John L. Perry’s column on Newsmax.com is way out there. But his comparison ‘twixt the Motown bailout and Charles Ponzi’s infamous con game (whereby the first in bilk the last out) isn’t entirely forced hot air (i.e. all heat and no light). “Under a Ponzi scheme, the sheep get fleeced because they want to play the game. They convince themselves they’ll get rich quickly. Otherwise why part with a single dollar? In fact, the crook running the Ponzi scheme has a hard time beating off the gullible, who can’t wait to be gulled. Under the Detroit scheme, every opinion poll taken — for whatever that’s worth — shows American taxpayers overwhelmingly do not want their tax dollars spent this way. Apparently, they don’t know what’s good for them.” In other words, no, the bailout is not a Ponzi scheme. It’s worse. “In a collapsed Ponzi scheme, the crook in the private sector can go to jail. In a collapsed Detroit scheme, no one in government goes to jail.”
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If only it was just (taxpayer surplus cash) at risk here. Bob, The US govt. has neither the Detroit or the banking debacle money sitting unused in Washington safes. It will have to print and borrow this money. Both of these events will have a deflationary effect on everyone’s currency. Even the poor who pay no taxes will find the few dollars they have buy less and less. No one really explains this to citizens or the people would respond even more negatively.
As I said before, moderate Democratic principles, much less Republican principles, advocate letting failed companies fail. However, there is a bit of Rove strategery in letting Bush take credit for “saving” the auto industry now AND setting up the Republicans to take back Congress when the public tires of the endless payouts to special interests.
What is happening at the D3 is kind of a microcosm of what awaits all Americans in about ten years. The main price of overhead for the domestics is in “legacy costs” of meeting pension and health-care promises made long ago that are coming due today. If you subtract those legacy costs, the price of labor for the domestics is much closer to the transplants (hidden costs of crazy UAW work-rules aside).
The same thing is going on with the national retirement and medical pension systems today. People have been paying more into those systems than obligations paid out for decades. The government has skimmed all that money and it is gone now.
When people start pulling more obligations than they pay in that is a 1-2 punch for Uncle Sam because now the skimming money is gone, and a new cost has reared its head to consume the money that’s left. The “legacy costs” of the American retirement system will become an acute drag on doing business in this country, and could very well render the national government insolvent. Its funny the way people don’t see that coming, just like they ignored the tea-leaves regarding these automakers when the writing was on the wall ten years ago about what awaited them.
Carnot Cycle.
My novice analysis is the same as yours. But other than saving my money for a rainy day and staying as relevant as I can in my profession, I really don’t know what to do about it. I voted for Ron Paul, but he is considered a loon by most people.
Carnot Cycle-I’ve seen others our welfare etc systems to Ponzi’s. Personally I think the analogy (hmmm…is it an analogy, or a description) is valid. FDR pulled the biggest Ponzi of all time and the payback is coming.
Bunter
First of all, the real schemes have already been played. The Politicians sold out American manufacturing for kickbacks from the Japanese. They are reffered to by Pat Bucchanan as “Toyota Republicans”.
America CAN’T COMPETE with Japan or China until we have NATIONAL HEALTHCARE so the automakers aren’t forced to cut back on R&D due to the costof paying health benefits.
America can’t compete with Asia if we allow them to sell 700,000 Hyundais here while 6000 of our cars sit on their docks and are taxed so high that noone will by them.
I’m in favor of protectionism.
I’m in favor of more Socialism.
The countries that have these things are whuppin America’s asses.
This country has Wine tastes – but, beer money.
CarnotCycle: “The “legacy costs” of the American retirement system will become an acute drag on doing business in this country, and could very well render the national government insolvent. Its funny the way people don’t see that coming, just like they ignored the tea-leaves regarding these automakers when the writing was on the wall ten years ago about what awaited them.”
It’s cognitive dissonance, the clash between belief and reality. In the 90’s I was using Pete Petersen’s little book “Will America Grow Up Before It Grows Old?” as one of the readings in my public budgeting classes. It’s very readable and easy to understand. But I’m afraid most of my students never really “got it.” Nor could they really grasp the basic concept of “entitlement” as explained by Robert Samuelson. My class may have been the only political science course they took that wasn’t based on the assumption that somehow Government Can Fix Things.
Social security is the worlds largest Ponzi scheme.
When that baby boom bubble hits the government will be swamped and the money has already been spent. It is not likely this will take ten years for the most spoiled people in the history of the world to feel the pain that the huge and growing debt load will foist on them. Gonna be no easy way out of this economic train wreck and the bailouts and stimulus will just make it worse. They need to cure the disease and instead they are providing painkillers while the cancer grows.
I agree, Social Security is the biggest Ponzi scheme ever. The government gives former workers the money that current workers pay in to the SS. That is the same cash flow as a classic Ponzi scheme.
But the government giving away money they don’t have to failed businesses is even worse.
Ponzi Scheme?
No.
Black Hole.
If you want a secure investment, don’t save your money (fiat currency is only intrinsically valuable for kindling), buy land. At least you can go live there, grow a garden, have a few goats and chickens… survive. Build a huge rock wall to defend your claim from those who would come take it from you.
The most interesting times are still to come… with the about face of geographical locations of a few 3rd world countries.
Nice to see the Selfish Bastard Party is as well-represented at TTAC as it is in US society in general.
(Selfish Bastard Party Platform –> fiscally ‘conservative’ + socially ‘liberal’ = I want all the benefits of a modern activist government and mixed economy…but I don’t want to pay for it)
Social Security is not a Ponzi scheme anymore than any other insurance plan is.
I’ve probably paid $30k of auto insurance premiums in my lifetime and made approximately $1k in claims.
That’s the way it works: We all pay into the risk pool, but only some of us get the benefits.
The problem with Social Security is that the ‘insurance’ model quit working as life expectancy rose.
The other problem is that it is funded by the most regressive tax we have. Bill Gates, Warren Buffet, and someone making about $100k/year all pay the exact same Social Security tax.
Lifting that cap would solve all of Social Security’s funding problems for a far as we can see.
I also find it interesting that the Madoff Ponzi scheme is treated as an afterthought, a throwaway.
Never mind that the sums involved are twice that of the proposed bailout of Detroit.
A Wall Street huckster evaporates $50 billion of other people’s money, and it rates a few paragraphs on page 6.
But suggest that the government loan half that amount to the companies that make up one-half of the US auto industry, and it’s the topic of multiple Page 1 articles/analyses, and every bloviating pundit laments the unfairness of it all.
Nope. No class warfare going on here….
So, first citing the Heritage Foundation for “facts” and now a commentator from Newsmax? This site is getting more painful to visit every day.
Is it really your intention to chase away any readers that aren’t Limbaugh dittoheads? If so, it’s starting to work.
Times are too tough for too many people to get any “I told you so” satisfaction out of the auto bailout. All of this unabashed cheerleading for the failure of these companies is really distasteful.
I truly hope that none of your livelihoods is adversely affected by this situation.
P.S. To the readers that claim that Social Security is a “Ponzi Scheme,” maybe you should check and see how much of your retired parents income comes from Social Security. I’m sure that your own retirements are fully funded (from your lucrative 401(k)’s of course) but I bet that your parents standard of living would be seriously affected if Social Security wasn’t there, to say nothing of Medicare.
Social Security is not a Ponzi scheme anymore than any other insurance plan is.
I’ve probably paid $30k of auto insurance premiums in my lifetime and made approximately $1k in claims.
There is a big difference between an insurance company and Social Security from an operational perspective. With insurance companies, you pay into a big fund, just like Social Security. In insurance, the money is invested in the hopes that you can make money with the premiums before you pay them back. In the insurance biz it’s called “float.” Hardly any insurance company makes an operating profit from premiums alone.
In Social Security, the excess money that goes in every year that’s not payed out is replaced by pseudo-Treasury bonds that are not in anyone’s name, and have no real expiration date. That’s why they’re called “Special Non-marketable Securities.” The government then takes this ostensible retirement money and makes craters in Iraq with it, or Serbia or Grenada…or Vietnam for that matter. It adds up over time. Imagine said insurance company took all the excess money not payed out every year and just blew it all on various highly speculative adventures. Hmmm..sketchy. Now imagine said insurance company replacing the missing money with the insurance company’s own debt and not allowing anyone to sell or even own the debt they are owed, with a payback date the insurance company sets based on its fiscal needs year-to-year instead of its now-creditors. The officers running that company would go to jail for fraud obviously.
That’s what Social Security is as a fiscal operation. Whether you support such a scheme or not based on altruism is irrelevant, the fiscal fact is it is not solvent over time and has siphoned $billions$ of mandated retirement savings to blow on wars and god-knows what else for decades. I’m unimpressed.
Social Security is the same as auto insurance?
With Social Security you pay large sums every year with the expectations that at retirement age you will receive the money that the government has collected from you and use that to finance the retirement. Unfortunately the government never kept any of that money and when the baby boomers reach that retirement age they will find the cupboard is bare and the ponzi scheme they call Social Security is broke.
Geez, the misinformation here is staggering.
Money paid into Social Security was never meant to be saved and paid back to you when you retire. The money you and I are paying in goes to current retirees right now. Many of these people rely on this income to survive. When the Baby Boomers start retiring there will be more money going out in benefits than coming in due to the smaller number of workers currently contributing. It doesn’t help that the government has spent the previous surpluses on wars, weapons and tax cuts.
TINSTAFL.
This Ponzi scheme goes back all the way to the 19th century. I think the author has a good point.
Geez, the misinformation here is staggering.
Money paid into Social Security was never meant to be saved and paid back to you when you retire. The money you and I are paying in goes to current retirees right now. Many of these people rely on this income to survive. When the Baby Boomers start retiring there will be more money going out in benefits than coming in due to the smaller number of workers currently contributing. It doesn’t help that the government has spent the previous surpluses on wars, weapons and tax cuts.
What you just described is a Ponzi scheme. Like I said, the only difference really between a Ponzi (pyramid) scheme and an insurance or investment operation is you skim and pocket the “surplus” premiums instead of investing them, knowing you pay them out later some day. That sound an awful lot like the way you described Social Security, which is accurate.
Contrast both the national pension (Social Security) as it operates, and even the pension scheme the Feds run for their own employees (which the Feds skim out of every year, just like Social Security) with something like CALPERS. For all the politicized administration of CALPERS, at least state employees for California have a flush pension fund. The Feds, unlike the States, get to make up their own accounting rules and so forth to get away with this fraud.
Big national retirement pension schemes with mandated savings might be politically debatable, but operationally they can be made to work…with the caveat that you actually save and invest the money like a real pension. Social Security is a generational ponzi-pyramid scheme, not a pension.
Unfortunately, I am at the ideal age (30-something) to be right on time to take a huge bath on my “retirement” savings in Social Security when its my turn to collect. I don’t feel sorry for myself, I can see it coming. But that’s another reason I don’t need to pay for someone else’s like dilemma right now. I’ve got my own retirement insolvency to deal with down the road, and don’t intend on begging a bankrupt government to bail me out because that option will no longer be available.
Here’s why Social Security is not a Ponzi scheme. The whole point of a Ponzi scheme is to get rich quick, right? That means that the amount that you get out of the scheme is designed to be far, far greater than the amount you put in. I don’t think that anybody expects that they will get more out of Social Security than they put in. To the contrary, it is part of our social contract that a portion of the money that we contribute is also used as a financial safety net so that senior citizens do not fall into poverty. This safety net is supported by a significant majority of Americans.
Describing Social Security as a Ponzi scheme is not just inaccurate, but worse, shallow.