Unbelievable Blindness.

So extremists parties all over Europe are poised to win elections. It is making the Davos crowd nervous.

And what else did you expect? This year income inequality is all the rage and everyone is positioning themselves as defenders of the common folk. Ray Dalio of Bridgewater Associates, a $160bn hedge fund, bemoans the danger of extremists parties emerging and urges the moderate parties to “do something about it.”

But him and other Davos attendees – all billionaires and movers and shakers – don’t take it one step further. They don’t call on themselves to stop fucking with the politicians, stop lobbying, stop asking for favors. They refuse to admit that the current scheme works like this: business interests lobby the politicians –> politicians act on it –> common man gets squeezed (asked to work harder, study more, take more loans, take more pay cuts, etc.) –> economy dives –> businesses ask for more favors and loopholes –> common man gets fucked even more –> politicians bring on austerity –> common man gets fed up – >extremist parties win.

But Ray Dalio doesn’t see it that way. He think that he stands outside from all this mess and just does his business. He thinks he can just ask mainstream parties to get its shit together and when they will everything will be back to normal. But the cycle has to run through. So when the extremists win the Davos crowd will have no one to blame but themselves.

Fuck’em. Try to do business with Syriza and Sinn Fein and UKIP. See how that goes.


The Winning Mindest Wins. Everybody Loses.

Conservatives love to ascribe laziness to large swaths of the population. They think the prudent thing to do is to give the lazy moochers a kick in the butt. A kick in the butt to do what? People who are unemployed are not lazy, contrary to a widespread conservative belief. The mistake, or rather the convenient excuse, of the libertarians/conservatives is that they apply their own abilities and their own career trajectory to all the others. They think “if I can do it, so can anyone.” This is the fork in the road, this is the basis of all other aspects of their political philosophy: low-taxes on the rich, ripping of the safety net, worshipping of self-reliance, as if there are no children, single mothers, elderly and the disabled in this world – only white frat-boys, stomping the ground in their bullpen, eager for a race. “Let the best one win!” they yell, knowing full well, even before the race started, that they are the best. Wouldn’t you want to participate in the race if you knew in advance that you’re going to win? And then, they attach philosophy to their own abilities. Then, after they won, they create a narrative that they won fair and square, missing the fact that their skill is the result of their current proximity to the trough, not the way they got there. This is the idea behind “Trading Places” – it doesn’t take a special pedigree to be a trader. One just needs a platform and a nice suit. But still, they pontificate about their scrappy childhood and the bootstraps and hard work and risk-taking and wallow in their own narcissism, followed by a humble-brag “I’m just a regular guy” mandatory display of modesty. Is then there’s any surprise that people like Tom Perkins think only the winners should be allowed to vote? They think that it’s validated by them winning the race.

If you view society as a competitive construct, as many social Darwinists do, then it is a natural conclusion: The winner gets to claim the prize and to write rules and history books. Thus the pitting of citizens one against the other at the altar of “competitiveness” is a normal course of events. The suckers lost, too bad. That’s just life. And that would be fine, too, if only the winners knew moderation. Here, the winners would be wise to stop and take, or rather give the suckers, a breather. But the winning mindset and moderation do not go together. The game is in full swing, we can’t just stand up and leave. If we don’t take that last stack from the sucker at the table then someone else will. It’s just the cruel truth. Who can stop a train at full speed? We would rather just jump on the bandwagon.

And what or who can play the role of a moderating hand at this point? Where is that ‘invisible hand” that restores the balance, applies breaks to a runaway train? Where is the mitigating factor of supply and demand, the efficient markets, the equilibrium that we learned about in Econ 101? There’s no push and pull, no regression to the mean. The “pull” is nonexistent, or has been sidelined, or denied meaningful levers. The classic argument is that if the customers don’t like the product they will stop consuming it or go to another provider. But what if, at this point, the product that we’re talking about is a bare minimum of food, shelter and basic health care? Are those customers really in the position to dictate anything, to refuse to buy food, to refuse to pay rent? Where the hell are they gonna go, what the fuck are they gonna eat?

The train won’t stop on its own. It can either crash into a wall or go off a cliff. The winners will be playing musical chairs till the very end, because they will always think to themselves: “I can get out just in time. I’m the winner.”


Growing Inequality Can’t Be Cured by Charity.

It’s very hard to make a connection between one man’s actions and the other man’s suffering due to those actions. For a hedge fund manager it’s difficult to link his actions to a suffering of a small town teacher. His thinking goes: I exploit market discrepancies, I make money and pay taxes, I donate to charity. He may even think: I am genuinely a nice guy and I really want to help. It’s hard to trace the root of the problems back to himself and his colleagues and industry peers. That would require the rethinking, perhaps painful and unwelcome, of his entire existential premise: is he as good for the society as he thinks he is? And if he’s honest with himself, he will realize that the answer is not necessarily yes.

I wrote recently about how hedge funds these days, rather than engage in honest betting on markets are instead seeking to extract value at the expense of the communities, bully others for value or simply seek rent opportunities. None of those activities produce anything of value; they strip value from the existing caches. Then they use various tax loopholes. And then they donate to charity, being under the illusion that it can cure social ills and because, you know, they are not monsters.

That’s the model we’ve had for some time.

But here comes the danger. In another illuminating Bloomberg article (Bloomberg columnists are really on a roll, finding their mojo recently), we’re risking societal breakdown if we continue on the present course. This sentiment has been widely explored on the pages of my blog, but this article summarizes my thoughts in a concise and trenchant manner. Over the course of history many societies have reached this point. Many got out of this rather unscathed, if they embarked on the policy of alleviating the social and economic discrepancies (New Deal), many others have experienced a more painful chain of events.

I want to stress, again and again, that helping the poor does not turn us into Commies and socialists. It merely helps smooth out such transitions, it is in the very interests of those hedge fund managers. Blaming the poor, the unemployed and food stamps recipients on the lack of alpha is disingenuous and counterproductive.

Has the Culture of Entrepreneurship Gone Too Far?

The culture of entrepreneurship and risk-taking has always been a central theme of the American history and character, but in the last few decades it morphed into a rather bizarre and unnatural form.

America today reminds me of a poker table where one player has sucked in all the other players’ chips and insists on keeping the game going, dismayed that the customers don’t have any money. “Come on, people, what’s the matter with you? Let’s play!” He laments. But he gets no action. It is at this moment that he has to decide whether it is all about the money or all about the game for him: what’s the point of having all those chips if you can’t use them? The chips only have value if you can use them to get even more chips. But what’s the point of being great at taking other people’s money when there are no customers around? What’s the point of having billions in cash if you have nowhere to invest it? You know you’re good at your game, but the more money you have the less opportunities you have to demonstrate it. It’s much easier to make 20% return on $10 million than on $10 billion. And the thought of shopping for yet another Lamborghini is depressing, because you already have several in your garage.

Game, action – is what you seek at that point. Perfecting your skills and promoting your gospel is the reason you wake up in the morning. That’s the main reason, perhaps, that many billionaires go into politics. With this mindset you invite, or rather, insist on others participating in your game. You view any human interaction as a business transaction, an opportunity for one-upmanship. To keep playing that game you have convince all the suckers out there that they too, if they work hard, can learn to play it. It is only when millions of others are striving to become like you, to play at your table, by your rules, you can have a lasting legacy. If they don’t then you’re just a lonely guy with mountains of chips at an empty table. And after you used all the leverage out there to improve your returns and received all the political favors, it all still comes down to having players at your table. At some point, when the flow of new customers slows over the normal course of business, you begin to devise plans to extract fees from the existing ones to keep with the original pace of growth. That’s how we got the new business models with various “financial innovations” schemes: private equity funds or activist investors extracting value from already existing caches, like pension funds or profitable companies; raiding others for value rather than building it.

With such a mindset one becomes blind to the idea that, perhaps, making a few hires, parting with a few chips, would jump start the game. But lack of introspection is the name of the game. The ideology of competition has penetrated our political quarters and our national discourse so deep that we glorify the gamblers and pity or tolerate the salaried workers. Such over-the-top encouragement of risk-taking produced many bad players. Extracting value from companies through M&A, rent seeking, and trading synthetic indices is not entrepreneurship in its distilled form, because there’s no risk involved or no product being made. These bad players have entered the game over the last few decades and in order to win they began to manipulate the odds for all other players. They situated themselves permanently on the button (the best position in poker) by making deals with dealers and the floor managers. But of course, they don’t attribute their success to such a privileged position – they attribute it to their skills. They look at 9-to-5 cubicle workers as cost centers, because those schmucks don’t engage in a game. And yet they would like for them to join the table. We rarely hear stories of a businessman turning into an office worker, because that is viewed as a failure. College students are encouraged to scrape around or borrow money and start their own businesses. We expect, nay, demand, that everyone becomes a small entrepreneur. Good luck with that, kid. Except you won’t be doing M&A, or charging others 2/20, or collecting insurance premiums from dumb customers with money, the businesses with essentially zero risk – the kind of businesses only “serious people in suits” and incidentally the biggest advocates of risk-taking are engaged in. You’ll be spending that last $50K to open a cup cake shop or a restaurant that has an 80% chance of closing in a few years. Giving such an advice to someone right out of college is bad faith. Strangely, the loudest advocates of risk-taking are the ones who deal with no risk at all. But then what’s wrong if one simply wants a quiet life, a stable paycheck, some financial security? He’s seen the statistics – the majority of small businesses fail, so perhaps he decided that such gamble would be imprudent given their circumstances. And why should such a decision be derided by the gambling worshipers on top of the hierarchy? Those workers simply assessed the situation and decided, correctly, that it would be a bad investment. If anything they should be commended for it, not ridiculed and called names, like “moochers” or “takers”. Since when simply working for a paycheck became a point of derision?

Poker players in the casino have a choice not to play, they can stand up and leave the table if they don’t like the game. Average citizens do not have that luxury. If the business community still insists on fleecing those unfortunates who scrape by paycheck to paycheck the least they can do is stop calling them names.

The Problem with Charity

There’s been a number of articles lately, exploring charitable impulses of the rich and powerful. There was one article describing people deliberately picking high-paying jobs so that he can give money to charity.

I think such people are self-deluded. Moreover, I think that modern day charities with its black-tie galas and names attached to the donated amounts are simply great tools for self-promotion. Felix Salmon has a similar idea about charities. In short, it’s all bullshit designed to make a giver feel important.

When I was several years into my career on Wall Street and when a certain career trajectory, routine and expectations have set in and certain goalposts have been achieved, I, as I’m sure many thinking, self-aware people at this stage, began to think what’s the point of all of this? Why am I doing what I’m doing and if this is all about money what would I do if I had enough in the bank to not have to work again? A thought of a passive retirement and a move to warmer climates was depressing and nauseating. One can’t just switch from combative and aggressive mental disposition – a Wall Street unspoken desideratum that takes years to nurture and develop – to a laid-back beach bum, hippie worldview. That kind of mental switch just doesn’t exist, not for Wall Street breed anyway. Ideally, I thought, it would be nice to open and run a charity with an asset-management arm. Charitable impulse is a natural evolution path for a seasoned and somewhat jaded and battle-weary Wall Street professional who would like to think of self as a progressive, benevolent and a good-hearted person deep inside. That’s what I thought of myself. However, a sober observation of industry and its business model would compel an honest and introspective person to question the “allocating assets and providing liquidity” rationalization, a popular line of defense among financial professionals justifying their existence to Main Street. This is where, for many, the urge to show the world one’s better side begins to kick in, and it is manifested in an attempt at making obscene amount of money now, so one can demonstrate his generosity and good nature later. I remember the mood on the street back in 2007: many felt something very ugly was coming and wanted to exploit the market to the fullest in order to set themselves up financially, just in case. The worse the things became, and even though I had the right trade on, the more I became burdened with the emptiness of the whole exercise, perhaps even the public damage, however small or indirect, of my actions. With the tools at my disposal (certain synthetic indices) I wasn’t “providing liquidity”, and I wasn’t helping businesses “raise capital”, I was merely placing a bet as one would in a casino with someone else’s money. Thoughts of future charity provided poor refuge: are the people whom I would potentially target with my benevolence – the disadvantaged kids, the poor girls in need of a scholarship, the hungry, the homeless – the very people I’m, however indirectly, fleecing now? Many on Wall Street could easily disassociate the two sides of the same coin – either by willful ignorance or a set of self-rationalizations or a mental block. I tried very hard to do that myself. For Christ sake, my entire career and by extension my entire personality was vested in this industry, the decade of long hours, wasted weekends, all-nighters, personal life structured around work, forgotten hobbies and interests – how could I not seek a justification for my sacrifices and hard work? But there came a point where I couldn’t convince myself anymore.

Those who successfully separate those two sides of the coin but still maintain and cultivate a hint of humanistic streak throw themselves into the charity circle. It is usual for people celebrated for their ruthlessness to want to show their kind and generous side at an opportune time. But let’s be honest: charities depend on whims and moods of the powerful and the powerful tend to be more interested in preserving their legacy by giving $100mln donations to business schools and art causes, than in sponsoring a soup kitchen or a homeless shelter. Those that need charity the most are simply not good at providing Kodak moment opportunity.

I don’t think I’m alone and I’m not the first in thinking about charity from this angle, but perhaps many don’t have much time to put further thought into it: why there are increasing number of people and causes that need charitable help? Why such misallocation of resources in the first place? Food for thought for the powerful and benevolent.

Inflation of Labor

Republicans now are rediscovering the “middle class”. Rubio made sure to make “middle class” the focus of his SOTU reply. It’s a welcome about face in a party that just a few months ago was celebrating business owners (as opposed to people who work for them) on Labor Day. It wasn’t surprising: the current Republican dogma coalesced around the idea that only business owners work hard; everyone else is either lazy or not entrepreneurial enough. In Republican mind, whoever didn’t become business owner or “made payroll” is implicitly a lesser member of society, a leech and a moocher.

Republicans love to keep their focus on inflation: there was no shortage of dire warnings coming from the right quarters about inflation that was just around the corner. The inflation that they had in mind never materialized, but in the meantime the other type of inflation – labor inflation has been devastating the communities for decades but received little attention of the doomsayers.

Back in the day, the time that many conservatives are nostalgic about, the 1950-60s, it was possible for a man with a high-school diploma to work at a factory and get paid enough to provide a middle-class lifestyle for his entire family. For a man with a college degree the career paths were wide-open and his chances of successful employment were even more robust. To achieve and maintain a middle-class lifestyle one didn’t need a double-income family and didn’t need to leave home and 6am and get home at 12am and be available on weekends. Since then “success” has been redefined. To be considered successful these days you have to negate your own self and turn into a machine.

Toiling away from paycheck to paycheck and working harder and longer hours is required nowadays just to keep one’s head above water. The world where business owners work 24/7/365 and everyone else works from 9 to 5 with an hour break for lunch is a fantasy. Let’s examine a minimum wage worker working shifts at Walmart. If he or she works 8 hours a day they would make roughly $15K a year. I would argue that if this person is presented with an opportunity to work longer hours or find another part-time job, say, at nearby Taco Bell, he would take it. Many do. We’ve all heard stories about people working 2-3 jobs. Or let’s even take an average Wall Street employee: no matter how entrepreneurial they might feel about themselves – they are still just glorified salary workers (with bonus). They are expected to be on-call 24/7 checking their blackberries at night and on weekends and they have acquiesced to this way of life as a default and some, in some masochistic way, even consider it a badge of honor. Working hard and especially reveling in your hard work is as American as apple pie. Our entire way of life now is treating the best-case scenario as a base-case scenario. In other words, there were times when working 8-hour days meant to be average and working 12-hour days and weekends meant to be successful. Now, for many, to work 12-hour days plus weekends is a given, a base-case scenario.

Humans have a great adaptive mechanism – we can get used to many things and we can accomplish remarkable feats especially if we’re in a survival mode. But we can only stretch our productivity so much, and after a certain point more workload becomes detrimental to an individual, counterproductive for companies, and eventually damaging to society. We physically can’t work more than 24 hours, we can’t be at 2 places at the same time, we can’t win on every trade. At some point there will be no room left to push harder. The benefits of longer hours and constant availability are becoming marginal. To take success onto the next level from what is considered successful career today is to become superhuman, develop magical powers or to rig the game. And if you have no way of doing it – you’re just an average, talentless, lazy schmuck. But don’t dare to complain about it – to complain is un-American.

There’s clearly an inflation of labor for those holding a wage job. Over the years the normalcy of 8-hour work days turned into 10-hour work days and then into 12-hour work days, but the benefits are failing to keep up with the contributing effort. The jobs for which a high-school diploma was sufficient, now require a college degree; and where before a college degree would provide job security for life, a graduate degree is required and yet it is no longer a guarantee of lifelong employment. It’s hard to say which came first: inflation of college degrees or inflation of labor. Surely, today this labor inflation can be attributed to high unemployment rate, but this phenomenon was prevalent even during the roaring years prior to the 2008 collapse.

The “moochers” that Republicans keep talking about are stretched too thin. They are one accident, one blown tire, one missed paycheck away from not being able to keep afloat. It is only in the imaginary world of self-declared “makers” everyone else lives off of the fruits of their labor. In the real world, “makers” expect everyone to be on call at all times for pennies and then have the chutzpah to accuse them of being lazy. Well, at least some in the GOP, who actually have to win elections rather than exercise their wits at the expense of an average Joe, are rediscovering that such attitude is damaging the brand. I’m following their transformation with great interest.

Another Conservative Supports Welfare Programs

First Bruce Bartlett, then Ramesh Ponnuru, and now David Frum via Ed Morrissey. Conservative intellectuals are reassessing their stance on welfare. Turns out it’s not such a bad thing at all. In some cases it can be practical.

In practical terms, the entitlement programs we have cannot be dismantled, as Randian purists would prefer. Medicare, Medicaid, and Social Security are too popular for repeal, and more importantly, deliver a level of living standards on which millions of Americans rely — standards that would plummet in these programs’ absence. Instead of denying that, practical conservatism would embrace that — because on the trajectory of current policy, these programs will utterly collapse at some point. There is, after all, nothing compassionate about a default, or about sticking succeeding generations with the bill for benefits we enjoy in the present.