Charles Ponzi:The Father of Modern Finance


Back during the internet bubble I’d enjoy watching these old men on TV. They were old school economists and they’d be saying stuff like,”This doesn’t make sense. Stocks are supposed to trade for a multiple of their earnings — not their losses.”

I’d like to think that now would be a good time to listen to good old Jimmy Stewart’s explanation of modern housing finance from It’s a Wonderful Life.

George Bailey: No, but you . . . you . . . you’re thinking of this place all wrong. As if I had the money
back in a safe. The money’s not here. Your money’s in Joe’s house . . .right next to yours. And in the Kennedy house, and Mrs. Macklin’s house, and a hundred others. Why, you’re lending them the money to build, and then, they’re
going to pay it back to you as best they can. Now what are you going to do? Foreclose on them?

Then again I think it’s more appropriate to think of Bill Hicks, who as he railed against the economic mindset that encouraged you to keep working and buying stuff that you didn’t really need said that an infusion of  sanity would, “… fuck up the economy. The economy that’s fake anyway.”

I was an economics major in college. Economics is sort of a black hole because truly the more you know about it the less it makes any sense.

Take a dollar out of your pocket. What’s it worth? Well, it’s not backed by gold anymore (not that I have any idea why gold is worth anything). A dollar is worth whatever someone else is willing to give you for it. Why are they willing to give you something for a piece of paper? “Slater: Didja ever look at a dollar bill, man? There’s some spooky shit goin’ on there!”

Because it’s backed by the full faith and credit of the United States Government or something like that.

Anyway, the true king of modern finance isn’t Keynes; it isn’t Friedman; it isn’t Jim Cramer – It’s Charles Ponzi

Here’s a SEC warning against Ponzi Schemes

Now Ponzi Schemes are great fun until everyone figures out what is going on and then it’s mass chaos and heartbreak.

Back in the day, when things went financially awry, you’d have a depression and things would suck until everything settled down and the world built its way back to financial strength (they’d usually have a war – those things are cash cows!)

Modern economics seeks to avoid depressions by boosting the economy with government spending or increasing or decreasing the money supply or having the President beg you to go to Disneyland or whatever. The modern banking crisis has been brought to you by people who have successfully argued that more risk is less risk as long as you bundle it properly and besides the government can always step in and fix things – well until China decides to flood the market with all their dollars.

Really, it’s all just a huge Ponzi Scheme and one day it will all fall apart and the world will probably go all Mad Max for a while. The goal is as it’s always been – to hope that you are dead by then.

Until then, if you have some money, enjoy it; if someone else is stupid enough to let you gamble with their money, gamble with it; and most of all enjoy the huge juggling act, because being a millionaire isn’t what it used to be and hope that you aren’t around when the price of a can of Coke starts approaching the levels of Amsterdam tulips.

Or maybe I’ve just gotten old and there have been new innovations in economics that I’ve ignored due to watching too many episodes of Entourage and Weeds? It’s possible.

Then again I was the guy who couldn’t get a credit card, because I’d never borrowed any money from anyone and didn’t owe anyone any money.

I’m sure that a lot of people are angry about all the evil people out their who were gambling with their money irresponsibly, but really it’s your fault because you couldn’t be bothered to read that 1500 page prospectus filled with fine print. I don’t blame you cuz I wouldn’t want to read that crap either – it’s boring and it doesn’t make really make any sense anyway.

Anyway, Lewis Carroll would be having a ball right now.

“But I don’t want to go among mad people,” Alice remarked.

“Oh, you can’t help that,” said the Cat: “We’re all mad here. I’m mad. You’re mad.”

“How do you know I’m mad?” said Alice.

“You must be,” said the Cat, “or you wouldn’t have come here.”

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