Ponzi Schemes: is Government Borrowing one of them?

This really does seem like a dumb question, but I submit that it is not.

In the current (June, 2014 actually – next month) issue of Scientific American is an article entitled, The Ponzi Economy by Kauchik Basu.

Sadly, I cannot give you a better pointer than this one, which is only to the start of the article. Sadly, even though I have a print subscription, and thus am entitled to see the online article for free, I cannot do this either. Sadly, Scientific American’s search can’t find the article either. But if you google The Ponzi Economy Scientific American you will find the start of the article. Or just click on the link above.

Now for some simple facts. Ponzi schemes generally rely on newer participants contributing to the payouts to fewer older participants. If you grow the pyramid rapidly enough, the returns can be spectacular – until you can’t grow the pyramid rapidly enough. Then the scheme collapses.

The article goes on to describe some interesting variations. One is a startup company which underpays, but stock-options, its workers. If the underpayment is sufficient, the company can be profitable because its cost base is artificially low. Thus the stock may look attractive, and new hires be continually added to the scheme.

In some cases such a company can metamorphose into one which is actually viable, by finding a sound product and paying in real money. Usually the company meets the usual fate of a Ponzi scheme: bankruptcy and collapse.

Now for the scary part. It is possible for a company to ‘hide’ a debt situation by refinancing. While the debt continues to grow, the company appears to be profitable and retains a decent credit rating. This goes on until the loan juggling gets noticed and the credit rating crashes, sinking the company.

Another version of a Ponzi scheme is a bubble – in anything: housing, stock market, gold, oil futures, whatever. As long as everyone (more or less) believes the price will rise, the price will rise. Until the inevitable reality check brings the inevitable adjustment.

What disturbed this reader was the comment about refinancing debt. Greece cannot now easily refinance its debt and is in disastrous collapse. Similar for the other unlucky Euro countries (Portugal, Spain, Italy, to name some) which over-borrowed and cannot now pay their debt, but need to borrow to pay their debt and run their bureaucracies and services.

I believe the city of Detroit is bankrupt. I fear that the state of California is nearly bankrupt. Meanwhile the US keeps raising its debt ceiling.

Now for the dumb question:

Is continued, expanding, government borrowing a form of Ponzi scheme?

Speed Limits on the 401

I chose this web page as the first one I found with statistics and historical facts on the speed limit on the 401 Highway.

I remember the speed limit being 70 m.p.h. which is roughly 130 k.p.h. I also remember that trucks then had a lower speed limit than cars. I also recall that the trucking industry loudly backed the speed limit reduction, which was not in effect a reduction for them.

We all went down to 60 m.p.h. in 1976, which is a trace below the current ‘limit’ of 100 k.p.h. (some 62 miles per hour, eh?)

The 401 highway (unlike the 407, perhaps) was designed to be safe at the higher speed. In reality police do not, so far as I can tell, enforce the speed limit with exceptions:

  • If you’re weaving in and out, and speeding, you may get a ticket for the speeding, which is an easier, more certain conviction than bad driving.
  • If you’re pushing over the limit in absurdly difficult conditions, same as above.
  • If you’re really flying, even on an open road, you can expect a ticket. Apparently the threshold for this is 20 or 30 kilometres per hour above the posted limit – at least on a 400 series highway.

So, why not increase the speed limit? Revenue. Fines increase with excess speed, and lower limits thus increase the fines that are actually levied.

Who cares? We all should. There should be laws that are enforced, consistently. Speed limits should be set, consistently.

I recall that Road & Track, a US car-buff magazine, recommended setting up a new highway without speed limits. Traffic was monitored for speed, and the 85th percentile was set as the speed limit. This means, 15% were travelling faster than that, and 85% were travelling slower than that. Apparently, most drivers aren’t stupid and in general drive at the speed that they, and the road, can actually handle.

And, should trucks, with their longer stopping distances, have the same speed limit as cars?

Halton Police Constable Norm Deneault

This officer has handed out three thousand tickets for cellphone use while driving, aka distracted driving.

There is a fine article on this here in the Brampton Guardian. The story also ran in the Toronto Star.

In a subsequent post, which will appear ‘above’ this one,  I will comment on speed limits and accident statistics. Let me make a few comments here which are relevant to this officer, these tickets, and the law they enforce.

In the article, you will read that all of Hamilton’s police force has issued fewer than 15,000 such tickets since the law went into effect.

You may also remember that the law was delayed, and went into effect with a statement that no real tickets would be issued for the first (was it six?) months.

I see distracted drivers all the time. They contribute, imho, to far more than their share of accidents, and sometimes they cause accidents which they miraculously escape unharmed.

I would like to see more officers like Constable Deneault. I would like to see more cell phone / driving distracted tickets. I think these fines can wake up sleepy, distracted drivers and make the rest of us safer.

How to Create Jobs

Not by promising them. Politicians do not know how to create jobs.

Not by giving money to corporations. Corporations are sitting on cash now, and are not creating jobs. Claiming that it is a ‘choice’ between tax cuts and cash incentives is simply a way of rewarding corporations for not creating jobs while hoping they will continue their funding of political parties.

Here’s how to create jobs in Canada. It will work anywhere if government has the guts to do it. (I do not claim to have ‘discovered’ this idea; it’s been around for a while and was a recent column subject in the Toronto Star.)

Revoke all trade agreements. Then the following can be made true:

  • If you want to sell cars here, you must make them here.
  • If you want to sell clothes here, you must make them here.
  • If you want to say ‘Made in Canada’ it must be pretty much entirely made here.
  • If you want to run a credit card business here, your call centre must be here.
  • If you want to run a bank here, your computers and data must all be here.
  • If you want to sell food here, you must make a comparable amount of food here – in processing, growing, fermenting, whatever.
  • If you want to sell drugs here, you must make a comparable quantity of them here.
  • If you want to buy a corporation here, you must keep all of its operation here. Corporate executives must live here, sign bonds, and expect to be prosecuted should they violate same.
  • If you want to move here, you must demonstrate a reasonable ability to make a living (or be supported) here. (We should not be the welfare state of default for the rest of the planet.)

In all cases, a reasonable trade-off is OK. Chrysler can make, say, Imperials here and export them, and import a comparable value of Neons. A generic drug company can specialize in a narrow range, exporting worldwide, and import a comparable value from operations overseas.

Free trade has allowed the concentration of ‘making things’ to be pulled into a few lucky countries. Incredibly, Heinz no longer wants to make ketchup in Canada, and Bicks made a similar decision on pickles. Meanwhile ‘Canadian wine’ can be as little as ten percent Canadian grapes. This while we pave over south-western Ontario, some of the best fertile land in Canada.

Now for the dumb questions:

  • Was this ‘soft sucking sound of jobs leaving Canada’ not publicly broadcast, with, as background, Brian Mulroney chanting, ‘Free Trade?’
  • In Mexico, where maquiladoras were conveniently staffed by ex-farmers who lost their subsidy (Free Trade), did someone not ask a Vogue representative, ‘What would happen if labour became cheaper in Bangladesh?’ and get the answer, ‘We’d move there in a heartbeat?’
  • Is the European Union experiment not now slowly failing, as we watch it force austerity onto the losers of Free Trade? (Radical parties are gaining strength in pretty much all EU countries. Britain is considering exiting its limited EU presence.)
  • Is the European Union experiment of free movement of labour not slowly imploding, as countries try to export ‘undesirable immigrants?’

and the final dumb question:

Will we, as voters, have the guts to demand sensible action? To preserve and recapture jobs, exports, and middle-class wealth?

Comments as always will be posted here provided these simple rules are met:

  • Your eMail address really is your eMail address.
  • Your post has something to say in it. (I do not need to agree with you, eh?)
  • Your post looks as if you actually thought about it – no really dumb typos, instead, sentences that cohere.

Post away. Please.

Automoron, or Auto-moron?

First, the just-for-laughs part. Some of you may recall my proposed new word, ‘automoron’, to mean a word which, by its very presence, denies its own meaning to some extent. The idea is to be similar to oxymoron, but more clearly reflexive.

Today I propose a slight variation: ‘auto-moron’. This is for a prefix which, by its presence, more or less denies the prefixed word or phrase to its right.

Now to start the dumb question / observation part.

I submit that self, as in self-governing, self-regulating, self-policing, is an automoron.

I will provide three examples.

The College of Physicians and Surgeons of Ontario self-polices doctors. Here you will find their complaints process. Be sure to turn on JavaScript and open every single down-wedge on the right side of the page. There are some fourteen of them. Under wedge 13 you will find these words:

Can information gathered by the College be used in Court?

No. In accordance with Section 36(3) of the Regulated Health Professions Act, no report or decision of a proceeding is admissible in a civil proceeding.

The Law Society of Upper Canada self-polices lawyers. There are several recent articles in the Toronto Star about this. (See recent blog post for one.) Here you will find that these self-governing lawyers told themselves not to tell on crooked lawyers. This is a quote from that page:

The Law Society of Upper Canada attempted to muzzle members by directing them not to talk to the media….

and this:

The Star’s investigation revealed that more than 230 lawyers were sanctioned by the law society in the last decade for criminal-like acts, such as theft and fraud. The Star found these lawyers stole, defrauded or diverted more than $60 million in client money held in trust. While most were reprimanded, suspended or disbarred by the profession’s regulator, only 41 faced criminal charges. Of these, only 12 went to jail.

Click through; the Star page has hotlinks to three other articles on this.

And finally, the Toronto Police force. At one point, the force investigated itself. Now there is a Special Investigations Unit which investigates cases of claimed police wrongdoing, and all cases involving injury or death with a police officer involved. The SIU is supposed to be independent; however this Wikipedia article points out that it is not:

However all full-time SIU investigators are former law enforcement personnel or have worked for law enforcement agencies.

How well did this work out in a big, public case? Here’s an article by Rosie DiManno, on this. I will content myself with a few quotes:

It is not a record that should make the police proud. Same for the SIU, since they’d been unable to corroborate allegations of police abuse, despite thousands of witnesses at the scene.

When cops lay the charges, the discretion is initially left to them, and later with Crown attorneys who decide on whether to pursue a prosecution.

When police officers are targets of the law, however, the system turns itself inside out to protect identities and resist disclosure of names. Even obtaining information on Police Act proceedings is a reverse-onus labour for reporters trying to track events.

There are many more disturbing revelations in the DiManno article. I leave it to you to go and read them.

Now for the dumb questions.

  1. is ‘self’ commonly auto-moronic?
  2. is ‘self’ always auto-moronic when followed by ‘governing’, ‘regulating’, and ‘policing’?
  3. Are the three examples above disturbing to you?

and the observation:

Our lives depend on doctors. Our safety depends on police. Our rights under the law depend on lawyers.
and a final dumb question:
do we trust them?

Rudy Kurniawan versus William Sinclair: how does this work, exactly?

I’ll come back to ‘self-regulating’ bodies in another post.

The above two gentlemen stand out for their differences.

The first, Rudy Kurniawan, made and sold fake vintage wine. It was a complex personal achievement: bottles, labels, corks, wax, foil: whatever was on the real thing, had to be on his copy of the wine, which we are told here he made in his kitchen.

The second, William Sinclair, was one of many Ontario lawyers who apparently defrauded clients and avoided jail. Here you will find these words:

Oakville lawyer William Sinclair pilfered more than $3 million from widows, charities and the estates of the dead. He was disbarred but never faced charges.

At the time, the Law Society, the lawyers’ professional association, insisted its hands were tied.

After the Star reported all that, the Ontario government made a small change in the law. It added an exception that would allow the Law Society to report suspected criminal activity to police if there is a “significant risk of harm” to the lawyer involved or to another person.

Fast forward to this week, and it looks like virtually nothing has changed. The Star team found that 236 Ontario lawyers over the past decade (out of some 46,000 in the province) have been found to have stolen, defrauded or diverted some $61 million from clients’ accounts.

Fewer than one in five faced criminal charges, and most avoided jail. One of them, Lawrence Burns of North Toronto, was disbarred in 2011 for “misappropriating” almost half a million dollars from clients, but never faced charges.

OK, get to the point, you’re thinking. Here’s the point.

Lawyers in Ontario (Canada) routinely get away with massive malfeasance, generally against widows, orphans, and the stupid. Very few jail terms.

However, if you make and sell some $20 million in fake wines, that nobody can detect, and only the rich have bought, you’re likely to go to jail – for a long time.

Convicted wine fraudster Rudy Kurniawan deserves up to 14 years behind bars for making and selling more than $20m worth of fake fine wines so that he could ‘live like a king’, prosecutors have argued.

Even better, Kurniawan has been in jail already – for some 27 months.

‘Simply put, Kurniawan is not sorry for what he did, he is sorry that he was caught,’ prosecutors said.

Lawyers in Canada who defraud clients rarely go to jail, and that always after a trial. And, they never seem to be sorry for what they did, since being caught is rare and even more rarely counts for much.

Now for the Observations:

  • self-governing bodies, like the Law Society of Upper Canada (can you imagine a more self-aggrandizing title?) rarely really govern anything against the interests of themselves.
  • the Rich, being defrauded, will demand huge sentences. I realize the Kurniawan case is in the USA, where it sometimes seems the rich have more judicial ‘sway’ than in Canada, but I think the principle applies: If he’d simply sold bad investment ideas to old ladies, or stolen their retirement, nobody would care nearly so much as fleecing the rich with fake rare wine.

Now for the Dumb Questions:

  • Is there a chance in hell that Kurniawan will get a light sentence?
  • Is there a chance in hell that the many, many malefactors identified in the Star article will ever be forced to repay?
  • Is there a chance in hell that the same malefactors will, albeit late in the game, go to jail? be charged?
  • Will any of them spend 27 months in custody while awaiting trial? Are you kidding? They’re lawyers in Ontario! Get real!
  • Is there a chance in hell that Ontario will change the laws and practices so that rogue lawyers actually pay for their misdeeds?

I end with a quote from the Star editorial:

Somehow, law societies in most other provinces have found a way to report suspected criminal activity involving their members to police. The legal governing bodies in seven provinces report lawyers disciplined for suspected criminal acts to police or to their province’s attorney-general or justice minister. In addition, Quebec is reviewing its rules to allow it to report lawyers suspected of criminal behaviour.

Final dumb question: are you holding your breath waiting?

Comments? please provide a real eMail address, and be say something. That’s all it takes.

Training Wheels

Any convenience becomes a necessity. This idea appears in the Unabomber’s Manifesto. Actually, it generalizes thus: anything that is always present, becomes a necessity.

Some examples from biology may clarify this view.

Oxygen was, originally, a poison, and mitochondria are derived from specialized bacteria-like organisms that could use oxygen to create safer forms of chemical energy.

Milkweed sap is toxic to insects. However, monarch butterfly larvae developed an immunity and carry the toxin as adults. Thus birds learn that monarchs taste bad and leave them alone.

The viceroy, and other Batesian mimics of monarchs, benefit from looking similar to an insect that can eat a plant they cannot. They have evolved to copy enough of the monarch’s pattern to benefit from it. Clearly the mimics have no idea of how this selection is acting on them, generation after generation.

So, anything that is always present, becomes a necessity. On to point two.

Don’t do bailouts if you’re not prepared to keep doing them. Like a blackmail victim, by being always present, you become a necessity.

In particular, don’t bail out your adult children. To do so begins serving, and it’s a life sentence.

Training wheels create dependencies that can be overcome. Provided there is social force and motivation to do so.

NGO (Non-Government Organizations) can become training wheels.

There is an anecdote in one of Fred Reinfeld’s wonderful chess books. Apparently a neophyte is astride a spirited horse. In its antics, the animal somehow got one of its own hooves stuck in the stirrup. Said the tyro on looking down: ‘If you’re getting on, then I’m getting off!’ Reinfeld’s point was, in a chess game, amateurs give up space because their opponent decides to occupy and control them – perhaps an open file, or a key square in the centre.

Similarly, timid governments give up being active in areas where others are possibly able to out-do them, even if only temporarily.

Time to tie this all together, eh?

In countries like Haiti, NGOs are like training wheels. They are always there. They create dependencies. The government looks down and says, if you’re getting on, I’m getting off.

NGOs in Haiti have been spectacularly unsuccessful. It’s been four long years of limited progress. Here you can find one example of what it’s like there. Let me give you a few facts from this imho self-serving web page:

  • cholera incidence has dropped 50% (not to zero? Why not?)
  • 817,000 Haitians still need humanitarian assistance

Clearly the Haitians have no idea how the politicians and NGOs are selecting their living conditions for them.

Real governments should take off the training wheels. Responsible governments should be aware of the poisoned apple and not accept ineffective aid over and over again. Organizations that really want to help should, as part of their charter, state  their goals to include these:

  • to generate self-sufficiency in the aided country
  • to make themselves, eventually, unneeded, in the aided country

Instead, it’s a culture of training wheels, and of delegated responsibility.


Job Creation: fable and facts

I don’t generally do partisan politics here, but this instance is so egregious that I can’t stop myself.

Tim Hudak is promising one million new jobs in Ontario (Canada, eh).

((At the same time he is going to slash civil servants and cut corporate taxes. We can ignore these dumb, non-stimulus moves for now. What about job creation?))

Here you will find that, in the UK, a job creation scheme to create half a million jobs is in tatters. Some businesses got huge subsidies and created few jobs. (This works just as well as tax cuts here, eh?) The estimate for the cost of each job moves around a lot, from 33,000 UK Pounds to 200,000.

I have it in mind that, years ago, an industrial job in Canada cost about $150K Canadian to create. (A call centre job can be made for less, as can an immigrant farm worker’s job, but those don’t help our core unemployed.)

The Americans have had ‘quantitative easing’ going on for a while. It seems to mean, the Fed prints money and buys mortgages and related paper with it. How this inflation-creating, deficit-driving plan ever got accepted is mentioned here. Apparently, QE was also supposed to create jobs – at a net cost of … wait for it …  $553K USD per job.

Tim Hudak is leader of the Ontario Conservative party. The Federal Conservative party is led by our Prime Minister, Stephen Harper. His government ran Canada Job Grant ads that cost $2.5 million. Here you will find that the program mentioned in said ads has never been started.

I mention this because Mr. Harper claims to be running a sound economy, and supports Mr. Hudak.

Overall, job creation is something, imho, no government knows how to do. A million new jobs is a fable.

Nigerian Kidnapped Girls: a Bitter Observation

Here you will find a BBC News item on this atrocity.

I have some bitter observations to make.

  1. Apparently the Nigerian government waited three weeks to make any move at all.
  2. Apparently the Nigerian government can’t do much about this.
  3. Apparently all the world, including the USA, many Muslim groups and countries, and presumably Israel, France, and Britain want ‘something done.’

Now for the dumb questions:

  1. Do many countries have spy satellites with images on record for the area? The USA, for example?
  2. Could this surveillance (supposedly they can read a license plate) find out where the kidnappers took the girls?
  3. Could there then be a basis for a rescue or ‘other negotiation?’

And further,

  1. Could every country declare that, if the girls show up for sale, they will be protected and their ‘handlers’ executed?
  2. Could the USA declare that, if the girls are harmed, that drones will arrive and punish the kidnappers or purchasers?


Why is essentially nothing being done, other than righteous posturing?