Bernie Madoff, CPP/RRQ & Health Insurance

[August1991]

This quote has bothered me.

If you believe the Keynesian argument for stimulus, you should think Bernie Madoff is a hero. He took money from people who were saving it, and gave it to people who most assuredly were going to spend it. Each dollar so transferred, in Krugman’s world, generates an additional dollar and a half of national income. The analogy is even closer. Madoff didn’t just take money from his savers, he essentially borrowed it from them, giving them phony accounts with promises of great profits to come. This looks a lot like government debt.

Link

Earl Jones too took money from people, gave them an account statement and then spent their money.

When Earl Jones or Bernie Madoff took money, like when the government takes money for health care, it is spent. When the government takes money for pensions, the money is also spent. Individuals can save but a society can only spend.

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I think the only difference between Madoff/Jones and governments is that governments have the power to force us to contribute.

[msj]

Wow, how stupid.

Not knowing the difference between savings being blown up and real savings being prudently managed (well, as long as the politicians are kept away - which, hey, look at those rules, they are!) is quite telling.

But no, Canada should do what they do in the US - set up Social Security.

Then have SS lend its money from the SS trust to the regular operations of the government.

So now, SS holds a receivable (treasuries) from the operating arm of the government.

And the operating arm owes SS. Nice wash there.

Now watch what happens to the values as the US dollar sees a secular bear market develop.

But, hey, that's no ponizi scheme.

Yeah, taking money and investing it in CDN/Foreign stocks, bonds, real estate, private equity, government bonds - yeah, that's totally like Madoff or Jones.

My gawd, this is stupid....

[Pliny]

I think I mentioned on another thread that the lid was coming off this Ponzi scheme !

[Griz]

Look at what happens when you trust a right-winger?

I think I mentioned on another thread that the lid was coming off this Ponzi scheme !

[August1991]

Not knowing the difference between savings being blown up and real savings being prudently managed (well, as long as the politicians are kept away - which, hey, look at those rules, they are!) is quite telling.

msj, I always read your posts even though I often disagree with you.

Your post has me confused.

The Quebec government takes about 10% of my income for the Caisse (elsewhere in Canada, the federal government forces people to give 10% of their income to the CPPIB).

How is this different from Madoff? In particular, if governments use my savings to give people money without any guarantee of a return, how is this different from what Madoff did?

Does it change things if we call it a "stimulus package"?

[msj]

There is a difference between giving money to a person who wastes it and giving it to an institution (whether private or public) that invests (saves) it.

Madoff is a thief.

The CPP is a well run organization that prudently invests the funds it receives in a diverse portfolio and is actuarially sound since it is based on a conservative rate of return (4.2%).

Sure, we can play the "is it really safe" game.

There is never 100% certainty in anything unless it involves the taxpayer bailing out banks and automakers.

I suppose the taxpayer would bail out the CPP too if some kind of black swan wiped it out.

Of course, if that were to happen it is more probable that the government wouldn't be around to bail anything out in the first place (and, it is also probable that individuals savings - however meager they really are - would fare just as poorly, if not perform worse).

So, yes, under extreme circumstances anything can happen.

Sometimes it is best to diversify in a buried school bus, tin foil, and some shot gun shells.

I'm more interested in what is most likely to happen.....

[August1991]

There is a difference between giving money to a person who wastes it and giving it to an institution (whether private or public) that invests (saves) it.

...

The CPP is a well run organization that prudently invests the funds it receives in a diverse portfolio and is actuarially sound since it is based on a conservative rate of return (4.2%).

...

I suppose the taxpayer would bail out the CPP too if some kind of black swan wiped it out.

Black Swan?

Giggle.

How about a Goldman-Sachs Swan? msj, you remind me of Barry Ritholtz: smart guy, knows rumours, good trader - but he doesn't see the big picture. For Ritholtz, the big picture is Goldman-Sachs, Glass-Steagall.

Edited September 18, 2009 by August1991

[msj]

As usual, you don't know Barry Ritholtz.

Or what a black swan is.

When in doubt throw a bunch of nonsense around and pretend you might know something about the "big picture" I guess.

More importantly, you fail to understand how the CPP, under the pre-1990's changes, would have been a bigger threat to retiring Canadians than the current system.

Our aging population is the biggest threat to our collective security in retirement (as a Cdn Business article has pointed out - find the link yourself if you want to read it).

If the government did not insist on "forced savings" by taking money from people now and saving it to come out of the system later, more retirees would be even further screwed than they already are (since many private pensions will fail, most Canadians do not have much, if any, savings - and relying on selling real estate is a strategy only for those who get out of the market before the rush - and tax increases thanks to the government bailing out failed private pensions will hurt those who have saved for retirement).

The problem has roots in demographics, moral hazard, too much debt (private and public) and too many promises from politicians and too many voters stupid enough to vote for them and their legacy costs....

I'm not going to bother to argue the big picture with someone who is a pretender as evidence by your comment regarding Ritholtz which is irrelevant to this thread in the first place and show a childishness that is most telling.

[August1991]

I'll accept this thread drift, and meet it...

Our aging population is the biggest threat to our collective security in retirement (as a Cdn Business article has pointed out - find the link yourself if you want to read it).

Perhaps, but let me assume your point is true.

And the solution to this problem is to hand over buckets of cash to an "independent" group named by politicians? Do you think such a panel will make wise choices? Really?

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msj, if you mean that some people should be forced to save for their retirement, then sadly, I must agree. We live in a society where some people make bad choices and then do-gooders expect the rest of us to bail them out. In such a society, it's probably cheaper to force everyone to save.

But do we have to put all these saved eggs in a basket controlled by an "independent" panel named by politicians? Why not let people, if they choose, control their own CPP/RRQ pension savings?

The CPPIB, like the Caisse, is a time bomb about to go off. We have concentrated power in a dangerous way. Keep in mind too that this is a recent experiment. State pensions have existed for about 100 years - but the money just went into government coffers. Like Canada's health system, taxpayers assumed the liability. The CPP/RRQ have only existed for about 40 years and they too at first just bought government bonds. Politicians decided how to save the money. This recent experiment in independent panels allocating CPP/RRQ savings is about 20 years old. Most financial innovations fail at first.

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msj, your quote above raises the "real" problem. The issue is not money, banks or financial deals - our problem is "real", not "nominal". How and who in the future will provide the real services that aging people will expect?

To answer such a question, it is irrelevant what the deduction rate for the CPP is - other than to make plain that governments can change these numbers at their leisure. (If I were looking for future changes, it would be in means testing for OAP, personal exemption according to age and provincial health benefits for the elderly. If you are getting older, a word of advice: make sure you have a younger family member who you trust to protect your interests.)

msj, you see the world as a tax accountant seeking a benefit for your client. You don't see it as a Finance Minister setting tax rules for society. In this sense, I admire you. msj, you probably have a far better understanding of the world than any Finance Minister.

Edited September 20, 2009 by August1991

[msj]

August, the reason I'm putting back in my ignore file is simple:

we have had this conversation in various threads and you bring up the same opinionated "reasons" for disliking the CPP.

The problem is I have already addressed these "reasons" elsewhere.

Since you continue to ignore the facts (especially about how the CPPIB board is set up, how it is protected from meddling politicians) I see no point in wasting my time discussing this issue in such a circular way.

I suppose if you were to present proof that you have read the documentation I have put up on this in prior posts rather than apply your bland, generalized, lazy cynicism (bglc) I would change my mind.

But I'm tired of 99% of the people on this board wasting my time with their bglc attitudes.

[Pliny]

I think the only difference between Madoff/Jones and governments is that governments have the power to force us to contribute.

The answer to this comes from Voltaire, "All paper currencies eventually return to their intrinsic value of zero."

msj has an argument only if "money" is real (thus, making savings real) and has not been degraded by government. msj has a common misconception that government will guard, uphold and not degrade the countries money. We are working entirely with tokens today which will eventually lose all value per Voltaire.

That "money" evolves in a market and is taken over and degraded by government, under the pretext of protecting it, is the reason for social and economic collapse. As much as government raves about the greed and the evils of capitalism, it is never the fault of "capitalism" or a free market that a society experiences economic collapse. Even now the economic crisis is more one of government panic over loss of revenues than it's concern for anything else, even unemployment, which the stimulus package will not improve.

The purpose of Keynesian economics is explained in his introduction of the German edition of his General Theory.

JM Keynes: "The theory of aggregate production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire. This is one of the reasons that justifies the fact that I call my theory a general theory."

Krugman loves State intervention. In 2002, after the collapse of the Y2K bubble he was pushing for the creation of a new bubble. The State chooses to follow Keynes as his theory enables them to intervene and manipulate economies, and I will generalize here and say, their intervention and manipulation always ends in collapse of the aggregate economy.

msj, your quote above raises the "real" problem. The issue is not money, banks or financial deals - our problem is "real", not "nominal". How and who in the future will provide the real services that aging people will expect?

You will continue to be circular in your arguments if you agree with false statements like the above. The issue is "money".

[August1991]

But I'm tired of 99% of the people on this board wasting my time with their bglc attitudes.

bglc?

Since you continue to ignore the facts (especially about how the CPPIB board is set up, how it is protected from meddling politicians)...

Meddling politicians? msj, are you anti-democratic? In a democracy, even Supreme Court justices are ultimately under the control of elected politicians.

I'm not worried about "meddling politicians" or even corruption. I'm worried about concentrating such power in so-called expert Gosplan hands. For such questions, the experts invariably get it wrong. Decisions about society's future are best left in all of our hands.

The answer to this comes from Voltaire, "All paper currencies eventually return to their intrinsic value of zero."

Paper? Some currencies are based on stone drawn from the earth:

My faithful old friend, Eatumak, assured me that there was in a village near-by a family whose wealth was unquestioned, acknowledged by every one, and yet no one, not even the family itself, had ever laid eye or hand on this wealth; it consisted of an enormous fei, whereof the size is known only by tradition; for the past two or three generations it had been, and at that very time it was lying at the bottom of the sea!

Milton Friedman, The Island of Stone Money

You will continue to be circular in your arguments if you agree with false statements like the above. The issue is "money".

No, the issue is who will produce the goods and services and at what terms expected by people holding savings now. IOW, there are many ways to change the terms of trade.

[Pliny]

No, the issue is who will produce the goods and services and at what terms expected by people holding savings now. IOW, there are many ways to change the terms of trade.

The real issue is how an economy is eventually destroyed by government monetary and fiscal policy.

Milton Friedman was a monetarist, and gave us the concept of withholding payroll taxes during WWII; a wonderful contribution. A brilliant man, from what I know, but aided government in centralizing economic power instead of loosening it.

There is only one organization that has the ability to affect an entire national economy and that is a national government that controls the nation's money supply. The central bank structure is of course international and guides national governments in their monetary and fiscal policy. That organization is thus the only one that could affect the global economy. GM, Bernie Madoff, Eli Lilly, cannot affect a national economy. If they should fail their competition picks up the pieces and we carry on. The boom/bust economic cycles of a nation's economy is entirely a manifestation of government monetary and fiscal policy.

It is my opinion, as far-fetched as it may sound, that the US currency is being debased and a crisis of economy is being driven in order to introduce to the American public a North American currency.

This is something that Americans will not easily accept and may never accept, choosing instead to return to honest money. Probably the Government will offer a limited temporal window to exchange the old currency for new before it cancels the official recognition of the old as a legal tender.

The other option is to have it replace other currencies and become the global currency. It is not a realistic scenario as it won't be able to overcome international resistance to the concept which would be greater than America's resistance to adopting a North American currency. They will be able to convince their citizens to trade in their dollars for new when the old are near worthless. Something those "holding savings now" will wish to retain as savings.

December 2012 marks the 100 year anniversary of the birth of the Federal Reserve. The central banks are consolidating their efforts for a great celebration. There has to be reason to celebrate - if it still exists.

Edited September 26, 2009 by Pliny