Swindles are a way to transfer wealth
Swindles are a way that people transfer wealth from the person or people being swindled to the swindler. In some cases the wealth is also transfered from some of the swindlers to each other. This is because most swindles are also confidence games in which at least some of the participants are aware of the stakes. Gambling Casinos, Wall Street, speculation, Payday Loan Companies, the Lottery; all are essentially confidence games in which at least some of the people involved know the stakes and are in on the swindle — but participate anyway. Swindles are essentially a cheap way to transfer wealth from those who don’t have much wealth to start with to those who have more than they need. Legitimate business is a way to create wealth.
Thus most swindles in our country are not so much the result of individual deliberate fraud so much as systematic, policy, political fraud that ignores moral, legal, and common sense Boundaries and thus perpetrates injustice by policy. “It’s not personal, just business” says the Mafioso, whether he’s a proud member of an old family breaking your legs, or a sheriff coming with a foreclosure notice. If our society weren’t so incredibly corrupt they’d be rare things. But our society is corrupt morally, ideologically, and politically, so they are a regular facet of our participation in it. “The Great Crash: 1929″, John Kenneth Galbraith, First Published 1955
“This notion that great misadventures are the work of greate and devious adventurers, and that the latter can and must be found if we are to be save, is a popular one of our time. Since the search for the architect of the Wall Street debacle, we have had a hue and cry for the man who let the Russians into Western Europe, the man who lost China, and the man who thwarted MacArthur in Korea. While this may be a harmless avocation, it does not suggest an especially good view of historical processes. No one was reponsible for the great Wall Street crash. No one engineered the speculation that preceded it. Both were the product of the free choice and decisions of thousands of individuals. The latter were not lead to the slaughter. There were impelled to it by the seminal lunacy which has always seized people who are seized in turn with the notion that they can become very rich. There were many Wall Streeters who helped foster this insanity, and some of them will appear among the heroes of these pages. There was none who caused it.”[http://lachlan.bluehaze.com.au/books/galbraith_1929crash.html]
That might have been true about the 1929 stock market crash. But it took a lot of effort to dismantle the lessons learned and laws that were created at that time. Still you can never point to just one individual. This debacle took an entire class of swindlers.
Most swindles don’t start out with bad intentions. They start as good ideas that fall into the hands of the few, the merciless, and people who see opportunity to innovate in making money from money. The great Con that accompanied the creation of the first Continental Railroad involved a scam in which one of the Vice Presidents figured he could make more money by taking in investment money and pocketing it than in actually building a railroad. Which he proceeded to do; bribing the US Senate, creating front companies and “contracting out work” to protect his fellow schemers, and then systematically milking innocent investors. The railroad was a public good and a good investment. The swindle was in how a few insiders used that effort as an excuse for conning people worldwide. It worked for him. That was a major swindle, but the same kinds of thinking have driven every swindle since.
Anyone who thinks that we aren’t governed by banks, big corporations, and con artists has never bought a car, a house, or paid a utility bill. The only difference between public governance and private governance is the level of lying involved in public governance is usually eventually checked by elections. But there is little we can do about private corporations except watch them collapse when the weight of their lies, errors, and swindles catches up to them. Enron was able to beat out the Governor of California and elect an Actor to replace him; but they couldn’t beat out the logic of balance sheets. Wall Street and Main street were able to pick a Supreme Court by creating a myth of infallibility for the Federalist Founders of the country. They then have used that ideology to systematically dismantle the first and fourth amendment for ordinary people while transfering its privileges and powers to private corporations. Swindles happen because they can happen. It takes time to create the institutions, powers, and corrupt laws that let them happen.
Violating the Bottom Line
However, even with all that, swindles don’t have to happen. When there is an expansion of wealth, the wealth production usually has the potential to float all boats. Capitalism when well directed can do that. For example during the internet boom, there was real value being added by many of the Dot Com start ups, and there was reasonable expectation that people would be using the fiber cables and internet capacity being built at the time. In the early stages of the swindle most of what is going on really is mutually beneficial. Investment and expanding money supply are usually good things and when those investments go into wealth and wealth producing assets this is “win/win” for everybody involved. But the marker of a real swindle is when money gets spent on capabilities that can’t possibly benefit anybody but the people bringing in the cash. The swindle part comes from the transfer of real wealth that is involved in ordinary fraud. Swindle is bait and switch politics, they are the multitude of ways that the wealthy take from the rest of us and then find ways to make it seem like its our fault.
There is no need to swindle people. On the contrary when wealth really is spread broadly; people are paid a good fraction of their earnings, ordinary folks are encouraged to accumulate wealth, the pool of investment money also rises. This is demonstrated by these periodic swindles, largely because their whole purpose seems to be to tap into these pools, burn them off, and transfer the remainder to the swindlers. There was no need to create companies founded on fraud such as half the dot coms (we make more money by selling stock — actually having a business plan would detract from that), Enron, Country Time and all the others.
Property Wealth to Capital, Capital to Wealth
Money is not usually itself useful wealth unless it can be spent. Money enables commerce and innovation which create wealth, and so its value is found in its exchange value. Money enables people to transfer wealth easily. At one time its primary purpose was to enable travelors to do business as they brought goods from one market to another — or fled from city to city. Money is always related to capital, because it takes that form. The concept of capital formation requires the ability to either borrow money or draw investment money from outside the place where the productive assets are being acquired and deployed.
Actual wealth is money plus accumulated assets, which take the form of owned debt, ownership of real, artificial or actual properties. Productive assets generate income. A person with actual wealth can convert some of that wealth to money on demand, and usually owns properties that generate money so they don’t have to do so. In a highly capitalized society everybody needs money to buy necessities, and someone owns everything. However, the limit on the value of money is the value of the assets to be mortgated or sold in exchange for others.
These assets, properties are the real wealth of society. An individual can only borrow to the limit of the properties that he or she can morgage. Societies limiting factor on the availability of money is in the assets that can be bought or sold easily. Inflation occurs when money is issued that can’t be backed by equivalent value. When all a person can sell is his or her services, then he or she is at the mercy of the market. Real wealth is the ability of people to dig into pockets and spend money even when its not coming in. Swindlers know this and have ways to convert wealth to money, and money to wealth, without spending their own money.
To put assets to work they have to be capitalized and converted to money or money ready exchange instruments. There are only two ways to capitalize assets; to sell them or to borrow them. Those with wealth have an enhanced ability to borrow because they can do so either without endangering their core needs, or by access to Other People’s Money that they can capitalize and use “in trust”. So the rich tend to lend to the rich, to be the rich, and to be the “officers”/trustees of other people’s money. And since they can monetize their own properties (by selling some of them), they often can pay cash for debt, not always their own, and pay their own debt down with printed cash. This is capitalism and the virtue of modern banking.
The rich have a built in advantage in a Capitalist system when it comes to income. Their deep pockets make them resistent to the worst effects of the business cycle. However, it is policies that enable and encourage them to embark on swindles. And their prey are the rest of us with less deep pockets and a dependency on the common wealth of the nation to get by. The deepest swindle is the bait and switch which first talks about the evils of government and then transfers the powers of government to private hands — who then have a systematic way to transfer wealth from those who actually generate it to themselves.
Can’t resist the Swindle
Thus it is not enough to help people get homes, instruments have to be devised that entice people to buy homes they can’t afford, and then once they are in those homes spring an interest rate trap. It’s not enough for private officers to pay workers less than they pay themselves; they have to figure out ways to get their hands on their pension plans, to get them investing in stock swindles (1920′s), borrowing from the Company Store (Gilded age), or working at low wages in fear of violence (most of the period up until the 1950′s).
And switching the actors won’t change the roles. Communism essentially degenerated into a swindle perpetrated on the working man by self appointed “vanguards” who built up a system of lies and oppression that actually made capitalism look good by comparison.
At one time aristocrats maintained status and privilege by outright violence, nowadays they do it through swindles. Bush could talk about an “ownership society” and everyone was thinking he was being generous and beneficient. But I heard people laughing about what was really going on; baloon mortgages, fraudulent lending, confidence schemes to get people to buy houses beyond their means; all were systematically designed to transfer ownership from the credulous rubes who were conned to the insiders who did the conning. Ownership society means his friends owning us. That this was an intentional swindle is also demonstrated by the passing of “bankrutpcy reform” whose only real purpose was to strip ordinary people of the ability to avoid foreclosure on their primary home. And it worked. The big banks did such a good job at committing fraud, creating risk, spreading and shifting that risk to other investors, and building up portfolios designed mostly to pay bonuses to themselves, that when the whole thing collapsed the country could only give them more money which they used to spread the risk to small banks (by buying them). By the time the whole thing collapsed, the big banks had created front companies which switched from the lucrative business of originating fraudulent loans, to the almost as lucrative business of stripping people of their property through foreclosures. In all these things it’s been “win/win” for the smart operators, though at the cost of millions of temporary homeless folks and hundreds of thousands of impoverished, dispossessed and miserable folks.
And these folks have the chutzpah to blame “the Government” for this denouement. When it suits their convenience we have the best government money can buy. When trouble comes they pretend they don’t own it. Yes, the problem we have is that we have representative government, but we don’t have true democracy. And we don’t have local democracy but have predatory swindlers at the helm.
The purpose of democracy is to check the officers of society by making them accountable to someone. Even with checks, their urges to make money by conning folks rather than earning it tend to be overwhelming, and the only way to effectively stop them is to institute checks and balances, public trusts, and to watch them like hawks. We don’t do this. Our officers con us because we let them get away with it. And they are doing it in Congress, main street and wall street right now. We shouldn’t let them get away with it.