A billionaire explains the middle class

On Wed, 31 Dec 2014 15:11:11 -0600, F. George McDuffee


My, my. I think I'll save those for retirement. <g>
It's interesting stuff, George. I'm afraid, though, that I don't have the time to catch up with it. I think it would take me a couple of years...

Here's the thing that keeps me from becoming an activist about this stuff: Once the cat was let out of the bag and all forms of banking became integrated (except, perhaps, in Canada), multinational finance and investment banking's cost of entry went into the hundreds of billions, if not trillions, of "assets under management." The new institutions were "too big to fail," because, if they fail, the world economy fails.
They don't even have to go under, as we saw in 2008. They just have to lose the confidence of their investors. Bailouts restored confidence but at an enormous cost to the real economy.
If you limit their operations, you essentially preclude them from competing in the world's financial markets. The consequence of doing that, with your domestic banking institutions, is unknown. But our political leaders, starting with Reagan (even Carter, to a limited extent) have decided they don't want to find out. One of the most likely scenarious, their experts told them, is that your economy slowly winds down as intestment and credit become tighter, and you lose your position on the world economic stage. You become dependent on foreign banking institutions and you start racing to the bottom.
I have no idea if that is true. But the genie is out of the bottle, to mix metaphors, and I couldn't begin to judge what would happen if we unilaterally tried to stuff him back in.
There's no question that we have an enormous problem and a real vulnerability because of all of this. I just have no idea what the right course of action would be. My suspicion is that no one else really knows, either.
--
Ed Huntress

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On Thu, 01 Jan 2015 12:32:44 -0500, Ed Huntress

</SNIP>
A perfect example of "paralysis by analysis." Because we don't [and most likely never will] completely understand the problem(s) nothing can be done...
In the natural world, we cannot predict earthquakes, we can predict hurricanes only to a limited extent, and we can control neither. This does not stop us from taking common sense precautions to limit property damage and loss of life when these events do occur. For example prohibiting construction on the flood plains, using storm resistant shingles in hurricane prone areas, securing roofs to prevent these from easily being blown off, and requiring straps to secure water heaters to prevent gas line rupture if the tanks fall over during an earthquake. Brick facades and decorative cornices on multistory buildings or un reinforced masonry walls are no longer allowed, in most seismically active areas. In earthquake prone areas the utilities are required to install automatic cutoffs on utilities, automatically activated by tremors above a certain level.
http://tinyurl.com/k5cq9l9 http://tinyurl.com/ljbyue6 http://tinyurl.com/23klno7
http://tinyurl.com/msy9oms
Are the current regulations completely adequate? NO
Are they better than nothing? YES
Will these regulations evolve? Yes
Have these been effective in significently minimizing property damage and loss of life? YES
Do the reactionaries, building contractors and home buyers complain about the additional cost and paperwork? YES
The question is "why don't we have analogous financial regulations in place restricting known dangerous products and behaviors, even though this may "restrict market liquidity, and reduce the bonuses by a few dollars?"
We mandate safety glass, 4 wheel brakes, seat belts and air bags in cars, and we prohibit, or severely restrict lead, mercury and asbestos in consumer products, so why not a few "safety enhancements" in the financial sector? Why is there no government mandated "crash test" of financial products? Why no evaluation of their safety and efficacy comparable to FDA drug screening?
--
Unka' George

"Gold is the money of kings,
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On Thu, 01 Jan 2015 19:57:26 -0600, F. George McDuffee

Because, unlike protecting against storm damage, your "protections" can wind up destroying our entire economy. Storm-resistant shingles have no risk attached; just a small, known cost.
I don't believe that anyone knows the consequences of unilaterally forfeiting control of international finance to, say, the Chinese.
--
Ed Huntress

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On Thursday, January 1, 2015 8:57:27 PM UTC-5, F. George McDuffee wrote:

> can be done ...
In the financial world, they've said that the more things change, the more they remain the same. That goes for these problem(s).
(ever changing)
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On Thursday, January 1, 2015 8:57:27 PM UTC-5, F. George McDuffee wrote:

Because the rule is " Let the buyer beware ". The individual or company is responsible for determining the risk in an investment. If you want an inv estment that is government guaranteed , buy U.S. Bonds. The cost of analys ing the risk of all investments is way beyond what the government can do. To do that would require a new government agency many times larger than the IRS.
Dan
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On Fri, 2 Jan 2015 06:59:17 -0800 (PST), " snipped-for-privacy@krl.org"

All of that is true, and George's recommendation for "risk testing" is impractical and probably not even desirable.. But let's not forget that much of what was involved in the financial crisis was outright fraud, not financial risk. And much of the rest, while not outright fraud, was a tantamount to fraud. For example, allowing multiple "insurance" claims on the same asset.
If we can't detect and deal with fraud, we have a bigger problem. The whole financial system has a problem.
--
Ed Huntress

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On 1/2/2015 8:20 AM, Ed Huntress wrote:

A few simple rules would make a huge difference. You can do anything you want between individuals. Any investment available to the general public must be attached to physical assets...all the way down to the deal built on the deal built on the deal. Transparency and accountability. No shell corporations. I want my broker to get 10% of my gains and share 10% of my losses.
Every usenet thread needs some personal stories. I went to a seminar marketed to baby boomers. Had to do with investment in shopping centers and had great return numbers. And he was there to help for free. So, I went to the personal consultation. He was really disappointed that I wouldn't pull the trigger, but I took the brochures and did some research. Deep in the verbage was a paragraph that could have been totally replaced by "ponzi scheme"...but it was full disclosure.
Turns out that for his free advice, the company paid him 9% off the top. But he was well up in the chain and got another 9% as district manager. The corporation was a tall and wide stack of shell corporations, each of which provided services to the endeavor and charged a fee plus real estate commissions. And at the top of each one was the same one person as sole owner.
I didn't find anything I'd accuse of being illegal, but it was very misleading. The part that should have been illegal was selling this stuff.
He had baby boomers fighting for the opportunity to give him their entire retirement fund. He oughtabeenshot.
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On Fri, 02 Jan 2015 11:20:47 -0500, Ed Huntress

USA and the rest of the world needs to learn something from the Canadian banking system
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On Fri, 02 Jan 2015 17:15:34 -0500, snipped-for-privacy@snyder.on.ca wrote:

<snip>

A most reasonable and prudent point!!!!!
I would suggest an even more through survey to determine the overt and implicit banking policies worldwide and their apparent effects, both good and bad, e. g. Malta. This is what business does in their "best practices" surveys, which seem to have had a beneficial effect.
Canada seems to have done well in avoiding the asset bubble "busts" by not allowing bank funds to be used to inflate the asset bubbles in the first place. Although there are a limited number of banks in Canada http://tinyurl.com/yhvjzro , and these are closely regulated, most communities appear to be adequately "banked," and the Canadian financial system appears to have adequate liquidity.
--
Unka' George

"Gold is the money of kings,
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On 1/2/2015 8:59 AM, snipped-for-privacy@krl.org wrote:

As the last few years have shown, even those with degrees in finance have trouble tracking market manipulations and other chicanery. There was a misplaced level of trust in the banking industry to not screw the depositor/investor.

Oddly, that was seldom recommended by the banksters.

Yet you seem to expect it to be within the ability of individuals.

And it would be administered by the same sort of bankster who put us in the hole we're in now.
David
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David R. Birch wrote:

The money that was driving house prices upward came from private investors that were looking for high rates of return from high risk investment.
The govt doesn't prevent investors from gambling with their own money. Before the bubble and after the bubble almost 100% of mortgages were financed by either in-house loans from deposit taking facilities or by government sponsored loan guarantees and pass troughs.
During the bubble there were about $6 trillion in loans that were not financed in this traditional way. The money for those loans came from private investors who were looking for high-risk high-return investments. Most of the reckless lending was funded by those private investors. How do we know they funded most of the bad loans? because that is where most of the loan losses were. According to Moody's analytics the actual realized loan losses from 2006-2012 are:
Fannie $77 Bn Freddie $51 Bn Privately backed $713 Bn https://www.economy.com/mark-zandi/documents/2013-06-26-Resurrection-of-RMBS.pdf

It was recommended to anyone seeking a low risk investment.

Are you saying free markets don't work? Are you saying the invisible hand is bullshit?

There seem to be a lot of people nowadays who think that it is govt's job to be the investor's nanny.
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On 1/2/2015 12:52 PM, jim > wrote:

Odd that the ones who ended up with upside down mortgages were NOT those private investors, but rather those who the private investors took advantage of. People trusted by those who lost their homes.

And other peoples money, as well.

Also looking for someone else to bear the burden when those risks turned out badly.

Recommended by reputable investment advisers, but we aren't talking about them, are we?

They work well for those at the top, not so much for those with the most to lose.

Maybe not for Ricky Jay, but Adam Smith expected a higher level of ethical behavior than the banksters understood.

Few investors expect to be preyed upon just because they trust ones who care only for lining their own pockets first.
There are many legal ways to become very, very rich. The number of honest ones is very much smaller.
David
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David R. Birch wrote:

Nobody was forced to take a loan and considering most of the loans required no down payment, what was lost was mostly imagined wealth.
Many people who lost their homes were also gambling. They were buying much bigger homes than they could afford. They were gambling that appreciation in price would pay for a large chunk of the loan. They knew the loan would be unaffordable if prices went down.
The majority of the loans financed by private investors were second liens where the borrower was trying to cash in on the price increase. Those borrowers could have figured out that if you extract the equity on your house and spend it and then the price goes down your mortgage will be under water.

Investors paid people to gamble with their money. That doesn't absolve the investor of responsibility.

Who else would bear the burden?

Investors knew or should have known they were gambling. The govt provides safe investments for those who wish not to gamble.

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On Friday, January 2, 2015 4:02:38 PM UTC-5, David R. Birch wrote:

Why would anyone trust a stockbroker? I am not saying that stockbrokers ar e not honest and trustworthy, but I am saying that investors should do some investigation them selves. Intel not only gave us Moores Law, but also fr om Andy Grove " Only the paranoid survive. "
Dan

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On 1/2/2015 6:21 PM, snipped-for-privacy@krl.org wrote:

Many misplace their trust in stockbrokers simply because learning enough to invest wisely is a job in itself, one the stock broker is supposed to do.
I had the good fortune to participate in an investment club which had a requirement of Mensa membership. I learned a lot about investment and also how Ms interact.
One thing I learned was that I would never been able to do well by myself without devoting more time than I could spare.
I also made some money, but the pursuit of wealth has never been a prime motivator for me.
The wealthy Ms I know got it more or less offhandedly, as some of their activities turned out to be very lucrative. Even those considered the pursuit of wealth trivial.
David
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On Friday, January 2, 2015 9:46:07 PM UTC-5, David R. Birch wrote:

When you buy something using cash and you get change back, do you count the change? I think that most people do count their change. Not because we t hink the vendor is out to get us, but because it is a prudent thing to do. The same applies to stock brokers. Do you blindly accept the brokers reco mmendations , or do you try to determine if the advice is good. I think tr ying to determine if the advice is good is the prudent thing to do.
It is not hard to do well in the stock market, and does not really take a l ot of time. The book that has what I think is the best on investing is " A Random Walk on Wall Street ". Another book that is probably lighter read ing is Jonathan Clements Money Guide 2015 . I have not read it , but I used to re ad Clements columns in the WSJ and found them excellent.
Dan
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On Sat, 3 Jan 2015 05:59:36 -0800 (PST), " snipped-for-privacy@krl.org"

====================Two other books that I found helpful were
http://tinyurl.com/ntuxdkj Mandelbrot gives insight into why most economic/investment models are wrong because these are based on assumptions that overly simplify calculations and understate volitility/risk.
and
most any of John C. Bogle's books. I particularly like his _The Battle for the Soul of Capitalism_ http://tinyurl.com/oswnkng
--
Unka' George

"Gold is the money of kings,
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On Saturday, January 3, 2015 11:00:31 AM UTC-5, F. George McDuffee wrote:

gh

to

the change? I think that most people do count their change. Not because w e think the vendor is out to get us, but because it is a prudent thing to d o. The same applies to stock brokers. Do you blindly accept the brokers r ecommendations , or do you try to determine if the advice is good. I think trying to determine if the advice is good is the prudent thing to do.

a lot of time. The book that has what I think is the best on investing is " A Random Walk on Wall Street ". Another book that is probably lighter r eading is

read Clements columns in the WSJ and found them excellent.

I remember seeing something about index traded funds over time being prefer able (risk wise) to the more popular exchange traded funds.
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On Sat, 3 Jan 2015 08:11:41 -0800 (PST), snipped-for-privacy@hotmail.com wrote:
<snip> >I remember seeing something about index traded funds over time being prefer=

Indeed, and the so called synthetic ETF funds, which track but do not own the actual stocks or other assets such as FX, may well prove to be a new problem as there are no underlying assets. http://tinyurl.com/kuxq8lt http://tinyurl.com/nbksq8z
--
Unka' George

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On Fri, 02 Jan 2015 15:02:14 -0600, "David R. Birch"

</snip>
We would all do well to remember that _The Wealth of Nations_ http://tinyurl.com/7xlvy was first published in 1776 , by a researcher who lived in one of the more backward parts of Europe at the time [Scotland], which had just been bailed out of a severe economic collapse http://tinyurl.com/dcr6u4 by political/economic union with England http://tinyurl.com/zebf2 which had assumed the Kingdom of Scotland's debts as part of the deal [which apparently still required *LARGE* bribes for the pact to be ratified http://tinyurl.com/kqel9l5 . The Act of Union of 1707 led to the enclosure movement where the community land which had been used as "commons" for thousands if years, were enclosed by the "leadership," converting these assets to their personal property, and displacing many thousand families from their ancestral lands for the more profitable sheep raising. http://tinyurl.com/jwe3hwh
While there were a few large metro areas at that time, most people were rural and most commerce was local. The invisible hand was in large part another name for what is now called "social control," http://tinyurl.com/qxkre whereby a person who refuses to abide by the communities written and unwritten rules is "shunned," which is rapidly fatal for a small local merchant or manufacturer.
The conditions of that time, i. e. largely rural Scotland, still a largely homogeneous community, dominated by the strict moral code of The Church of Scotland http://tinyurl.com/58vukf , in which the _Wealth of Nations_ is tacitly embedded, were far different than today's increasingly urban conditions with minimal social control.
Where the same social conditions still exist, such as small, tightly knit ethnic communities, Smith's conclusions remain valid, however the further the social conditions differ from those assumed by Smith, the less valid his conclusions are.
--
Unka' George

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