Another Ponzi scheme bites the bullet. Earlier this year authorities seized homes and other assets belonging to people involved with online gambling. Still, it wasn't until yesterday that the world discovered Full Tilt poker was a full on Ponzi scheme. The world of poker has always been seamy, but all the television stuff had given it an air of legitimacy. Then there is the fact that so many stars in the poker world were actually on the board and deeply involved with Full Tilt.
Phil Ivey, known as the Tiger Woods of poker, was a spokesperson but not on the board of directors. This is a huge story that could end the push for legalization of online poker and send the game back to dorms and tavern backrooms. But, I bet when this is all said and done and the story comes out we'll find out a bunch of guys with the right mix of computer skills and poker fame decided to go into a legitimate business. I bet (no pun intended) they got in over their heads and a snowball became a mountain. It's not about feeling sorry for these guys if they're guilty, it's about how many of these Ponzi schemes evolve.
This brings me back to the comments on Social Security being a Ponzi scheme. For many, the fact Rick Perry made such an analogy was more shocking than the fact our Social Security program is in trouble and must be fixed. It's going to run out of money long before many young adults paying into it right now get a chance to collect. In Ponzi schemes money is collected with the promise of future payouts, but it's never invested so there are no yields. The only way to pay old investors is with newer investors. In addition to being raided a long time ago the numbers for Social Security add up to eventual disaster.
If allegations are true, those poker stars are now facing big-time criminal accusations as it apparently didn't take long for them to decide a flawed business model wasn't good enough reason not to keep moving on and eventually pay themselves $440.0 million. The stakes are much higher and the ante (pun intended) in the trillions of dollars for Social Security. If you think "Ponzi" is too harsh a word you're focused on the wrong thing. This is a disaster that must be fixed now, not on the eve of destruction.
Loss of Faith and Pushing Around Ben
Speaking of never-ending schemes, I note that today is the day the Federal Reserve makes Operation Twist official. I'm not sure if there will be a yawn or sell-on-news impact, but I'm sure the Street wants more than juggling long and short-term debt. I suspect the Fed will have to suggest that (NYSE:A) there are still more tricks up their sleeve; and (NYSE:B) they are prepared to pull those rabbits out of their hat. The twist isn't going to be enough as it's obvious by now it's not about ultra-low interest rates but the ability and desire to take advantage of the rates. In the meantime, Republican leaders, including Mitch McConnell, Jon Ky, John Boehner, and Eric Cantor sent a letter to the Fed to resist moves to further lower interest rates.
I agree with their rationale, but think this crosses the line that must be in place. Voicing an opinion is one thing, but this letter borders on intimidation and opens the door for the White House to become even cozier -in public- with the Fed. The heat is on the Fed, which appears clueless in its attempt to get the economy going even as each move it has made means a future of pain and inflation. There are a lot of pieces to the puzzle to getting America back on its feet. The Fed moved too slowly at the start of the crisis and since has been too quick to take victory laps. But, for me, the biggest problem is the fading confidence in all parties involved to get this right.
New poll results from USA Today/Gallup paint an amazing picture of pessimism:
> 80% says the nation is already in recession
> 60% says the economy will be same or worse a year from now
> 37% say thinks will be better in a year (in Sept. 2009 65% thought it would be better)
> 24% say Obama deserves a great deal of the blame, up from 10% in 2009
> 36% say Bush deserves a great deal of the blame, down from 43% in 2009
> 60% independents say Obama deserves great deal or moderate amount of blame
In the end, any economic plan must seduce the crowd. Onlookers have to be lured into believing and go out and start businesses, spend money, and buy houses.
It's going to be a slow start out of the gate as we contemplate what the Fed will actually do and what it really means.