homeownership is encouraged in this country because the mortgage finance business is so profitable - through inflation the illusion is created that individuals can accululate wealth while the bankers collect 3 times the homes cost on the mortgage.
Good post, thanks for the lucid truth!
US Federal entitlements are the largest Ponzi.
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