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Tales of Vegas
Last weekend I attended Freedom Fest, a libertarian-ish convention in Las Vegas. You know, from Steve Forbes to Peter Schiff. Perhaps a bit off topic for ZH, but here are a couple vignettes of things that interested me about Las Vegas. I was there for a one day session with the Mises Institute but also wandered in and out of other lectures, perused the vendor section, and cruised the floors of Bally's and Bellagio.
Tale No. 1 Las Vegas
Because I wasn't staying at Freedom Fest's venue, Bally's, but rather at a friend's place, I managed to take about 8 cab trips back and forth (you can't walk around when it's 110°) and struck up conversations with my cabbies. All, except for two, were immigrants from Haiti, Ethiopia, Iran, West Indies, Central America, and one who refused to identify his country of origin. Without exception they all said business was slow, tips were down, and they were making far less money than during the boom.
But here's the saddest tale, and I am told, far from infrequent. My cabbie Tony, 50 years old and born in the USA, was no longer a home owner. He had a home, bought during the boom, maxed out his loan at 90% of value, and watched it go down from the $305,000 he paid to "I don't know what it's worth today. I gave it back to the bank."
As gambling in Vegas was seen as a frivolous pastime, his cab business declined at well--he and his partner had 5 cabs and his employees drove the other cabs in double shifts. He lost those as well when he couldn't make the bank payments. Oh, and he and his wife got divorced, and then she lost her job as well. "I got nothing, but I love my family," Tony said. It gets worse.
His father also got into the "game" and bought 3 homes. The last one was at a developer's "lottery" for about $800,000. When he mentioned that dad was the lucky buyer at a lottery, I knew right where the conversation was going. Dad lost all three homes and is now broke. Without his Social Security check, he'd be living with Tony.
This is what it means when we talk about a "boom-bust" economy. Few in government have a clue as to what they are doing or that even they have any culpability in creating these cycles. Readers of The Daily Capitalist understand that these cycles don't occur out of thin air: they are creatures of the Fed and government policies. This time the Fed's new money flooded into housing and human beings, being human, did what they always do.
I don't think most of us fully appreciate the human tragedy of boom-bust cycles unless it impacts us personally. Most of those who suffered were just doing what they could to get ahead. It's human nature to jump on the bandwagon. You can complain that they were spoiled, foolish, didn't understand that all things come to an end, or living in a fantasy, but that ignores human behavior. Like it or not, this is who we are. Ask Bernie Madoff.
People have come to expect "easy money" because of these cycles, not vice versa. And for a variety of reasons, we only want to see the boom and ignore the potential of the bust. Yet these cycles tear people and families apart, as it did for Tony and his family. Now the government and the Fed are trying to light another fire that will repeat these mistakes. What will the human toll be next time?
Tale No. 2 The Gambler
I was having a nice drink at Bellagio. Sitting at the bar I was enjoying several plates of tapas, sipping my martini and generally enjoying myself, vicariously if you will. Mrs. Econophile hates Vegas and stayed home. I don't understand what happens to average looking women when they come to Vegas. They all try to look like celebrities. It's like they just got their boobs done and can't wait to show them off. Short-short is also back in style. Then they go back to their offices on Monday and look like they normally do. I'm not complaining, mind you, just amazed at the transition that occurs in this glitzy, fake-front place.
After a while this guy sits a couple seats away and orders an iced tea. Then he orders the big lobster dinner. $80. He's all alone. No wife, girlfriend, or hooker. Nice looking guy, about +40. Intense. We start chatting it up. I find out that he is a full-time poker player. Now let me say that I play "poker" once in a while with some buddies and if I lose $40 it's well worth the price of admission because we have fun. I don't know a thing about poker or other forms of gambling, and I don't gamble when I'm in Vegas. I only go there when I have to.
This guy, Paul, lives in the Mid-west, and comes to Vegas once a year to make money. He sold his shop after he realized that he was taking money off table in some serious local poker. Good money. He read up on poker and learned everything he could about it. Then he kissed his wife goodbye and headed for Vegas for a month or "however long it takes for me to make good money."
Every casino has several poker rooms. The main rooms are huge and the poker tables are crowded. In fact there was a major tournament going on at another casino at the time. So the big boys were in town. With poker you are not betting against the house, you are betting against the other players at the table. The tables have various stakes limits to cater to all levels of players. If you think you're good enough, you go to a room at the back of the Bellagio and the buy-ins are high, say $10,000. The casino just charges you for the time you spend at the table.
Paul headed for the back room after dinner. It was about 10:00 and time to go to work. He told me how he approaches the game. "I don't like gambling," he said, "but I like making money." What he's saying is that he carefully follows each hand, knows the percentages for each bet, and doesn't let his emotions get in the way. Luck is a huge factor, he said, but, if you understand the game, figure out your fellow players, and know when to bluff and when to fold, it can be a business like any other. It's mostly odds he said, the percentages, that matter long-term. Some nights he'll lose a few grand, other nights he'll make ten grand. Sometimes he makes a lot more.
The other night he took one of the big boys in a hand for a big pot. He said he thought about it for a long time, wondering why he won the hand, and realized that the big guys you see on TV like to gamble. It sounds funny when he says it that way since he is a gambler. But he knows when to fold. He pulled out his wad to show me his three inch thick pile of $100s.
When he makes enough money to last for another year, he goes home. He's not greedy, just smart. I liked the guy and I liked what he does. But here's the beauty of it: it's all tax free. At least he thinks so. He pays for everything in cash. He drives to Vegas rather than flies. Money changes hands on the table and the house isn't involved. "Are you with the IRS?" he asked me as we started this conversation. I'd be the last guy to rat him out.
More on Freedom Fest tomorrow.
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Sorry, econophile, it's a really nice story but I just don't think it helps.. This is why I can't believe Austrian economics.
You fix the cabbies problems by teaching them poker? That's crazy. If you don't do that, what do you do? Laissez-faire economics? - you think the US needs less regulation of, say, Goldman Sachs?
I've never seen an Austrian economist with a solution, just a list of problems. Often well identified problems, with some nice supposed causes - "it's all the Feds fault" - that make us feel better. But no actual solutions.
Now I don't have many either. I know we're in a hard place. But then I don't call myself an economist, or a member of a school that meets in Vegas.
As Sam Cooke would say to you:
Don't know much about history Don't know much epistemology Don't know much about a philosophy book Don't know much about the logic you took Don't know much about humanity Don't know much about theory Don't know much about marginality Don't know nothin 'bout praxeology But if you knew some Austrian Theory You might understand the economy, and What a wonderful world this would beWhat's wrong with private choice? The Austrians have solutions and it's about getting more opportunity to the individual. No solutions are one size fits all. Who would be better at making decisions for you economically, you or some gov bureaucrat? Would the plan for your neighbor work for you equally well? The point is to show people that central planning never works, it's private decisions with private property that builds wealth.
Tale No. 3 The Bridge
I will add a third 'Tale of Vegas'. Driving back to Phoenix from Vegas, I stopped at Hoover Dam for the tour. I went down the elevator, checked out the generators, looked over Lake Mead. All very impressive. Then, I went through the small history museum. I learned that, in the 1930's the dam was built as a depression era project in the span of a few years, and that it had employed thousands. In fact, the dam went from nothing to complete in about 5 years, finishing in 1936, a monumental project. By controlling the Colorado River this dam brought agriculture, water sports, and many other benefits to Arizona and California.
Fast forward to the 21st century now, with all our amazing technology. I looked out at the unfinished bypass bridge being constructed in front of the dam. It is an impressive project as well. This project was conceived of in the 1990s, and was 'expedited' by the government after the September 2001 attacks because of a perceived risk to Hoover Dam from terrorism. As you look at the project overview, a sign proudly proclaims:
So you have an 'expedited project' in the National Security interest which will be completed some 9 years after the terrorist attack that caused it to be 'accelerated'. And you have 7 government agencies who must be coordinated in its construction.
If this isn't an object lesson I don't know what is. We can build a dam in 5 years that is a technological wonder of the world when we need jobs in a depression, but we cannot build a bridge in almost twice the time with 70 years of technological advancement when it is needed for national security? No wonder 'government stimulus' fails to get the economy moving. The only thing it stimulates is bureaucratic jobs.
ex VRWC
Oh,how the mighty FALL.............the property prices were unreal.
Had a Russian shutttle driver(female) point out her son's Condo, about 4 Blocks off the Strip, she had a heavy accent, and I (actually I asked) how long she had been in the states, 2yrs.
She said 5yrs prior, he paid $55k for the condo...............current price(value on his) that year(was like '03-04),was $500k.................and if you wanted one GET ON A LIST for one 1.5mil.
I liked Vegas, just for people watching,a little slots,pool, and to get out of dodge for a few days a year....(haven't been back since '08).
I struck up a Convo with a FREQUENT Vegas playa, on a flight out to Vegas, after the get to know one another bit,saw a couple of real hotties aboard (Fri flght),traveling sepatately.
I commented on how,why these beauties were traveling Solo,they were natural beauties,with no makeup.(21-26yrs old range).
Everything on them was real, as best I could tell, and they were real lookers.(the Triple take variety,or Stare).
He told me, (as he went nearly 2-3x's a month, WHAT these women did).He said they are regular 9:00-5:00er's, hold down good professional jobs, and made real good money.At home(DFW).
He said they went to Vegas, and were on the block for expensive escorts...........and made more in a weekend than they did a month back home.
And, he said he had seen these chicks on every flight he had been on........meaning they went every weekend.
Sun a.m., back to the airport, and on Mon, back at the 9:00 to 5:00............that was in the GOOD times.
Was in Vegas 2 weeks ago for a stag. The town seems busy but the attitude at most places has gotten better (too cool for school doesn't work in a recession)
Vegas is to the US as Reality TV is to society - fake, plastic and makes you dumber for playing / watching
The 20-somethings are all dressed out at 10p.m. hitting the big Casino clubs on Fri/Sat. Most of the clubs are franchised. It's a go-to road trip for the LA/SoCal crowd, per my daughter. They don't gamble at all; they stay at the off strip motor inns ....and they sure like to knock down those 10 buck cosmos at the clubs.
When you're 23 it's hard to take the economy seriously until the money runs out and/or Bank of Daddy shuts the teller window. Then it's on to Colt .45
The greatest of all illusions, that you can have something for nothing, is played-out every day, in every way, in the good ole USA.
Two weeks ago our LV cabbie told me he was buying guns and joining a militia. Last year the mexican construction workers were drinking their lunch at the 7/11 across the street and the finished product looks like everyone was drunk.
Two years ago the "around the world" cost 500, this year you can get it for the same price as the "mumble in the jungle"
just price checking ya know.
The IRS does track poker winnings. One does not play with cash at the tables and you do have to exchange the chips for cash. Anything over 5,000 (some places) and 10,000 (other places) record winnings to the IRS. The casinos keep track of cumulative winnings (cash-ins) and are required to report this to the IRS under his Social Sec Number. I can assure that this guy pays taxes or he will soon be visited by our friends from Treasury (when they take time off from their skimming efforts in the Treasuries Market) ... I know this
Play way off strip and find a joint that will take any SS# you want to give. A friend told me this. I would never do such a thing myself. ;>)
I was in Vegas a couple of weeks ago and it seemed pretty busy to me but the cabbies were telling me it's way down on a couple of years ago. He said at it's peak vegas only has 2-3% unemployment but now it's over 14%.
Pulls me in two directions. On one hand, the human cost of failure due to greed and ignorance. On the other hand, the human triumph of success by knowing their limit, or staying out altogether. Self-imposed suffering vs. prudent decisions. Ultimately, I can feel sorry for the losers without having any desire to bail them out.
The juxtaposition between gamblers and investors is false. No real difference between the two in any final analysis. Both study the game and the players, and put their money (and more commonly, emotions) on the table. Neither has any idea what will happen next, or when it will happen. Black swans. Under a normal curve, the tails are full of winners on one and losers on the other. It's all left up to randomness. Poker players go broke faster, investors go broke slower.
Edmon,
I'm not certain I understand your posts.
Are you criticizing the folks who took out loans or the folks who lent the money, packaged up the loans and sold them to every Tom, Dick and Harry around the world as AAA securities?
Because the only taxpayer bailout that happened went to the folks who lent the money packaged the loans and peddled the "AAA" crap.
I've been to Vegas 3 times this year. Every time, the cabbies I ask say that 2010 is much better than last year. Last year was terrible, but this year is average. I never got into any of their life stories, but at least in terms of Las Vegas traffic, it seems to be up much more than last year.
I bet (get it?) that many of the people in Vegas now are there cuz they aren't paying their mortgages.
Econophile, that was a great piece.
Above posters are right. Such suffering now. And likely to get worse, maybe a LOT worse.
As soon as mortgages became Self Certification in the early nineties within 18 months the big bust followed,same thing this time round.Very sad that people brought at the wrong time and lost probably most of their hard work and hard earned cash.Difference is when this happened before seemed to be more old money around and there was a lot more industry to bounce back.Where do things go from here,who knows ? Nice report.
"Most of those who suffered were just doing what they could to get ahead."
I could not disagree more! As buying up multiple houses and trying to flip them or whatever was not a universal phenomenon, I assert that not everyone had their head up their ass with regard to understanding risk. Also, the housing bubble was completely OBVIOUS to anyone paying fucking attention, so perhaps, I don't know, maybe greed played a big role in what all those assholes who are now broke did to themselves? I stayed as far away as possible and didn't get burned, at least not directly (indirectly I get burned because 95% of Americans are illiterate, innumerate buffoons). Look, our country is run by crooks and you have to be careful not to fall into their traps, which can be difficult, especially if you're a typical American asshole. I was going to say "with no brains" but then I realized how many otherwise intelligent people were buying multiple houses and trying to flip them. My policy is, don't get involved in things you don't know enough about, which has served me well over the years.
As far as professional gambling goes, what's the difference between a professional gambler and a large pizza?
A: The large pie can feed a family of four.
How do you apply your logic to a 70 year old retiree who needed housing, put down 20% in 2005 on a decent home in a decent neighborhood, when everyone from the realtor to the Head of the Fed were making statements that housing is a good investment and built on strong fundamentals? It doesn't float. This is the fundamental issue with our monetary system. It forces everyone to be a financial expert when all they really want to (and should) do is be an expert in their particular field, using SOUND money to translate the value. This little itty bitty detail has been removed. Be it credit or money, they are the same and they have been perverted and distorted by our government. I have said it a million frikkin times, before this is over, everyone will be a lot more familiar with Keynes and Mises than they ever wanted to be.
greenspan should be in jail for life.
Nobody needs to be a financial expert to invest, but they should be prepared for negative consequences. The problem isn't investing, it's taxpayers providing a safety net for those who make poor (or unlucky) decisions. That's truly taxation without representation - nobody had a say in what any of these folks did with their money and debt, but now everyone else gets stuck with the tab. Spreading out the risk so that the risk taker learns no lesson is the worst problem of all, because it creates more risk takers who rinse and repeat.
Sound money or not,there's one sheep born every minute, and nothing you can do will ever change that reality. Unsound money may not spend as well, but it purchases the same amount of failure as sound money.
BTW, even "experts" in economics and investing are often clueless. Look no further than our beloved PhDs who work for the fed.
+100 - "It forces everyone to be a financial expert when all they really want to (and should) do is be an expert in their particular field, using SOUND money to translate the value."
Ditto, good stuff.
In Vegas September 2008, the cabbies were complaining then that things were bad. Looked like the strip was being split in two, casinos busy at the Bellagio towards the Wynns, Pallazzo direction but the casinos near the Mandalay Bay were dead. The malls were also very quiet and this was almost two years ago.
Cabbies always complain ... tips are better
There's nothing like on the ground reporting.
Thanks for the vicarious ride thru Vegas!
Thanks Econophile, good stuff.
The glory days of Vegas are gone forever. I sold my condo here in 2006 for 172K. I could buy it back tomorrow for 53K. That's a 69% haircut. But I'm not buying yet.
People don't realize that all of the 'easy money' came from the Federal Reserve's money-printing activities and zero-interest rate policies under Greedscam and Bernokio.
When the final history of the USA is written, it will record that Greedscam and Bernokio's 'easy money' policies were the trigger that destroyed the country.
And the 1999 repeal of Glass-Steagall that allowed depository banks to merge with investment banks and inflate deposits 90x to invest in MBS. Easy money of Easy Street make for easy scam
It is easy to say, "those folks deserve to lose on housing because they knew the risks." This is simply not true. No where on any loan docs did it state, "although we are crawling up your ass with a microscope, verifying that you are who you say you are, and making you explain why you were a month late on that one cable bill three years ago, we loan lots of money to many other people who have no income, no job, and no assets. Do not assume that we apply risk equally. This lending process may dramatically distort housing prices, thereby making your purchase price inflated beyond belief."
The lenders were quite disingenuous in representing the general risk. It is really sad. I visited relatives this last week and found an Aunt, who is so upside down it is a joke. 75 and stuck. On fixed income and really without options. A brother stuck. A cousin stuck. The human cost is unreal. They are frozen. And the bankers got bailed out. Why people aren't so pissed that somebody hasn't done the unthinkable to one of these high profile bankers is surprising. Neutered sheep.
The bankers are not the first line of defense against overpaying. The investor is. When they took out the loan, they signed a document that said this property is worth me borrowing this much money from you to possess it.
Sure, the lenders made it easy. But the buyers were not held at gunpoint to consumate the deal.
While I agree that there was massive fraud, I would say that understanding risk is up to the individual and that most average Americans spend more time deciding what to order at McDonald's than they do with what they are investing large sums of money in.
It requires and enormous level of sophistication to understand the price distortion that results from FED monetary policy.
There is no way to assess risk accurately with fraud. That is my point. I agree Americans have their heads up their asses and if they were intelligent they would not part with money to Mickey D's because of the horrible food...
This is a painful, good process. Folks are going to figure out why their grandparents were such conservative weirdo's, having lived through the depression... ;)
Yeah you might not know the exact risk when three is fraud involved, but when it's open that fraud is involved maybe you should not invest in that. I knew back in early 06 that there was a housing bubble. At that point I was still getting my undergrad degree, I was (am) just a dumb kid. If some college kid can go to a party school, work, and chase girls, and still know there was a housing bubble, then anyone could have figured it out.
There is no such thing as easy money, unless you have a printing press or connections to a printing press.
Dietech.com (GMAC), FLIP THAT HOUSE (HGTV) and everyone is going to be a millionaire from their house. What more clues did anyone need ?
Nevertheless- the FED brewed the toxic mixture of ZIRP and "the new economy" that collapsed the real economy.
And real people have been badly hurt.
Did you venture over to the clusterfuck known as City Center? That money pit which nearly had MGM being forced to sell its grand jewel - the Bellagio. I always stay at Planet Hollywood (formerly Aladdin) so I've been watching that behemoth go up since they broke ground a few years ago. That spot used to be a nice little piece of desert, with some small strip mall and helicopter rental; now its acres and acres of steel, glass and concrete. Boom & bust exemplified right there, shiny today, but just waiting for the rust and decay to overtake her.
I visited City Center a couple weeks ago. Stayed at the Wynn, but took a cab ride down there with Mrs. Rainman to look around. I guess my dual sentiment was sterile and uninteresting......certainly nothing colorful and dramatic like the Wynn. Very confusing to get around and blase window and steel architecture.
They must be deep discounting the condos because most looked empty; not a lot of people around for a Saturday afternoon. Didn't visit the casino. The Missus snagged a bracelet at Tiffany's in their mall. I got jammed with the bill ( anniversary ). The mall was pretty empty.
So I guess my limited perspective was : This is $8.5 billion sitting on a patch of desert ?? No way.
Is that the Dubai PULLOUT?
My buddy got divorced from an IRS auditor. He says he got audited for 6 years in a row.
Was he charged with 1st or 2nd degree murder?
For all of these down and out folks--did you ask how many times they had voted for Harry Reid?
How much empty real estate did you see on these cab rides-percentage wise?
Thanks for the insight.
Good stuff Econophile. Waiting to hear more.
+1
Well done Econophile.
(Cue Kid Dynamite in 5 4 3 2 1.....)
Can't go broke taking gains.
Sure you can, if your gains are less than your expenses.
Yup. Same as "taking profits" while "trading" (gambling, actually) stocks/commodities, only Vegas is much more fair than Wall Street!
Good for him. FUCK the IRS.
Dude had better be careful. Chumba had that attitude about the IRS and they probably beat him down. If they can prove you didn't pay taxes, you are toast.
IRS trouble is bad, bad trouble.
Hell, I was *right* (and eventually proven so) in a dispute with them. It was two audits and 15 months of unceasing pain, at who knows what opportunity cost.