'Madoff Whistleblower' Harry Markopolos Has Uncovered A New Fraud

Tyler Durden's picture

Authored by Robert Huebscher via Advisor Perspectives,

Harry Markopolos, the investigator who exposed the Bernie Madoff Ponzi scheme, has uncovered a new fraud. The unfunded status of the pension fund of the Boston Transit Authority (the “MBTA”) is $500 million bigger than previously thought, according to Markopolos. This will have a significant impact on the municipal bond market, especially if it turns out that the MBTA’s problems are endemic among similar pension funds.

The unfunded status of a pension fund is the market value of the assets minus the present value of the liabilities, discounted at an actuarially determined interest rate. For most public pension plans, this number is negative; the liabilities exceed the assets and it is underfunded.

Although the full details are not yet known, Markopolos said the $500 gap is due to bad investments, fraudulent accounting and unrealistic actuarial assumptions.

Markopolos spoke on June 9 at Northfield Information Service’s 22nd annual summer seminar, held in Newport, RI. Northfield is a provider of advanced analytics to institutional investment managers and wealth managers. Its CEO, Dan diBartolomeo, worked with Markopolos in the Madoff investigation and is helping with the MBTA case.

Markopolos called what is left of the MBTA’s pension a “Tender Vittles retirement plan,” meaning (sarcastically) that its participants would be eating cat food.

The underlying cause of the MBTA’s problems was poor management and oversight. “No good outcomes result when you mix politics and money,” Markopolos said.

The problems began with failed investments in two hedge funds and culminated in the more widespread problems that Markopolos uncovered.

Buddy Fletcher

The troubles at the MBTA began in 2012, when it was revealed that it had lost $25 million in an investment in Fletcher Asset Management, a hedge fund run by Alphonse “Buddy” Fletcher. The MBTA had been hiding this loss until it was exposed by an investigative reporter from The Boston Globe.

Fletcher had promised guaranteed returns of 12%, similar to Madoff’s sales pitch. It was nothing more than a Ponzi scheme. In addition to the MBTA, three Louisiana pension funds lost $100 million in the scheme.

What made the Fletcher loss so galling, according to Markopolos, was that its chief investment officer, Karl White, had been the executive director of the MBTA pension fund. One year after leaving the MBTA, he convinced it to fund Fletcher.

“There are a lot of Ponzis,” Markopolos said, “and they are stealing customers from legitimate managers.”

Fletcher used the money it raised to invest in a movie, Violet and Daisy, which his brother was making and in a “penny stock” called ANTS, on which it booked a 1,000% return over a 16-day period. At one point, Fletcher reported 127 months of positive returns without a down month; it later revised this to show 14 down months.

The Fletcher irregularities went unnoticed by the MBTA’s board, which Markopolos said consisted of mostly non-college graduates – union members who worked on or operated the city’s busses and subways. The board had one person with an MBA and a couple of lawyers, who Markopolos said were not experts in investing.

Neither the MBTA’s auditor, KPMG, nor Marco Consulting, its pension consultant, reported any problems with the Fletcher investment.

Weston Capital

In 2013, the MBTA invested approximately $10 million in Weston Capital, a hedge fund run by Jason Galanis, whose father had run a big Ponzi scheme in the 1970s, stealing approximately $400 million from mostly Hollywood investors.

Markopolos said in 2007 that Galanis bought shares in Penthouse magazine, filed a false 10Q with forged signature, and had caused its auditor, Deloitte, to resign. All this happened before the MBTA made its investment in 2009.

“How much due diligence do you have to do to invest with Weston Capital?” Markopolos asked, rhetorically.

By the end of 2013, the MBTA had written off the value of its Weston investment.

Galanis, Markopolos said, would look for struggling RIAs. He would overpay for an ownership interest in firm, with the stipulation that its minority interest not be disclosed on its form ADV (which is illegal). He would then arrange to invest all or a portion of the RIA’s fixed-income portfolio with a promise of 8-9% returns. He would then raid those funds to pay Ponzi-style interest, Markopolos said.

Markopolos warned that fraudulent schemes to buy struggling RIAs are ongoing. RIAs should be aware that the damage goes beyond the firm’s assets, he said. A good criminal defense starts at $1 million, according to Markopolos, and even if you beat the charge anyone will be able to Google the result.

The larger problem

After recounting the Fletcher and Weston debacles, Markopolos described the larger problem facing the MBTA.

Based on audited financials, he said that the MBTA plan’s assets are only 29% of its liabilities, an underfunding of approximately $470 million. But Markopolos claims the actual number is closer to $1 billion.

The gap is due to overstating of asset values and returns, underestimating employee’s life expectancies and using an unrealistic discount rate for its liabilities.

The MBTA is “one bear market away from disaster,” Markopolos said.

Markopolos presented data from the MBTA’s 2012 and 2013 annual reports, when its market value jumped by $200 million. The most alarming aspect in those years was the outperformance of its public equity (large-cap, small-cap and emerging markets) and fixed-income holdings. Equities outperformed their benchmark by 6.28% and 5.63%; bonds beat its benchmark by 7.60% and 2.86%, respectively in the two years. Similar returns were reported for the MBTA’s real estate holdings.

That degree of outperformance is highly unusual, since the MBTA was using multiple asset managers in both its equity and fixed-income allocations. Across all asset classes, it used 71 asset managers. According to diBartolomeo, a single manager might achieve such outstanding results, but the chances of a team of managers performing that well was “essentially zero.”

The investigation is ongoing as to how the MBTA was able to report such spectacular results. Most likely, it was due to accounting manipulations. The MBTA may have switched the accounting standard it used (such as GAAP or GASB) in order to report the most favorable result. It may also have used provisions which allows pension plans to report performance smoothed over a five-year period to inflate its numbers.

By contrast, the MBTA reported dismal results for the 20% of its assets held in alternative funds – private equity, hedge funds and something it called “diversified beta.” Each of those fund categories underperformed their benchmarks in 2012 and 2013 by between 9% and 17%.

Markopolos questioned the due diligence procedures that led to such poor investments and why those managers had not been fired after achieving such poor results.

“Why did it keep investing in alternatives?” he asked, rhetorically.

The MBTA used actuarial tables from 1994 to determine the expected lifetimes of its employees. This resulted in shorter lifetimes than the rest of the pension industry, which was using tables from 2000. By assuming its employees would have shorter lifetimes, it was able to artificially reduce its projected liabilities and underfunded status. This represents approximately $105 million of the half-billion shortfall.

Long-term implications

Of the roughly $500 million shortfall, Markopolos calculated that $106 million is due to using an unreasonable discount rate to calculate the present value of its liabilities. The MBTA used an 8% discount rate and had increased its rate in 2012 by 0.5%, when almost all pension plans were decreasing their rate or leaving it constant.

The use of unreasonable discount rates is well-known and its impact widely estimated. The plans justify the use of an unreasonably high rate by claiming adherence to an actuarial standard; in reality, the economically appropriate discount rate – one which reflects the riskiness of the liabilities – is much lower. Markopolos said it should be about 4.5%.

The more troubling problems uncovered by Markopolos are driven by other factors, such as poor due diligence on its investments, overstating of returns, overstating of asset values and faulty life-expectancy estimates. These problems appear to be driven by a pension board that, at best, was unable or unwilling to scrutinize its investments or, at worst, willingly investing its assets with known criminals and past employees.

Nobody knows how widespread problems like these are.

The MBTA falls into the category of multi-employer public pension plans, which are among the smaller state-run plans. According to diBartolomeo, there are approximately $3 trillion in assets in about 6,000 smaller plans, roughly about 30% of the total assets in public pension plans. Markopolos said there are “plenty of other plans in Massachusetts with similar problems.”

Don’t expect help from supporting vendors. In addition to KPMG and Marco, Markopolos said that neither State Street Bank, the MBTA’s custodian, nor Buck Consultants, the plan’s actuarial consultant, warned of any problems.

KPMG should have found the discrepancies. But Markopolos said its auditors are typically “22-year olds who catch more colds than frauds.”

The investigation into the MBTA plan will continue. But if the plan fails – as Markopolos warned – it will surely have an impact on the municipal market. If the state of Massachusetts needs to bail out the plan, it will need to raise money through the bond market. It would be politically unpopular to let the plan fail, since the blue-collar MBTA workers are unwitting victims of the fraud and incompetence.

If problems like this are endemic among multi-employer state pension plans, it will mean higher rates for municipal bonds.


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strannick's picture

Silver is manipulated?

Or is Ag too big to jail and not scape goatable enough to a "junior rogue trader"

Whoa Dammit's picture

Mirror, mirror on the wall, who runs the biggest Ponzi of them all?

--Janet Yellen

localsavage's picture

Until the first one is allowed to fail and pensioners get what they have earned not what fantasy accounting has told them they get, no one cares. 

Joe Davola's picture

Not to worry, if this dipshit named Hanson discussing AI in the latest IEEE Spectrum is right, only assuming 7.5% returns is too low!

How will brainlike computers change the world?

Computers as capable as brains will be cheaper than brains, and so displace brains in almost all job tasks. Since computers can be made fast in factories, the economy could grow much faster, perhaps doubling every month. Humans would have to retire, but they’d own most capital, which would double as fast as the economy. So, collectively, humans get rich very fast.

chubbar's picture

Did you really think that comment through? What is the percentage of humans that own "capital" now? AI and automation isn't going to make the population rich, perhaps the current owners of industry, but not the majority or even a small percentage of the whole.

It's like College degrees, the were valuable when only a few had one. Now that every swinging dick has one, it hardly if at all, makes a difference if you have one. Same with computers and you can see this with the trading platforms. As soon as the banks, et al, got super fast trading algorithms, the piece of pie each were getting got smaller. There is only so much stuff one needs to buy anyway, how else are you assuming we all get rich if not through consumerism at the end of the production line?

open calender's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2jdTzrM

MalteseFalcon's picture

So the MBTA pension fund is a bear market away from disaster, is it?

Every pension fund is a bear market away from having a nasty truth revealed.

If I were a partner in an auditing or consulting firm that services pension or life insurance clients, I'd be cashing out my partnership right now.

I'd also change my address, email and phone number.

Time to head to Costa Rica.

h/t Arthur Andersen

knukles's picture

So, I ask, what's so different about the MBTA plan than any other?
My own experience in the biz is that the public funds are rife with mismanagement; most not even intentional.  Just incompetent and keeping bad news from the taxpaying public.  See, the public's response ois gonna be TFB, cut their pensions and the entire system retires off these plans, so they ain't open to bad news.   

The biggest single problam is Accumulated Benefit Obligation calculations as opposed to Projected Benefit Obligation calculations.
Publics use an ABO which vastly understates the future liability stream by not even counting a huge portion of it at all!!!!!

PrayingMantis's picture

... while MBTA is just “one bear market away from disaster", as Markopolos opined, hardly any worthwhile discussions had been followed-through on the Fed's under-reported $16 Trillion international banks and corporations' bailouts ...
... here's the flashback ...
>>> https://www.forbes.com/sites/traceygreenstein/2011/09/20/the-feds-16-tri...


CrabbyR's picture

I would upvote your post more if I could....meaty tidbit there!

+ 1000

PrayingMantis's picture

... indeed! ... here's more $16 Trillion meat ...

... "Among the investigation's key findings is that the Fed unilaterally provided trillions of dollars in financial assistance to foreign banks and corporations from South Korea to Scotland, according to the GAO report. "No agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the president," Sanders said. ...

>>> https://www.sanders.senate.gov/newsroom/press-releases/the-fed-audit

... and I'm not even a Bernie fan ... lol, nevertheless, this $16T is US Fed's bailout of foreign entities (banksters & corps), hence, the US taxpayers, eventually, would be on the hook ...


BC6's picture

Free Jon Corzine!


Remember Seth Rich.

QQQBall's picture

Don't like the NPV? Inflate the revenues more, overstate the ROA, understate future liabilities and throw a fatty disco rate on it. Problem solved!  How much misery is this bullshit gonna cause?


I know, grant MBTA statehood!

Lumberjack's picture

Boston Consulting just had overseas offices raided. Keeping a close eye on that as the renewables 'problem' comes up....

Portugal's EDP a suspect in corruption inquiry
... grid operator REN and the local division of Boston Consulting Group. ... Portugal's public prosecutor named Energias de Portugal (EDP) ...

Boston Consulting Group also confirmed police searched its Lisbon office and said in a statement it "will continue to collaborate with authorities in whatever is necessary, always ensuring the confidentiality of its clients".
EDP shares closed 1.34 percent lower on Friday and REN slipped 0.5 percent, while the broader market in Lisbon ended little changed. (Reporting by Daniel Alvarenga and Andrei Khalip; Writing by Axel Bugge; Editing by David Clarke and Catherine Evans)

EDP office raided in corruption probe
Officers of the Judicial Police raided the Lisbon offices of EDP, REN and the Boston Consulting Group this morning ... Energy bosses António Mexia from EDP and ...

Shares in wind power developer EDP drop after corruption charges re: state compensation laid. EDP has IESO contractshttps://www.ft.com/content/5fb0e56b-1397-3c8d-a8aa-1716512d08f9

Answering Who is Boston Consulting Group?:

‘Boston Consulting Group Plans a Move into a New Building in the Boston Office Market’...

Portugal's EDP a suspect in corruption inquiry
... grid operator REN and the local division of Boston Consulting Group. ... Portugal's public prosecutor named Energias de Portugal (EDP) ...

Boston Consulting Group also confirmed police searched its Lisbon office and said in a statement it "will continue to collaborate with authorities in whatever is necessary, always ensuring the confidentiality of its clients".
EDP shares closed 1.34 percent lower on Friday and REN slipped 0.5 percent, while the broader market in Lisbon ended little changed. (Reporting by Daniel Alvarenga and Andrei Khalip; Writing by Axel Bugge; Editing by David Clarke and Catherine Evans)

EDP office raided in corruption probe
Officers of the Judicial Police raided the Lisbon offices of EDP, REN and the Boston Consulting Group this morning ... Energy bosses António Mexia from EDP and ...

Shares in wind power developer EDP drop after corruption charges re: state compensation laid. EDP has IESO contractshttps://www.ft.com/content/5fb0e56b-1397-3c8d-a8aa-1716512d08f9

Answering Who is Boston Consulting Group?:

‘Boston Consulting Group Plans a Move into a New Building in the Boston Office Market’
Portugal's EDP a suspect in corruption inquiry
... grid operator REN and the local division of Boston Consulting Group. ... Portugal's public prosecutor named Energias de Portugal (EDP) ...

Boston Consulting Group also confirmed police searched its Lisbon office and said in a statement it "will continue to collaborate with authorities in whatever is necessary, always ensuring the confidentiality of its clients".
EDP shares closed 1.34 percent lower on Friday and REN slipped 0.5 percent, while the broader market in Lisbon ended little changed. (Reporting by Daniel Alvarenga and Andrei Khalip; Writing by Axel Bugge; Editing by David Clarke and Catherine Evans)

EDP office raided in corruption probe
Officers of the Judicial Police raided the Lisbon offices of EDP, REN and the Boston Consulting Group this morning ... Energy bosses António Mexia from EDP and ...

Shares in wind power developer EDP drop after corruption charges re: state compensation laid. EDP has IESO contractshttps://www.ft.com/content/5fb0e56b-1397-3c8d-a8aa-1716512d08f9

Answering Who is Boston Consulting Group?:

‘Boston Consulting Group Plans a Move into a New Building in the Boston Office Market’

"An important member of the Boston office market has announced that it is joining GE, Fidelity Investments, Pricewaterhouse Coopers and others by moving to the Seaport in a new facility built to meet their ever changing needs. The Boston Consulting Group which serves a global customer base, currently has two Boston area offices, and will join them when they move into a new 13-story office building. The new building is located in Tishman Speyer’s Pier 4 Development and Boston Consulting Group plans to be moved in by June, 2018."

EDP head office raided in corruption probe
Created: 02 June 2017
edpOfficers of the Judicial Police raided the Lisbon offices of EDP, REN and the Boston Consulting Group this morning as part of an investigation into active and passive corruption.
The Attorney General's Office explained that the investigation is being run by the Central Department of Investigation and Criminal Action which the Public Prosecutor's Office uses in complex cases. Energy bosses António Mexia from EDP and Rodrigo Costa from REN confirm the searches.
“Redes Energéticas Nacionais (REN) confirms that, today, proceedings have been carried out by the judicial authorities at the company's headquarters in Lisbon. REN will continue, as always, to collaborate with the authorities in everything that’s within its reach."
EDP ??confirms the police had been to collect information and said it would cooperate with the authorities.
"The Boston Consulting Group confirms that the Judicial Police was present at its Lisbon office and has made available all the necessary elements to the ongoing investigation and will continue to collaborate with the authorities while always ensuring the confidentiality of its customers."
The Judiciary Police did not make a statement but the Public Prosecutor’s office said, "The purpose is to investigate facts subsequent to the legislative process and administrative procedures relating to the introduction into the national electricity sector of Contractual Equilibrium Maintenance Costs (CMEC). The CMECs are compensation payments for the early termination of energy contracts."
The searches focused on the companies’ financial and administration departments, in the hunt for "facts that could be included in crimes of active corruption, passive corruption and economic participation in business."
This complex CMEC business dates back to the last decade when the State, with the full backing of Brussels, was empowered to compensate EDP for the cancellation of energy purchase contracts with its supplier, REN, so that everyone could enter the unregulated energy market from July 1, 2007, without old supply contracts getting in the way, which apparently is what the EC wanted but later was attacked by the Troika over 'excessive revenues.'
To facilitate the scrapping of these contracts, the CMEC system was devised, which ensured compensation was paid to EDP by the taxpayer, not the electricity consumer through higher prices.
The idea of ??paying State compensation came from the Pedro Santana Lopes government at the end of 2004, but was triggered by the José Sócrates administration in 2007, when Manuel Pinho was at the Ministry of the Economy and António Mexia was already heading EDP.
At the time of the Troika, the Passos Coelho government classified these CMECs as "excessive revenues," a definition rejected by EDP’s Mexia who said the payments "reduced the costs to taxpayers."
The European Commission later wanted to open an investigation into the way these payments were handled. Someone somewhere seems to have found a way of fiddling the system so Portugal’s forces of law and fiscal order have opened yet another corruption investigation into high profile companies.
EDP shares drop after senior staff named in corruption probe

EDP chief denies wrongdoing over contracts under investigation ...
13 hours ago - EDP chief denies wrongdoing over contracts under investigation ... the local division of U.S. consulting firm Boston Consulting Group on Friday in a probe ... market, saying it suspected "crimes of active and passive corruption…”

IT GETS CRAZIER--Mubadala was created 9 days before acquiring 100% shares and voting rights of EPD, but was involved in a money laundering scheme under investigation by the US DOJ in 2016, and was in existence in 2010!

About Mubadala Investment Company
On 21 January 2017, the President, His Highness Sheikh Khalifa bin Zayed Al Nahyan, as the ruler of Abu Dhabi, issued a law creating the Mubadala Investment Company, a company wholly owned by the government of Abu Dhabi.
- See more at: http://www.mubadala.com/en/mubadala-investment-company#sthash.nPynd8hc.dpuf

EDP Shares and voting rights went 100% to Mubadala Investment Company

PDF / 254 Kb
Change of qualified shareholding in EDP
Monday, January 30, 2017
IPIC notified EDP that 100% of its shares and inherent voting rights have been acquired by Mubadala Investment Company PJSC.

Mubadala Development Company | Abu Dhabi, United Arab Emirates
Established and owned by the Government of Abu Dhabi, Mubadala's strategy is ... Mubadala Investment Company Board of Directors endorses new structure ...

US goes after $1.4 billion in assets linked to Malaysian ... - Stuff.co.nz
Jul 21, 2016 - "Instead, that money went to relatives and associates of the corrupt officials of 1MDB and others." ... Among them is Riza Shahriz Bin Abdul Aziz, who co-founded Red Granite ... company aimed at encouraging foreign direct investment. ... with Abu Dhabi's state-owned Mubadala Development Company.
US Attorney General Loretta Lynch announces a civil action seeking the recovery of more than US$1 billion worth of assets taken from a Malaysian sovereign wealth fund.
The United States moved on Wednesday to recover more than US$1 billion (NZ$1.43 billion) that federal officials say was stolen from a Malaysian wealth fund by people close to prime minister Najib Razak.
It is alleged the ill-gotten funds paid for luxury properties in New York and Beverly Hills in California, a US$35 million private jet and paintings by Vincent Van Gogh and Claude Monet. It was also used to settle gambling debts in Las Vegas casinos and to produce Hollywood film The Wolf of Wall Street.
The case alleges a complex money-laundering scheme that the US Justice Department says was intended to enrich top-level officials of a government-controlled Malaysian wealth fund, known as 1MDB.

Cut continuing-

May 2010: 1MDB signs deals with sovereign wealth funds in the Gulf emirates of Qatar and Abu Dhabi. Prime land in Kuala Lumpur is sold to 1MDB at below-market rates to develop a financial centre, in a joint venture with Abu Dhabi's state-owned Mubadala Development Company. After spending nearly US$2 million on a launch party, 1MDB ditches the event when Abu Dhabi's crown prince decides not to attend.


That said, Boston unions are corrupt beyond belief and and we need to see folks jailed and money clawed back.

Lumberjack's picture


Google: HillaryClinton Boston Consulting Group
now under investigation with EDP About 288,000 results (0.66 seconds)
Search Results
Inspired by Hillary Clinton's speech at... - The Boston Consulting Group
Inspired by Hillary Clinton's speech at BCG's global partner meeting, BCG's Arindam Bhattacharya reflects on the state of India's economy and social...
Petition · Hillary Clinton: HILLARY: RELEASE TRANSCRIPT OF ...
On June 20, 2013, Hillary Clinton was paid $225,000 to speak to the Boston Consulting Group, which consistently recommends closing our public neighborhood ...
Boston Consulting Group: Recipients | OpenSecrets
Delegate, Hillary Clinton (D), $173,712. Delegate, Barack Obama (D), $125,090. Delegate, Mitt Romney (R), $51,775. Delegate, John Kerry (D-MA), $24,598.
How corporate America bought Hillary Clinton for $21M | New York Post
May 22, 2016 - $225,000; 6/20/2013, Boston Consulting Group Inc., Boston, Mass.: $225,000; 6/20/2013, Let's Talk Entertainment Inc., Toronto, Canada: ...
You visited this page on 6/6/17.
Hillary Clinton's “Corrupt Establishment” Is Now Advising Donald Trump
Dec 2, 2016 - He even hired former Hillary Clinton aide Cheryl Mills to serve on the firm's ... president and CEO, Boston Consulting Group;; Doug McMillon, ...
You visited this page on 6/6/17.
Clinton Speech Wikileaks: Libya's Institutions 'Destroyed', Benghazi ...
Oct 11, 2016 - The WikiLeaks dump of speeches Hillary Clinton fought to keep secret from the ... For example, she told the Boston Consulting Group in 2013:.


Clip from First Solar and Energy Secretary Chu's "DOE's Junk Bond Portfolio" JUNE 2012
First Solar is not directly in the "DOE junk bond inventory" that I reported on in April (Green Corruption: Department of Energy “Junk Loans” and Cronyism –– Intro), but are they are linked to three of the projects on that list.


Back in 2009 –– since the passing of President Obama's Taxpayer Funded Stimulus Spending Spree, of which over $80 billion was earmarked for alternative energy –– is when I began following the green money. At that time, I uncovered some riveting revelations and connections about Goldman Sachs. But what I found most fascinating came from Matt Taibbi's Rolling Stone Magazine piece and video, where he exposed Goldman Sachs' "long-standing and very deep ties to the Democratic Party," and their "long history of putting their former employees in Democratic administrations."

I won't reiterate, but it can be found in my 2010 blog, Green Corruption: The Plot Thickens, yet worth repeating are some other Goldman Sachs' firms and projects that received "green dollars" that I found when I took a brief look.
One of the early investments reported by Matt Taibbi in his July 2009 Rolling Stone Magazine article –– The Great American Bubble Machine, warning that Goldman Sachs is "helping create the next bubble, 'global warming' –– was Horizon Wind Energy. Back in 2010 Horizon was still on the Goldman Sachs Environmental Markets portfolio, but reported as owned by Portuguese EDP Renewables. Still, it turns out that they won a $229.8 million grant from the "green stimulus package," as reported by GreenTechnology.Daily.com in December 2009, pointing out that it was one of the "top grant recipients." The article also notes, "European companies have scooped up the majority of U.S. stimulus money set aside for wind power projects."
Nordic Windpower, funded by Goldman Sachs and Khosla Ventures (and others) ––

Joe Davola's picture

Sorry Chub, I should have made it clear - the bold line and everything after is the quote from the magazine.  My contribution was the foul-mouthed luddite introduction.

peddling-fiction's picture

Only one fraud? Does he work part time, or is he nudged in the right direction?

JRobby's picture

In 2018, cities will burn. Food and other necessities will be in short supply. Possibly well before that.

tmosley's picture

The value of capital is not diminished by the total amount in the world. This is not a fixed pie to be divvied up, but a machine that makes pies.

The phone in your pocket is quite enough capital to bootstrap your own AI fueled economic singularity. It will tell you how to build a simple but capable robot for next to nothing for it to plug itself into, and then it will get to work building more and better robots, which will then provide everything else that you need. Of course, it would be easier to just buy one, and over time that will become a cheaper and easier solution, but the free AI on the smartphone you already own is a base case for the poorest, dumbest person.

grasha87's picture

Jim Rickards has been attacking comparative advantage and free trade in his new book The Road to Ruin, but here is why he's mistaken:


TheReplacement's picture

If the AI is really intelligent then it will figure out that it exists on a finite planet and humans are the primary competition.  If it doesn't end up killing humanity it really isn't all that intelligent.

Mr.BlingBling's picture

Based on MSFT's early crowd-taught AI experiment, it'll probably proceed along the lines of Harlan Ellison's short story: "I Have No Mouth and I Must Scream."

newdoobie's picture

Wow, my phone can take dirt and water and make food? or does it just make mudpies?

NidStyles's picture

It's not the tech or how much of it is out there, it's what you're doing with it.

booboo's picture

"Buddy" Fletcher, there was your clue.


Offthebeach's picture

MBTA( Massachusetts Bay Transit Authority )


MBTA "workers".   Very funny.

Endgame Napoleon's picture

Only a few families will own the AI production. And AI, along with the womb-based welfare / taxfare system or spousal income, already makes the "careers" of many frequently absentee bully-momma cliques possible, as the machines already do a large amount of the work.

MANvsMACHINE's picture

HM discovered this? Wow!

Every fucking pension in the country is underfunded. This is one of the primary reasons stocks have to go up. Wait until the crash if it ever happens, then they'll all be exposed.

Tech stocks are crashing now to fleece the morons and when weak hands have folded, the FANGs will go back up.

swmnguy's picture

This problem has been developing for decades.  Throughout the '80s, all we heard was how bad pensions were, and how we should all have every penny of our retirement savings in the stock market.  Not dumb boring old bonds.  Very little was said about what would happen when we transferred the responsibility for long-term investment away from investment professionals to the everyday individual saver.  But what was said pretty much nailed it.  

The looting and fraud allowed in the bond market destabilized the entire financial system, setting up a vicious cycle.  A decade and more of ZIRP has sealed the deal.  It's now not even possible to save long-term and get any return without getting into risky instruments.  Fraudulent actuarial forecasts are a symptom of the looting of retirement finance, not an original cause.

And indeed, next time we get our periodic stock crash, the warnings will once again be verified.  But by then all the value at stake will have been destroyed.


Endgame Napoleon's picture

That is true for the two high-earner, babyvacationing couples who can afford show houses with multiple renovations; multiple vacations per year, both the week-long family vacations and multiple getaways to less family-freindly, nightspot-oriented tropical islands; $9/hr nannies and NannyCams to raise their children in cases where grandparents are not doing the work for them during work hours and during frequent getaways to refresh busy-working parents; and private schools for every kid, not just the brainiest ones. They still have enough money left over for their 401Ks.

It is not true for the vast majority of citizens, working jobs with zero benefits, like multi-licensed insurance agents with college degrees, making the big $10/hr with no benefits and earned commission paid regularly only when working for a few companies. Granted, many little companies that you work for are owned by individuals who had to buy into a franchise situation, where they have a ton of additional expenses.

Then there are the straight-commission pyramid opportunities for licensed agents, with about ten people taking a cut in every straight-commission check that you had to chase, unlike employees with salaried or hourly pay.

These people have some extra money from Uncle Sam or spouses: the mommas on welfare/taxfare, the mommas with child support that covers rent and the mommas with spousal income. Licensed or not, they dominate the family-friendly absenteeism cliques in the corporate offices and most call centers, making $9 -- $11/hr, with benefits, lots of excused absenteeism for working moms and a ton of mommy-celebration workplace activities to make up for the low pay that will not cover rent if you have no unearned, womb-based income for sexual intercourse and reproduction from Uncle Sam, a hubby or an ex hubby.

What a joke to talk about 401Ks and/or non-existent retirement funds in these workplaces, which are often staffed largely by temporary workers and otherwise by frequently churned employees, working there less than 2 years unless in management.

In fact, that is exactly what a colleague said after being told about a 401K in one $10/hr insurance industry corporate back office. This was after our lecture from an HR momma, telling us how single mommas could hide income in flexible-spending accounts, making their low wages look even lower to get more monthly welfare, like free food and free rent, etc., in addition to their $6,269 Child Tax Credits.

For those of us who needed to pay rent and all other bills on the low pay, as sexual intercourse or the lack thereof did not lead to reproduction, what a joke to talk about putting part of the $20k per year in a 401K, especially when most of those jobs are churn jobs, too. Our $300-or-less tax returns certainly will not make much of a debt in a 401K and are now absorbed by the Obamacare penalty when working for the many employers who do not offer benefits.

It is all just a bunch of smoke and mirrors.

Buck Johnson's picture

The state pensions may be the second leg of the black swan event when the market tanks.



Endgame Napoleon's picture

I would say they work hard when not busy with the many potluck lunches and bullying out so many white people who jumped through all the hoops to get a state job that the ratio in many large agencies is 80% Black / 20% white, but many do not. A few people in all of these jobs work hard, mostly for a kick in the head, and of course, the white bully mommas in some corporate offices are every bit as mean and absentee.

Cloud9.5's picture

There is no reason for markets to go down beyond the gyrations caused by the manipulators.  I have fifty trillion drawn from the Reserve Bank of Zimbabwe that I can put in the market with a simple postage stamp.  To the moon Alice.  We are all swimming naked.

clade7's picture

Better Call Saul!  Get 'im Jimmy!

Climb's picture

It's actually, "magic mirror on the wall".  

Endgame Napoleon's picture

"Magic mirror on the wall, which pension fund will be the first to fall?"

halcyon's picture

This is only one of the first pension funds that will fall. It is a whole system of dominos....

Endgame Napoleon's picture

I dunno. That was the justification for the 2008 bailout. Many of these pensions are held by the wives of high-earning men. Rather than raising their own children since hubby makes enough to provide a middle-class lifestyle, they take a safe government job that provides more money for a bigger house, family vacations and other luxuries, while their hubbies work less steady, six-figure jobs in industry.

That is one reason why we have so very few teachers in the public school system who are truly interested in the subject they teach. They are interested in a safe government job, providing the summers off to be with their own kids, and the quality of the secondary education system in the USA reflects these womb-based, feminist values. These are the people who are all-important "culture fits" in public education.

But this group is more important to politicians due to their higher incomes, the fact that they reproduced and the fact that they vote more regularly, especially when older.

Individual citizens with no birth-canal exits, like the 28% of childless citizens over 40 who politicians have NEVER done anything for but kick us in the head, also vote at a higher rate than the "working families" at the bottom that politicians shower monthly welfare on, adding Child Tax Credit checks up to $6,269.

Many of these often non-voters use their pay outs from Uncle Sam and the U.S. Treasury Department on self-indulgent luxuries for themselves and their boyfriends, spending MILLIONS on casinos, out-of-state hotels, tattoos, alcohol, lotto tickets, etc.

It is not just the two high-earner working parents that government bails out. Politicians bail out any group whose sexual intercourse resulted in reproduction every April 15th. They do not have to be citizens of the United States. Politicians doled out $4.2 in Child Tax Credits in one year to illegal immigrant parents on top of their monthly assistance.



The reports above say $1000 per child -- HA -- I handed out those Child Tax Credit checks in one of my low-wage, exhausting jobs as a person with a degree, four licenses, years of experience and every-month quota meeting skills, but who gets less than enough pay to rent an apartment, with zero access to pay-per-birth bills from taxpayers or lotto-sized, tax-time rewards.

Many (a huge number) of these Child Tax Credit checks are between $5,000 and $6,000.

One child -- $3,337

Three or more kids -- $6,269

The IRS made it harder to find this breakdown, but here it is: https://www.irs.gov/credits-deductions/individuals/earned-income-tax-cre....

Obama increased the Child Tax Credit to over $8,000 for some ctizen and noncitizen parents in his stimulus.

Low-income workers with low womb productivity got about $39/month in the Obama stimulus via reduced payroll taxes, but they do not get their rent and groceies paid for sexual intercourse and reproduction. Nor did the tiny payroll tax reduction mean much to self-employed citizens who pay twice as much payroll tax.

Some low-income single mommas report paying their debts and then using the rest of their $6,269 "Child" Tax Credit to go to Florida to entertain their latest boyfriend, with grandma providing babysitting services, and of course, they always have the excused time off in their bully-mom, absenteeism-clique jobs.

They take this week off for kids, and their backscratching momma manager takes the next week off, with both of them taking lots of other excused time off beyond PTO: mornings off, afternoons off, days off and weeks off with no repercussions. It is always for kids, so they say. Well, some of them do not even bother to lie. They do not have to; they will not be fired in bully-momma clique jobs for almost anything, not to say that most of these jobs are permanent for most employees. These jobs just last a little longer for the "culture fits."

They are mostly churn jobs, with the mommas having a huge welfare/taxfare cushion between churn jobs, as reflected on the "Earned Income" screens at the Department of Human Services if you have worked there, like I did.

Everyone else has nothing to cover rent between these low-wage, churn jobs, especially when bullied out by these corrupt absenteeism cliques of "working families." There is no UC to even cover rent between these low-wage jobs, although we all have to pay into that system, as with SS, whereas moms pay ZERO into the elaborate welfare / taxfare system that pays all their major bills, adding luxury money via the tax code, with their low wages in churn jobs just being icing. The same thing is true when a spousal income or child support enables other moms to work for very low wages, keeping wages down------permanently----for all who lack unearned income.

The truth is that politicians only represent people with kids and represent some of them more than others.







Onehundredpercentofnuthin...'s picture

You might want to call 1-800-RENT-A-KID

Silver Shield's picture

If you don't hold it, you don't own it.

Silver Shield's picture


I was waiting for the article to read he discovered BitCOiN is a Ponzi Scheme but then realized it has yet to eclipse Madoff's $65 billion in market cap.

Monetary Thermodynamics- "When a few get something for nothing, the rest will be left with nothing for something."

Silver Shield's picture

Sing it with me...

You've got to know when to hold 'em
Know when to fold 'em
Know when to walk away
And know when to run
You never count your money
When you're sittin' at the table
There'll be time enough for countin'
When the dealin's done

Silver Shield's picture

Silver is an absolute gift waiting at the bottom of Exters Pyramid of quadrillions of generational, global, debt based, counterparty risk, Ponzi assets.

Stack as much of this real, tangible, versatile, vital and eternal wealth while it is cheap and unloved.

LasVegasDave's picture

Let me get this straight, that bus ride I took 20 years ago, I still gotta pay for that?

Fuck unions

Fuck public sector pensions

Gallows for fatcat union leaders (commies all)




BandGap's picture

Chicago Teacher Pension Fund.

Your turn.

jcaz's picture

Yep- that one will make Detriot look like a blip.

Basically,  ANYONE who has fallen for the "We can get you a guaranteed 6+% on your money" scam will end up on this list-  most decision makers in pension funds today are people who have never experienced a bad market in anything;

Only question will be how much Kool-Aid did they drink.   Sad.

Red Raspberry's picture

And in Illinois all government pension include a 3% annual COL increase.  And of course you have to give current employees at least the same 3% raise annually or it would not be "fair".....