Stealth Funds

They’re a socialist idea that cannot exist without capitalism. Sovereign wealth funds are their name, a fancy title for state-owned investment pools. They come in various shapes and sizes, created by countries as different as Norway and Qatar…which actually aren’t as dissimilar as you’d think.

The leftist plan for sovereign funds is pretty simple: take cash-flows that the state controls and instead of spending it immediately – hello USA congress – invest it in real assets or with asset managers. Sounds good, right? If you do this consistently over years,  you end up with something like Singapore’s fund, which is worth around a third of a trillion dollars. That puts it in the top ten.

One presumes that eventually the nut will be large and stable enough that the return on the investments will yield cash back to the people. If this reminds you of the oil royalty system for Alaskan residents, it should. The difference lies in the direct connection between oil out of the ground and a check in the mail. In Alaska, there is minimum government interference in that process. Everywhere else, layers rule.

The disconnect lies in philosophy. Governments do not create anything, and the least thing they create is wealth. Their only income derives from taxing, regulating for fee and forced usurpation of the fruits of capitalism. Adding value, increasing productivity, creating goods and services for which people pay money is neither a socialist nor a governmental function. But the money governments require to support themselves must come from somewhere. Hence their parasitic nature.

The SWF is then just another way of governments controlling what belongs to you. They think that it’s their money to invest, and, even if the idea sounds reasonable, I disagree. They money still belongs to me. Why would I cede responsibility for investing money beyond what the government needs to that same government? Why not return that money directly to me, or just not take it in the first place?

Reality is more nuanced, but not much. Most SWFs are based on the money obtained from resources, mostly oil. That’s the common denominator of Norway and Qatar. Because the oil technically belongs to all citizens (or subjects) the justification for these funds is that it’s the best way to manage the wealth so derived for everyone.

Except. Except that without capitalism, that oil stays in the ground, useless. And when it is recovered, the Alaskan model shows a better way. From an oil reservoir deep underground, via enormous investment, to the end user, from whom the royalty is paid yearly to the owners. No socialist goals. No mandated investment guidelines. No bloated fees. No third-party decisions about how the profits are used.

Centrally Muffled

My mental picture of America is rooted in the 1980s. I first came here in 1984, flying via Honolulu and San Francisco – for a large night – and then on to Seattle the next day. I can still remember the trip over the Cascades of Oregon and Washington, seeing the remains of Mt St Helens.

This was the heyday of the Reagan Revolution. After the scandals and stagnation of the seventies, the air tasted alive here. Watergate, oil embargoes, the dismal Carter years were all behind us. The optimism welled out of the ground.

As well, the actions of (Hells!) the Fed, via Paul Volcker, had squeezed all the inflation remnants out of the economy. This was when the Fed knew what it was doing and why.

Contrast August of 1984 with October of 2015. 31 years separate them, but it might as well be 3100. The big difference lies in a change of emphasis. Instead of a culture of making things happen, of entrepreneurship and improving one’s life, the attitude is one of passivity. What benefits can I get, what’s the short-cut, what can the government do for me?

It reminds me of Belgrade in 1987. No, not that bad. But we are certainly on the way.

Centrally Parked

Yet again, we wait for a bunch of eggheads to deliver their decision. Yep. We’re on FedWatch. Tomorrow, I think, we bow down before their highnesses.

I heard Bernanke talk yesterday. He’s on a book tour, touting his work. When asked about his voting preference in next year’s election he demurred.

Yeah. Really. Shall we talk about John Maynard Keynes and his ideology?

How did we end up here?

The Vig

Mario Palmer owes me $1,950.

This debt extends back to the winter of 2010, when Florida froze for a few days. Dead fish piled up on the beaches and alligators piled up on each other to find some sun that winter, and snowbirds bitched that it was warmer in Michigan. Being cold-blooded does have a downside, and the wildlife had its problems too.

Mario came to me when the power company, Florida Power and Light, put a demand on him for previous unpaid bills. Delinquencies, in more accurate language. Seems that in his heyday as a house flipper, Mario’s budget either did not extend to paying his power bills, or he figured he’d be out of the house and able to pay from the gains. He’d borrowed way more than he could afford, and planned on a profit. That’s my guess.

Then came the bust. Shenanigans at investment banks, liar loans, mezzanine finance, credit default swaps and the ratings agencies got greedy. When markets (specifically the CDS market) moved slightly away from where holders figured it would always be, the entire con job collapsed. Merrill Lynch; Bear, Stearns; Wachovia; Countrywide Washington Mutual…and Mario all went tits up.

I’ll never get my money back. I understand that. But the wisdom of the (I think) biblical advice to “…neither a lender nor a borrower be…” is no longer lost on me.