December 17, 2008

What's the difference between Bushnomics, Obamanomics, and Madoffnomics?

Do you ever get the sinking feeling that the biggest difference between Bernie Madoff and most of the public figures our age is that he admitted he was running "a giant Ponzi scheme?"

Madoffnomics consisted of making conspicuous donations to worthy ethnic causes in order to build a benevolent reputation in order to get an ever increasing amount of money flowing in to pay off those who had gotten on board early, but with no chance of later investors coming out ahead. How different is that from the Bush-Rove program of "compassionate conservativism," as embodied in Bush's jihad against down payments on home mortgages as denying minorities the American Dream?

My published articles are archived at iSteve.com -- Steve Sailer

21 comments:

Anonymous said...

"Madoffnomics consisted of making conspicuous donations to worthy ethnic causes in order to build a benevolent reputation in order to get an ever increasing amount of money flowing in to pay off those who had gotten on board early..."

Steve,

What makes you think that Banco Santander, Nomura Securities, BNP Paribas, Royal Bank of Scotland, etc. invested with Madoff because of his donations to Jewish charities? Do you think these institutions cared about that? You are focusing exclusively on the wealthy individual Jewish investors who got bilked by Madoff, and not the numerous, non-Jewish institutional and individual investors who probably knew or cared little about Madoff's charitable donations.

- Fred

albertosaurus said...

Not completely fair. The biggest Ponzi scheme in the history of people on this planet is the US Social Security system. Bush to his credit tried to reform it. He announced shortly after being reelected that he was going to expend his "political capital" in putting the system on a sustainable basis. He failed in the face of short sighted demogogery. Social Security is a crisis still looming in our future.

I'm not defending Bush's policies on illegal aliens or on requiring lenders to write mortgages for paupers. He remains guilty for those two insane policies but he is a model of forebearance and caution compared to the likes of Barney Frank, Chris Dodd, and Barack Obama.

Reg Cæsar said...

So the Community Reinvestment Act was a pyramid? The 1965 immigration bill as well?

Makes a kind of sense, but why hasn't it been expressed in this way before?

Argent Paladin said...

The main difference is that each and every one of Madoff's "investors" voluntarily handed over their money, letting their greed overcome their caution. Even if you see through the scam, you are forced to pay your taxes. Unless you don't make enough, in which case you can vote for other people to pay for your non-productivity.

Off-topic, but does anyone know if Madoff is related to Rachel Maddow? Both are Ashkenazy Jews but one has a Polish spelling and the other Russian. How common is Maddow/Madoff/Madov?

Jimbo said...

Social Security is not a Ponzi scheme, despite the vast amount of money spent on PR over the past few decades in an attempt to get you to believe it. It is a social insurance plan, and as such is not any different from any other form of insurance. A Ponzi scehme is distinguished by the fact that it needs geometric growth in in new contributions to maintain payouts crrent contributors. SS requires no such thing.

SS is the transfer of income from current workers to current retirees through taxation and transfer payments. As such, it is indistinguishable from any other means of supporting retirees except in the mechanism of the transfer. A system based on "private accounts", for instance, requires a transfer of the same current production from current workers to current retirees. If there is not enough current production to go around, there is no way magic peives of paper called "stocks" will allow retirees to eat nay better than checks from the government. But, given reasonable projections about producivity growth, both would be able to do their jobs into the indefinite future - except SS doesn't enrich Wall Streeters who fund hacks at the Cato institute, so they pay said hacks to write about how the sky is falling...

Jeff Burton said...

You beat me to it, Albertosaurus. Everything else we are talking about is peanuts compared to SS & Medicare. 50 trillion, at least.

Anonymous said...

Anonymous: "You are focusing exclusively on the wealthy individual Jewish investors who got bilked by Madoff, and not the numerous, non-Jewish institutional and individual investors who probably knew or cared little about Madoff's charitable donations."

The charitable contributions helped build trust among a particular ethnic group, in this case Jewish investors. That's what got the ball rolling.

Once his reputation was established and his scheme got off the ground, then other investors jumped on board.

It's not a perfect analogy with Bush and Obama because for both their main bases of support came from whites, not blacks or hispanics. (Hilary did better than Obama with blacks in the first few primaries iirc.)

But in general, liberal politics consists of bribing special interests to trust you and vote for you. Which is sort of what Madoff did.

Born Again Democrat said...

The difference is that Bush may not have known what he was doing. "Never attribute to evil motives what can be explained by incompetence." Napoleon said that.

Truth said...

"'m not defending Bush's policies... but he is a model of forebearance and caution compared to the likes of Barney Frank, Chris Dodd, and Barack Obama."

Excuse me, I just threw up in my mouth a little.

Reg Cæsar said...

As such, [Social Security] is indistinguishable from any other means of supporting retirees... --Jimbo

...or welfare recipients. As Howard Ruff once put it, you pay taxes all your working life, then go on assistance afterward. He was essentially paraphrasing the Supreme Court in Flemming v. Nestor, in which Mrs Nestor got nothing because Social Security payments are in no way to be considered an asset.

Whether Social Security is perpetually sustainable or just a house of cards is less important than the fact of the enormous power it gives the state, and its favored party, over the electorate. It is indirectly responsible for, among other things, the Vietnam War and the Immigration Act of 1965.

We need the separation of welfare and state.

kijkfaas mcgee said...

The welfare state everywhere is a giant Ponzi scheme. But there are so many dependents now, that there's little hope of genuine reform. Half the population works for the government, the other half gets hand-outs form it. That's ultimately why there's so much immigration to the USA and other Western countries. No government can reform the welfare state -- so they all try to keep the beast alive by feeding immigrants into its maw. Horrible death is inevitable, but the politicians want to win and there's only one way: feed the beast.

Anonymous said...

steve, that great anecdote about your dad and the hawk and the mirror went back to the greeks. and here is more 'light unto nations' activity:

World's First Computer Rebuilt, Rebooted After 2,000 Years

Terry North said...

Jimbo:

A Ponzi scehme is distinguished by the fact that it needs geometric growth in in new contributions to maintain payouts crrent contributors. SS requires no such thing.

There is an implicit assumption that Social Security will provide x% of a living wage to its recipients. In order to do that, there needs to be n workers who support each retiree.

The key problem in the scheme is that the Social Security administration is not raising the "full retirement age" at a rate which would keep n - the ratio of the number of retirees to the number of workers constant. This generates geometric growth.

A system based on "private accounts", for instance, requires a transfer of the same current production from current workers to current retirees.

Reference please? Every single "private accounts" proposal I've seen was a forced savings plant - none of them ever involved transfers between people. While the results wouldn't be nearly as egalitarian and hence defeat the goals of the people who want a "social insurance" system, it would, by definition be solvent by virtue of being a forced savings plan.

As far as social safety nets go, I think Mencius has it right. There is a lot of room to do them so that they provide the necessary services (food, shelter, basic medical) without making them particular attractive. Allowing people to voluntarily check into solitary confinement with internet access sounds like a plan I could get behind - particularly if people could re-evaluate whether they wanted to stay every say... month or so.

headache said...

I have to agree with Terry North. SS here in Germany is built on the assumption that people are going to have kids. When Adenauer extended the original barebone SS of Bismarck, he was asked in parliament what the ramifications of a shrinking population would be. His answer was that the people always have kids (i.e. have sex). Of course in the 50's having lots of sex (which people undoubtedly do have) lead to having lots of kids. But since the pill, that equation does not work anymore. Now we have SS which is based on a growing population with a shrinking population. In that sense it is like a Ponzi scheme.

The only way to fix it is to stop promising payees that they are going to see their net worth, and to raise the retirement age. Don't look out for Dems or even conservatives to suggest those career busting truths. Some pols in Germany in fact have done so, but the brake marks can already be seen in their careers.

Henry Canaday said...

Jimbo:

While calling your adversaries hacks, you are slurring reality a bit again.

Private retirement plans transfer money from current production to retirees as a return on the investment these retirees once made that enabled greater production. SS transfers money from current production to retirees as compensation for the fact that current retirees once supported past retirees.

SS thus has some definite Ponzi-like qualities, although done, at least initially, for idealistic reasons. Current retirees do have a moral claim on their benefits. But they are bound to vote to compel current workers to continue the system, unlike a private Ponzi, which must persuade new participants.

SS was, among other things, an effective Constitutional amendment, without the amendment process and concomitant consideration of long-term consequences. Once enacted and in operation, it is virtually impossible to change substantially, unlike an ordinary budget statute. And that is one worry about nationalizing all health care financing. With young workers paying for older workers' higher health costs, this could be another one-time Congressional vote that would have the permanence of an amendment to the Constitution.

Anonymous said...

You are focusing exclusively on the wealthy individual Jewish investors who got bilked by Madoff, and not the numerous, non-Jewish institutional and individual investors

This assertion by Fred isn't supportable by facts. He's essentially claiming the managements of these public companies are 100% juden-frei. He's also implying that none of the nominally non-Jewish individual investors were influenced by Jewish spouses, in-laws, business partners, friends or investment advisors.

Such total nonsense is not worthy of debating. It's the type of drivel that used to pass without critical scrutiny in the pre-internet age of Jewish domination of public discourse.

Jimbo said...

Terry -

What, exactly, are people being "forced to save"? Financial assets - which do not, by themselve, have magical powers to allow them to eat in the future. They are merely claims on future production. Adding some entries in a bank spreadsheet somewhere today has nothing to do with how retirees will be taken care of in 40 years. In 40 years, real goods and services will have to be allocated to retirees living then (you can't "save" a nurse wiping your bottom today, to use in the future). Whther this is down through the private financial system or through direct government transfer is really irrelevant compared to the real question of how many resources there are to be distributed.

You are making the elementary mistake of confusing the financial with the real. A credit that you can, under ideal conditions, exchange for an automobile is not the same thing as an automobile itself.

Reg,

" It is indirectly responsible for, among other things, the Vietnam War and the Immigration Act of 1965."

I must confess I've never heard this one before - SS caused Vietnam?

Anonymous said...

Excuse me, I just threw up in my mouth a little.

12/17/2008

Where were Dodd, Frank and Obama when Bush was pushing the whole NAM mortgage thing? Supporting it! Get a fucking clue, you imbecile.

albertosaurus said...

Jimbo says that SS isn't a Ponzi scheme because a Ponzi scheme needs geometric growth in in new contributions to maintain payouts crrent contributors. SS requires no such thing.

A Ponzi scheme would only need such growth if it were to succeed. No one thinks that they have a formula for sustainable success when they hatch such a scheme. They only want it to appear to be successful from the outside for long enough for them to be able to slice off some of the filthy lucre for themselves.

Jimbo seems to think I am a victim of right wing propogandists. Maybe.

If SS is not exactly the same sort of scheme as a classic Ponzi scheme, then it is certainlt Ponzi-like. George Bush at least wanted to make it less Ponzi-like.

What is Ponzi-like? If I set a fund for investors that gives each of them share of a real economic asset like a factory, farm or mine I have created real assets for my investors that survive myself. If I die and the fund disolves the investors still have something.

However in a Ponzi-like scheme if the fund stops because I die or just stop recruiting new members, then the payouts suddenly stop.

In a Ponzi-like scheme dividends collapse as soon as the inflow of new investors dries up.

Social Security "investors" are encouraged to believe that their fees go into a fund which repays them at retirement. If that were so then if SS were stopped tommorow and no new members were admitted, previous "investors" could just live off their accumulated SS assets for the rest of their lives. But we know that a new retiree burns through his own lifetime contributions is just a few years. After that he receives payments from new members just as an early Ponzi scheme investor receives his payments from the newest scheme members.

Any politician who tells Americans that SS taxes go into a personal trust fund from which he will later be supported after retirement is very much like Madoff who told people that their contributions were used to purchase real economic assets. Both Madoff's scheme and SS operate by paying off older members with the funds raised from newer members, neither is grounded in a real investment, neither can endure indefinitely, and both are promoted by deception and fraud.

Brett said...

"Do you ever get the sinking feeling that the biggest difference between Bernie Madoff and most of the public figures our age is that he admitted he was running "a giant Ponzi scheme?""

No, I always figured the biggest difference was that Madoff couldn't get away with shooting people who won't contribute to keeping his scheme going, while the government can.

Truth said...

"Where were Dodd, Frank and Obama when Bush was pushing the whole NAM mortgage thing?..."

I don't remember Barney Frank introducing legislation that is responsible for the murder of over 1 million people in two countries.