Paul Krugman: The Texas Strategy

[cal04]

Hundreds of news articles and opinion pieces have described President Bush’s decision to escalate the Iraq war as a “Hail Mary pass.”

But that’s the wrong metaphor.

Mr. Bush isn’t Roger Staubach, trying to pull out a win for the Dallas Cowboys. He’s Charles Keating, using other people’s money to keep Lincoln Savings going long after it should have been shut down — and squandering the life savings of thousands of investors, not to mention billions in taxpayer dollars, along the way.

The parallel is actually quite exact. During the savings and loan scandal of the 1980s, people like Mr. Keating kept failed banks going by faking financial success. Mr. Bush has kept a failed war going by faking military success.

(snip)
The lesson of the savings and loan scandal was that when a bank has failed, you shouldn’t let the owner string you along with promises — you should shut the thing down. We should do the same with Mr. Bush’s failed war.

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[rwenos]

1. Ponzi Scheme

You're identifying a Ponzi scheme -- which the S&L fiasco emphatically WAS. The fraudster takes peoples' money, promising a certain return on investment. He takes some of that money to go find other investors, and pays some of it back to the first investors, to make it look like the investment is special. But he keeps repeating this process -- i.e., he takes some of the money from the third set of investors to pay some of the money to the second, and some to the first. And so on and so on and so on. Eventually, the people who got in first find out they're never going to get their money back. But so long as the fraudster can keep raising money, and cycling back some of it to prior investors, nobody smells a rat.

Bush is doing the same thing with war information. Doling out a little at a time, to make it look like success.

[Warpy]

5. The first investors in a Ponzi scheme make out just fine

since the scheme promises too good to be true returns on the investment. The first people to get in (usually the scammer's inner circle acting as shills) get their original investment back plus an astonishing amount of interest.

This is what sucks in the second tier. They don't get their investment back, but as long as a third tier is being sucked in by the return they're getting on what they put in, they'll be "earning" more than the legitimate market can provide. The third tier wait for their money, get nothing, and start to squawk. That's when everything collapses and Ponzi decamps for the Caribbean.

I've watched this happen over and over again with hedge funds, most of which are registered in the Caymans, something like 9,000 of them per Harper's index.

The Iraq fiasco isn't a Ponzi scheme, it's an outright theft by a handful of favored military contractors and inner circle members, made safe by the US military acting as hired muscle. Cheney isn't stupid, but he is greedy. He is hoping to milk this whole setup for another two years, and that's why we're getting a show of trying to win the thing. They know damned full well they can't, but they don't want that gravy train derailed.

It's a scam, all right, but one like we've never quite seen before.

[rwenos]

6. My analogy

My analogy was to the dribbling out of the coin-of-the-realm in such a way as to keep people thinking the initial premise was truthful. The substitution was "truth" for "money."

You've described Ponzi schemes accurately. Same schiessen, different day.

[Warpy]

7. No shite

But these men have never had even a nodding acquaintanceship with truth, like most corporate bidnessmen. They've relied on platoons of lawyers for advice on how to skirt laws, parse statements when they invariably got into legal trouble, and generally flout any law they found inconvenient.

[bemildred]

2. Don't forget Enron. nt

[rwenos]

3. Same Thing

"It's incredibly obvious, isn't it Mandrake?"

[gratuitous]

4. But he's sending in more troops!

That's the talking point for the knucklehead in our local paper. "Weren't you libruls calling for more troops? (No.) Now you're getting more troops, and you're still not happy. You bunch of Bush haters!" This is not an exact quote, but it's pretty damn close.

It's like you're riding along with a guy, and you notice the "Oil" light keeps coming on. You tell the guy he should add more oil or he's going to ruin his engine. He snorts and says you don't know anything about car engines -- he's got plenty of oil. Besides, the car's running just fine right now, and on and on he drives.

The inevitable happens, his engine seizes and he cracks the block. Standing over the smoking engine, he's got a can of 10W-40 and is slowly pouring it into the crankcase. Of course, it's way too late, and the oil is leaking out onto the ground. "Well, I'm adding oil, just like you wanted!" the guy grouses. You just shake your head at the idiot.

Unfortunately, this idiot is getting people killed.