Bernard Madoff just played the game like everybody else did

When things started to crumble, Bernard Madoff revealed that his whole business was a nothing more than a ponzi scheme. He promised returns to customers that were paid from the money given to him by new customers. Like all ponzi schemes, new customers kept the ball rolling and as long as new customers kept joining, nobody would know the difference. The scheme fails when the flow of new customers slows down.

I have a hard time sympathizing with his customers. They have thousands (sometimes millions) of dollars and they want to make more — nothing wrong with that. However, instead of working to earn more money, they handed it over to somebody without knowing his methods and they trusted his promises. They took a stupid risk. I think such greedy and blind trust fuels most of the evil commercial practices in this world. If people were more informed about the production processes, they would think twice before buying most of the junk they buy.

Bernard Madoff just played the same game that most other financial institutions play. His ponzi scheme is not the only sham currently in operation. There are others that are accepted practice. The main thing about his ponzi scheme is that it has few branches in the pyramid. Thus, it is easy to point out the sham. However, old age security, Canada Pension Plan and employment/unemployment insurance are ponzi schemes too. We simply accept those as normal practice.

The entire “credit crunch” is the failing of a massive ponzi scheme: fractional reserve banking backed by central banking of fiat money. Everything rolls along under the radar — we are cultured to think that low levels of inflation are normal and healthy — as long as the banks are able to continue making loans. The whole thing comes crashing down when the bank runs out of credit-worthy customers. Nobody ever looks at our centralized banking system as a ponzi scheme because when all else fails, the central bank can print more money! If Bernard Madoff had the backing of a central bank — the way the commercial banks do, his business plan would succeed.

Hat Tip to to Kate

Iraqi shoe thrower “barbaric” according to Iraqi government

I have no idea who speaks for the Iraqi government but accusing television reporter Muntazer al-Zaidi of a “barbaric act” is idiotic. In our current state of affairs, it is often difficult to expect anything reasonable but I think this statement is very telling about how backwards the Iraqi government is when it comes to its monopoly on delivering justice and security. In my opinion, civilized people would simply accuse the shoe-thrower of “attempted assault” or something marginally objective.

Accusing him of a “barbaric act” is an absurdly inflammatory statement. It suggests to me that the powers-that-be in Iraq are still in a totalitarian mindset that is completely devoid of any concept of individual autonomy.

The Iraqi government said Zaidi had carried out “a barbaric and ignominious act” that did not correspond to the role of the media.

“At the same time that we condemn this ignominious act, we call on the television channel of this reporter to deliver a public apology for this act which sullies the reputation of all Iraqi journalists and the whole media.”

I guess the possibility that this reporter should be independently responsible for his actions is foreign to the Iraqi government. Also, the Iraqi government seems to instantaneously be able to speak on behalf of all Iraqi journalists and media.

My suspicion is that it will take a long time before Iraqis see freedom — if ever. The aims of government in Iraq seems to control its citizens more than to govern.

Giving the Leadership to Ignatieff will Hurt the Liberals in the Long Run

Iain Mackennzie, over at the The Canadian, summarizes my feelings on the Liberal Party’s coronation of Michael Ignatieff:

Michael Ignatieff acclamation as Liberal Party leader, demonstrates a political party that has become intellectually stagnant, lacking in the kind of idealism that views such Leadership Races as an opportunity to engage Canadians. The Liberal Party, presents itself as a party, that is not much different than political parties in many so-called Third World Countries, that reduce politics to the brokerage of backroom deals. Mr. Rae’s decision however gracious, in the medium and long term, bodes unhealthy for the Liberal Party, unhealthy for Canadian democracy, and threatens alienate Liberals into supporting other parties who feel that their party has been hijacked.

Don’t forget, the last Liberal leader to be basically given the leadership was Paul Martin… and how did that turn out?

Prime Ministerial Material

Andrew Steele has a post up discussing the possible replacements for Harper should he fail a confidence vote in January.

To be clear, I don’t think he will lose. And if he did, there would be an immediate election leaving little room, because I’m certain Ignatieff would not lead a coalition.

However, some of the options are intriguing. Charest would have a great possibility of forming a majority government, and Prentice doesn’t seem to me like the panacea he is imagined to be in the essay. Day is still a punchline, and he will never lead the Conservatives.

Moore would line up well with my beliefs, but he won’t win the nomination and couldn’t win a majority. In conversation with Monte Solberg, he mentioned Moore as one of parliaments most noted libertarians.

Thoughts?

Mark Carney and the Calculation Problem

The Bank of Canada has just slashed its lending rate to 1.5% this week as a strategy to fight the recession.  I think advocates of such market intervention should be expected to answer the questions: “Why is this a good strategy?  How does this work?” I have yet to see a good answer to those questions.

Let me first clarify my biases and convictions: I do not think lending money at cheaper and cheaper interest rates “works” at all. Monetary inflation is both the source of the problem and it will only exacerbate the recession. I do not even think the money market should be monopolized by the government. My point in this post is to suggest that even if inflating the money supply can pull people out of a recession, it is invariably bad policy because of systemic reasons.

Time

Unless our government bureaucrats have a magic crystal ball, intervention can not be on time. We are seeing that right now. The Bank of Canada finally announces that we are in a recession but only after statistics pour in indicating rising jobless rates and falling economic activity. This also seems to be the modus operandi of the central bank:

“They are indicating that if the economic data warrants it they are prepared to move further, but they would need to see a worsening of economic conditions,” said Paul Ferley, assistant chief economist at Royal Bank of Canada in Toronto, the country’s biggest lender.

The astute or experienced businessman might ask: How is this intervention going to help AFTER people are laid off? or AFTER a firm shuts down a division or goes bankrupt?????? I think the answer is quite sad in two ways:
1) it does NOT help them
2) it only helps the other firms
A devilish advocate of government intervention may suggest that such a market dynamic is good because it subsidizes more efficient firms and weeds out inefficient ones. However, a stronger firm that can survive a recession should not be entitled to cheaper loans. That firm should not be entitled to anything more than the added volume scooped up from the failing competitors.

Magnitude

How much should the central bank cut or raise the lending rate? That question is always asked before every scheduled announcement and nobody has the answer. Entrepreneurs and financial planners can either wait on the edges of their seats or act upon an educated guess of what the rate cut will be. Like every market activity, the announcement is always a surprise. Whatever the rate happens to be, it will please some people and it will displease others. This last rate cut by the Bank of Canada was deeper than anybody expected by a long shot. That means that planning is completely on hold until the announcement and entrepreneurs who try to act in anticipation will invariably make a mistake more often than not.

Goals

One last thing that is overlooked about the central bank is its purpose. Over its history, the central bank has switched between price stability and economic stimulus as its goals. The two are very different and you can not have both. The central bank is now picking winners and losers. By making credit available at cheaper rates, the bank is inflating the money supply and this makes losers out of the poorest of the poor. The poor pay through price inflation — the hidden tax that actually funds this “stimulus” attempt. The winners are the people who get the cheaper credit at the beginning of the money injection.

There is no way the central bank can be certain the rate cut suits its own stated goals either in its timing or in its magnitude. One thing that is certain: the lending rate of the central bank is not a free market activity.

Damn Beavers, Don’t Mess with “GREEN Campaigners”

These beavers should know better than to mess with GREEN Campaigners:

GREEN campaigners called police after discovering an illegal logging site in a nature reserve – only to find the culprits were a gang of beavers.

[...]

A police spokesman said: “The campaigners are feeling pretty stupid. There’s nothing more natural than a beaver.”

I Have A Confession To Make: I’m Excited

I’m excited for Ignatieff. I’m excited for what he’s going to do to the Liberal Party, and the possibility of pushing the Tories in the right direction. Iggy will almost certainly bring the Liberals back to centre right fiscal, centre left social values, and when adding in his charisma and leadership values, I see them forcing the Conservatives to have to fight harder for the free market votes, as well as the libertarian votes. And that can only be a good thing.

On the other hand, Liberals have a tendancy of screwing the pooch, so I’ll try to keep my hopes down.

Flaherty resurrects Keynesian PR stunts to deal with the economy

When all else fails, pull out the pathetic old Keynesian treatment plan: spend, spend and spend! Build roads and bridges and trains! Dig holes! Fill holes! Re-dig holes! Re-fill holes!

Are politicians ever going to learn? Is the public ever going to learn? The money has to come from somewhere. You have to wonder, if you can spend your way out of a recession, why wait until you are in a recession to spend on these projects?

These infrastructure plans are not meant to pull the economy out of a recession or out of the “economic crisis” as we now call it. We are only told that because, well, to make us feel good and because we want to believe it will work. We just refuse to accept inaction. With enough time, most Western countries pull themselves out of a recession anyway and so the public thinks the “stimulus” at least helped attenuate it — like the public would know the difference.

The only real solution to dealing with a recession is precisely for the government to do nothing. Regardless of what metric you want to use, the bottom line is that a recession is a massive mis-allocation of resources in an economy. Government intervention can only prolong such mal-investments by chosing winners and losers. We are seeing it unfold in the auto sector right before our very eyes. I wonder what mystery of the world must be uncovered to demonstrate that government bureaucrats are capable of determining the proper allocation of resources at a time when everybody else in the economy has failed to determine it themselves.

The sad truth is that the politicians are just pulling out Keynesian tools to placate the public. At best, these “stimulus” packages are bread and circuses. At worst, they are political opportunism to re-distribute wealth.

Change the Liberal leader but nothing else will change

Unless the Liberals succeed at creating more than just a cosmetic change, my suspicion is that nothing is going to be different in the House of Commons even AFTER a 2009 election. Finally sacking Dion and replacing him with Ignatieff seems like a good start — better late than never — but the Left-wing vote will still be split.

All I see is style, image and a desire for power coming from the Liberal Party. I have not encountered any substantial policy recommendations. When are politicians going to actually discuss policy? Not even John Manley has anything to offer on the policy front. By the way our politicians are acting, I am starting to doubt that there is an economic crisis. It is not enough to simply say: “It is the economy, stupid!” without any recommendations for handling the economy.

Could it be that there exists no policy recommendations to debate? Just a thought.

UPDATE:

Canadian Finance Minister Jim Flaherty said he has received input from the separatist Bloc Quebecois about the budget he is developing, but has not received proposals from the Liberals or the New Democratic Party, the two other opposition parties.

International Crisis: latest Facebook attack must be averted at all cost!

Everybody in the world must join forces to stop the recent Koobface virus.  This server-side polymorphic virus may threaten the stability of the human race. Legislators should bow down to whatever demands this social networking site makes. Bureaucrats from all levels of government should put all initiatives on hold to join hands in unified resolve. Police forces must put this threat at the top of their priority lists.

/end sarcasm>

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