Monday, 1 August 2011

Ponzi Pensions

First a little learning as per the Wikipaedia entry on Charles Ponzi:

Ponzi scheme is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.
Charles Ponzi
The system is destined to collapse because the earnings, if any, are less than the payments to investors. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases.
The scheme is named after Charles Ponzi[1] who became notorious for using the technique in early 1920. Ponzi did not invent the scheme (for example Charles Dickens' 1857 novel Little Dorrit described such a scheme decades before Ponzi was born), but his operation took in so much money that it was the first to become known throughout the United States. Ponzi's original scheme was based on the arbitrage of international reply coupons for postage stamps; however, he soon diverted investors' money to support payments to earlier investors and himself.

OK, now time to rant and explode a few myths currently being put out by Tory Fat Cats funded by the Stock Market and Bankers who really do not give a shit about common people as we are only here as sheep to be shorn by them in order to keep their Fat Cat Lifestyles going - a la Fred (Hang the bastard) Goodwin and his ilk.
The UK Government decided around the time of Bevin and Co, just about the time they brought in the NHS and decided workers did not need their eyes or teeth looked after via the NHS but could sort those privately, that the pensions paid to State employees would be paid from what they termed an "unfunded" scheme.  Thus the then current pensioners would be paid their pensions out of the contributions of those not yet at pensionable age.
For those of you quick on the uptake, this was exactly the same type of scheme as pioneered by Charles Ponzi in the 20's.
Later, as Private Companies started their own pension schemes and insurance companies followed suit the Government imposed regulations that insisted that all such schemes be "Funded", i.e., that the contributions would go into an investment pot that with prudent investment would increase in value over time and thus provide the wherewithal for the Pension Provider to pay the pension earned.  The Governemt later also insisted that the Firms paid in a pension contribution alongside the worker so that they too bore some of the costs.  Therefore pay for everyone was reduced in order to pay for the pensions and Pensions became effectively deferred payment for labour.
However, despite everyone warning successive Governments, no UK Government ever put any money aside from the contributions paid into the pension schemes by the workers.  They also took no account of the fact that these pensions were index linked in the main to the Retail Price Index.

Then came the banking crisis, led by such august luminaries as the newly knighted Sir Fred Goodwin who bought new meaning to the phrase "laughing all the way to the bank" and after what can only be regarded as a term of complete and utter lunacy it it's cavalier disregard for any of the normal banking principles such as prudence, common sense, conservative principles, adherence to basic banking rules or a whole number of measures and processes developed through the years the banks collapsed leaving all of the common people deeply in debt unto their children's children's times.
Smug Bastard!
Thus the government said "we must be prudent and draw in our horns.  Instead of public crucifixion of "Sir" Fred Goodwin, or even asking Madge to take back his knighthood and bung him in the tower, what did we get?  We got a derisory amount given back to us in a mockery of an attempt to shown embarrassment and then two fingers as he buggered off to try and spend all that was left.
As the government's Ponzi Pension scheme managed to not only run in to Sir Fred and Chums' banking crisis but also the "grey majority" where people were living longer due to better health care and to a better standard of living with the double whammy of less people in employment in the UK, they realised they had to do something and quickly or they could not sit in their London Clubs and chortle over "those foreign wallahs" in Greece and Spain getting their currencies knocked by Standard and Poors because they UK would soon be up the swanee as well.  How could they cut down on the promised pensions without looking like the rogues and charlatans they were?  Someone had to come up with "a cunning plan" and bloody quick or the Bullingdon Mafia were for the high jump and no mistake.
The first part of the plan was to blame the workers themselves and so the Bullingdon Blaggers got their chums from Eton and Harrow to start the biggest smear story going and started spreading the lie that the Public Sector Unions had enforced "Gold Plated Pensions" well over and above those available to the private sector workers.  "Divide and conquer had always been a good plan ever since the Roman invaders had used it to go from a pretty small and ineffective City in what became Italy to a world spanning Empire.  (Incidentally the Roman Empire was also a Ponzi scheme as it relied totally upon always conquering new territories to fund the lifestyles of the existing citizens of the Empire, once the conquering stopped, it imploded).
Thus Public Sector workers were vilified by the press as parasites living off the poor old private sector when in fact the public sector pay was always lower than the private sector just because the pensions were allegedly better.
The second strand of the debate was to close all final salary schemes as soon as possible.  This was done in order to increase the profits of all the private sector companies at the expense of their workers and to save costs in Government by minimising the pensions payout.
The third and positively fiendish part was that as any accountant knows, when you ask them "What is the outcome of doing this?" The reply is always "What do you want it to be?".  So, if you want to reduce index linked pensions quickly and seem to be fair, just change the index.
Thus the change on how the index linked part works FROM RPI TO CPI.  RPI has for generations been the way we measure inflation and is the yardstick with which we measure inflation, our finacial wellbeing, our wealth and indeed our feelgood factor or otherwise.  Historically CPI is always a couple of percent BELOW RPI and so the Governemt loves that, as do the Private Sector who were quicker to adopt that measure than a rat up a drainpipe once the Governemt had led the way.  Incidentally the Government also have linked State Benefits to CPI as well so that will steadily reduce the total cost of State benefits and eventually force those lazy workshy paraplegics into fiull time employment if they do not wish to starve to death.
So, who gains and who loses here?
Well, it is manifestly obvious who LOSES here and it is the workers both Private and Public who are going once again to fund the excesses of the Financial Sector and those who gain, apart from Fred Goodwin, will be those in the Finacial Sector who will not only provide pensions for the private sector but who will also have designs on taking over the public sector pensions (So long as they have a cast iron Government pledge to underwrite said pensions).  Thus the Bullingdon Boys and their Fat Cat chums ride off into the sunset taking our hard earned dosh with them while their replacements get on with the job of fleecing us.
So, readers, if you have got this far, altogether now, say "Baaaaaaaaaaaa!!".

Ghenghis 2011


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