From Simon Black of Sovereign Man
A Very Subtle Form Of Theft
Say what you want about him, but Bernie Madoff was a guy who knew how to keep the party going. For years, he ran one of the largest private-sector Ponzi schemes in history and always heeded the golden rule of financial scams: make sure your inflows are greater than your outflows.
He was finally done in when redemptions exceeded new investments. He didn’t have enough cash to pay out investors, and he wasn’t able to scam more people into paying in to the scheme. As a result, Madoff finally had to admit that the whole thing was a total fraud.
Governments around the world are in similar situations right now with their own public sector Ponzi schemes. Faced with failed auctions, declining demand, and rising yields, politicians are having to resort to desperate measures.
Like any good scam artist, they’re appealing to the masses first; all over Europe, governments are sponsoring new marketing campaigns suggesting that it’s people’s patriotic duty to buy government debt.
In Spain, they’re actually issuing instruments called ‘Bonos Patrioticos,’ or ‘patriotic bonds’. Ad campaigns say that the bonds are “good for you, good for the future.”
In Ireland, they’ve issued “Prize Bonds” which carry a 0% interest rate; instead of receiving interest, bondholders are entered into a weekly lottery contest. Naturally, lottery winnings are only possible as long as people keep buying the bonds… pretty much the definition of a Ponzi scheme!
In Italy, they’re rolling out the country’s sports celebrities to encourage everyone to buy Italian sovereign debt.
What’s ironic is that Italy’s dismal balance sheet is almost universally acknowledged. It’s as if everyone knows the country has almost no chance of making good on its obligations, but they still feel the need to willingly throw away their hard earned savings for the greater good of political incompetence.
Thing is, it’s not the millionaire sports stars, wealthy business leaders, or political elite who are buying these bonds… at least, not in anything beyond a token, symbolic amount. It’s the average guy on the street who really stands to get hurt when the government finally capitulates.
This is a truly despicable act and amounts to theft, plain and simple.
The United Kingdom, which is rapidly reaching this banana republic sovereign debt status itself, has unveiled a plan to issue roughly $50 billion in infrastructure bonds. This would be the equivalent of issuing $300 billion in the US– not exactly chump change.
Given Britain’s already colossal debt level, private investors aren’t exact diving in head first to loan the government even more money.
Undeterred, British Chancellor George Osborne plans to ‘highly encourage’ UK pension funds to mop up about 60% of the total amount. “We have got to make sure that British savings in things like pension funds are employed here and British taxpayers’ money is well used,” he said.
In other words, ‘we are going to make sure that British people buy our junk, one way or another.’
The last year has seen numerous pension funds around the world, from the United States to Argentina to Hungary, be raided for the sake of keeping these Ponzi scheme going. The UK is already lining up to be the next.
It’s one of the last acts of a truly desperate government to begin directing public and private savings into their Ponzi schemes.
Fast-forward a few downgrades and you can plan on seeing the exact same thing in the United States– appealing to people’s patriotism to loan their hard-earned savings (if they even have any) to the Federal government at a rate of interest that fails to keep up with inflation.
It’s nothing more than a very clever (and subtle) form of theft.
http://scm-l3.technorati.com/11/08/20/49839/Nval-Ravikant-8-11.jpg?t=20110820132145
I recently spoke with Naval Ravikant, Co-Founder AngelList and Co-Maintainer Venture Hacks regarding the manner in which AngelList is changing the startup funding landscape. Naval describes why Silicon Valley will continue to be less of a dominant force in the startup universe over time and how tools like AngelList are facilitating the creation of entrepreneurial communities all over the world.
JG: Naval, what is the value proposition underlying AngelList?
Naval: Venture Hacks is educating entrepreneurs on the game theory of how to raise venture capital. AngelList is the productization of that. These days, thanks to code and community, we can productize almost any process done by humans. We are productizing the raising of capital for startups.
You can watch my interview with Naval below or on YouTube here: http://www.youtube.com/watch?v=IkuXQAvaKgY
JG: My venture firm, Rincon Venture Partners, recently invested in The Resumator, which we identified via AngelList. It is unlikely we otherwise would have become aware of The Resumator, as they are based in Pittsburgh. Are you finding that AngelList is an effective forum for startups located outside of traditional startup hotbeds or was our experience an anomaly?
Naval: It’s actually quite common. The core business we have built on is taking out-of-market startups and introducing them to investors. Late last year, there were more high-quality, seed-stage startups in New York than there was an Angel community to support them.
JG: Venture Hacks and AngelList are both great assets for the startup community. Other than giving back to the ecosystem, do you have plans to monetize your efforts beyond selling books?
Naval: The most important thing for an investor… is access to deals. When great companies really hit, all the investors want in and there isn’t enough room.
One of the things AngelList helps us do is raise our brand, have a pre-existing relationship with many, many entrepreneurs and give us access into great deals. We are not concerned in the short-term with making money. This is a ten year project…, we’re one and a half-years in and we have a long way to go.
Long-term, we may start investing in some of these companies as they go through. We are not taking the incubator approach…we would invest on the same terms along side the other investors and we would make sure to be a very, very small piece of the round and not to crowd out anybody.
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