Ponzi scheme

Dodgy Ponzi scheme ratbag was a rooter too

It seems that Bernie Madoff wasn’t just screwing his clients, he was screwing the crew as well. And it appears he wasn’t fussy either.

Bernie had billions and this was one of his roots?

Bernie had billions and this was one of his roots?

When he wasn’t screwing everyone, he was screwing everyone.

Unbridled sex fueled the Madoff machine – and the Ponzi scheme king got himself tangled up in a love triangle, according to bombshell papers filed late Thursday. ¬† Read more »

110 Years

ŠĒ• The Telegraph

Makes you wonder if we need someone to introduce proper laws here so scumbags like the Bridgecorp directors die in jail like Stanford will.

Allen Stanford, the Texan financier, has been sentenced to 110 years in prison for orchestrating a $7bn (£4.6bn) Ponzi scheme.

District Judge David Hittner handed the sentence to the 62-year old in a Houston court on Thursday after hearing more than two hours of arguments from government prosecutors and lawyers for Stanford.

US authorities had sought a 230 year sentence for a man they described as “a ruthless predator responsible for one of the most egregious frauds in history.” Stanford used the hearing to argue that “Stanford was a real brick-and-mortar global financial empire,” that only crumbled after the government accused the company of being a Ponzi scheme in 2009.

The sentence leaves Stanford facing the rest of his life behind bars and caps a startling fall from grace for a man who was judged to be worth more than $2bn in 2008.

Is welfare a Ponzi scheme? Ctd

via Andrew Sullivan

Look at this graph which shows lifetime contributions compared with benefits. There is a full report that backs up the graph (pdf), explaining why welfare and superannuation is broke and will continue to be broke.

I’d love to have a similar comparison done here. I suspect the graphs would be worse.

As the discussion of needed reforms proceeds, a common demand will be that future retirees get back what they have paid into the systems. But reducing these complex discussions to a debate over ‚Äúmoney‚Äôs worth‚ÄĚ ignores the grim reality of the programs‚Äô finances today, as well as the fact that these programs have always transferred money between individuals ‚Äď both within, and more importantly, across generations. Our work has shown that current and near-term retirees can expect to receive benefits well above their contributions, financed by current and future workers who have little hope of realizing the same level of return on their taxes due to the economic and demographic forces that are working against them.

Is welfare a Ponzi scheme, Ctd?

An economist comments about the Ponzi-like tendencies of welfare and in particular superannuation:

AEI economist Andrew Biggs (formerly principal deputy commissioner of Social Security) writes in the American.com (emphasis added):

“What makes the Social Security/Ponzi references so common is the similarity in the way they are financed.¬†In both cases, early participants receive payments, not from interest on their own investments, but directly from inflows from later participants. If you were describing the mechanics of how Social Security‚Äôs financing works, it wouldn‚Äôt be illogical to refer to a Ponzi scheme.

And, also like a Ponzi scheme, Social Security paid early participants incredible returns on their money, because they contributed to the system for only a few years but received a full retirement’s worth of benefits. A person who retired in 1950 received around a 20 percent annual return on the taxes he paid (which happens to be exactly the same return that Madoff promised to his investors). Put another way, that person received around 12 times more in benefits than he’d paid in taxes. That helps explain why Social Security became so popular: it was simply an incredibly good deal.

Similarly, like a Ponzi scheme, there really isn‚Äôt any actual investment going on with Social Security. While the trust fund has a $2.5 trillion balance it can call on to pay benefits, this fund won‚Äôt be of any help to the taxpayer. When Social Security goes to redeem bonds in the trust fund, the Treasury must raise taxes, cut other programs, or borrow the money‚ÄĒexactly the same steps as if there weren‚Äôt a trust fund at all. The trust fund records how much we have borrowed from Social Security but, as the Congressional Budget Office¬†points out, ‚Äútrust fund balances convey little information about the extent to which the federal government has prepared for future financial burdens.‚ÄĚ While legally important, the CBO says, the trust fund has ‚Äúlittle economic meaning.‚ÄĚ

The biggest difference may be that Social Security can go on forever while a Ponzi scheme can’t, but that’s mostly because Social Security can force you to participate. If Madoff could find enough people willing to accept a 2 percent return rather than a 20 percent return, his plan could keep going indefinitely. With Social Security participation mandated, the program can go on forever, so as long as Congress makes the changes necessary to keep the system from going broke.

Is welfare a Ponzi scheme? Ctd

In my continuing series we look at the evidence that welfare may well be a Ponzi scheme.

Social Security, on the other hand, forces people to invest in it through a mandatory payroll tax. A small portion of that money is used to buy special-issue Treasury bonds that the government will eventually have to repay, but the vast majority of the money you pay in Social Security taxes is not invested in anything. Instead, the money you pay into the system is used to pay benefits to those “early investors” who are retired today. When you retire, you will have to rely on the next generation of workers behind you to pay the taxes that will finance your benefits.

As with Ponzi’s scheme, this turns out to be a very good deal for those who got in early. The very first Social Security recipient, Ida Mae Fuller of Vermont, paid just $44 in Social Security taxes, but the long-lived Mrs. Fuller collected $20,993 in benefits. Such high returns were possible because there were many workers paying into the system and only a few retirees taking benefits out of it. In 1950, for instance, there were 16 workers supporting every retiree. Today, there are just over three. By around 2030, we will be down to just two.

As with Ponzi’s scheme, when the number of new contributors dries up, it will become impossible to continue to pay the promised benefits. Those early windfall returns are long gone. When today’s young workers retire, they will receive returns far below what private investments could provide. Many will be lucky to break even.

Eventually the pyramid crumbles.

The premise is entirely similar here.

Of course, Social Security and Ponzi schemes are not perfectly analogous. Ponzi, after all, had to rely on what people were willing to voluntarily invest with him. Once he couldn’t convince enough new investors to join his scheme, it collapsed. Social Security, on the other hand, can rely on the power of the government to tax. As the shrinking number of workers paying into the system makes it harder to continue to sustain benefits, the government can just force young people to pay even more into the system.

In fact, Social Security taxes have been raised some 40 times since the program began. The initial Social Security tax was 2 percent (split between the employer and employee), capped at $3,000 of earnings. That made for a maximum tax of $60. Today, the tax is 12.4 percent, capped at $106,800, for a maximum tax of $13,234. Even adjusting for inflation, that represents more than an 800 percent increase.

Just recently we had evidence that superannuation in New Zealand is unsustainable. The evidence is building, substantially that Social Security, or Superannuation as we call it here is a giant Ponzi scheme that is unsustainable with out drastic action.

Is welfare a Ponzi scheme? Ctd

I have blogged previously about Welfare essentially being a ponzi scheme. There are more and more people discussing this, both left and right. Don Boudreaux looks at some measurements for determining whether or not welfare is a Ponzi scheme:

What is that essence?  I submit the essence of a Ponzi scheme is

(1) its promise that contributions today to the scheme’s manager will pay off handsomely (that is, better than alternative investments) in the future to each contributor;

(2) that current contributions to the scheme are not invested but are spent ‚Äď in particular, are spent to make good on promises made in the past to previous contributors who now expect their stream of pay-offs;

(3) that the manager of the scheme maintains his ability to pay the promised streams of pay-offs only by getting other contributors into the scheme, but

(4) the manager doesn‚Äôt let on to contributors (and would-be contributors) that the funds for paying off the promises come not from any profitable, productive investment of contributed funds ‚Äď nor from any actuarially justified program for reallocating risks across persons or across time ‚Äď but come, instead, simply from the hope that future contributors can be corralled into the system;

(5) that if future contributors do not arrive in sufficient numbers, the scheme has too little money on hand to pay off all promises;

(6) that the manager of the scheme, in short, successfully persuades his or her targets that the scheme is financially something that it really is not.

Note that I do not list ‚Äúpyramiding‚ÄĚ ‚Äď a ‚Äúpyramid scheme‚ÄĚ ‚Äď as being among the essential qualities of a Ponzi scheme.

On these points, Social Security strikes me (again, as it has struck even some of its illustrious champions) of having a great deal of Ponzi-ness about it.

It seems to me also that welfare, in particular superannuation is clearly a Ponzi scheme. Discuss.

Super is a Ponzi scheme, ctd

A while back I linked to an article about social security acting and behaving as a giant Ponzi scheme. It was a US article but the same goes for our super scheme which is based on a Pay as you Go model. Farrar has picked up on David Chaston’s article on the same topic.

Basically, someone who finished high school with the School Certificate qualification in 1962 will be aged 65 in 2011, and eligible for NZ Super.

Statistics NZ has relevant data of earnings and taxes from 1962 and we can use that data to track the earnings in that working life ‚Äď and from that data determine the taxes paid over that period.

Essentially, our statistically average person will have earned about NZ$1.4 million and paid about NZ$342,000 in tax, taking home a pay packet of a little over NZ$1 million over those 50 years.

Converting these raw earnings and taxes to 2011 dollars, they earned NZ$2.7 million, paid NZ$620,000 in taxes, and had take-home pay of a bit more than NZ$2 million.

However, for the next 20 years of retirement, they will claim in 2011 dollars NZ Super to the value of NZ$544,000 ‚Äď or almost 88% of all the taxes they have ever paid.

If they live for 30 years in retirement, they will claim almost a third more than they paid in a lifetime of taxes. They ‚Äėbreak-even‚Äô after 22+ years.

Both David’s. Chaston and Farrar also miss the point that though the oldies have sucked up all the taxes they ever paid in super payments to themselves, they also used that taxation to pay for schools, road, hospitals, middle class welfare and a host of other¬†unnecessary¬†electoral bribes along the way. This means that their superannuation was never funded, never will be funded and relies on an ever increasing pool of workers being fed in at the bottom to prop up the takers at the top. This is classi Ponzi scheme characteristics that eventually¬†collapses¬†in on itself.

When we talk about welfare reform we really need to look at the single biggest group of beneficiaries, pensioners. They claim they have paid their taxes and now should live their remaining lives at the expense of the taxpayer when the reality is they had the best this country had to offer, paid bugger all for it, and are expecting the rest of us to pay for their ever increasing length of retirement.

The pity is that there are¬†venal¬†and corrupt politicians who¬†periodically¬†come along and promise the greedy old people even more “entitlements” in order to secure electoral sinecure.

 

Is Welfare a Ponzi scheme?

via Andrew Sullivan

Texas Governor Rick Perry is an aspiring presidential nominee and he has been suggesting that welfare, or social security as the American’s call it is in fact a Ponzi scheme. Since welfare is what the country is talking about then this discussion via Andrew Sullivan is extremely pertinent.

Reacting to Perry’s¬†repeated claims, Zaid Jilani¬†consults the dictionary:

A Ponzi scheme is an economic arrangement where the money paid into the system by later entrants is paid right back out as benefits to earlier entrants. None of these social insurance programs that Perry mentioned fit this definition. They benefit those who pay into them with guaranteed benefits.

Daniel Indiviglio perks up:

Wait — what? Social Security fits that¬†precise definition.

It was created during the Great Depression by President Franklin D. Roosevelt. Retirees began receiving benefits immediately, without having paid into the program themselves. Those benefits were paid by taxing current workers. So, in fact, Social Security is technically identical to the definition of a Ponzi scheme that Jilani provides.

But what about those “guaranteed benefits”? Don’t those make a difference? Well, let’s think about this. Imagine if an investment advisor came to you and said:

“Hi there! I want to sell you a retirement vehicle for which you will be provided a guaranteed benefit of x dollars per year after the age of 65. But the money you contribute will be paid to current beneficiaries, while your money will be paid by future beneficiaries. If there’s ever a shortfall, we’ll just borrow money from China in order to keep the guaranteed benefits coming — or force future contributors to provide more money. Alternatively, we might increase the age at which you’ll receive benefits. And we might even think about means testing your benefit.”

All of those supposed “guaranteed benefits” sure come with a lot of caveats, don’t they? Is it even fair to call those benefits guaranteed? For all we know, the U.S. could continue to run into deficit problems for the next few decades and could feel compelled to do away with Social Security altogether.

 

 

Ethical vacuum at The Herald

Cactus Kate has picked a rather unsavoury scab in her article about the Herald and APN who appear to have confused the ethical lines between advertising, content, editorial and the high moral ground.

As readers will well know the Herald has been running a remarkable campaign of denigration about Mark Hotchin and Hanover, especially in the pst 10 or so days with story after story after story about how Mark Hotchin got scammed in a Ponzi scheme.

They posted an editorial as well taking the moral high ground and ticked off a judge and sounded all po-faced and sage in talking about name suppression. They spent a not inconsiderable amount of money with top end of town lawyers, reputed to be well over $100,000 attacking a victim’s rights to privacy as ordered by a court through a suppression order.

Sure I attacked suppression orders myself, but I only named kiddy fiddlers, rapists and thugs. This is why I have been so hot under the collar about this. The Herald went after victims and played for the high moral ground in doing so.

What Cactus Kate has done, and I am slapping myself for not thinking of this myself, is go straight to the source and asked Carrick Graham, spokesperson for Hotchin/Hanover about how much Hanover loot the Herald pocketed, all the while knowing that the two principals of Hanover were the victims in an elaborate Ponzi scheme.

The Hanover Group in total spent just with the NZ Herald. Here is the excerpt table that I received back from Graham:

2006 – $342,695 (Only November on)
2007 – $1,146,280
2008 – $328,807
2009 – $94,469 (all for FAI Finance)
Total – $1,912,251

As you can see from November 2006 onwards almost $2 million of Hanover related funds were placed in the Herald. The largest year saw over $1 million placed.

So The Herald, knowing as they did that the principles of Hanover had been scammed, continued to repeatedly take truck loads of loot for their advertising.

Cactus Kate rightly points out the ethical dilemma for the Herald in continuing to accept their advertising revenue and also waxing lyrical in cu/paste opinion pieces about Hanover and their various investment vehicles. She also quite correctly asks whether or not the gamblers investors in Hanover would have been more influenced by the Herald opinion pieces by Adam Bennett and Maria Slade amongst many others along with the millions in advertising featuring a former newsreader spent with the Herald than with the prospectus proffered by some spotty investment advisor across the desk of one of myriad of advisory houses who likewise pocketed Hanover coin.

I just bet that Hanover’s and Hotchin’s lawyers are licking their chops with joy, salivating at quenstioning ¬†gambler investor¬†after gambler investor just exactly where they obtained their investment advice from: “Was it from advertising? Or perhaps you read something in the paper? Or did you actually read and digest with some solid research from a truly independent investment analyst the prospectus provided by Hanover?

You can see where that is going to end can’t you. Badly…for the investors and possibly for APN.

The Herald took¬†the¬†high moral ground in spending huge amounts of money in overturning a victim’s name suppression, they stood on a¬†pedestal¬†and proclaimed their moral righteousness when all along they should have been on the naughty step for palming almost $2 million in investors¬†cash¬†to enable Hanover to take more investors cash from them, all the while knowing that Mark Hotchin was subject to a name suppression order.

Their retrospective moral righteousness is nothing but shameful¬†hypocrisy. I wouldn’t mind betting that Cactus Kate has much more information about other media outlets and journalists and the large amounts of cash they similarly received. If she wasn’t so busy working in her Guangdong sweatshop she could bother to return my emails.

Schadenfreude?

scha·den·freu·de

[shahd-n-froi-duh]

‚Äďnoun
satisfaction¬†or¬†pleasure¬†felt¬†at¬†someone¬†else’s¬†misfortune.
Origin: 1890‚Äď95;¬†¬†<¬†German,¬†¬†equivalent¬†to¬†Schaden¬†¬†harm¬†+¬†Freude¬†¬†joy

Bernard Hickey, the NZ Herald and Stuff are all crowing about Mark Hotchin again. It is almost gleeful. A touch of H-Utu. This time about his name suppression and falling for a dirty Ponzi scheme back in 2o04. They are mocking a victim. They don’t mock the victims of all the other frauds out there so why mock the victim in this case?

The point of name suppression in many cases is the protection of victims, in this case Hotchin was the victim and yet the NZ Herald saw fit to seek to overturn a permanent name suppression order designed to protect victims. They did what Judge David Harvey said could not be done, that the only people who could overturn a court ordered permanent name suppression was either the victim or the court who ordered it in the first place.

It appears now that any name suppression can be validly challenged by any news organization or indeed any interested party seeking to crucify a victim.

My campaign against name¬†suppression¬†was for the removal of the¬†practice¬†for the criminals. The Herald’s actions and the¬†gleeful¬†vitriol and running of sensationalist headlines by financial commentators who are themselves a bunch of broken-arses by comparison. There is a old line that if you can’t do, you teach and if you can’t teach, you write about people who do. This fits the financial correspondents perfectly, who collectively probably don’t muster enough in assets to cover¬†the¬†amount lost by Hotchin and Finnigan in¬†the¬†Ponzi scheme.

Using the logic of Bernard Hickey:

Hotchin was given permanent name suppression, which has only now been lifted after a challenge from the NZHerald. Strategic Finance boss Kerry Finnigan was also duped and also got name suppression.

If only the Rotorua District Court judge James Weir hadn’t granted permanent suppression, thousands of Mum and Dad investors might not have lost over NZ$500 million in Hanover and over NZ$300 million in Strategic Finance…and counting. Thanks for that.

then none of these people should be anywhere near running a company or even investing or indeed offering advice:

Victims from big business include hedge fund manager Arki Busson and US property magnate Larry Silverstein, who is currently working to rebuild the World Trade Centre in New York.

A number of large banks, including UBS, Citigroup, Deutsche Bank and Bank of America, were also named in the filing.

From the world of politics, trusts belonging to the family of former US Secretary of State Henry Kissinger appear, as does the name of current New Jersey Senator Frank Lautenberg.

The full¬†list¬†of Bernie Madoff’s wealthy and famous victims is¬†available¬†on the internet in an easily accessible format. Is Bernard Hickey suggesting that none of those people should ever run a company or give investment advice and all should also be a target of derision for having the temerity to fall for a complex and elaborate long-term fraud?

In a Ponzi scheme, the Bank cops a¬†flogging¬†too, and are essentially part of the fraud. I hope that Bernard’s bank isn’t the same one as the bank used by Papple and West, Westpac. I note that Bernard Hickey has all the Westpac investment products listed on interest.co.nz….given his new position shouldn’t he really be¬†recommending¬†to his readers that, since they participated and fell for the Ponzi scheme themselves then investors in Westpac would be best to take their money elsewhere.

Then again, some already did that when they walked out of the country with $10 million of Westpac’s cash. Funny thing is, I didn’t see¬†Bernard¬†Hickey telling Westpac customers to stop investing in the bank when they couldn’t keep track of $10 million. So long as Westpac keeps the cheques coming to interest.co.nz then¬†Bernard¬†will stay mum.

The logical conclusion of Hickey’s farcical suggestions and “analysis” is that anyone, and I mean anyone, who has had an accountant nick cash from their firm, handed over funds to a Nigerian 419 fraud, or “invested” in a Ponzi scheme, or indeed thought Amway was a path to success, should be barred from running a company.

What is worse though is the history of the Herald’s involvement in this case. They clearly, back in 2004, used Hotchin and Finnigan as a confidential source for their story:

One prominent company director told the court he did not want the public to know he was “conned” for more than half-a-million dollars.

The man, who has been granted name suppression by Judge James Weir, said he was advised to apply for suppression because it would be better if the Papples and West were not publicly associated with his companies.

It was revealed in court that the man had been a director of 71 companies, including a prominent finance company, although he said he had recently moved to Australia and had resigned from a number of directorships.

It was important for him not to be connected with the Papples and West, as he had been “duped into doing an investment with people who conned me for a lot of money”, he said. “I don’t want to make that public.”

The man had told the court he invested $561,066 with the trio.

He received a payment of $120,000, followed by a further three sums totalling $336,000.

The Herald has known about this for 6 years and they shamelessly used the confidential information for their story then used that information 6 years later to over-turn a name suppression case. People should be very wary of providing confidential information to a Herald journalist from now on, they will turn on you and cut your heart out just to sell papers. They will betray a confidence to justify a taudry headline.

Not only that during this whole time they ran Hanover ads in their paper, and on their website,. They have performed the business equivalent of raping the victim all over again except they did it to sell papers.

Bernard¬†Hickey isn’t much better, he too took¬†advertising¬†revenue from Hanover. Did he know about this all along? Remember Bernard Hickey still writes for the Herald.

In the interests of fairness, surely the Herald and Bernard Hickey should pay back all the “dirty Hanover cash” they took while sitting on this information for 6 years. If the investors should have been told back then, then their cash for advertising is just as tainted as anyone elses.

To get back to the name suppression issue, the wonder is that the Herald isn’t in court seeking the overturning of every person’s name suppression but then a great many of those people won’t sell tell many papers, but Mark Hotchin’s name does.

Bernard Hickey and other financial media might like to think and enjoy the schadenfreude but they should really hang their heads in shame at their utter hypocrisy and breach of their own ethics and standards that they hold so dear as the reason why they are superior to bloggers. If they had even a modicum of decency they would apologise and pay back all the filthy loot they took in advertising revenue and related puff pieces at the time.

If I was Mark Hotchin, or even one of his advisors, I would be laying a complaint with the Press Council for breaches of ethics.