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Sue's Review of Planet Ponzi

Page history last edited by Jonathan Chambers 10 years ago

Planet Ponzi (How politicians and bankers stole your future. What happens next. How you can survive) – Mitch Feierstein – 2012

 

Mitch Feierstein is a highly successful hedge-fund manager, and very interested in green issues. He divides his time between London & New York.

 

  • “Mitch Feierstein delivers his controversial views without fear or favour and tells the truths others are too terrified to voice or desperate to hide. If you want to understand the financial mess we are in now, and what’s likely to happen next, you can’t afford not to read him.” (Ruth Sunderland, Associate City Editor, Daily Mail)

 

The Big Short referenced in passing that the sub-prime fiasco was one big Ponzi scheme. This is the whole tenet of Feirestein’s book:

 

“A Ponzi scheme is a type of pyramid scheme – a fraud. Depositors are promised huge returns, but these returns are a mirage, paid out only as long as there is money coming in from new investors. As long as the scheme is expanding, everything looks fine – but you can’t tell how bad a Ponzi scheme is by how you experience the ride. It’s not the ride that matters, it’s the way it ends. And it always ends badly.”

 

There’s a lot to like about this meticulously referenced, well-written and accessible book, which includes both notes and an index. Feierstein repeatedly invites the reader to check the facts independently, and not take what he says on trust. He reminds us that, historically, countries only took debt on for crucial threats (wars). Also, he stresses the power of lobbyists in USA (UK too, presumably) in ensuring (lack of) regulation. I really like his great images to illustrate the size (for example) of a billion, to show that these are not just numbers with loads of noughts. The scandal involves frighteningly, eyewatering amounts. Feierstein doesn’t just stay with America. He covers Britain & mainland Europe too, as well as the rest of the world, so his analysis is global. He also emphasises the interrelatedness of the financial system, with the inevitable knock-on consequences if one part of it goes down. (Though he is positive about new Zealand!)

 

Highlights:

 

  1. p.305 He detected a cultural change within banking around 1980: “Wall Street became a place where Salomon Brothers, the leading firm of its day, could cheat the US government on a colossal scale. It became a place where awful subprime securities were sold by salesmen who knew these things were awful – and nobody went to jail. It became a place, indeed, that could bankrupt the entire world’s banking system – yet still, mesmerizingly, astonishingly, inexplicably, nobody has gone to jail. Indeed, the very same people who did these things are gazillionaires. They made their money by bankrupting the planet and we’ve let them keep it, all umpteen gazillions of it.”
  2. p.309 Towards the end, he has a chapter on ‘What is to be done?’ He has a list of suggested policy changes, which include honesty and transparency, proper regulation, rules with real bite, and significant fines and jail terms for those who step out of line. Disappointingly, though, no mention of ‘Positive Money’.
  3. Also – as with Wishart’s book – he concludes with personal advice, which just about stops short of ‘gold, wheat and shotgun shells’. One of the issues close to my heart (having been scammed by that other Ponzi scheme Equitable Life) is the question of pensions, and providing for old age. That’s another disappointment with this book, which glosses over the issue by suggesting people ‘put a little money aside each year’. But where I ask? Wishart is cynical about current government schemes, and reinforces his view by quoting the just-released Financial Markets Authority annual report on Kiwisaver, which shows that employees automatically enrolled into ‘default’ savings providers lost almost half their Kiwisaver earnings during the year in fees alone! (p205)

 

If I were to recommend one book for the four I’ve read, it would be this one. Feirestein even has a website ( www.planetponzi.com ) for interested readers to keep up-to-date with the issues (blog, videos, etc). The main downside of the book for me was that I found it profoundly depressing. Even though Feirestein says it’s not his intention to depress, and he remains an optimist!

 

 

Postscript (not including Greece):

 

Interesting article in the Independent last month. Stephen Foley (‘US Outlook’ 28th April 2012) commented:

 

“ …. public ire has been turned on the bonus-hungry bankers whose actions exacerbated the crisis. …. Far too little has been turned on the people who built and validated the deranged intellectual framework that prevented bankers, and the rest of us, from seeing what was happening. …. A lot of the over-complexity of finance can be traced back to a faith in economic models whose flaws are baked in at the level of academic economics. …. These traditional models from the economics profession laid the shaky foundations of our house of cards. So why has there been no revolution? …. There are stirrings. Last November, students at Harvard staged a walkout from the class of Gregory Mankiw, whose Principles of Economics is a standard textbook in universities. …… Forget the bankers. It’s the economists, stupid.”

 

 

Hot off the presses, news only last week about the difficulties of JP Morgan Chase, now headed by Jamie Dimon (whose rise was documented in ‘Fool’s Gold’). When JP Morgan originally developed complex derivatives in the 1980s, they were sufficiently prudent to manage the associated risk. Consequently, they survived when the pack of cards brought down other banks which had been irresponsible. So what happened last week, when their trader nicknamed ‘The London Whale’ lost the bank $2bn (and counting)? Have they learned nothing? And what were the regulators doing? Jamie Dimon (vociferously opposed to greater banking regulation (!)), has put his hands up to the problem. Here’s a link to just one of the articles: JPMorgan Chase boss Jamie Dimon: 'I was dead wrong' http://www.independent.co.uk/news/business/news/article7743625.ece

 

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