Financial Epiphany 1 - Poker, Not Chocolate Croissants
I'm still trying to figure out the gory details of Crash 6.0 (otherwise known as The Crash Of 2008). Its been a bunch-a years since those inglorious days, and there still isn't all that much clarity around why it happened.
I, on the other hand, have had a minor ephipany, to wit, too many people were playing Poker, but acted like they were making Chocolate Croissants.
Huh?
Work with me here, as I walk you through this
The Poker Game
Ten of you oh-so-smart types get together to play poker. Each of you comes to the table with $1000. Lets just say that, due to either skill, luck, stacked decks - or a combination thereof - Jane walks off with $10,000. This is a classic - and highly facetious - example of what is called a zero sum game. Jane may have made a proft of $9K, but each of the rest of you not-so-smart (or no-so-lucky) types posted a loss of $1K. In short, the total amount of money that the ten of you have remains at $10K - admittedly all with Jane - and the net gain that you 10 have to show for your game of Poker is $0 (again, and for the last time, its not about Jane being $9K richer. Its about the lot of you together)
Chocolate Croissants
Ten other oh-so-smart types get together, and again, they have $1K each. It just so happens that one of them (Suresh. Lets call him Suresh) has invented a product that can make Chocolate Croissants out of air and sunlight (work with me here. besides, I'm writing this damn post). He however has only $1K, and the Thin Air Sunlight Chocolate Croissant Maker™ needs $9K worth of part to get working. The group pool their money, start a company, and start making Chocolate Croissants out of thin air and sunlight. Pretty soon they are sitting on a pretty solid nest egg - $100K each - from their Chocolate Croissant sales (lets assume that they are not in Davenport, IA, where - due to a genetic quirk - the entire population is allergic to Chocolate Croissants). The net gain in this case is $990K
Great! Wonderful! What exactly is the point here? What does this have to do with the financial crisis?
Well - cherchez les finances. In the pre-crash years, there were a ton of people on Wall-Street sitting around Playing Poker, but thinking that they were Making Chocolate Croissants. Whats worse, they convinced everyone else that they were - oh yes indeed - Making Chocolate Croissants. There was no real growth in productivity here, unless you count the productivity associated with fleecing a bunch-a-rubes out of their life's savings while they Played Poker. All these hedge-fund managers, investment bankers, PE firms, etc. played poker - with other peoples money - and claimed that their winnings (remember, these games were rigged. So the term 'winnings' is used very, very, oh so very loosely) were actually due to their brilliance and genius in Making Chocolate Croissants. Then they proceeded to buy their Estancias in Espana, their Kondos on Kaisergracht, and their Islands in Indonesia, using all these 'profits'. Mind you , these profits were not really profits. Just money sucked directly out of our pockets in a rigged poker game.
Bernie Madoff was just a small, tiny, misbegotten pimple on the gigantic ass that is the entire financial industry over the last 15 years. Everybody is so focused on them, that nobody actually paid attention to the bigger, and more significant issue, which is that while the vast majority of his $65 Billion went back to the players (it was a ponzi scheme. players pay other players, with the house skimming off the top), All the money skimmed by the Wall Street Poker Players went directly to the Poker Players.
All of it!
That is - roughly - $200 Billion/year!
And yes, thats a B in Billion, as in Brilliant...
Try as I might, I can't help but to admire them for their sheer bare-faced effontry - the dood who sold fridges to eskimoes has *nothing* on these folks.
I, on the other hand, have had a minor ephipany, to wit, too many people were playing Poker, but acted like they were making Chocolate Croissants.
Huh?
Work with me here, as I walk you through this
Ten of you oh-so-smart types get together to play poker. Each of you comes to the table with $1000. Lets just say that, due to either skill, luck, stacked decks - or a combination thereof - Jane walks off with $10,000. This is a classic - and highly facetious - example of what is called a zero sum game. Jane may have made a proft of $9K, but each of the rest of you not-so-smart (or no-so-lucky) types posted a loss of $1K. In short, the total amount of money that the ten of you have remains at $10K - admittedly all with Jane - and the net gain that you 10 have to show for your game of Poker is $0 (again, and for the last time, its not about Jane being $9K richer. Its about the lot of you together)
Ten other oh-so-smart types get together, and again, they have $1K each. It just so happens that one of them (Suresh. Lets call him Suresh) has invented a product that can make Chocolate Croissants out of air and sunlight (work with me here. besides, I'm writing this damn post). He however has only $1K, and the Thin Air Sunlight Chocolate Croissant Maker™ needs $9K worth of part to get working. The group pool their money, start a company, and start making Chocolate Croissants out of thin air and sunlight. Pretty soon they are sitting on a pretty solid nest egg - $100K each - from their Chocolate Croissant sales (lets assume that they are not in Davenport, IA, where - due to a genetic quirk - the entire population is allergic to Chocolate Croissants). The net gain in this case is $990K
Well - cherchez les finances. In the pre-crash years, there were a ton of people on Wall-Street sitting around Playing Poker, but thinking that they were Making Chocolate Croissants. Whats worse, they convinced everyone else that they were - oh yes indeed - Making Chocolate Croissants. There was no real growth in productivity here, unless you count the productivity associated with fleecing a bunch-a-rubes out of their life's savings while they Played Poker. All these hedge-fund managers, investment bankers, PE firms, etc. played poker - with other peoples money - and claimed that their winnings (remember, these games were rigged. So the term 'winnings' is used very, very, oh so very loosely) were actually due to their brilliance and genius in Making Chocolate Croissants. Then they proceeded to buy their Estancias in Espana, their Kondos on Kaisergracht, and their Islands in Indonesia, using all these 'profits'. Mind you , these profits were not really profits. Just money sucked directly out of our pockets in a rigged poker game.
Bernie Madoff was just a small, tiny, misbegotten pimple on the gigantic ass that is the entire financial industry over the last 15 years. Everybody is so focused on them, that nobody actually paid attention to the bigger, and more significant issue, which is that while the vast majority of his $65 Billion went back to the players (it was a ponzi scheme. players pay other players, with the house skimming off the top), All the money skimmed by the Wall Street Poker Players went directly to the Poker Players.
All of it!
That is - roughly - $200 Billion/year!
And yes, thats a B in Billion, as in Brilliant...
Try as I might, I can't help but to admire them for their sheer bare-faced effontry - the dood who sold fridges to eskimoes has *nothing* on these folks.
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