Yves here. It’s a welcome surprise to see economists devise a model that delivers generally sensible results. Here, three economists looked at how financial innovation leads to an bloated financial sector as well as greatly increasing the risk of meltdown.
One quibble is that they characterize financial innovation as a benign process at the outset that is all too quickly abused, particularly when the authors assume information asymmetries (as in the investors don’t fully understand what they are buying). One of their examples, collateralized debt obligations for subprime securitizations, disproves the thesis.
The writers miss that an earlier version of this type of asset-backed CDO also existed in the 1990s, and as in its 2000 reincarnation, was critical to keeping subprime mortgage securitizations going. As we discussed long form in ECONNED, the ability to sell these deals was constrained by the difficulty of placing the least attractive tranche, the BBB slice. Those (along with more attractive financial sausage constituent parts) were rolled into CDOs, which were tranched just as the original mortgage backed securities has been.
Now astute students of finance know that pretty much any product defect can be solved by price. That means those deemed-to-be-drecky BBB tranches could have sold if they had had higher interest rates. Of course, that would have meant some combination of higher interest rates on the underlying mortgages (as in less product to sell, since fewer people can afford payments on more costly mortgages) and/or lower fees to the deal participants. So these CDOs, which proved to be a Ponzi scheme in both their 1990s and 2000s versions, were a “financial innovation” created to get around the need to price RMBS more realistically. And the result in both cases was too much subprime origination and a CDO crash.
By Bruno Biais and Jean-Charles Rochet, professors at the Toulouse School of Economics, and Paul Woolley, Senior Fellow at the London School of Economics. Originally published at VoxEU
The Global Crisis has intensified debates over the merits of financial innovation and the optimal size of the financial sector. This column presents a model in which the growth of finance is driven by the development of a financial innovation. The model can help explain the securitised mortgage debacle that triggered the latest crisis, the tech bubble in the late 1990s, and junk bonds in the 1980s. A striking implication of the model is that regulation should be toughest when finance seems most robust and when innovations are waxing strongly.
One of the curiosities of the modern economy is why the finance sector is so large. Economists have only recently sought to document and ponder this phenomenon. Empirically, Greenwood and Scharfstein (2013) find that, in the US, financial services, which accounted for 2.8% of GDP in 1950, made up 8.3% of GDP in 2006.
In Biais et al. (2014), we offer a formal analysis suggesting why finance has become so large, asking whether it is in society’s interest and, if not, what might be done about it. In our model, the growth of the financial sector is driven by the development of a financial innovation. The analysis is applicable to a wide range of innovations – from specific instruments such as collateralised debt obligations (CDOs) or credit default swaps (CDSs), to asset classes such as junk bonds or exchange-traded funds (ETFs) – and management styles.
Our model considers two types of market participants: investors who own the assets, and managers who operate the innovation. The analysis is conducted first under the assumption that investors can evaluate the ability and actions of managers – i.e. there is ‘symmetric information’. This provides a benchmark for the next step of recognising the reality that investors are uncertain of managers’ competence or diligence, and therefore information is asymmetric.
The innovation can be fragile and prone to shocks. Alternatively, it can be quite strong. Based on observed performance, market participants learn about the strength of the innovation. They rationally interpret good performance and the absence of shocks as a sign of robustness. Thus, when no shock occurs, confidence increases and the innovation grows, attracting funds and managers. As the innovation flourishes, managers’ earnings increase and exceed the norm of the other sectors, consistent with the empirical findings of Philippon and Resheff (2008).
Investments in the innovative sector are robust to shocks only if managers carefully analyse risks and valuations. Early on, when confidence in the innovation is still limited, managers understand that effort is essential for success. Only the most efficient managers, for whom the cost of effort is relatively low, enter the innovative sector, and all exert effort. After success, however, managers with inefficient risk-control and evaluation skills also find it worthwhile to enter the innovative sector. Because for these managers the cost of effort is large, they dispense with risk-prevention and prudent valuation.
In this context, if the industry is eventually hit by a negative shock, the sheer size of the industry, combined with the large fraction of managers who shirk, triggers large and widespread losses – a crisis occurs, and only investors whose managers maintained vigilance throughout are spared its worst effects.
In this version of the model the innovation has remained at a size that is socially optimal. Investors know what they are getting and are paying a competitive price for it. Now make the plausible assumption that opacity and complexity of the innovative sector prevent investors from perfectly monitoring the risk-control systems and efforts of managers. With this change, the predictions of the model take a dramatic turn. Under information asymmetry, investors are unable to tell managers with efficient risk-control systems (who exert risk-prevention effort) apart from those with inefficient systems (who dispense with risk-prevention.) Both types receive the same compensation. Hence, negligent managers earn excess profits (‘informational rents’). The influx of relatively inefficient managers attracted by rich rewards for little effort spurs faster growth than under symmetric information. This takes the scale of the innovation beyond its social optimum and also increases the vulnerability of the sector. Consequently, information asymmetry implies more severe crises.
While this theoretical model could also be applied to nonfinancial innovations, it is particularly appropriate for finance. Three of the most important features of financial innovations play a key role in the analysis:
• First, risk-control and management are key to the success of financial innovations, and it is precisely these activities which the managers of the model are in charge of.
• Second, the complexity and nonphysical nature of financial innovations make it difficult for outside investors to observe finance sector managers’ actions, which generates moral hazard, as in the model.• Third, when financial innovations prove to be weak, this generates severe losses for a large cross-section of institutions, again as in the model.
Relating the Model to Events
The finance industry, especially in the last three decades, has been plagued by innovations that end in tears. The more egregious examples have been the securitised mortgage debacle that triggered the latest crisis, the tech bubble in the late 1990s, and junk bonds in the 1980s. Their dynamics are in line with the implications of our model.
The initial growth of the CDO innovation began in the mid-2000s, with investment banks offering securitised mortgages with a yield advantage over standard investments. Consistent with our model, initial success attracted managers and investors, but confidence led to negligence. Many managers ceased to examine for themselves the contents of the loan bundles, relying instead on agency ratings. The originators of the CDOs also felt confident enough to lower the credit quality of the component loans. Both developments constitute shirking in response to strong growth, in line with the implications of the moral hazard model. Also in line with the model, there were differences across managers. Only those who remained vigilant saved their investors from the worst losses.
Active fund management boils down to two basic strategies: fundamental investing based on the hard work of estimating future cash flows, and momentum investing. At the end of the 1990s there was a surge of innovation in the telecom, media, and technology industries, associated with an increase in financial investments in those sectors. It was, however, complex and costly to assess the future revenues to be generated by those investments. Again in line with the model, sustained outperformance raised confidence, and an increasing fraction of managers switched from the difficult task of fundamental valuation to the easier strategy of momentum-riding, which, in the language of the model, can be interpreted as shirking. When the crash came, investors whose managers exclusively rode momentum paid the price (Daniel and Moskowitz 2012 and Daniel et al. 2012 document the vulnerability of momentum strategies to shocks). In contrast, those who continued to bear the cost of careful asset valuation were spared the worst.
Our theoretical analysis also sheds light on the leveraged-buyout (LBO) and junk-bond wave of the 1980s. Empirical research at the time had shown sub-investment-grade bonds had a much lower default rate than implied by their yield spread. This spurred the issuance and distribution of junk bonds. Consistent with the model, initial success increased confidence, which led to reduced risk-prevention and valuation efforts. This made the innovation vulnerable and, when hit by a negative shock in 1989, it collapsed. Also in line with the model, the innovation was not expunged, and, after several years without crisis, has lived to fight another day.
Policy Implications
Asset-owning principals should be more aware of the agency problems, write better contracts, exercise greater vigilance, and insist upon fuller disclosure by agents. They should lengthen the period of time for intermediaries’ performance review and reward. Shirking is more difficult to sustain in the longer term because individual failure or universal crisis is likely to intervene. The accumulated rewards promised to managers can be cancelled in case of losses, increasing the managers’ ‘skin in the game’ and aligning their interests with those of the principals (see, for example, Biais et al. 2007).
In practice, however, final asset owners are often small and dispersed. They typically delegate investing to trustees of pension funds, mutual funds etc. This creates a chain of agency problems, which the final principals are not well equipped to deal with. Policymakers should give guidance to trustees in the form of a code of best practice showing how to minimise the problems arising in delegation. This can be underlined by extending the interpretation of fiduciary duty to include compliance with the code.
If gentle nudges are insufficient, regulatory intervention may be necessary. Regulators could rule on the acceptability of products, bearing in mind that opacity worsens agency problems. They could enforce reporting requirements, for example, on gross returns, costs, portfolio choices, margins, etc. One of the most striking implications of the model is that regulation should be toughest when finance seems most robust and when innovations are waxing strongly. Beware of complacency and notions of ‘Great Moderation’, because that is when shirking is most prevalent.
Please see original post
The aftermath of the 2008 crash Washington lavishes loads of cash on the banks, no questions asked, and the banks would enjoy all the upside while the public bankrolled the losses. On the other side — the automobile industry — came to congress — almost at the same time — with hat in hand begging for a pittance. Washington put strings in place before cash was doled out to the auto CEOs. Kid gloves for bankers but tough love for everyone else.
Propping up the financial sector at the expense of Main Street has been an ongoing Washington policy. There is no accident.
This is for the most part Minsky’s Financial Instability Hypothesis without proper attribution.
Reserve currency over time promotes the 7 deadly sins since it leads to easy money and everyone trying to pass the buck.
Reserve currency leads to deficit spending and opting for funded pensions instead of pay-as-you-go… why pay taxes when you can make the ROW pay for your lifestyle?
What led to the reserve currency status also led to the large 50+ demographic bulge which is opting for asset inflation by trying to fund their pension and looking for all kinds of tricks to boost valuations.
“Reserve currency over time promotes the 7 deadly sins since it leads to easy money and everyone trying to pass the buck.”
We see the same behaviors in countries that don’t enjoy “Reserve Currency” status and never did. Many of which run economies far more corrupt than our own and have fiscal policies that make ours seem moderate by comparison. I don’t think there is an “A always leads to B” argument to be made here. And we can’t ignore the fact that Monetary Policy (and the negative externalities that come from it) is designed, altered, and enabled by various actors (both state and private). Also, Monetary Policy does respond to and interact with various market forces within an economy. This means that it isn’t possible get a solid understanding of Monetary Policy if we analyze it outside of its time and place within the market.
-Cheers,
Good point… but we can’t dissociate US monetary and fiscal policy from all other world economies, thus we got Americanization of the world. For many of these countries, corruption is propped up by the US.
Some would argue that countries want it of their own free will, others would say we are all forced to march the Americans’ drums.
Is this thinly veiled hatred-management aimed at “baby boomers”? The 50+ bulgermembers did not seek asset inflation or opt for it. A narrow class of financial managers and pension-guardian authorities (especially governments at various levels) sought that approach through strategic underfunding and unfunding and other deceitful tricks designed to empty out pensions.
I’m not sure the “instigators” all saw it coming t4 or 5 decades ago… remember, there was a communist witch hunt… an American melting pot, jingoism, a love of capitalism and free markets.
I’m sure many really believed markets would make Americans rich.
I believe our problems are systemic and a product of determinism. I attribute blame in an explanatory way, not an accusatory way. It is analysis driven, not feeling driven.
What’s thinly veiled about it?
If you are a p9litician today, one of the biggest issues, if not the biggest, is pension plans. You want it funded so it does not suck up a large part of the budget or you want it cut if it is… but you don’t want to be the one who has to cut it.
Up to now bailouts and QE have been keeping the balls in the air but over time, more plans will implode.
The funding of pension plans is a big contributor in this cycle of financial engineering. If we had opted for pay-as-you-go a few decades ago, our lives would be very different today.
From the voxeu source article:
‘In [Biais, B, J C Rochet, and P Woolley (2014), “The dynamics of innovation and risk”, forthcoming in Review of Financial Studies] we offer a formal analysis suggesting why finance has become so large.’
Hard to tell, since the journal article hasn’t been published yet, whether ‘formal analysis’ means an extended discussion, or a model with actual, you know, equations and stuff.
Evidently academic finance has taken a leaf from the music biz: you release a single to the radio stations to create buzz a couple of months before the album is released. Let’s rock!
Another article from academics that doesn’t use the f word.
“One of the curiosities of the modern economy is why the finance sector is so large.”
Unstopped corruption and lawbreaking grows over time? Shocking, I say.
“Welcome Surprise”? More like ‘Quelle Surprise’!
Critics (Yves and many others) have said much the same thing for many years. But economists have been complicit or tone deaf. I suspect much more the former than the latter given how difficult it has been to institute any kind of ethics code.
I propose that ‘economics’ be removed as an academic discipline.
About 25-50% of ‘economics’ classes should be distributed to other academic disciplines (anthropology, philosophy, applied math, history, politics, psychology, sociology, etc.) and the remainder to business. ‘Economics’ degrees should be awarded only by vocational schools (business and technical) as economists have clearly demonstrated that they are mostly ‘tools’.
‘Right sizing’ of economist’s egos and public perception is overdue. They should no longer be thought of as ‘high priests’ or ‘social’ scientists. Such a misperception of economists has been extremely costly to society and economists have shown us that they will not reform themselves or use their special knowledge/position to aid wider society. That a couple of economists issue a ‘model’ that will be largely ignored doesn’t change much. Most economists are silent or active supporters of cronyism, bailouts, bubblecious markets and other abuses.
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I think you are basically right. Economics should not be seen as a discrete field because, as we have clearly seen in recent years economic outcomes are a result of political factors–in short, there is no difference between economic issues and political issues. The finance industry thrives because it was able to game the political system just as other sectors such as the MIC, the PIC, and the medical industrial complex achieved domination of their respective areas through the now totally corrupt political and justice system. A complex financial instruments were created for the express purposes of criminal fraud not to create a more liquid financial system–mind you, I know that some people in the industry “believed” they were doing “good” but that’s the classic tendency of all salesmen/women which to split their personalities such that they’ve, at the time they are making the sales, fully believe in what they are doing. The psychology of this type of person is amazing.
The interesting thing for me as a professional historian is that one can easily misinterpret things that happened in the past, but there are basic ground rules about evidence and citation. So although you can be wrong, it’s hard to perpetuate fraud in historical writing. Economics seems to have no such system of checks and balances in its DNA. It’s like Euclidian geometry but without any test in reality: it all starts with postulates and axioms and then so long as you stay internally consistent, you are unassailable by your fellow professionals. And to reject or refute the postulates and the axioms is to step outside the fraternity and lose all credibility within it. Given this hermetically sealed system, no wonder nobody learns from their mistakes and no one is called to account for massively wrong predictions.
Good point. No checks and balances is just one problem of many.
Whatever redeeming value it may have, the way economics is practiced is mostly smoke and mirrors. Krugman is a good example. The joke ending with “what do you want it to be?” is all too real and we all pay for it. Further, economics has become more a cult than a science, and one which serves/worships money/the monied rather than society. That’s not to say it isn’t important, just that it shouldn’t be afforded the respect that academia confers.
I’m drafting a letter to University presidents. I’ll put that up tomorrow.
I spent a few evenings in Jan. 2007 toodling around the tubz, trying to pin down just exactly what a CDO is and what is its point. When I found out that CDOs were first invented in 1987 by Drexel Burnham Lambert, I let out a belly laugh.
I remember when they were called loans, but you can’t charge nearly as much….
And the other thing, they found out who you actually gave the loan too – Earl?!!??? The guy who is gonna start a combo winery/alligator farm in North Dakota?
That’s exactly what I thought when I read this:
Based on observed performance, market participants learn about the strength of the innovation. They rationally interpret good performance and the absence of shocks as a sign of robustness. Thus, when no shock occurs, confidence increases and the innovation grows, attracting funds and managers. As the innovation flourishes, managers’ earnings increase and exceed the norm of the other sectors.
It’s good to see academics addressing this, but attribution would be nice.
Re: …“One of the curiosities of the modern economy is why the finance sector is so large.” … “In our model, the growth of the financial sector is driven by the development of financial innovation.” …
Hmmm… chain of proximate cause?… What came first, the chicken or the egg? Overlooked in this article is that unlike quantum mechanics, “financial innovations” do not arise in a vacuum. Instead, it is analogous to the environment of a petrie dish. Financial innovations are a response to macro monetary policy and structures, including regulatory, together with underlying fiscal austerity policies.
The massive infusion of Fed-created money into the very narrow distribution channel of the primary broker-dealer network, and the subsequent related use of much of that money for insider speculative purposes in order to concentrate wealth in the hands of a few, rather than for productive purposes, are key to both the development of “financial innovations” and the related development of the vast unregulated shadow banking system and derivatives markets.
Poor risk underwriting practices related to “financial innovations” are symptomatic of deeper underlying causes that were largely ignored by the authors. Unfortunately, putting the genie back in the bottle will prove to be very difficult absent further significant disruptions such as we saw from mid-2007-2009.
The first “financial innovation” was abstracting labor-value into its money-form, a manipulation that opened the gates of Hell and allowed the Devil to work his magic on the masses who still have no clue how they are fleeced of what little they are allowed to earn.
Unfortunately, it’s been all downhill from there.
Words. What they mean, depends on who’s talking. If one substitutes scam for innovation we get a crystal clear picture of what is really going on.
The Global Crisis has intensified debates over the merits of financial scams and the optimal size of the financial sector. This column presents a model in which the growth of finance is driven by the development of a financial scam. The model can help explain the securitised mortgage debacle that triggered the latest crisis, the tech bubble in the late 1990s, and junk bonds in the 1980s. A striking implication of the model is that regulation should be toughest when finance seems most robust and when scams are waxing strongly.
One of the curiosities of the modern economy is why the finance sector is so large. Economists have only recently sought to document and ponder this phenomenon. Empirically, Greenwood and Scharfstein (2013) find that, in the US, financial services, which accounted for 2.8% of GDP in 1950, made up 8.3% of GDP in 2006.
In Biais et al. (2014), we offer a formal analysis suggesting why finance has become so large, asking whether it is in society’s interest and, if not, what might be done about it. In our model, the growth of the financial sector is driven by the development of a financial scam. The analysis is applicable to a wide range of scams – from specific instruments such as collateralised debt obligations (CDOs) or credit default swaps (CDSs), to asset classes such as junk bonds or exchange-traded funds (ETFs) – and management styles.
Our model considers two types of market participants: investors who own the assets, and managers who operate the scam. The analysis is conducted first under the assumption that investors can evaluate the ability and actions of managers – i.e. there is ‘symmetric information’. This provides a benchmark for the next step of recognising the reality that investors are uncertain of managers’ competence or diligence, and therefore information is asymmetric.
The scam can be fragile and prone to shocks. Alternatively, it can be quite strong. Based on observed performance, market participants learn about the strength of the scam. They rationally interpret good performance and the absence of shocks as a sign of robustness. Thus, when no shock occurs, confidence increases and the scam grows, attracting funds and managers. As the scam flourishes, managers’ earnings increase and exceed the norm of the other sectors, consistent with the empirical findings of Philippon and Resheff (2008).
Investments in the innovative sector are robust to shocks only if managers carefully analyse risks and valuations. Early on, when confidence in the scam is still limited, managers understand that effort is essential for success. Only the most efficient managers, for whom the cost of effort is relatively low, enter the innovative sector, and all exert effort. After success, however, managers with inefficient risk-control and evaluation skills also find it worthwhile to enter the innovative sector. Because for these managers the cost of effort is large, they dispense with risk-prevention and prudent valuation.
In this context, if the industry is eventually hit by a negative shock, the sheer size of the industry, combined with the large fraction of managers who shirk, triggers large and widespread losses – a crisis occurs, and only investors whose managers maintained vigilance throughout are spared its worst effects.
In this version of the model the scam has remained at a size that is socially optimal. Investors know what they are getting and are paying a competitive price for it. Now make the plausible assumption that opacity and complexity of the innovative sector prevent investors from perfectly monitoring the risk-control systems and efforts of managers. With this change, the predictions of the model take a dramatic turn. Under information asymmetry, investors are unable to tell managers with efficient risk-control systems (who exert risk-prevention effort) apart from those with inefficient systems (who dispense with risk-prevention.) Both types receive the same compensation. Hence, negligent managers earn excess profits (‘informational rents’). The influx of relatively inefficient managers attracted by rich rewards for little effort spurs faster growth than under symmetric information. This takes the scale of the scam beyond its social optimum and also increases the vulnerability of the sector. Consequently, information asymmetry implies more severe crises.
While this theoretical model could also be applied to nonfinancial scams, it is particularly appropriate for finance. Three of the most important features of financial scams play a key role in the analysis:
• First, risk-control and management are key to the success of financial scams, and it is precisely these activities which the managers of the model are in charge of.
• Second, the complexity and nonphysical nature of financial scams make it difficult for outside investors to observe finance sector managers’ actions, which generates moral hazard, as in the model.
• Third, when financial scams prove to be weak, this generates severe losses for a large cross-section of institutions, again as in the model.
Relating the Model to Events
The finance industry, especially in the last three decades, has been plagued by scams that end in tears. The more egregious examples have been the securitised mortgage debacle that triggered the latest crisis, the tech bubble in the late 1990s, and junk bonds in the 1980s. Their dynamics are in line with the implications of our model.
The initial growth of the CDO scam began in the mid-2000s, with investment banks offering securitised mortgages with a yield advantage over standard investments. Consistent with our model, initial success attracted managers and investors, but confidence led to negligence. Many managers ceased to examine for themselves the contents of the loan bundles, relying instead on agency ratings. The originators of the CDOs also felt confident enough to lower the credit quality of the component loans. Both developments constitute shirking in response to strong growth, in line with the implications of the moral hazard model. Also in line with the model, there were differences across managers. Only those who remained vigilant saved their investors from the worst losses.
Active fund management boils down to two basic strategies: fundamental investing based on the hard work of estimating future cash flows, and momentum investing. At the end of the 1990s there was a surge of scam in the telecom, media, and technology industries, associated with an increase in financial investments in those sectors. It was, however, complex and costly to assess the future revenues to be generated by those investments. Again in line with the model, sustained outperformance raised confidence, and an increasing fraction of managers switched from the difficult task of fundamental valuation to the easier strategy of momentum-riding, which, in the language of the model, can be interpreted as shirking. When the crash came, investors whose managers exclusively rode momentum paid the price (Daniel and Moskowitz 2012 and Daniel et al. 2012 document the vulnerability of momentum strategies to shocks). In contrast, those who continued to bear the cost of careful asset valuation were spared the worst.
Our theoretical analysis also sheds light on the leveraged-buyout (LBO) and junk-bond wave of the 1980s. Empirical research at the time had shown sub-investment-grade bonds had a much lower default rate than implied by their yield spread. This spurred the issuance and distribution of junk bonds. Consistent with the model, initial success increased confidence, which led to reduced risk-prevention and valuation efforts. This made the scam vulnerable and, when hit by a negative shock in 1989, it collapsed. Also in line with the model, the scam was not expunged, and, after several years without crisis, has lived to fight another day.
Policy Implications
Asset-owning principals should be more aware of the agency problems, write better contracts, exercise greater vigilance, and insist upon fuller disclosure by agents. They should lengthen the period of time for intermediaries’ performance review and reward. Shirking is more difficult to sustain in the longer term because individual failure or universal crisis is likely to intervene. The accumulated rewards promised to managers can be cancelled in case of losses, increasing the managers’ ‘skin in the game’ and aligning their interests with those of the principals (see, for example, Biais et al. 2007).
In practice, however, final asset owners are often small and dispersed. They typically delegate investing to trustees of pension funds, mutual funds etc. This creates a chain of agency problems, which the final principals are not well equipped to deal with. Policymakers should give guidance to trustees in the form of a code of best practice showing how to minimise the problems arising in delegation. This can be underlined by extending the interpretation of fiduciary duty to include compliance with the code.
If gentle nudges are insufficient, regulatory intervention may be necessary. Regulators could rule on the acceptability of products, bearing in mind that opacity worsens agency problems. They could enforce reporting requirements, for example, on gross returns, costs, portfolio choices, margins, etc. One of the most striking implications of the model is that regulation should be toughest when finance seems most robust and when scams are waxing strongly. Beware of complacency and notions of ‘Great Moderation’, because that is when shirking is most prevalent.
There. That’s better
Or, people want something for nothing and are willing to do everything to get it. This is the history of mankind and the etiology of every scam ever devised.
Or, people want something for nothing and are willing to do everything to get it.
If people are willing to do everything to get something, aren’t they giving something for something?
The people that want something for nothing, won’t give anything for something.
Its all a bit confusing and mysterious as to what motivates people to do different kinds of things whether it be work or pleasure or both at the same time.
There is only one reason to work in the financial services business, and it is to get as close as possible to the flow of money, so that you can dip your hand in the stream and grab a fist full of money whenever you want. Something for nothing.
That is precisely what PE firms are about. They want to be able to grab an outsized chunk of the public’s money, paid as salary and benefits to public servants, as the money stream goes by their greedy hands.
But what else is a public servant supposed to invest in for retirement, the government? At zero percent interest?
It looks to me like money is being corralled, and getting fattened up in the yard, just before getting slaughtered.
Another way to look at it, Moneta, is that our seniors are being used as hostages/human shields by the bourgeois financialists, who tell us, “if you dare try to restrain asset value inflation, we’ll kill your parents!”
Since we proles are very patient and unwarlike, we don’t reply, “go ahead–make our day.”
Instead, we keep working, we keep getting screwed by the massive flow of high-powered fiat money going straight to the bourgeoisie, and we keep hoping against hope that it all works out somehow.