The trees have all turned green and the air outside is heating up just in time for the ritual of dressing up in black robes, black hats, long sleeve shirts, pants, and any other non-summer friendly clothing for the sake of graduation! Oh, and did I mention that these events are usually forced to take place outside, in the heat, because that is the only place you can fit fifty thousand proud family members, each armed with air horns and fresh vocal chords? But that is all a negligible price to pay in order to witness those who have made the accomplishment of graduating from college.
I hear people say things like “these days everyone goes to college” and “so what, everyone graduates from college” and it makes me sick to my stomach. To make light of the fact that in America, the land of the free, the home of the worlds best post-secondary education system, 30% of our population is able to graduate from college. To put it in perspective, only 10% of the US population was able to graduate from college in 1970, which means we have tripled that number in only 40 years! So 30% of our population is able to earn a bachelor's degree or higher in what is probably the toughest, and certainly the most respected university system in the world and we look at it as if it were just another day when graduation rolls around? Shame on us! We should be jumping for joy and celebrating at the top of our spirits because for every college student that receives a diploma, it brings us all one step closer to maintaining our edge as the dominant country in the global economy.
So the next time you get an invitation to a graduation or you meet a person who has recently graduated, don't just say “congratulations”, say “thank you and God bless you for working your ass off to better yourself and the world that we live in”. Getting through college is tough and requires an immense amount of energy and commitment that only 30% of our country is willing to expend. While that number is higher than in any other country, it still warrants a ginormous pat on the back to those who walk that distinctive path.
Sunday, April 26, 2009
Friday, April 17, 2009
Ponzi Schemes Explained - For you Elise!
I have to admit, I have been totally slacking on my blog posting lately. I have had many good ideas to blog about but I just keep putting it off like a bad blogger. I am trying some new motivational techniques to keep me on point, but the whole reason I am blogging to begin with is for motivation so what I am left with is a huge motivational “hairball” that ends up becoming anti-motivational! What a mess!
Anyway, Elise wanted me to write about Ponzi schemes and how all the stuff that Bernie Madoff did can be considered Ponzi in nature. After some contemplation, I decided that a complete explanation would be way too long for the blog, so bear with me for the abridged explanation.
Wikipedia defines Ponzi scheme (named so after Charles Ponzi, who popularized the idea) as “a fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than from any actual profit earned”. In my opinion, the biggest Ponzi scheme ever is Social Security. The way Social Security works (at least in America) is that today's working generation pays, as a portion of their income tax, a contribution to the Social Security Trust Fund which is in turn used to fund the Social Security checks that are issued today. This is a classic Ponzi scheme and is not too much different from what Madoff was doing with his clientèle.
Madoff, being a powerful Wall street individual, was requisitioned by many of his friends and counterparts to manage their investments for them in exchange for healthy commissions. This is not all too much different from how Financial Consultants (the guys at Morgan Stanley and Smith Barney) make a living. What Madoff eventually realized was that as long as his clients’ portfolios were doing well (10%+ annual returns), they was more likely to leave their money untouched and not withdrawal contributions. It is only when portfolio values begin to fall that people consider cashing them in (thoughts we have all shared lately). This predictable facet of human behavior is what Madoff was eventually able to prey on. Once his managed account got large enough (probably around $500 million) he began sending his clients fictitious annual statements that reported amazing returns even though the money was not even being invested in any securities at all. Instead, he was depositing the funds in his bank account and getting rich! Only when an investor decided to "cash out" did he have to make any real payments and this seldom happened on the count of the fact that his investors thought they were getting phenomenal returns!
Classic Ponzi schemes do not generate any real wealth or return on investment which makes them appear to be much better in nature than they actually are. Investors can be fooled into thinking that they are receiving real returns, as many Americans who benefit from Social Security income so believe, but in reality these schemes only tie up money that could otherwise be invested in legitimate instruments that generate real returns. Just think, if instead of paying 7% of your income (lets say average take home is $20,000) to the Social Security Ponzi scheme, you put that money in an interest bearing savings account at 5% (the average for most money markets) you would have $689,657.36 after thirty years. That is enough to pay out $34,482 a year for 20 years! Way better than Social Security and you are not screwing your grandchildren out of 7% of their income!
Anyway, Elise wanted me to write about Ponzi schemes and how all the stuff that Bernie Madoff did can be considered Ponzi in nature. After some contemplation, I decided that a complete explanation would be way too long for the blog, so bear with me for the abridged explanation.
Wikipedia defines Ponzi scheme (named so after Charles Ponzi, who popularized the idea) as “a fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than from any actual profit earned”. In my opinion, the biggest Ponzi scheme ever is Social Security. The way Social Security works (at least in America) is that today's working generation pays, as a portion of their income tax, a contribution to the Social Security Trust Fund which is in turn used to fund the Social Security checks that are issued today. This is a classic Ponzi scheme and is not too much different from what Madoff was doing with his clientèle.
Madoff, being a powerful Wall street individual, was requisitioned by many of his friends and counterparts to manage their investments for them in exchange for healthy commissions. This is not all too much different from how Financial Consultants (the guys at Morgan Stanley and Smith Barney) make a living. What Madoff eventually realized was that as long as his clients’ portfolios were doing well (10%+ annual returns), they was more likely to leave their money untouched and not withdrawal contributions. It is only when portfolio values begin to fall that people consider cashing them in (thoughts we have all shared lately). This predictable facet of human behavior is what Madoff was eventually able to prey on. Once his managed account got large enough (probably around $500 million) he began sending his clients fictitious annual statements that reported amazing returns even though the money was not even being invested in any securities at all. Instead, he was depositing the funds in his bank account and getting rich! Only when an investor decided to "cash out" did he have to make any real payments and this seldom happened on the count of the fact that his investors thought they were getting phenomenal returns!
Classic Ponzi schemes do not generate any real wealth or return on investment which makes them appear to be much better in nature than they actually are. Investors can be fooled into thinking that they are receiving real returns, as many Americans who benefit from Social Security income so believe, but in reality these schemes only tie up money that could otherwise be invested in legitimate instruments that generate real returns. Just think, if instead of paying 7% of your income (lets say average take home is $20,000) to the Social Security Ponzi scheme, you put that money in an interest bearing savings account at 5% (the average for most money markets) you would have $689,657.36 after thirty years. That is enough to pay out $34,482 a year for 20 years! Way better than Social Security and you are not screwing your grandchildren out of 7% of their income!
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