by Chris Billowsin Business Beller0 commentstags: Corporate Corruption, Foolishness, Human Condition
I was reading about Bernie Madoff’s investment scandal and it suddenly struck me that defined-benefit pension plans (public and private) operate on the same principal as Madoff’s Ponzi plan. Bernie Madoff defrauded his investors of $65 billion dollars with a massive ponzi scheme. Madoff was smart by never offering suspicious high returns to everyone, but did guarantee a steady and modest return regardless of the state of the stock market. This latter point should be suspicious to any intelligent investor. Yet that is exactly what our public and private defined benefit plans are doing. They guarantee a return or benefit rate. Yet how can they do this? Just like Madoff did, by using new money brought in from new investors (or pension contributors) to help meet the payout obligations. As long as new citizens grow up and are forced to contribute to the pension plans, the plan remains viable. But, perhaps we would all be better served by a defined-contribution plan, where the return is based on how well one’s money is managed, instead of compelling citizens to make pension contributions to maintain unsustainable payouts.
by Chris Billowsin Business Beller0 commentstags: Change of Mind, Corporate Corruption, Free Enterprise
I have re-watched the Credit Crisis video a few times and each time its message really hits home. Not only was the crisis created by collective greed, but also a sophisticated scheme to generate money without actually contributing much useful. It was all about getting rewarded without doing any heavy work. Sure sounds like socialism. It is a socialist ideal to have people have all their needs met with minimal effort on their own part. Only within socialism are people allowed to make poor choices and still get away with it, because after-all the larger community will take care of you. Yet what we are witnessing is not socialism in its pure form. What we are seeing is a kind of socialism known as State Capitalism. This is where governments in the US, UK, and other places prop up their banks and financial institutions. This ends up saving and rewarding many of the same people who created the credit crisis. Yet, just like in the video, the state stood aside and allowed this to happen and even contributed to it by keeping interest rates too low. The state has to step in because it helped create the crisis in an […]
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