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Those who wish to contemplate how the world might be different if more people read Making Light may consider Teresa’s post from October, 2002, The underlying forms of fraud.
Ah, for those simpler days when a TNH post might only get 41 comments. But had more read and understood, the entire world banking meltdown, from Bernie Madoff on down, might not have gone unnoticed until too late.
Teresa was not the only one pointing out that the ruling classes were involved in a culture of large-scale scams. I sometimes think that Cassandra is actually a hive mind, or anthology intelligence, because there's never just one.
But if even 100 times as many people had gotten the message, I doubt that anything could have been done. The MSM were busy the entire time from the fading echoes of the dot.bomb in 2000-2001 to the collapse of the credit system in the fall of 2008 telling us all how swell everything was, and how rich we were all going to be. And almost everyone believed them.
Part of the issue with the media, of course, is that real estate ads put a lot of advertising dollars in newspapers, and companies dependent on a strong real estate and remodelling economy are big advertisers in magazines and (to a lesser degree) TV.
Oddly enough, this old post of Teresa's was linked just the other day from the (very good) group blog Lawyers, Guns, and Money.
I think I remember reading (and enjoying) that article way back when.
Where would the badger game fit into that taxonomy? Or would it fit at all, not being a pure con?
As for the big crash, I remember reading a big article in Harpers(?) a year or two before the mortgage market evaporated, explaining just what was wrong and how it was all going to go bad. The best way to keep a secret is to say something people don't want to hear.
Actually, there's anther thing hidden in the Teresa's original post: the sentence "Achieving that happy state of all payoff and no risk is the main reason the wealthy and powerful manipulate the system." What I see in that sentence is the kernel of a misunderstanding about Old Money.
See the thing is that New Money does have to get these kinds of outlandish returns in order to become Money in the first place. Old Money, on the other hand, not only does not, but has to be concerned with conservation of capital. Old Money cannot be entirely risk-averse, but the classic Old Money rule is "never spend capital." And they don't need to engage in a lot of risk to get a lot of money, because they already have it.
I know some Old Money. Consider Kingdon Gould, Jr. What is the basis of his fortune? Well, he's the great-grandson of Jay Gould, except that poking around the family articles on Wikipedia, one finds that the Goulds weren't necessarily all that good at holding onto their money. I don't think any of them was impoverished, but Jay's large family (and his eldest son's two families, the second through his mistress) coupled with a certain profligacy and multiple marriages meant that the capital was pretty quickly thinned out.
I can't find much info on Kingdon Sr., but I can readily identify this as the foundation of the Kingdon Jr. family fortune. Yes, he made his main money running parking lots-- and therefore doing real estate on the side. It was a growth industry in the DC area, because parking was needed and the real estate market was very hot. Gould's partner, Dominic Antonelli, is new money, and eventually he crashed and burned (though keeping enough in the end to keep him respectable and to restart). The thing is that parking itself is a conservative business: a reasonably well-situated lot or garage generates steady but unexciting (by scam standards, anyway) revenue. Therefore it makes an excellent reservoir for developable land, because it keeps paying for itself.
Commercial real estate, of course, is potentially very risky. It's easy to get yourself in a lot of trouble by too much leverage, especially if you're also sitting on the bank board of directors. Here's the point at which we do brush up against scams (and never mind what an enlightening read Looking Out For Number One was). Running office buildings is a business; buying and selling office buildings is speculation. Building office buildings therefore straddles the line. Being a successful developer requires a great deal of "know when to hold them" skills, and history is rife with evidence that high-flying developers are generally deficient in that skill. The thing is that, with enough seed to get started, a pretty conservative strategy in the DC area would have generated a respectable income over the past half-century. What it would not do is generate money in New Money quantities; to do that you had to leverage yourself out to the point to where you were vulnerable to market downturns. (That's what happened to Antonelli.) But it isn't intrinsically a scam, unless you want to believe that capitalism is at root a kind of Ponzi scheme.
The point here is that Old Money is risk-averse, but it can afford to be. New Money is not risk-averse, because it can't afford to be. OK, so who makes up the "ruling class"? Well, that's an interesting question. What Old Money wants from government is a minimum of interference, and they are especially allergic to anything that looks like confiscation. New Money, however, is far more dependent on the government aiding with and abetting their schemes.
Applegate to Joe (persuading him to sell his soul): "How do you think some of these politicians around town got their start? And parking lot owners?"
So how much longer does this mean should I wait for the widow of that Nigerian general to send her beautiful daughter to me to marry? It isn't like I've been taken in by the promise of a fortune that doesn't exist.
Bruce Cohen #1: I sometimes think that Cassandra is actually a hive mind, or anthology intelligence...
Actually, that's almost right... Cassandra, like almost every other figure in Greek mythology, is an archetype, representing some universal of human experience. (Or at least Ancient Greek experience, but I've noted before that people haven't changed that much since then!) In this case, the archetypical situation is someone who's gained "inside" knowledge, and the understanding to see coming disaster, but not the influence to change it.
In the original myth, she got Apollo (son of the King of Gods) to grant her prophecy by promising to sleep with him, but then backed out on the deal. He couldn't take back the prophecy (remember, it represents knowledge), but cursed her so that her prophecies would never be believed. (See the all metaphors there? This is why I like mythology!)
C. Wingate: A briefer take: "the easiest way to make a small fortune is to start with a large fortune". ;-) New money is vulnerable because they don't have that large fortune backstopping their ventures. Old money generally has a few spare farms for the betting table....
Where does the bustout scam fall into this list? ISTM that essentially all identity theft is a kind of variant of that one, as is the pattern of creating a useful online business/community that is trusted and beloved, and eventually morphing it into something that steals its users content, sells their information to near-crooks and their eyeballs to advertisers, and generally runs the community into the ground.
It also seems to me that the closest historical example to botnets and DDOS attacks for profit involves forming a cult to raise an army of followers that help you take power somehow.
There's also Teresa's comment: It's a blowout.
There's also Teresa's comment: It's a blowout.
C Wingate @5:
I think you're miscasting that statement rather a lot there. Your post only really makes sense if you think it means that people become rich ("Old Money") by making risk-free investments. That's a pretty far reach from its context in the original article.
Look, it's a truth universally acknowledged that honest investors can get variants of the same deal: a high probability of a low reward or a low probability of a high reward. Your comment expands on the fact that people who are already rich can afford to accumulate further wealth slowly; ordinary people can only become rich by taking larger risks. This is all Blinding Glimpse of the Obvious territory.
You then want to discuss what honest wealthy people want from government:
What Old Money wants from government is a minimum of interference, and they are especially allergic to anything that looks like confiscation. New Money, however, is far more dependent on the government aiding with and abetting their schemes.
(I disagree with the second sentence, by the way; both Old and New Money are perfectly happy to benefit from government policies. This is why my mother, a tax lawyer, has so many wealthy clients, who rather like the government aiding and abetting their schemes to pay a lower percentage of tax than the middle class does. Many of them succeed in these schemes, entirely legally.)
This is all very well. But Teresa wasn't writing about honest rich people in that section. She was writing about what dishonest rich people do, and are known to do, in order to bend the system to their own benefit:
...they’re cargo-cult effigies—of the deals the ruling class cut for themselves. If you’re an insider, if you have the secret, you can have a job where you make heaps of money for very little work. You can avoid paying your taxes. You can inherit a pile of money because an ancestor of yours left a moderate fortune that’s been appreciating ever since. You can be your own boss. You can have other people working for you, who have other people working for them, who all pay you a percentage of the take.
You're talking about the Gould family, but she referred to a slightly different set of people. I am entirely happy to take your word that your friends with Old Money would never defraud their shareholders, lobby for reduced supervision of the banking industry so their investment schemes would not be troubled by pesky regulation, or convince their contacts in FEMA to issue them no-bid contracts in the wake of a hurricane. None of them have ever taken well-paid patronage jobs that they weren't capable of, offered because of the old school tie or to please their powerful relatives.
But other rich people have done so, and are known to have done so. So when a confidence artist wants to convince the mark that a little dishonesty is useful in the world of the wealthy, he has plenty of material to work with, notwithstanding the sterling character of a good proportion of actual moneyed people.
C Wingate, your final paragraph begins with the phrase "The point here is," but the words that follow don't add up to a point. Even less do they add up to anything that engages with either Teresa's post from 2002 or Jim Macdonald's comment in the current post.
You know some wealthy people who do good things and deserve the approbation of their fellow human beings. Oddly enough, Teresa and I know some people like that too. What does any of this have to do with Teresa's points about fraud?
Well I can tell you about how the Madoff thing is being looked at from a general Wall Street view. I work in finance and talking to various people they all said the same thing. "This guy was nuts."
As for what happened regarding CDS and the like? It's simple. Brokers and traders think short term. Their whole mindset is about the quick return because they know once they stop performing they are out on the sidewalk. Most don't last very long as it is. They make their money and leave. Also, they act this way because while they are on top they have some amazing perqs and a lot of power in their respective firm. I mean really who is going to tell that guy bringing in over $1 million a month in commissions to screw off? Unless he is doing something illegal no one would touch them.
A nice thing is that is finally changing. A bit late but at least it is. It's about short term thinking. That is really what any of this is caused by, the quick return.
See the thing is that New Money does have to get these kinds of outlandish returns in order to become Money in the first place....
New Money is not risk-averse, because it can't afford to be. OK, so who makes up the "ruling class"? Well, that's an interesting question.
Old or new, I don't think any of these kinds of fortunes are built from anyone thinking any such things.
Instead, I think it's more like that there are potential pay-offs hanging out there that get tapped by someone in the right place in the right time who was prepared for it. There was room in the public consciousness to support a huge pay-off to a hooker-turned-struggling-pop-singer, and, boom, the Eliot-Spitzer-hooker became a millionaire in half-a-week from downloads of her single. These "returns" only exist for however many such roles the public allows, which, in the case of hooker/pop-singers we no longer seem to be interested in, seems to be one. Someone who may have been "investing" to capitalize on the potential pay-off of this role, but were beaten to it by the Spitzer-scandel, is just out of luck.
Seeing these potentials doesn't resemble the scams Teresa referred to as they're presented, and even lucking into them doesn't look like them either. There's some kind of preparation on the part of the recipient of the good fortune that isn't present in the scams. Whatever you think of her, the Spitzer-hooker was prepared to make her millions when the governor called for her. Her opportunity couldn't have been sold-off, so what does that tell you about how these scams are presented?
It's like my brother and home remodeling. He watches the remodeling shows, and he camps out at home depot. But his initial forays into remodeling are going to be practice for him no matter how concentrated he is on the project to get them right. He's thinking all the "right thoughts" to completing the project, but no amount of thinking can compensate for the practice he hasn't put in. Every new project he completes looks sabotaged in some manner. Someone may be prepared to receive the goodness of the home-remodeling gospel, it just isn't my brother.
The analogy to the south Pacific cargo-cults is kind of chilling when you consider the cargo-cults had to fabricate their own scams even when no one wanted to supply them. It kind of makes the evolutionary case for scammers.
C. Wingate:
What Old Money wants from government is a minimum of interference,Nonsense. They're very fond of their special deals. That's characteristic of them as a class, whether or not it's true of every last individual member.
I'm sorry. I know this strikes at the heart of libertarian theory. It's still the way the world works: people with money and power don't want a level playing field. Like any other human beings, they want to have their own way.
and they are especially allergic to anything that looks like confiscation.What's your definition of "confiscation"? Is it anything but a euphemism for "They don't like being taxed"? Nobody likes it. We just put up with it because taxation is necessary if we're going to have to the kind of society we've openly and legally decided to aim for.
Have you ever noticed that no one refers to sales tax rates or interest rates paid by the working poor as "confiscatory"?
New Money, however, is far more dependent on the government aiding with and abetting their schemes.Nonsense again. You made that up because you didn't like my point.
New money is by definition more entrepreneurial than old money, and has to take more risks. If they could depend on the government to help them with that, the government would be helping way too many people for all of them to reliably get rich, which would represent a failure of the system of privilege.
Teresa #16:
Er, most libertarians I know are absolutely clear that the rich and powerful stack the deck in favor of themselves and their cronies and kids. Indeed, that's one reason to be pretty suspicious of broad government powers whose claimed use is to be for the common good, right?
For example, one pretty good reason to be suspicious of the current Geithner toxic-asset-private-public-partnership plan is the knowledge that this kind of deal usually benefits insiders a lot more than the country as a whole. One reason to be suspicious of regulation of all sorts of things (drugs, cars, toys, etc.) is an understanding of regulatory capture, and another is the realization that compliance costs tend to be more-or-less fixed, so that a big company barely notices them, and a small company finds them an intolerable burden.
Similarly, while I'm not sure I've heard the term "confiscatory" in this context, I've sure as hell heard and seen arguments against sales taxes and the limit on income taxed for social security on grounds of unfairness, and the argument there is always based on the fact that the taxes land a lot harder on the poor (who've barely got enough) than they do on the better-off.
As an interesting parallel, look at this article discussing the US financial crisis. His premise is that our crisis is partly the result of a kind of crony capitalism that's grown up between politicians, regulators, journalists, and the guys at the top of high finance. And this crisis thus follows the pattern of a lot of third world financial crises, in which a collapsing economy is made much worse, because the political necessity is to keep the oligarchs happy by bailing them out, but the economic necessity is to let some large fraction of them fail.
Teresa @ #16:
[Old Money is] very fond of their special deals. That's characteristic of them as a class, whether or not it's true of every last individual member.
I'm sorry. I know this strikes at the heart of libertarian theory....
albatross @ #17:
Er, most libertarians I know are absolutely clear that the rich and powerful stack the deck in favor of themselves and their cronies and kids.
Teresa is referring to hypocrites. You're referring to suckers.
Mike #19:
Is there a third category of people who disagree with you on issues of regulation and taxation, or is it all suckers and hypocrites?
It's sort of an unpleasant model.
albatross @ #20: observing the last 6 months as strong and plain evidence that deregulation nurtures devastating mediocrity, I've only gotten as far as calling those who unfairly benefit from the pretense of a fair playing-field as hypocrites, and calling those who refuse to let go of a failed model as suckers. I'm waiting for further evidence to consider the situation further. Until then, I have no answer to your question.
I happen to be up to my neck in reading about social issues of the first quarter of the 20th century, and I notice something about both then and now:
Nobody much likes to admit they're being used. But whenever you find really vociferous defense of the purity of an existing arrangement, particularly when it really is working against the interests of the defender, the defender will be a guy. Not in every single case, because every social phenomenon comes with exceptions, but more than enough that you can count on it. Enough so that I've added this to my list:
Privilege means not having to worry that the social arrangements you're in are stacked against you, not by accident but because it's to others' advantage that you lose and suffer unnecessarily. The absence of privilege means knowing that you're losing that way.
albatross, #17: I've sure as hell heard and seen arguments against sales taxes and the limit on income taxed for social security on grounds of unfairness, and the argument there is always based on the fact that the taxes land a lot harder on the poor (who've barely got enough) than they do on the better-off.
Which is undeniably true, so the argument boils down to one's personal definition of "fairness": should everyone pay an equal share of the costs, no matter how rich or poor they are, or should those with more money pay a proportionately larger share?
It occurs to me that my ex and I had to negotiate exactly this sort of problem when we bought our house and were trying to decide how much each of us would pay toward the mortgage and utilities. At the time, I was making quite a bit more than he was, and it was obvious upon running the numbers that if we each paid our "fair share" of half the total, I would have a lot of money left over on each paycheck while he would have very little. I don't think I need to explain to you how much resentment and anger this would have caused over the course of time. So instead, we allocated our "fair shares" proportionally, each of us paying a percentage equal to the percentage of total household income we contributed.
The situation with sales taxes and FICA (and, indeed, income taxes as well) is remarkably similar, except that the people involved don't know each other and therefore have no incentive to negotiate for a deal that will allow them to live together in harmony. But the anger and resentment is still going to build up if we don't see the people who have most of the nation's income paying a proportionately higher share of the nation's expenses.
As the Democrats should be pointing out, the cost of government doesn't go away just because the rich get a tax cut, any more than your mortgage and utility bills go away just because you lost your job. That money still has to come from somewhere, and if it's not coming from the rich, that only leaves the rest of us.
Bruce Baugh @23: Privilege means not having to worry that the social arrangements you're in are stacked against you, not by accident but because it's to others' advantage that you lose and suffer unnecessarily. The absence of privilege means knowing that you're losing that way.
I think I get what you're saying, but IMO it bends the meaning of privilege out of shape. My dictionary applet defines privilege as "a special advantage or immunity or benefit not enjoyed by all".
It is true that because the ruling class is composed of mostly white guys, all white guys get some benefit thereby (for instance, not getting pulled over for DWB). However, they do not all get the same benefits. If "the social arrangements you're in are stacked against you", it is hardly a privilege.
What you're describing is a sort of smugness derived from identifying with a privileged class, but if you're not in fact in that class, you're suffering from a delusion, not privileged by the delusion.
#23, #25:
You can count on reason, but it can't be all things to anyone. That's the core of every Buddhist koan.
A privilege, like the care of a parent, can be all things to you, but you can't count on it. Otherwise being an orphan wouldn't be associated with hardship.
If the privileged classes could accept these 2 principles, you could form the foundation of a free and fair marketplace, like in libertarian theory. Instead, they're too soft and dainty to accept that their privilege isn't founded on merit, and they can't tolerate the notion they have no true control over their lives. So they labor to establish a consensus of something untrue. They have to fix their games and paint them as fair.
So the privilege of this pretense trickles down to those we refer to as the NASCAR dads, the pretense that we know we are strong from our dominance. If not in our personal lives, then as a country invading an oil-rich Muslim nation that represented no overseas threat. And that 3¢ privilege is actually more than John Kerry offered them in 2004.
The problem is that a monitored-fair market represents a dollar's worth of problem-solving to each of us that we trade away for that 3¢ privilege.
When I refer to libertarians as suckers, it isn't because I don't like the libertarian theory. It's just that it can't exist where a fixed game is taken as fair. The means to make it fair invalidate it as a theory. John McCain was a proud champion of deregulation 2 months before Palin was telling Couric he had a strong record of deregulation.
Mike, Bruce:
I'm probably just grumpy, but it sure seems like you're both engaging in this basic pattern of thought:
a. I know that X, Y, and Z would be the right policies to benefit NASCAR dads.
b. NASCAR dads oppose or fail to support policies X, Y, and Z.
c. Therefore, NASCAR dads must be wearing some kind of intellectual blinders preventing them from seeing the inherent sensibility of X, Y, and Z.
d. Thus, I shall identify the intellectual blinders.
This basic pattern is very common in political discussions. It basically amounts to "Since you don't agree with me, there must be something wrong with you. Let's figure out what it is."
This never convinces anyone not already on your side, but then, it's not really intended to. The "what's wrong with you" question is answered differently depending on the speaker--maybe it's because your opponents hate women, or hate America, or are secretly racists, or are anti-religion. But its main effect is that it absolutely insulates you from questioning your assumptions or looking at the world, honestly, from the point of view of the people with whom you disagree. The questions those things would answer aren't the one you're asking.
Do a lot of those guys oppose your policies because of party identification? Say, the tendency to believe the experts from their own party, which they chose because of its positions on issues really important to them, like abortion or gun control? Are they negative about unions because they've had bad experiences with unions, or had friends who did, or because they are convinced that unions killed the Big Three? Do they disagree with inheritance taxes because they think they're really unfair? Or because they are misled about how broadly they apply?
I don't see how you'll ever find out any of those things. You've already found a really comfortable answer, one that, ISTM, re-enforces your sense of superiority and rightness.
Now, maybe your answer is right. People certainly do mislead themselves on all sorts of levels. But when I find an answer to "why do they disagree with me?" that sums up to "because I'm smart and rational and they are deluded fools," I worry that maybe I'm missing something.
albatross: re: agreement [this, and] agreement [that]: What am I asking you to take my word for?
Admittedly, I'm speaking here casually, so I don't doubt you can provide an answer. But if you can tell me what I'm supposedly asking you to take my word for, I think I can provide the 1-to-1 relationships between what I'm saying and plainly-observable reality that need to be made more explicit. Then ultimately I won't be asking you to take my word for anything.
And if I can take this to where I'm not asking you to take my word for anything, then whatever point you're trying to make about who supposedly agrees with who will be rendered immaterial to what I'm trying to say. Because while we are entitled to our own opinion, we aren't entitled to our own facts. And making what I'm saying independent of my word will establish what I say within the domain of simple facts. Then agreements won't have anything to do with anything.
Rob: I've been spending a lot of time looking at...there's no particularly good term for this condition. Transitional privileges? Mezzazine privileges? Being at the lower of a higher slot, basically - where you're insulated from enough things that others deal with overtly that you don't have so much practice in thinking about how the structures overhead are screwing you, too.
(And to think this was going to be a short comment...)
Albatross: Yes, pretty much. I am saying that a lot of people are missing out their genuine self-interests. I don't see anything more remarkable about saying that of groups than of individuals, and indeed, it would be surprising if those of us who don't benefit greatly from an arrangement weren't getting manipulated and lied to a lot by those who do. You don't have to like it, but it seems to me that denying this is a commonplace feature of human existence puts you into some really weird contortions.
Also, whatever others are doing with such arguments, I'm not claiming any superiority out of it. There are lessons I've learned by being kicked lower on the ladders, that's all. A male-type person can learn a lot about what women deal with by having lots of hormone imbalances, metabolic complications, and difficult-to-manage mood problems, and ditto with having to deal with the state and private arrangements one requires thanks to ongoing disability. I didn't suddenly become wise, I just started having to live with things that lots of other people have since birth, and tried to learn the lessons of my experience, which are, broadly speaking, "Ah, this is what goes on all the time, normally out of the direct gaze of people like I'd be if I were still healthy."
It's also true that I've basically stopped arguing about such things. Would I like to persuade others? Yeah. But I don't think I really can, very much. It took the ruin of much of my life to start me on this path; I'd like to hope it would take less for others in my general social stratum, but it doesn't surprise me when others turn out not to be really clearly better learners than me. :) I'm confident in my observations of life, but one of the things I'm confident about is that I, personally, cannot argue anyone into believing any of this if they're not already (for whatever reason) either inclining in this direction or simply feeling the utter failure of how they used to lean and looking at alternatives.
On the other hand, there's something to what Mike is saying. And in particular there's a huge gulf between these stances:
Stance A. "I know that my wages have held steady or declined while necessary costs rise, that I don't have the savings of previous generations, nor any prospect of changing these and other things for the better, but it's worth it for the glory of God and His service and I believe that all this temporal suffering will be rewarded in Heaven." And I don't mean that mockingly: choosing to pay a temporal, material price for a spiritual reward is something I do too.
Stance B. "All this stuff about how we're worse off is mostly malarcky, and to the extent it's happening, it's because of those who've set themselves as enemies to my values. Those I elect aren't responsible for it."
It's one thing to answer the "What's the Matter With.." arguments in a way that takes into account the facts from which those judgments are drawn. It's another to simply ignore them. I have yet to see a really vigorous defense of what I consider anti-self-interest choices that genuinely takes the data seriously.
Bruce @23:
Privilege means not having to worry that the social arrangements you're in are stacked against you, not by accident but because it's to others' advantage that you lose and suffer unnecessarily. The absence of privilege means knowing that you're losing that way.
I'm not sure I agree. I think that it's entirely possible for the social arrangements to be stacked against privileged people by others higher on the ladder. The rich have been known to throw the poor under the bus, issues of race and color notwithstanding.
I think that the lack of worry is the product of the core effect of privilege: if things have generally worked out well for you in the past, you anticipate that they'll continue to do so. (And that pinched, anxious feeling that it will all go much more horribly wrong than you can ever fix? That's the emotional tax of lack of privilege.)
Ironically, that's probably one of the reasons that men tend to suffer more depression and suicide during times of unemployment than women. The cognitive dissonance can, literally, kill you. (There are other reasons, of course, such as the social pressure to be the breadwinner. No human thing is simple.)
Okay, enough folks are raising good objections that I need to go re-think my presentation. So I shall!
albatross @17:
Similarly, while I'm not sure I've heard the term "confiscatory" in this context, I've sure as hell heard and seen arguments against sales taxes and the limit on income taxed for social security on grounds of unfairness, and the argument there is always based on the fact that the taxes land a lot harder on the poor (who've barely got enough) than they do on the better-off.
No, you won't have heard the word "confiscatory" in this context, because it's only used like that by wide-eyed social justice types. The parlor term is "regressive tax".
In the context that C Wingate was using it, "confiscatory" refers to high rates of tax on people who are actually able to afford it, but don't want to pay*.
The cognitive dissonance there was Teresa's point.
-----
* Quote from my tax lectures during accountancy qualification: "People who dislike paying tax fall into two roughly equal groups: men and women."
albatross @ 9
It also seems to me that the closest historical example to botnets and DDOS attacks for profit involves forming a cult to raise an army of followers that help you take power somehow.
This class of criminality is not related to the subject of the original post. Teresa was talking about fraud. What you're describing is racketeering, or gangsterism. Techniques for taking money by extortion or violence, not by trickery.
I think a better historical parallel is the protection racket run by an organized, usually geographically-identified, gang. We have records of such organizations back to Republican Rome*, at least.
* "Oh, that's why Rome fell! Damn wingnuts can bring anything down."
re 32: Practically everyone can afford to pay those "confiscatory" rates, at the cost of having to live more like the next lower class; I am sure that most of us posting here could so afford them. What "afford" seems to mean, in this context, is the perception that the degradation of standard-of-living at the high end is essentially trivial.
I'm very much against sales tax and VAT, except on a fairly low level. If I had my way, the government would be funded almost entirely by income taxes and their kin, with some property tax thrown in on the side. And I'm not against pretty steep high end brackets; there is an enormous range between 35% (which IIRC is what we have now in the USA) and 90%. The thing is that perception is not unimportant in this, as evidenced indeed by the "afford" remark. Except for the most gauchely nouveaux riches, at those levels we are as much talking cutting into these peoples' reinvestment (and charity) as into their lifestyles; one of the questions then is whether pushing that money back into the economy through government spending is better than pushing it back through reinvestment. There's a level at which I would say that it is better to have it spent than invested, because too much investment money looking for a home helps fuel the kind of bubbles we've been seeing. But the perception of liberal greed is important too; that people who are somewhat privileged (like, nay, particularly us) but not rich are prepared to take others money to further their schemes is obviously something that is going to stick in the craw of everyone who hasn't signed up for whatever program is being funded.
backing up to 12: The thing is, believing as I do in sin, I don't really quite believe in honest people. People have made the deduction that I admire Kingdon Gould, and in some respects I do; but I don't want anyone to think that I his operations have been entirely above board, because I'm sure they haven't been. I'm absolutely sure he's done business dealings and bent local government in ways that would give me pause if I knew of them.
And moving on to 13: I see in retrospect that I was very much also reacting to a sentence a little bit further along in Teresa's original post: "These scams take the forms they do because they’re parodies—no, a better way to put it: they’re cargo-cult effigies—of the deals the ruling class cut for themselves." Well, just who is this ruling class? If we're talking old money, then I think this is very much untrue-- that is, old money tends to stay away from those kinds of deals. If we're talking new money, then I think we're saying something about just exactly who the ruling class is, something that cuts commonly held perceptions. But either way, I think the deeper commonality doesn't have anything to do with wealth or power; it's that the line between successful speculation and fraud is at best fine and at worst extremely vague. The corollary is that people whose income is based in speculation have a strong tendency to slip into fraudulent behavior in the face of reverses.
Also, consider this: part of Antonelli's mess was that he was on the board of the now failed Madison National Bank, which just happened to be giving him loans which, as it turned out, they shouldn't have been giving him. Well, OK: this looks like a prime example of the kind of deal the influential get cut. But it didn't help him in the end; after all, the reason they shouldn't have given him the loan was precisely because his scheme was going to collapse. It only hurt the bank and its investors, one of whom was Antonelli. I'm as much inclined to ascribe this to hubris-induced stupidity as to fraud.
As a sideline, in one sense, I think the Madoff scam really did fit Teresa's pattern--Madoff was pretty much the ultimate insider, and used affinity (religion, ethnic identity, country club membership) as a kind of explanation for why this insider was willing to give his victims an opportunity to take advantage of the benefits he got from being an insider. In another sense, though, it doesn't fit the pattern at all. The folks who invested with Madoff were already quite wealthy, the sort of folks most of us might expect to get sweetheart deals and such all the time. And Madoff himself, in order to get his extraordinary returns, didn't avail himself of insider knowledge or some such thing. Instead, he ran a Ponzi scheme. The advantage he got by being so well-connected was that many people thought they could explain his extraordinary returns by his insider status, and regulators appear to have not taken claims he was running a Ponzi scheme at all seriously.
Even more fun, a lot of his investors were hedge funds. The claim I've read is that those hedge fund managers probably recognized that his pattern of returns was impossible, but may have assumed that he was benefiting his own fund by using insider information from his brokerage operations, front-running trades and such. This fits a pattern which I think is somewhat common in cons, too--the one where you steal from me, while convincing me that you and I are really stealing from someone else.
C Wingate @34:
Practically everyone can afford to pay those "confiscatory" rates, at the cost of having to live more like the next lower class; I am sure that most of us posting here could so afford them. What "afford" seems to mean, in this context, is the perception that the degradation of standard-of-living at the high end is essentially trivial.
...The thing is that perception is not unimportant in this, as evidenced indeed by the "afford" remark.
You're reading an awful lot into "afford" there. Let me clarify. People who cannot "afford" to pay a tax are people who will find themselves without food, shelter, health care and security after doing so. Thus the contrast with regressive taxes and usurious interest rates, which may be literally unaffordable to the people on whom they are levied.
I note in passing that although, as an American, I have a dog in this fight, I am living in a country with a higher tax burden than the US and one with a better social safety net. My money is where my mouth is.
...one of the questions then is whether pushing that money back into the economy through government spending is better than pushing it back through reinvestment. There's a level at which I would say that it is better to have it spent than invested, because too much investment money looking for a home helps fuel the kind of bubbles we've been seeing.
This is a valid question, and the answer will probably represent a dividing line between many people. I am largely in agreement with you at this point, though I have other reasons as well for my views on the best structure for a tax system.
But the perception of liberal greed is important too; that people who are somewhat privileged (like, nay, particularly us) but not rich are prepared to take others money to further their schemes is obviously something that is going to stick in the craw of everyone who hasn't signed up for whatever program is being funded.
Well, you can perceive whatever you choose to in this world; I am incapable of stopping you. But I don't have to agree with it when you bring it up, nor let it stand unchalleneged.
I'd point out that we (Americans in particular, but more generally) have been paying for things we haven't signed up for for a long time by means of the creeping gap between stagnant earnings (in real terms) and growing productivity. That's a tax, too, and the money from it has been going into the pockets of the investor class that has benefitted from that gap. I don't recall getting a vote on what they did with it (as you yourself say, much of it was used to fund asset bubbles).
The thing is, believing as I do in sin, I don't really quite believe in honest people.
Really? I believe in both sin and virtue. And I think it's important to recognize and call out both. I think both can appear in the same person at the same time, and if we're going to excoriate one we must praise the other.
In other words, I think that rich people can be honest. And I think that honest people can get rich. I suspect that it's difficult to resist the temptation to misuse wealth; the text about the camel and the eye of a needle is a valid observation. But I don't write off any section of humanity that easily. (Among other things, that excuses such behavior.)
Also, consider this: part of Antonelli's mess was that he was on the board of the now failed Madison National Bank, which just happened to be giving him loans which, as it turned out, they shouldn't have been giving him. Well, OK: this looks like a prime example of the kind of deal the influential get cut. But it didn't help him in the end; after all, the reason they shouldn't have given him the loan was precisely because his scheme was going to collapse. It only hurt the bank and its investors, one of whom was Antonelli. I'm as much inclined to ascribe this to hubris-induced stupidity as to fraud.
I can't see the distinction. Was it somehow not fraud because he got caught? Or if his plans had worked, would it have been OK? What if he'd won a bundle in Atlantic City and paid the money back that way?
He was given the loan because of who he was and whom he knew, not because his proposition passed an arm's length risk assessment. Whatever happened next, the line was already crossed. And stupid fraud is still fraud.
More broadly, I think the popular perception of the existence of these sorts of deals (no-lose investments, guaranteed returns, free money lying around for the taking, schemes to avoid paying any taxes) is quite different from the reality. When rich people (aka all of Madoff's victims, by most sensible definitions of "rich") try to get better-than-market guaranteed returns or no-lose investments, they are treading on the same thinness of ice as anyone else looking for such returns. Lots of people have gone broke investing in can't-possibly-lose development deals in which the fix was in with the local government, the market was booming when the project started, and all that seemed to remain was to build the houses/mall/condos and rake the money in. Their wealth and connections did not prevent their bankruptcy.
Where I have seen insider deals (which has little to do with the lifestyles of the rich and famous) is in establishing connections. Knowing the right people to be able to get in on that development deal with the fix in, knowing the guy who can get your kid a really nice job right out of college (where he can usually sink or swim, but maybe at the Bush/Kennedy/Rockefeller level, he gets a lifejacket), etc. And those insider connections aren't all or mostly along old-money lines, either. For better or worse, a major way to be involved in a startup company is to be around at the right time and know the founders and impress them with your skills. A good way to be involved in a property deal is to know the local players, who are wealthy relative to the average American, but who wouldn't make a list of the top thousand in the US. Others won't get those opportunities, but they're just opportunities, and they can crash at least as easily as they can come out well.
Bruce #33:
Fair enough. I was thinking in terms of the way you come up with a botnet with which to do these racketeering sorts of scams. That's not fraud, but it seems like it is something kind-of new in the world.
Abi @ 32... "People who dislike paying tax fall into two roughly equal groups: men and women."
I guess I'll have to change my name to Loretta.
Anticipating the next misunderstanding:
I don't actually support taxing everyone at genuinely confiscatory rates (in other words, taking everything above their needs for food, shelter, health care and security).
But I have read many people who have used "confiscation" to describe pretty much any progressive tax regime. That's the context in which I read C Wingate @5; it seems to fit within the context given.
Based on comment 34, I can see that that may be wrong. In that case, I suspect we are in broad agreement and only arguing about details.
#37: Knowing the right people to be able to get in on that development deal with the fix in, knowing the guy who can get your kid a really nice job right out of college (where he can usually sink or swim, but maybe at the Bush/Kennedy/Rockefeller level, he gets a lifejacket), etc.
When you put it that way, it seems to frame the lost opportunity for George W's parents to simply take a sober look at him, decide to keep his insurance premiums current, let him squander his youth hitchhiking, then let him open up a Texas bar& grill.
#20: Is there a third category of people who disagree with you on issues of regulation and taxation, or is it all suckers and hypocrites?
I have to admit that my own opinions on taxes are so unlikely to ever be implemented that they aren't on the tip of my tongue, and it took me a day to dig up the memory that I actually do have an answer to your question.
My own opinion is that if you have so much money that you can fly first class every day of your life off of the interest, you should have the excess taken away from you so that it may be put to better use. So I would confiscate from each tax-filer property and assets exceeding that much money, which on casual review seems to be ~$5M. If you can't find a better reason to be in the US -- if the prestige of your contribution to our infrastructure from the excess is too little to keep you -- you should feel free to leave. If Bill Gates had felt free to start Microsoft somewhere else because keeping his ownership was that urgent to him, maybe we'd all be on Linux right now, and better off for it. We buy too much crap as it is.
As that opinion relates to your question, the third category is "everyone else," until there's a need to establish additional categories.
Mike #41:
Yeah, W's an unusual situation. The world would likely have been much improved, if he'd decided to remain a useless playboy instead of getting involved in the serious end of the family business.
We're not likely to agree on tax policy, but since my preference (the individual tax code fits in about five typewritten sheets of paper, with maybe one person in a thousand needing reference to more complex rules, and most people need a postcard and a hand calculator and about 30 seconds to do their income taxes) is about as unlikely to come into existence as yours, it's probably not too relevant.
Bruce and Mike Both: I was too snarky before, and I apologize. The pattern of argument I described above is one I have seen a lot, and it seems like it's a lose about 90% of the time. But it's never wise for me to think I'm responding to your post, when I'm really responding to several hundred posts I've read with some vague similarity over the last several years.
abi #40:
I suspect this is just a feature of the use of language in politics.
It's like the way every time a library takes a book out of circulation to appease some loudmouthed busybody in the community, it's "censorship," or the way every time some clerk in a store says "happy holidays," it's a "war on Christmas." Inflamatory rhetoric stirs up the troops, and one bonus of inflamatory rhetoric is that, once you've got the troops good and worked up, they usually won't notice the poor fit between your rhetoric and reality.
C. Wingate, #34: I am amazed that after 30 years of real-life testing you can still talk about the rich "re-investing in the economy" as if it were something that actually happens. The point is that it doesn't -- that they just squirrel it away for themselves, while the economy languishes. The ONLY way you get money flowing back into the economy is for government to forcibly remove it from the pockets of the rich and pump it back to where other people can make use of it.
Albatross: Hey, you gave me some really useful criticism. I often disagree with what you say, but I've got a lot of respect for your interest in understanding the world and dealing with it, so it's...oh, heck no, not "welcome", but "useful", like I said. :)
Lee @44:
you can still talk about the rich "re-investing in the economy" as if it were something that actually happens. The point is that it doesn't -- that they just squirrel it away for themselves, while the economy languishes.
It does happen, actually. It just doesn't turn out to do the kind of good that it was billed to.
<amateur view>
Unless the people with extra money decide to keep the actual bills around (to bathe in, perhaps, a la Scrooge McDuck), they will invest it somewhere.
If they put it into a bank, the bank will then turn around and lend it at interest. That means there are loans available: mortgages, business loans, car loans, personal loans. Alternatively, they may invest it in a business, either directly (stocks and shares) or indirectly (investment vehicles such as mutual funds). A third option is that they invest it in some other kind of asset, either one that earns income (rental property) or one that they expect to sell later for a profit (gold). Perhaps they mean to do both, particularly if they're buying real estate.
All of these things affect the economy. Businesses need capital to grow, and loans to cover gaps between billing and receipt. People want mortgages to buy houses. People and businesses want properties they can rent.
The problem, as far as I can tell, is that concentrating wealth into fewer hands meant that more of it ended up being invested rather than spent on day to day life. Had it been spread more widely, general standards of living would have gone up, but fewer people would have large surpluses to invest.
That concentrated wealth then seemed to be chasing too few investments, so bubbles grew. And banks sold weird products and made bad loans to soak up the ready money. In the meantime, people still made purchases, but they borrowed to do it.
Then it all went boom, and here we are.
</amateur view>
Corrections welcome.
C. Wingate--Lee is correct, although rather too brief.
abi's examples of real estate investment (although this can turn all too quickly into speculation, and has, over the years up unto the present day, and if you'd like a concrete example, try metro Atlanta) and bank accounts, which are usually benign, don't cover the entire picture.
On that whole "investing" thing--when you use money to start a new business, or to expand or improve an existing business (for values of "expand and improve" that do not automatically include "buy out as many competitors as possible" and "acquire random other businesses in the hope that they will be profitable, at least in terms of having their assets stripped and sold off, if nothing else") you are investing in the economy in a way that is potentially in the general public interest. However, unless you are purchasing stock offered directly by the company, your money likely goes to a private individual or institution who may or may not use that money for ends that are generally to the benefit of society. It seems to me that those who talk about "reinvesting one's wealth" often miss this important (from the perspective of society at large) point. One may well be generating more wealth, but this is not necessarily and automatically going to be of benefit to society at large. Society at large may find itself with stagnant wages, jobs shipped overseas, local governments being snookered into tax deals directly against the interests of the local community, and other tactics designed to increase profit (especially short-term profit, without necessarily considering the long-term interests of the business). Failing to realize this, or realizing this and failing to acknowledge it, is one of the greatest weaknesses I find in arguments brought forward by traditionally-minded business types. Expecting businesses to operate with the welfare of the community in mind because it would be wise in the long term for them to so do is as naive, these days especially, as expecting that persons of great wealth will automatically spend and invest their wealth to the benefit of the community inspead of blowing it all on drugs, gaudy appurtanences and accessories, rentsex, and destruction in the name of amusement. It may be an ideal, but it is not a certainty, and society is well-advised to take whatever steps may be necessary to protect its interests in the face of the ability of wealth to act as an agent of harm and destruction rather than one of general benefit.
Of course, there are such exceptions are federal, state and municipal bonds--but since these are governmental instruments designed to enable large-scale government spending I believe we must consider them as animals slightly different from pure "private investment". Private moneys only go there because they are promised profit--with additional tax advantages in some cases.
We used to depend, in this country, on roads that were either developed and maintained for profit by individuals or corporations*, or else at the most local of government levels. It became apparent, and increasingly so with the advent of the automobile, that this was not a good method for developing and maintaining a good road system (American Road gives a good account of the dawning of this understanding), and in the 1920s, both the federal government and the various states took a substantial interest in, and committed significant spending for, the construction and maintenance of highways. Previously, we had a system consisting largely of dirt roads which were maintained by the counties, generally quite inefficiently--in Missouri, in return for a day or two of road work, you were remitted your poll tax, for example.
Neither the projects handled by the TVA, or the other substantial dam-building and similar construction projects we now have were likely to have been undertaken by private enterprise alone--even the transcontinental railroads were only built with the infusion of substantial capital infusions from the federal government in the form of land grants (Google "Credit Mobilier scandal" for details on the problems arising from this). The French tried and failed to build the Panama Canal with private investment alone; we managed it as one of those despised government projects, and I do believe we got our money's worth out of it long before we turned it over to the Panamanians.
While private enterprise has done some good and great things, before starting to sing its praises over any possible government enterprise, and before complaining about the effects of regulation, it would be wise to be acknowledge the faults and failings of laissez-faire capitalism, which were demonstrated in great details throughout the 19th century, both in this country and others. The laissez-faire system has demonstrated itself again and again to be one in which the sole motive of importance is the possibility of individual profit, regardless of the risk of harm to either other individuals or society at large. Assuming that we can count on businesspeople to be Milton Herseys, Felix Warburgs, and Otto Kahns just because we'd prefer that to having Jim Fisks and Jay Goulds is operating at a level of breathtaking innocence which, we, as a country, cannot afford.
Please don't tell me you realize this. You may indeed, have an intellectual understanding of this, but you write repeatedly and incessantly in a manner which indicates that it's an intellectual understanding only, and that a romantic view of Commerce (readers may imagine an allegoral depiction, with splendid attributes, trailing garments which do not so much conceal as draw attention to the various charms &c., as well as various attendants here if they wish) dominates your worldview despite your claims to be objective about the topic. Claiming that your efforts here are solely because there needs to be a strong advocate here for The Other Side is silly; the number of Real, Genuine Communistical Troublemakers here is fairly low. What most people here appear to want is for the Mighty Horses of Commerce (if allegories are helpful) to be bridled, harnessed, and put to useful work rather than left untrained and unattended to run through town, trampling the elderly and small children, kicking holes with walls with their iron-shod hooves, devouring people's gardens, and taking dumps on the sidewalks. We know enough about horses to recognize they can create as much trouble as good if they aren't managed wisely, and if horse owners can't be counted upon to do this because they love the sight of their proud steeds running freely too much to show some consideration for others, steps will need to be taken.
A regulated business system has not prevented the rise of new Andrew Carnegies (Bill Gates, any one?--with world-wide public health instead of local public libraries), and if we mention the name of Jay Gould in the cause of Old Money, we should keep in mind his role as an economic force of destruction.
*The toll turnpike was a private model adopted from the UK, long before the states built toll roads. The Old Chain of Rocks Bridge over the Mississippi River in St. Louis--now a part of historic Route 66--was originally a private venture--one which went bankrupt and was taken over by the municipality of Madison, Illinois--part of probably the last generation of such private efforts.
Hi!
You don't know me, but my daughter, being of a literary bent, is constantly quoting parts of this site to me, and I've visited enough times to know that Amazon.com is a concern to you in a different way that it's a concern to me. In fact, I'm beginning to think the website is a bit of a fraud, which is the reason I'm posting here instead of to an open thread.
I'm from the generation that worries about data mining, which is the reason Amazon.com frightens me. The certainty that they sell information -- and use it to exert pressure on publishers -- has been a powerful reason to keep me spending my dollars at the local bookstore, where no-one tracks which books I touch, which books I read recommendations about, or even which ones I spend enough time to read the back copy. I just pay my money and get a book. I'm okay with the bookstore reporting back that they sold a copy -- and could they have more of the same?
Unfortunately, I have run out of bookshelf space for books, so I thought I would trade some I didn't particularly care about for some I wanted. Amazon.com seemed an obvious choice, and I sold enough to be able to buy some more desirable contents for my library. Little was I to know that they would refuse to trade my balance (which I hope they were keeping in an account that accumulated interest -- if they didn't, they're even stupider than I thought!). Instead, they demanded my checking account information (yet more data mining) so that they could transfer the money to my account before they would allow me to make a purchase (even more data mining). When I told them I didn't want to give them access to my checking account, I was told that there would be a 6-8 week wait and a $10 fee if I wanted to be paid with a check.
In the current economy, it makes me wonder if Amazon.com is making more money off selling information than it has ever made from selling books. To my generation, that counts as a form of fraud.
fidelio @ 47... Do you know what Ben Franklin's position on unbridled commerce was, especially its effects on social justice as he understood it if not as we understand it?
As for an allegoral depiction, with splendid attributes, trailing garments... That one had me laughing, and not just because TCM showed Things to Come over the weekend and the image of Raymond Massey wearing a skirt and wide shoulders is still burned into my mind.
abi:
I don't think there's any mechanism we know how to build which will reliably route investments to their most productive places and eliminate any chance of bad outcomes. However, in general, I'm pretty sure that we're better off with more money available to invest than less, as this leads us, in general, to have more capital, and thus higher productivity and more choices, later.
One interesting thing about the real-estate bubble, to me, is that it was a bubble which funded consumption rather than investment. Contrast with the dot-com bubble, where amidst the con men and the impossible business models and silly opulence of some start-up companies, the bubble was mostly funding smart people to spend some time trying to invent new stuff. A fair bit of cool new stuff was, in fact, invented. A lot of human capital was created, too, as more and more people developed useful skills in programming and security and crypto and whatnot. At the end, a lot of investors lost money, and the industry (including me, FWIW) took a nasty hit. But while a lot of money was wasted, and not all that much ever led to investors making a profit, the world as a whole probably ended up noticeably richer.
Now, consider the real-estate bubble. It looks like a large fraction of the wealth poured into that bubble made things objectively worse. For example, the bubble-driven house price increases led a lot of people to take on large debts that have basically locked them into place geographically. For another, a lot of the development done during the bubble was in exurbs where nobody really wanted to live, except that this was where they could afford a house. We now have a larger housing stock than we used to have, which should be a good thing, but not while a lot of those houses are empty. And unlike programming skills or new programming tools, McMansions in the exurbs don't make anyone more productive.
I don't think this kind of thing is entirely limited to markets, to be honest, though bubbles and financial panics seem to be built into the kinds of market economies we know how to build. For example, think of what happened to the aerospace industry after the end of the cold war, or what happened as the space program ramped up and then wound back down. I think they're ultimately the result of imperfect ability to tell the future and decisionmakers' incentives that don't align with the goal of making the world a better place.
Eloise --- Amazon does try hard to collect information about their customers, but most major merchants do that these days (including brick-and-mortar stores, even small ones --- particularly including at lest three of the locally owned bookshops I regularly patronize, though that typically comes in the form of "loyalty reward" programs from which you can opt out). And at least Amazon uses it to benefit customers at least some of the time ("people who liked ... also liked ..." is what it says it is).
In terms of threats to privacy, I'd tend to rank them behind, say, Google --- which, between its advertising operations and tracking use of its services, collects a truly awesome amount of information on just about anyone who doesn't take specific technical measures to opt out (not accepting their cookies, for starters).
What ticks me off about Amazon in particular is that !$#!@#%!@ one-click shopping patent. But that, I think, is a somewhat more unusual concern...
Hi Mr. Dodgson (@51)
Actually, we have a wonderful, family-owned bookstore (shockingly wonderful, I know!) still in our area that I prefer to patronize, and I can opt out of their "membership", so I do.
But Amazon.com doesn't let me do so -- and they didn't tell me that as a seller, so I had no option.
Call me old-fashioned, but the word "fraud" once had a very clear meaning. Whenever someone was making money off of you that you didn't approve, it was called fraud. I think the world would be a lot simpler if we returned to that standard.
Eloise @ 47 & 52: ever hear of www.paperbackswap.com? Might be worth checking out for getting shelf room. And if you do join up, mark me (Trey - my PBS nickname) as the referring member.
Eloise@52: that has never been the definition of fraud. I could disapprove all I liked of my former bank investing its commingled deposits in, say, a neighborhood-destroying luxury highrise (Google "West End, Boston") instead of economical housing; but fraud would only occur if they had attracted my deposit by claiming that they supported modest-income housing instead of high-end.
And if you're interested in shuffling old books for new, try one of the swapping services; they don't have the automatically high shipping rates of Amazon et al. You may not be able to get best-sellers instantly -- but if you're as interested in books as most of the commenters here, you probably have a backlog. (I have 35-40 shelf-feet, and I expect some here have much more -- I've been cutting back recently.)
Hi CHip @52!
I never said that fraud encompassed what people did with assets I agreed to sell them. If I sell low, and someone else later buys for more, that's my problem.
I said that making money off of me that I didn't approve (perhaps I should have included the words "during the transaction"?) was once considered fraud. My aged bones still feel like that's an appropriate definition.
And to you, Trey @53, I thank you for the reference. I'll definitely consider them!
Oops! I meant to say hi to CHip @54.
I apologize for any confusion.
Albatross, I think that more money is better than less only in what turns out to be a relatively narrow set of circumstances. It seems like a lot of our current problems come from an unwholesome veneration for capital gains, but it also looks like any big inequality has reliably measurable harmful effects on a lot of people. (Crooked Timber's reported on some of the research about that.) Hannah Arendt built on de Tocqueville's insight that any wealthy group that loses political power will become a target of fresh hostilities. And on and on.
It seems like wealth needs to be pretty widely distributed and not too tightly channeled for it to end up not screwing over a society.
Hi CHip @54:
I should have said this before, but I am not quite old enough to take credit for the Uniform Commercial Code. That was a struggle for my parents' generation, and I am glad that they were able to draft and pass legislation in all 50 states, plus the U.S. territories, that now carries the following commentary:
"Considering the importance of the terms being disclosed to the consumer, the Committee may want to reconsider Article 2B's provision of a safe harbor for licensors in the definition of "conspicuous."(18) We believe that the term "conspicuous" depends on the individual facts and circumstances of a given transaction, and cannot be precisely defined as it is currently in Section 2B-102(a)(9).(19) The attempt to define "conspicuous" precisely is especially problematic given the confusing language. For example, we believe that a disclosure which is "in capitals equal in larger or other contrasting type or color than the surrounding text"(20) would not necessarily be "conspicuous" given the individual circumstances surrounding a certain disclosure. For example, if such a disclosure were buried amid boilerplate license text, or were printed on one of many different leaflets enclosed within a software box, the printing in large text would not necessarily make the disclosure "conspicuous."
Huh. So. I've been re-reading Arendt's The Origins of Totalitarianism, which is why the mentions above. Imagine my surprise at finding in tonight's reading the assertion that the imperialist age of Europe - from the late 19th through the early to mid 20th century - has its origins in an excess of capital. There was a lot of money around, as the benefits of the Industrial Revolution and ensuing changes accrue to the owning classes, and a lot of its owners looking to do something with it. Since they weren't about to spend it on drastic improvements at home, they sought opportunity abroad, and used the state to secure ever-expanding power which they could convert into ever-expanding wealth.
She also notes that the first decade of this boom in capital, the 1870s, was a decade of more or less unprecedented national- and continental-scale swindles and con games of all kinds.
Fidelio, I've sat on this for a while, thinking it over, and while I think we are far from the kind of disagreement you envision, I think there are some serious holes in your arguments.
I gather that you (and for that matter, most people engaged in this discussion) view me as an advocate for laissez-faire capitalism. That, I am not. I start from a Keynesian position, but I also would characterize myself as something of a economic evolutionist. That is to say, I think the way the economic machinery works adapts over time to the control solutions being used upon it, so that those controls tend to lose effectiveness as the economy attempts to escape control. Therefore the choice between control and no control is trivial and uninteresting; what interests me is the kinds and degrees of control. I would suggest that the difference between us also lies in degree, and not basic principle.
I am coming around to the notion that there does need to be some check on the amount of money looking for an investment. The excess helps to create bubbles, because it powers scammish investments and their speculative kin. That said, I don't think your examples really work towards your point. I see two problems. First, things like dams and roads cannot in general be built without the connivance of governments, because governmental power is needed for all the condemnations required to remove recalcitrant landowners. It is possible that private attempts at such projects were largely scotched by the political impossibility of getting legislatures to do the dirty work. I strongly suspect that the depression helped make the TVA possible because it knocked down a lot of the political barriers that otherwise might have kept it from going forward, to take an example.
Also, when I look at your bridge example, I note that with the exception of railroads which owned their own bridges, every privately owned bridge company crossing the Mississippi went bankrupt. I'm not sure how much to choose between businesses shying away from these as money-losers and public policy decisions to take them away from private business anyway; but it does seem that, in practice, doing a good job at construction was not something that could be kept within the bounds of making money.
In addition, I would note that one transcontinental railroad was not built with government support (the Great Northern). Hill had some small amount of governmental connivance (e.g. being allowed to build across indian territory), but he took no funds and had only small land grants which I believe he inherited from a predecessor road. Perhaps not coincidentally, GN was one of the vary few lines not to go bankrupt in the 1893 panic. It is of course the exceptional case, but it leads me to speculate as to the consequences of the availability of governmental support.
Finally, I note some significant criticism of the TVA. One of course has to take any such analyses with a boulder of salt, but for instance this report from a bipartisan analysis group shows a pattern of entrenched entitlement and poor accountability. Whether it would be better privatized is anyone's guess, of course.
What it seems to me is that there needs to be a balance. The pool of investment money needs to be kept in check, and the flow of money through the government has to be kept from becoming an entitlement. There are some things which work better as public utilities, and others which do not (and possibly some that can work either way). I am having some trouble articulating one thread of what is making me uneasy about the discussion, but it emanates from my sense of us as a certain aristocracy; I do not trust us to place our privilege in place of that of wealth, and have everything turn out OK.
I'm going to skip back a long way here... back to the response in #16. I would not argue that Old Money isn't "very fond of their special deals." So are you, if I may be blunt; none of us would ever want to give up the privileges we gain by not being poor, uneducated, and powerless. One has to be stupid not to make some use of ones advantages. It seems to me, however, that to some degree your analysis of how scams are cargo-cult-like is also based on the same perception of how rich people operate, as the scams themselves are based on those perceptions. What I see instead is that there is a particular pattern of thinking about money-making which can be found all up and down the economic scale, and which varies in its manifestation according one's resources to participate in it. The thing is, though, that it doesn't work for rich people any more than it works for poor people; it just seems to work for a while. But it is powered by the same gullibility. What changes its character is that actually being able to do it transforms gullibility into hubris. Somewhere along the line new money has to start acting like old money in order to stay money at all; but the first, necessary act is to step away from the get-rich-quick schemes. The special deals perhaps help keep rich people rich, if used prudently; but they aren't what make people rich.
In point of fact, I hate sales taxes. One of the things that pissed me off about our new Democratic governor is that he pushed our sales tax rate up. Our income tax rates are not so bad, even in this state, that we couldn't have pushed those brackets up a bit instead. The political problem, obviously, is that the establishment in this state is Democratic, so he couldn't hurt the upper middle class too much, or else they would put a moderate Republican back in; he had to push some of the burden elsewhere. He could afford to piss off the urban poor because they are never going to vote for a Republican, and he could afford to piss off the rural poor because the troglodytes would never vote for a Democrat.
I think it would simplify these exchanges if people would quit assuming that, because I express some dissent, I'm some kind of neocon borderline wingnut. I don't have those kinds of ideological commitments. It is even possible to get me to change my mind, but that's not going to happen when I get tagged with positions I reject.
Bruce Baugh @59, Have you read Trollope's 1875 book The Way We Live Now? (TV series in 1969 & 2001, last during the dot.com boom/bust, after Robert Maxwell's demise, but losing several subthemes.)
C Wingate @60, evolution is just how I regard scams & spams; why the Commonwealth Income Taxation Act is so thick, too.
re 65: That's one thing that has struck me about all accounts of the current mess: the way that as they filled up one kind of dubious securitization, they expanded out into ever more tenuous vehicles.
#60: I'm going to skip back a long way here... back to the response in #16. I would not argue that Old Money isn't "very fond of their special deals." So are you, if I may be blunt; none of us would ever want to give up the privileges we gain by not being poor, uneducated, and powerless.
By definition, deals everyone enjoys are not special. By definition, they are standard deals.
Albatross @35:
As a sideline, in one sense, I think the Madoff scam really did fit Teresa's pattern--Madoff was pretty much the ultimate insider, and used affinity (religion, ethnic identity, country club membership) as a kind of explanation for why this insider was willing to give his victims an opportunity to take advantage of the benefits he got from being an insider. In another sense, though, it doesn't fit the pattern at all. The folks who invested with Madoff were already quite wealthy, the sort of folks most of us might expect to get sweetheart deals and such all the time. And Madoff himself, in order to get his extraordinary returns, didn't avail himself of insider knowledge or some such thing. Instead, he ran a Ponzi scheme. The advantage he got by being so well-connected was that many people thought they could explain his extraordinary returns by his insider status, and regulators appear to have not taken claims he was running a Ponzi scheme at all seriously.Yes. That's it exactly.Even more fun, a lot of his investors were hedge funds. The claim I've read is that those hedge fund managers probably recognized that his pattern of returns was impossible, but may have assumed that he was benefiting his own fund by using insider information from his brokerage operations, front-running trades and such. This fits a pattern which I think is somewhat common in cons, too--the one where you steal from me, while convincing me that you and I are really stealing from someone else.
Patrick can confirm that fairly early in the scandal, I looked at Madoff's pattern of impossibly regular payouts and said, "I'll bet he didn't invest any of it."
Teresa #64:
My question has always been about his motive.
The guy was already immensely rich, right? Along with that, his amazingly good reputation and connections would have allowed him to command a huge salary for putting his name on any number of financial companies doing dumb but not fraudulent stuff like the "picking up nickels in front of a steamroller" strategy of AIG[1]. Had he done that, he'd have muddied up his name, but he'd be looking at retiring in amazing luxury, with no member of his family for the next several generations likely to ever know want.
Alternatively, if he wanted fame, he could have written books (after hiring a suitable ghostwriter as needed) or had a TV show. IF he wanted more weighty fame/praise, any university MBA or finance or economics program in the country would have been excited to bring him in as a lecturer on pretty much whatever schedule/workload he wanted.
So what made him do the pyramid scheme? Why did it make sense for a guy who had it made on pretty much every front to risk financial ruin and prison?
Did he believe his own BS, start doing normal hedge-fund sorts of stuff, and then somehow transition to a pyramid scheme at some point? Did he start out with the plan to build a pyramid scheme, knowing it would end with either him going to prison, or most of the assets he might have left to his family being seized after his death? It's just hard to make sense of the whole thing.
[1] AKA writing credit protection on a bunch of stuff that would only start defaulting at any noticeable level in a once-in-a-lifetime economic downturn, but which would then destroy the company.
C Wingate #60:
I am coming around to the notion that there does need to be some check on the amount of money looking for an investment. The excess helps to create bubbles, because it powers scammish investments and their speculative kin.
At one level, this is already being done--it's part of the job of the fed to "take away the punch bowl when the party is just getting started." However, we don't have omniscent incorruptible angels available for that job, so the fed's policies are subject to error, ideological blind spots, and political influence. They also have only very blunt tools available--the fed can make credit easier or tighter, but can't really target that credit at (say) building factories but not McMansions. If they tighten credit, bubbles will deflate, but also fewer cars will be sold, unemployment will go up, etc. If they loosen credit, unemployment will go down, more factories will be built, more cars will be bought--and more McMansions in the exurbs built.
At a more basic level, plentiful investment capital is the reason the US standard of living in 2009 is immensely higher than it was in 1959, immensely higher than the standard of living of Mexico or Thailand. Decreasing today's available capital to be invested means decreasing tomorrow's income and productivity. That's true, even though bubbles happen, because even during the height of the bubble, a lot of non-bubble investments were being made--factories being built, new drugs being developed, new companies being started up, etc. (A lot that *aren't* being made now that the bubble has popped.)
I think trying to strictly limit capital available for investment as a response to the existence of bubbles and financial panics is about as sensible as getting rid of all regulatory agencies as a response to regulatory capture and demonstrated cases of regulator corruption or incompetence.
The rich societies we know how to build are basically market-driven, with some measure of redistribution and regulation. They are chock full of ugly tradeoffs, people acting on their baser emotions (greed and envy and fear and inertia and lust for power), and messy, sometimes disastrous, outcomes. When we see those, it makes sense to tweak the system and try to improve them, as with welfare reform, occasional bits of de- and re-regulation, twiddling with the tax code, etc. It rarely makes sense to try to radically restructure the system, IMO, because despite the claims of various zealots, we have no f--king clue how to make those massive restructurings work.
albatross @ 66... we don't have omniscent incorruptible angels
Just as well otherwise they'd be played by Christopher Walken and Tilda Swinton.
Epacris: Thank you for the nudge! It's been a while since I did any Trollope. Should fix that.
Albatross: "the US standard of living in 2009 is immensely higher than it was in 1959" is what's at stake, though. For the huge majority of the country, their income is no better off than it was at the start of the Reagan Revolution, and quite possibly worse, in real terms. They owe their improvements in quality of life to two things: improved quality of physical devices, and improvements financed by unsustainable use of credit. In the meantime, their necessary costs are way up, uncertainty of income is up, lots of bad things are up.
This isn't to be so foolish as to insist that it isn't, on a moment by moment basis, often way, way, more comfy in 2009 than 1959. But yeah, I am going to say flat out that we could be much, much better off if the money from productivity gains and the rest had been spread throughout the population, even if that meant the total take were significantly smaller. Because stress is real and a killer, and real income is real income, and life without a crushing debt load is a life with improved freedom of choice, and all of this stuff counts in people's lives.
The country as a whole would be much better off if, for instance, only half the alleged economic growth of the last thirty years had happened, but it were distributed roughly equally through all strata so that it could be spent in more productive ways.
Albatross @65:
My question has always been about his motive.I can't figure it either. I can only speculate. One possibility is that he had some kind of clever new scheme which he was sure would work, only it didn't work. This isn't hard to imagine. I've noticed that successful people who've had a clever idea, good timing, and a lot of luck, tend to believe that they've been clever. When they try to duplicate that initial success by having another clever idea, achieving only a modest success, or having an outright failure, takes them very much by surprise.The guy was already immensely rich, right? Along with that, his amazingly good reputation and connections would have allowed him to command a huge salary ... So what made him do the pyramid scheme? Why did it make sense for a guy who had it made on pretty much every front to risk financial ruin and prison?
Did he believe his own BS, start doing normal hedge-fund sorts of stuff, and then somehow transition to a pyramid scheme at some point? Did he start out with the plan to build a pyramid scheme, knowing it would end with either him going to prison, or most of the assets he might have left to his family being seized after his death? It's just hard to make sense of the whole thing.
If it took a while for Madoff to establish that his clever new idea wouldn't work no matter how he rejiggered it, he could have been too deeply involved to get out of it, and/or too far gone in denial to address the situation while that was still possible.
My other speculation is that his scheme was never intended to be honest, but that it was also intended to be a smaller and more limited affair. Stock brokers can pull stunts that boost profits, though they usually do it on their own behalf. That's not a real limitation, though. Money is what money buys. What Madoff would get for generating excessively high returns for a small group of investors would be their gratitude and esteem. In effect, it would be a device for distributing largesse to people who wouldn't respond well to outright bribes.
The trouble is, in a nominally free market, excessively profitable investment opportunities gradually become oversubscribed, until they reach the point of no longer being profitable. Furthermore, someone who knows about a sure-fire investment opportunity that's still in its profitable phase will always choose to pass on that valuable information to his ne'er-do-well brother-in-law, or to someone he'd like to have owe him a favor. You, a stranger, are not going to hear about it. By the time there are TV ads offering to teach you how to make big money by bidding on vehicles seized by law enforcement, it's pretty much guaranteed that public car auctions are no longer a way to make easy money.
I can think of two ways a scheme to inflate investor returns could come to grief. One would be for Madoff to buy into his own PR, and accept more clients than he could cover by fiddling the market. However, I'm not comfortable with that theory, because it requires that Madoff be stupid and stay stupid for decades on end.
The other way it could come to grief would be for Madoff to fail to foresee that an over-profitable investment scheme would attract too many investors. Privilege stops working if too many people have it, and everyone has a favorite charitable organization and dotty widowed aunt they'd like to see provided for. Madoff wouldn't have been able to tell his target clients that their inflated returns were camouflaged bribes. He'd gradually wind up taking on all of Rabbit's Friends and Relations, hoping all the while that he could somehow make good on it in the future. That's how you know he was an amateur: they don't have the endgame worked out before they start.
Maybe, maybe. It's all speculation.
How I figured Madoff wasn't paying actual returns on investments: the early stories I saw emphasized the regularity of his payouts to investors. Someone who can do that for real shouldn't go out of business. Moreover, someone who was almost doing that for real, or who was doing it for a while but then got into difficulties, would have been swerving and staggering and cutting deals, basically doing everything he could to make his saving rolls, before it all crashed down into ruin. This would have been noticeable. Yet Madoff hadn't been doing anything of the sort. All the stories said there'd been no prior signs of trouble. The model that fit the known circumstances was that he'd never invested in the first place.
Here's the question I find interesting: we know that whistleblowers like Harry Markopolos were ignored. Harry Markopolos isn't the kind of guy you ignore when he's telling you that a major hedge fund is a Ponzi scheme. We also know that there'd been all kinds of other red flags, which were likewise ignored. So: who else did they ignore?
(That's "ignore" as in "fail to investigate.")
They missed Stanford, too. And probably others we haven't heard of yet.
It looks like both of these were never anything but Ponzi schemes, run by people who were 'nice guys like us', in terms of the groups they targeted. And yeah, oversubscribed, because those who got money back told their friends and relations, who would have wanted to be in on it. (I'm sorry for the pension funds that bought into these, although they should have done a better check before handing over other people's money.)
Madoff's motive?
More.
Frank McCloud: He knows what he wants. Don't you, Rocco?
Johnny Rocco: Sure.
James Temple: What's that?
Frank McCloud: Tell him, Rocco.
Johnny Rocco: Well, I want uh ...
Frank McCloud: He wants more, don't you, Rocco?
Johnny Rocco: Yeah. That's it. More. That's right! I want more!
James Temple: Will you ever get enough?
Frank McCloud: Will you, Rocco?
Johnny Rocco: Well, I never have. No, I guess I won't. You, do you know what you want?
Frank McCloud: Yes, I had hopes once, but I gave them up.
If I remember correctly, Madoff originally intended his Ponzi scheme to earn money to pay off some bad investments that his family had made; he intended it to close once the money had been repaid.
However, word got out on how well it was performing, and he realized that he had a near-perpetual money making engine on his hands, and just couldn't bring himself to stop it. Of course, by that time closing it meant admitting he was running an illegal pyramid scheme, so he kept riding the bull hoping that at some point he could jump off. None of that excuses what he did, but it does help explain why so many big name investors (even Buffett!) were taken in by Madoff's scheme.
Bruce, #68: I think that "higher standard of living" is largely illusory. What I'd really like to see, and have never found anywhere, is a chart showing the percentage of annual income that the average person spends on necessities (food, clothing, shelter, transportation, utilities, etc.), broken out by economic bracket, over the last 50 years or so. This would be a measure of "disposable income", which is really what runs the economy -- and my gut feeling is that it's been steadily dropping, for all Americans except in the uppermost economic classes, since about the Vietnam War.
Does anyone know how Madoff spent the missing money? I think I would be hard pressed to spend that much money in so short a period of time. I could use up a lot of it by purchasing a portfolio of micronations, and still have plenty enough left over to fully fund the EFF and Amnesty International for the next fifty years.
Lee: "disposable income" usually means the reverse - exactly how much do you have left after the survival basic expenses of food, minimal clothing, average-priced shelter, etc. (Or maybe you're saying the same thing I am - look at the percentage and then look at what's left over.) And I'm not sure you're right about your assertion - in the '50s to '70s a lot of things used to be very expensive in real terms. IIRC, cars used to cost a lot more in real $$ for instance.
I also think there's a very big difference in direction between what was going on to average income and average standard of living between, say, 1959 and 1981, and between 1981 and now. If you pick your intervals carefully, it's not hard to make it look like there was a huge improvement from point X to now, when actually it was an even bigger improvement, and then a slow reversal.
(And my goodness how strange it feels to suddenly realize that there's many more years between '81 and now than between '59 ("long ago") and '81 ("not so long ago"). I guess for most of us, the time before we were born is ancient history, and everything after we're a bit older is just stuff that happened.)
Teresa #69: That's how you know he was an amateur: they don't have the endgame worked out before they start.
He had the endgame worked out: He's make One Really Big Score doing something else and pay back all the money out of that.
The odds of making a score big enough kept getting longer, but by then he was trying to outrun the avalanche.
It's how Jim Van Treese thought he was going to bail out Northwest Publishing: he was taking the money that hopeful authors were sending him to publish their books, going to Vegas, and trying to win enough money to pay them all back, publish their books, and make it work.
(Van Treese, too, is doing hard time in the Federal slammer.)
You've seen Bernie Madoff a hundred times before: He's the rich white guy who didn't get published, decides that publishing is broken, and sets up his own publishing house.
I think disposable income is usually used to mean income available after taxes. Wikipedia suggests "discretionary income" as meaning what you guys are talking about.
My intuition is that the standard of living in material terms is quite a bit higher. Some Googling led to this page which suggests that in material terms, we're doing better over time.
Now, in terms of quality of life, I'm not sure how to measure it. We live in a massively different world now than in 1959, say. For example, I think more households owned homes in 2000 than in 1960, but the whole meaning of household changed--way more of those households had two wage earners, people tended to marry later and have fewer kids, probably fewer of those households had parents living with them, etc. My sense is that in stuff like quality of machines we use, or quality of medical care you get when sick, we're much, much better off. (If you are offered the choice of the health care available to the president 1959, or me today, you want my health care. If you want to survive a crash, keep your car running a long time, or be fuel efficient, choose my Honda Accord over the best car on the market in 1959.)
Similarly, despite the churn and chaos of the last few years, we're not now facing an industrial-civilization-ending war scheduled for the next time a false alert isn't recognized in time by some military commander. We're not likely to be embroiled in a massive conventional war anytime soon, either. (Note the size of the Iraq and Afghan wars.) The economic meltdown and global warming are scary, each in their own way, and yet I'm not sure either fear compares with likely nuclear annhilation.
In terms of how well our lives track with our natures/needs, I wouldn't be surprised if we'd gone downhill a bit, but I am not clear how you'd measure that. I gather people are more often alone and isolated now, that there are vastly more single moms now (mostly having very hard lives), that there's probably less job security and less commitment to a community now than in 1959 (but I'm not really sure of that). On the other hand, I expect (again, I'm not sure) that your quality of life in 2009 is much better than in 1959 if you're black or gay, at least in most of the country. I have no idea how to weigh all these different things against one another.
albatross #78: Similarly, despite the churn and chaos of the last few years, we're not now facing an industrial-civilization-ending war scheduled for the next time a false alert isn't recognized in time by some military commander. We're not likely to be embroiled in a massive conventional war anytime soon, either.
Such optimism may be premature at least until after Fate checks the math on the upcoming North Korean missle launch.
Jim @77:
You've seen Bernie Madoff a hundred times before: He's the rich white guy who didn't get published, decides that publishing is broken, and sets up his own publishing house.But that's the guy who believes the sayings on inspirational posters.
Clifton, #76: Sorry, on second reading that really was unclear on my part. Yes, disposable discretionary (thanks, albatross!) income is what's left over after you've paid for the necessities; my point was intended to be that discretionary income is one of the best measures of perceived well-being, and that if the percentage of income you have to pay for necessities keeps rising, it doesn't matter how much you're making in absolute terms, you're going to feel as if you're losing ground.
There are a lot of charts out there that track the prices of various consumer goods over time, but what you never see is one that tracks those prices as a percentage of average income. And it's that percentage which really matters; absolute figures are easy to jigger to support any conclusion you want.
Is that better?
Earl@75: a lot of the money was paid out to early investors; that's the definition of a Ponzi scheme. Remember that this was well over a decade of >10% rock-steady returns -- and note that some of the early investors are being looked at to cough up some of their gains.
#80 TNH But that's the guy who believes the sayings on inspirational posters.
They aren't mutually exclusive, you know.
Look at the "we make our own reality" Republicans. Lots of them were really rich, too.
James D. MacDonald #77: He had the endgame worked out: He's make One Really Big Score doing something else and pay back all the money out of that...
Jim, that's not an "endgame worked out", it's more like denial with a side order of prayer. Professional scammers know that their scam will eventually be discovered, and they've made plans accordingly -- where to run when the jig is up, how to take their loot with them, etc. -- not to mention, how to tell when the game's up. I concur that Madoff was essentially an amateur.
Teresa @ 80... that's the guy who believes the sayings on inspirational posters
Well, sample of one here, but my kids' standard of living is much higher than mine was at their age, despite the fact that I was supported by 2 parents working full-time, and my kids are living on one part-time and one full-time income. I'm not even thinking here about things that are available now that weren't then (cable, internet) but rather things like the quality of food and clothing, educational opportunities, quantity of books, size of house, travel and entertainment, etc.
Part of this is due to the fact that both my parents and both my husband's parents have died, and left us a good bit of the money they saved by not treating us to all that stuff when we were kids.
Our own retirement funds (such as they were) have shrunk considerably in the past year. Now we're hoping to recoup enough between now and retirement that the kids won't have to support us.
Serge @ 67
Just as well otherwise they'd be played by Christopher Walken and Tilda Swinton
At least they can sing and dance.
Eloise:
What I did when selling books through Amazon and Half was set up a separate checking account and move the money out of it into my regular account as quickly as possible. I did this mostly because I don't really trust Paypal.
Of course, I'm lucky in banking at a credit union that has very low minimum balances to avoid fees. YMMV.
If you're dealing mostly in penny books, one of the swaps (I love Paperbackswap) is probably your best bet, but it's hard to justify swapping a book that sells for $5 on Amazon.
Bruce Cohen @ 87... But can they dance on a pin?
I'll see your banking fraud, and raise you a debt default. (While they're doing their very very best to make the Consumer Financial Protection Bureau go away.)