America's Financial problems - A lot mlore than dollars and cents.

Zebo

Elite Member
Jul 29, 2001
39,398
19
81
This is a great article which delves into the sociological realm which I think is germane to all our current economic problems. Basically we are all get rich quick artists who's time has come.

http://www.thestreet.com/print/story/10453326.html

Opinion: Madoff Implosion Is No 'Tragedy'
Christopher Grey
12/16/08 - 12:00 AM EST
Maybe I was raised differently from the super rich on Wall Street or in Palm Beach, but in my world stealing is not a "tragedy" -- it's a crime.

I keep reading that many people, mostly insiders from enclaves of extreme wealth and privilege, are calling Bernard Madoff's implosion a "tragedy." This actually sickens me because it exposes just how serious the crisis of morality is among America's elites.

(Photo gallery: Reported losers in Madoff scandal)

It is not a "tragedy" to me that so many people with so much money and privilege were suckered by someone like Madoff. I think it is just a combination of laziness, stupidity and greed. That is not tragic to me. It is pathetic.

Madoff was making 1% per month, year after year with no losses and nobody else on Wall Street or anywhere could explain his returns. Even Madoff didn't explain it.

Plenty of people openly told the SEC and the media that he had to be either running a Ponzi scheme or doing something else illegally. Nevertheless, so many of these "sophisticated" investors piled their money into his fund. Many of them invested a huge percentage of their personal net worth, charitable trust, inheritance or future bequests to their heirs. What were they thinking?

Many were just following their friends. Many were lazy. Many were stupid. Many were greedy. None of them stopped to think that Madoff's returns were literally impossible unless he was doing something illegal.

Personally, I have no sympathy for Madoff's investors or their heirs or dependents or anyone who believes that they are entitled to get something for nothing in life. That is a philosophy of losers and apparently also of many of America's-so called elites.

This is very sad and, in my opinion, symbolizes exactly what is wrong with this country and why we're in so much trouble right now. America has a crisis of morality created by the undeserved and abused privilege at the top of our society that has trickled down to the middle and lower classes who also want to "get theirs" without earning it.

The same perverse mentality that causes these Madoff investors to expect a free lunch compels working people to believe that they don't need to work and save to buy things that they want. They can just go borrow the money, and if they can't pay it back, so what? They can just default and hope either their relatives or friends or the government will bail them out. Or they just declare bankruptcy.

Many American companies and their executives have the same thought process. Borrow as much as you can, make any stupid investment that comes across your desk -- especially if the people promoting it are your friends -- pay yourself and your friends as much as possible while the getting is good, and then go beg the government and investors and lenders for help when things go bad.

These financial and corporate leaders want to stick the honest taxpayers or investors or lenders or our foreign creditors with the bill for their greed, laziness and stupidity. If the government or others won't bail them out, they just go bankrupt, screw their creditors and destroy all the jobs and retirement savings of the company's hard-working employees.

This has become a way of life in America, and it is destroying our country. At its most basic level, there is no longer such a thing as honor in America.

In most other advanced societies, especially in Asia, the higher up you are in society, the more you are expected to behave within a certain set of rules. Those rules are mostly about honor and taking responsibility for your behavior and trying to set an example for people lower on the socioeconomic ladder
.

Of course, there are frauds and crooks and other varieties of evil-doers in every society. But in most other advanced societies, these people are publicly despised and humiliated and punished swiftly and surely to such an extent that it serves as a strong deterrent to this kind of behavior.

In America, not only does our extremely lax and often nonexistent regulation make it ridiculously easy to get away with fraud and other white-collar crimes, but our justice system make it easy for criminals with money to delay and often escape justice entirely.

Even worse, there is actually a celebrity factor and some kind of respect in America for frauds who get away with it and "beat the system."

It is not unusual in Asia for elites who are exposed as frauds to commit suicide. Why? It is because of the dishonor. I'm not holding my breath for Bernie Madoff or Dick Fuld or Angelo Mozilo to do that. There's a great line from the movie Mississippi Burning, when Gene Hackman's character says: "Rattlesnakes don't commit suicide." I think that pretty much says it all about America's morally bankrupt elites.

How do we look to the rest of the world? If you were an Asian investor watching all of this, what would you think of investing in America after recent events? I think they are probably disgusted with us.


It was reported without much publicity in the past few weeks that the Chinese have announced they will not make any more investments in U.S. financial companies. I think this is just the beginning of what we have in store for us in the years to come. As foreign investors, especially in Asia, become increasingly repulsed by our ethics as well as our poor judgment, they will vote with their wallets and stop investing so much money here. They cannot completely get out because we are too big, but we need to keep their money flowing in every day just to keep the lights on in our economy.

Our whole country is teetering on the brink of an enormous amount of debt and a lack of sustainable income to service that debt. In the short run, the government will try to print as many dollars as possible and issue as many bonds as possible to fill the gap. However, in the long run we need to generate more income, save more domestically, or get foreigners to keep investing more money here.

So far we are not doing anything material to improve our chances of succeeding with any of these alternatives. We're not making the situation any better by reducing our interest rates to levels that are no longer attractive even to the Japanese.

How should a rational and independent investor try to deal with all of this uncertainty? For myself, I am holding a lot of cash, I have sold all of my bonds, I have started a position in an ETF that is short Treasuries -- UltraShort 20+ Year Treasury ProShares (TBT Quote - Cramer on TBT - Stock Picks), and I have used ETFs to purchase some silver -- iShares Silver Trust >(SLV Quote - Cramer on SLV - Stock Picks) and gold -- PowerShares DB Gold Double Long ETN >(DGP Quote - Cramer on DGP - Stock Picks).

I do not own any stocks, but I am not short any stocks either. The goal for conservative investors right now, in my opinion, is to position yourself for the significant likelihood that the U.S. economy, and to a lesser extent the entire world economy, faces a cataclysmic adjustment away from a growth model based on leverage and Ponzi finance.

This will either cause severe deflation, which is why you need a lot of cash, or it will cause severe inflation if the government successfully prints enough money, which is why you need some ways to hedge your cash by shorting Treasuries and owning gold and silver. I do not own foreign currencies because I think the gold and silver are better and also because I think ultimately all paper currencies will follow the dollar in order to stay competitive.

I don't have confidence in most other highly liquid and easily accessible investments for individuals until our financial and other leaders in America learn the meaning of honor and start taking this country down a path of working, saving, investing and producing rather than borrowing, spending, stealing and defaulting.

This change needs to come from the top. It is particularly important that the new Obama administration avoid scandal and get serious about financial regulation and enforcement of securities laws against frauds and crooks. This is essential to restore confidence of investors both domestically and overseas.

America has been given a lot of rope in the form of cheap and easy money for too long, and we have used it to hang ourselves financially and morally.

We need to start getting our house in order, get back to basics and change the direction of this country if we're going to sustain the great legacy that we've built during the past 300 years.
 

rudder

Lifer
Nov 9, 2000
19,441
86
91
Some... well most... but not all. Only the greedy ones looked at his returns and threw money at him. The non-greedy ones.. or one maybe actually attempted to look at his books before investing. There had to be all kinds of red flags going up around him.

There are greedy people I know who bought 2 condos here in Nashville trying to flip them for quick profit. By the time the development was done... event the people who intended to live in the condos were walking away. Now this person is basically bankrupt. Me, I take the slow and steady route and will hopefully weather the storm.
 

StageLeft

No Lifer
Sep 29, 2000
70,150
5
0
To be plain, I really have no sympathy for his investors either. This is because it's generally people with some actual wealth who are going to hedge funds (it's not like Bob next door making $60k had much money in with Madoff) and although I imagine some unfortunate participants were those like charities, much of his clientele did have spare cash--or at least should have--so I completely appreciate his point that they were either stupid or greedy or lazy. The thing is, when so many people do something, it becomes increasingly hard to question its merit; this is basic human nature.

Anyway, the culture we're in is infected like a disease by avarice. People live and breath money and obsess over materialistic goods that rarely satisfy the hole in their soul that can almost invariably be satisfied by things that cost nothing. Once a person has their basic necessities, like heat, food, and clothes, the rest is a glaze on the cake. I don't know why so many people whore themselves for the icing.

In any case, they may have lost money, but it went somewhere; it's not like it vanished. Whether madoff spent it on hookers or his bankers spent it on yachts, all it represented as a distribution of wealth from somebody to somebody else, so not a true evaporation of $50B, and unlike a pension fund ransacked killing of lower or middle class earners, these are, for once, people who could withstand more than the average person to take the hit.
At its most basic level, there is no longer such a thing as honor in America.
I wish people wouldn't hijack their own reason with asinine statements like that, although applied to business it is less hyperbolic.
America has been given a lot of rope in the form of cheap and easy money for too long, and we have used it to hang ourselves financially and morally.

We need to start getting our house in order, get back to basics and change the direction of this country if we're going to sustain the great legacy that we've built during the past 300 years.
FACT
 

StageLeft

No Lifer
Sep 29, 2000
70,150
5
0
There are greedy people I know who bought 2 condos here in Nashville trying to flip them for quick profit. By the time the development was done... event the people who intended to live in the condos were walking away. Now this person is basically bankrupt. Me
Sometimes it can be hard to detect the difference between greed, which I would define as allowing excess emotion and lust to influence decisions, and simply a risky but somewhat prudent business decision.
 

rudder

Lifer
Nov 9, 2000
19,441
86
91
Originally posted by: Skoorb
There are greedy people I know who bought 2 condos here in Nashville trying to flip them for quick profit. By the time the development was done... event the people who intended to live in the condos were walking away. Now this person is basically bankrupt. Me
Sometimes it can be hard to detect the difference between greed, which I would define as allowing excess emotion and lust to influence decisions, and simply a risky but somewhat prudent business decision.

True in some cases... but I don't think it is a prudent business decision when you don't actually have the money to buy two condos but rather you try to get in with little money down and interest only loans. And a little research would have shown that there were a crapload of other people trying the same thing. In this guys case... he was greedy and got burnt. A prudent business decision would have been to try to make a little less money with a property that was not as expensive. Learn a little something and get your feet wet. Too bad for him the thought of making $50k on each unit clouded his thinking.
 

StageLeft

No Lifer
Sep 29, 2000
70,150
5
0
And a little research would have shown that there were a crapload of other people trying the same thing. In this guys case... he was greedy and got burnt.
Yep, i think the take home lesson on things like this is that by the time everybody else is talking about it, it's too late. You have to have the foresight and also the gumption to press ahead and take the risk that you'll get it wrong, because by the time everybody else is doing it, it _will_ be wrong.
 

venkman

Diamond Member
Apr 19, 2007
4,950
11
81
From paupaer to corporate executive, privitizing profits and socializing losses is the American way. :(
 

babylon5

Golden Member
Dec 11, 2000
1,363
1
0
Great article, especially how other countries in long run question investing in here.
 

Zebo

Elite Member
Jul 29, 2001
39,398
19
81
Originally posted by: Skoorb
To be plain, I really have no sympathy for his investors either. This is because it's generally people with some actual wealth who are going to hedge funds (it's not like Bob next door making $60k had much money in with Madoff) and although I imagine some unfortunate participants were those like charities, much of his clientele did have spare cash--or at least should have--so I completely appreciate his point that they were either stupid or greedy or lazy. The thing is, when so many people do something, it becomes increasingly hard to question its merit; this is basic human nature.

Anyway, the culture we're in is infected like a disease by avarice. People live and breath money and obsess over materialistic goods that rarely satisfy the hole in their soul that can almost invariably be satisfied by things that cost nothing. Once a person has their basic necessities, like heat, food, and clothes, the rest is a glaze on the cake. I don't know why so many people whore themselves for the icing.

In any case, they may have lost money, but it went somewhere; it's not like it vanished. Whether madoff spent it on hookers or his bankers spent it on yachts, all it represented as a distribution of wealth from somebody to somebody else, so not a true evaporation of $50B, and unlike a pension fund ransacked killing of lower or middle class earners, these are, for once, people who could withstand more than the average person to take the hit.
At its most basic level, there is no longer such a thing as honor in America.
I wish people wouldn't hijack their own reason with asinine statements like that, although applied to business it is less hyperbolic.
America has been given a lot of rope in the form of cheap and easy money for too long, and we have used it to hang ourselves financially and morally.

We need to start getting our house in order, get back to basics and change the direction of this country if we're going to sustain the great legacy that we've built during the past 300 years.
FACT

I like this post. So in other words we should hug our loved ones more while getting back to financial basics.
 

jackace

Golden Member
Oct 6, 2004
1,307
0
0
I agree with this article.

Edit- Look at all these get rich quick, make money quick, instant millionaire, etc infomercials on TV. People have to be calling these numbers and falling for this stupidity or they would not be showing these commercials every night.
 

Mursilis

Diamond Member
Mar 11, 2001
7,756
11
81
I printed out this article and read it on the bus on the way home, and really agreed with it. Unfortunately, the situation is going to get much worse before it gets better, as there is no leadership toward responsibility. Both political parties just flat-out pander toward the lowest common denominator, rushing to promise to provide the most generous benefits or greatest tax cuts, all the while the country is headed off a cliff, long-term. It's sad, but I've lost sympathy for the populace.
 

Elias824

Golden Member
Mar 13, 2007
1,100
0
76
I hate the entitlement culture we have created here, everyone thinks they deserve something. they deserve healthcare, low taxes a nice car a cell phone. I agree that both political parties don't have a fix anymore, this bailout nonsense it just going to continue our problems. Yes we would have been hit alot harder without it, but sometimes things have to get worse to get better.
 

Mursilis

Diamond Member
Mar 11, 2001
7,756
11
81
Originally posted by: Elias824
I hate the entitlement culture we have created here, everyone thinks they deserve something. they deserve healthcare, low taxes a nice car a cell phone. I agree that both political parties don't have a fix anymore, this bailout nonsense it just going to continue our problems. Yes we would have been hit alot harder without it, but sometimes things have to get worse to get better.

Oh, things are definitely going to get worse - just check out the national debt numbers in a few years. Bush dug the hole even deeper, and he's getting ready to hand the shovel to Obama, who's promised plenty of new spending and no real way to pay for it.
 

dmcowen674

No Lifer
Oct 13, 1999
54,889
47
91
www.alienbabeltech.com
Originally posted by: Mursilis
Originally posted by: Elias824
I hate the entitlement culture we have created here, everyone thinks they deserve something. they deserve healthcare, low taxes a nice car a cell phone. I agree that both political parties don't have a fix anymore, this bailout nonsense it just going to continue our problems. Yes we would have been hit alot harder without it, but sometimes things have to get worse to get better.

Oh, things are definitely going to get worse - just check out the national debt numbers in a few years. Bush dug the hole even deeper, and he's getting ready to hand the shovel to Obama, who's promised plenty of new spending and no real way to pay for it.

That's not true, taxes will be raised everywhere.
 

Mursilis

Diamond Member
Mar 11, 2001
7,756
11
81
Originally posted by: dmcowen674
Originally posted by: Mursilis
Originally posted by: Elias824
I hate the entitlement culture we have created here, everyone thinks they deserve something. they deserve healthcare, low taxes a nice car a cell phone. I agree that both political parties don't have a fix anymore, this bailout nonsense it just going to continue our problems. Yes we would have been hit alot harder without it, but sometimes things have to get worse to get better.

Oh, things are definitely going to get worse - just check out the national debt numbers in a few years. Bush dug the hole even deeper, and he's getting ready to hand the shovel to Obama, who's promised plenty of new spending and no real way to pay for it.

That's not true, taxes will be raised everywhere.

While that may very well happen, it won't cover spending. Won't even be close.
 

heyheybooboo

Diamond Member
Jun 29, 2007
6,278
0
0
The double whammy is ... I'm guessing that Bernie Made-Off's customers actually paid taxes on their phantom gains.

I agree with the OP except that an average American has a dis-incentive to save.
 

Jhhnn

IN MEMORIAM
Nov 11, 1999
62,365
14,681
136
The OP and the article conveniently overlook how changes in tax, trade, fiscal and monetary policy have promoted a very strong shift of income and wealth to the very top, and the fact that it's been quite intentionally concealed with easy credit, explosive property valuations and enormous increases in federal debt. This didn't start under the Bush Admin, but was rather continued from the Reagan era...

Trickle Down economics are perhaps the greatest flimflam in the history of the world...
 

boomerang

Lifer
Jun 19, 2000
18,883
641
126
Originally posted by: Jhhnn
The OP and the article conveniently overlook how changes in tax, trade, fiscal and monetary policy have promoted a very strong shift of income and wealth to the very top, and the fact that it's been quite intentionally concealed with easy credit, explosive property valuations and enormous increases in federal debt. This didn't start under the Bush Admin, but was rather continued from the Reagan era...

Trickle Down economics are perhaps the greatest flimflam in the history of the world...
I think it all started when that ape picked up that bone and started hitting it on the ground, until he realized it could be a weapon.

Oh wait, that was 2001 A Space Odyssey.

This is human behavior. It doesn't change depending on who's President.
 

DaveSimmons

Elite Member
Aug 12, 2001
40,730
670
126
Originally posted by: heyheybooboo
I agree with the OP except that an average American has a dis-incentive to save.
401k: instant 20% gain or more (depending on your highest tax bracket) + grows tax free
Roth IRA: grows tax free, no taxes when you take the money out at retirement.

But yes, it is annoying paying taxes on paper profits in my regular brokerage account from mutual fund distributions and dividends. At least my cost basis for the funds rises by the same amount as the d & d.
 

IronWing

No Lifer
Jul 20, 2001
71,349
30,903
136
I agree in large part with the story and agree that debt is a enormous problem. However the part that is bolded above is quite frankly insulting. To take a tale of greed and woe at the top of the wealth pyramid and try to spin it as a morality tale for the peons to heed is grossly patronizing.
 

Craig234

Lifer
May 1, 2006
38,548
350
126
Originally posted by: rudder
Originally posted by: Skoorb
There are greedy people I know who bought 2 condos here in Nashville trying to flip them for quick profit. By the time the development was done... event the people who intended to live in the condos were walking away. Now this person is basically bankrupt. Me
Sometimes it can be hard to detect the difference between greed, which I would define as allowing excess emotion and lust to influence decisions, and simply a risky but somewhat prudent business decision.

True in some cases... but I don't think it is a prudent business decision when you don't actually have the money to buy two condos but rather you try to get in with little money down and interest only loans. And a little research would have shown that there were a crapload of other people trying the same thing. In this guys case... he was greedy and got burnt. A prudent business decision would have been to try to make a little less money with a property that was not as expensive. Learn a little something and get your feet wet. Too bad for him the thought of making $50k on each unit clouded his thinking.

What I think it's easy to miss is that people aren't islands - they affect each other.

If you're a financial company and other financial companies are making big profits with sleazy practices and paying off the raters of risk, you might well go out of business if you don't do the same, because their success, however unsustainable, however unfair, however bad for the national interest, gives them advantage and you are competing.

For example, a while ago Sam Donaldson was invested in a ranching (IIRC) industry where there were government subsidies, and he spoke out against the subsidies. Some called him a hypocrite, but he explained he could not stay in business without the subsidies; he was just calling for them to be ended for everyone, but would continue to take them until they ended to stay in business.

If you're in the mortgage business and your competition offers the 'sub-prime mortgages', how are you going to stay in business with sub-prime borrowers if you don't?

If you're in the financial industry and your competitors use practices like 'credit default swaps' to offer higher returns, how are you going to compete if you don't?

You can say there are a few who competed with less exposure in those areas, but for years there's pressure to do so that can put most companies who don't out of business. The few who can not and stay in business are not any answer to the problem of the big pressures created and the many who go out of business, or act the same way.

This is why government regulation is the only solution to prevent the irresponsible practices that create competitibe pressure from causing such harm - and why Wall Stree itself in the Great Depression called for many of the regulatory steps to protect them from the sleazy and harmful practices by their own competitors for the 'greater good', recognizing there was no other solution.
 

Zebo

Elite Member
Jul 29, 2001
39,398
19
81
Originally posted by: Jhhnn
The OP and the article conveniently overlook how changes in tax, trade, fiscal and monetary policy have promoted a very strong shift of income and wealth to the very top, and the fact that it's been quite intentionally concealed with easy credit, explosive property valuations and enormous increases in federal debt. This didn't start under the Bush Admin, but was rather continued from the Reagan era...

Trickle Down economics are perhaps the greatest flimflam in the history of the world...

I have not forgotten about it. In fact the culture we have, which the article talks about, where everyone thinks they'll be rich someday it's only a matter of time is what facilitated it in the first place. Stories like Bill Gates are implanted in our brains from birth. People, instead of voting in their best interests bought the laissez faire approach hook line and sinker believing trickle down, believing when they are rich they sure don't want high taxation, believing in the free lunch.
 

Craig234

Lifer
May 1, 2006
38,548
350
126
Originally posted by: Dissipate
America's problem is simple: central planning is everywhere.

That's not the problem. The problem is simply one of the rich being far better able to use their resources to get things going their way than the ignorant masses.

Some of us try here and there to do a little the other way, in the interest of the masses, but many of the masses are largely fighitng against any such help.

Fighting 'central planning' is crazy. Central planning is needed. The issue is to fight for the right kind of central planning.