Guerrilla Billionaire™

Why we haven't hit the bottom: Alt-A and Option ARM Mortgage Resets are coming - The Coming Wave

Brace yourselves for the next wave of mortgage defaults. Alt-A and Option Arm mortgages begin resetting shortly. Monthly payments on many of these will double over night. According to the experts, we're only half way through mortgage debacle.

On the bright side, there's a business opportunity in clearing out houses for the banks.

The 2009 Word of the Year: Bezzle

 What seems to spook people now is the possibility that everybody in charge of everything is a fraud or a crook. Legitimacy has left the system. - Jim Kunstler

I nominate "bezzle" for 2009 Word of the Year.

For seven unrelenting months now, beginning in September of 2008, we have been carpet-bombed daily with news of fraud, embezzlement, and at the very least egregious over compensation for incompetence in the executive suites of America. Expect the revelations to continue for quite some time.

These are just two examples:

CEO Compensation, Perks Surge Despite Firms' Troubles

Companies may be floundering, but their chief executives continue to see their pay checks and benefits grow.

According to Crain's New York Business:

Amid the deepest economic collapse in generations, corporate America is coming up with a novel way to justify extravagant executive pay: Ignore the bad news.

            (source)

The article unveils a new twist on overpaying the incompetent and greedy, the posthumous "gold coffin" perk. You can't make this kind of stuff up.

Here's another one on the imploding hedge fund industry.

Over the Hedge

The five hotshots who took Fortress Investment Group public were worth billions at first. Today they look like arrogant showboats, and their story helps explain why hedge funds are imploding by the thousands—and why there’s still a truckload of money to be made.

(source)

It should be noted that the Vanity Fair hedge fund article is about outrageous overcompensation and not about any illegal activities in the industry. At least not yet.

So what is the bezzle? It's an arcane term coined by economist John Kenneth Galbraith in his book, The Great Crash: 1929, which refers to the as yet undiscovered money that's been siphoned off from a system. The system can be a business, investment fund, bank, government, or the economy as a whole. Since the bezzle is yet to be discovered it leads to an overestimation of total wealth due to inadvertent double accounting. This double accounting occurs because both the embezzler and embezzled count it as being in their possession. Think of recent Bernie Madoff victims such as actor Kevin Bacon who was horrified to realize that all the savings he had handed over to Madoff for investment were gone and never to be recovered. That's the bezzle and we are only now beginning to wake up to the full extent of it.

Now here's an interesting point about the bezzle. It's cyclical.

In good times, Galbraith remarked, the bezzle rises sharply, because everyone feels good and nobody notices. "In [economic] depression, all this is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks." (source)

Perhaps there will be a silver lining to all this? Maybe we will adapt Canadian style banking regulations which prevented this type of fiasco in their own country? Maybe we will stop rewarding executives for abject failure.

But don't hold your breath.

So, there you have it. My nomination for 2009 Word of the Year. Everyone needs to know what a bezzle is and be eternally vigilant about it because there will never be a shortage of rats.

Thanks to Ken Denniger for reminding me of this word which I probably haven't heard since college economics. Here's Ken with more on the bezzle.

Give Me Some of That Billionaire Freedom!

Every now and then I get this overpowering urge for total freedom. It usually comes around this time of year when I'm doing the tedious work of preparing for April 15th. This urge typically manifests itself in a desire to just drop everything and walk the earth. You know, like Caine in Kung-Fu. Walk from place to place ... meet people ... and get into adventures. Till God puts me where he wants me to be.

But alas, I can't. Too many projects on the go. This means that I have to live out this fantasy vicariously through Tim Ferriss of  The Four Hour Work Week fame.

Tim just put up a post which caught my eye: How to Be Jason Bourne: Multiple Passports, Swiss Banking, and Crossing Borders which is a fun read. It's about Neil Strauss's new book Emergency: This Book Will Save Your Life.

(Photo by gravitywave)

Thanks Tim, for a nice 15 minute break.

Now back to work.