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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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I owned a house in Vegas for two years and flipped it for as much as I made working for that two years. Tax-free and legally. Then I blew town before the bank I was working for went bust on real estate loans. I told the employees that had bought the stock to get out but who listens? They told me that houses were going to go up forever and they were going to be rich. Told me I was an idiot to sell out in 2004. They all lost their jobs and their money and their phony home appreciation. I don't hear from them much anymore.
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