Bernie Madoff: Right strategy, wrong time.
Per Minsky, late-stage credit cycles tend to look like a Ponzi scheme. If asset prices go up for long enough, people stop relying on cash flows to cover liabilities and instead borrow against appreciating assets. Take out a second mortgage, then a third. It’s fine as long as the housing bubble inflates faster than you can draw down your credit.
That’s pretty much where Private Equity’s at these days. The business model consists of borrowing money through the sale of high-yield “junk” bonds, using that money to buy a company, then using the company as collateral to finance the next corporate takeover. Rinse and repeat until the PE firm is the size of BlackRock or Apollo Group, and when an exogenous shock threatens to implode the bond market, get a bailout. (See Also: Is Private Equity Having Its Minsky Moment?)
It helps if public pensions are heavily invested in your funds. It helps even more if Fed Chair Jay Powell has millions invested with you. But the thing that helps most is the ability to convince regulators to classify your Ponzi as “Private Equity”.
We can’t build anything in this country because those with wealth and power use their wealth and power to put up artificial barriers against competition. If Silicon Valley wants to build, it needs to take a page from Wall Street and learn to fool the classifiers.
One thing that Wall Street does particularly well is make illegal stuff look legal. It’s not a bucket shop if you call it “over-the-counter derivatives”! It’s not discriminatory theft if you call it “de-risking”. It’s not bribery if you “hire” presidential candidates as consultants. It’s not price-fixing if you call it LIBOR. It’s not an illegal wash trade if you call it “market making“. It’s not a denial of constitutional rights if you call it “mandatory arbitration”!
Remember that time Elon Musk tried to sell flamethrowers on the internet, but then found out that it’s illegal to own a flamethrower in California, so he renamed the product “Not-a-Flamethrower”? Yeah, we have a lot of work to do.
Why can’t we build hospitals the way China builds hospitals? Because of all these guys:
I am constantly amazed at the level of medical care available for animals. Bring a dog to the vet and you’ll get a treatment schedule, upfront pricing, and an honest prognosis. The more disposable the animal, the less likely a government agency is involved, and the better the service. Look at the huge range of antibiotics you can get for a fish!
Here’s how Silicon Valley can build more healthcare: Open an animal clinic that promotes diversity and inclusion. Like, *real* diversity and inclusion. I mean, take wokeness to the next level: Welcome trans-species patients. We already have dudes identifying as ladies to participate in womens’ sports, it’s only a matter of time before people start identifying as goldfish to score an appointment with the aquatic vet. If the Department of Public Health complains, tell them to take it up with the ACLU.
(to be continued…)