Saturday, June 23, 2012

La Casa de Ponzi

Here in Europe, bank interest rates have now been at rock bottom for a few years. In the UK, the Bank of England’s base rate has remained unchanged at 0.5% since March 2009. Consequently, savers’ rates are abysmal. Of course, if one has a mortgage, it makes little sense to have long-term savings, owing to the interest rate differential between debts and deposits. If one is debt-free, however, there are still opportunities to secure a reasonable return with no or minimal risk. Last year, for instance, I took out a no-risk five-year bond which pays 4.5% tax-free. These days, that is about as good as it gets.

Had the offer promised, say, 10%, however, I would have dismissed it as a scam. I think most people would, but greed and desperation can form a mixture potent enough to anaesthetize rationality. An Italian-American called Charles Ponzi (1882-1949) (Figure 44.1) preyed on that truism. He accepted investments from eager individuals, promising an improbably high return, and paid out with funds from newer investors – a so-called ‘Ponzi scheme’. Of course, lucrative returns can be paid out only if the number of investors increases, and at an increasing rate. In reality, this cannot continue indefinitely, and the longer the scam continues, the more shocking will be the eventuality. Either the schemer will scarper with the loot; or investors will withdraw when promised returns can no longer be paid (as with a ‘bank run’); or, most likely, the police will investigate and call time on the whole deception.

Figure 44.1: Charles Ponzi did not actually invent the scheme which bears his name. The earliest known reference appears in the novel Little Dorritt by Charles Dickens (1812-70).

Copyright expired

Ponzi’s investors lost a total of $20 million ($225 million today). The man himself was jailed in 1920 and, eventually, deported. Staggering though that sum was, it was eclipsed with ease in 2009. Former non-executive chairman of the NASDAQ stock market, Bernie Madoff, ran a Ponzi scheme which cost investors $13 billion, the largest financial fraud in American history. Madoff was sentenced to 150 years in prison.

To my personal dismay, the game of cricket was recently tainted by association with Texan banker Allen Stanford. In 2006, the English national cricket board was – forgive the pun – bowled over by Stanford’s offer of sponsorship. $20 million was made available as prize money for a tournament in the West Indies in 2008. Cricketers past and present queued up to endorse the plan (Figure 44.2). Only Michael Holding, a West Indian legend and one of my all-time heroes, remained sceptical, claiming Stanford ‘wanted to boost his own ego, his own companies and, eventually, his own bank balance’. Holding’s doubts were vindicated within months. Stanford was arrested, charged with running a Ponzi scheme worth $7 billion and convicted earlier this year. He, like Madoff, will die in jail.

Figure 44.2: Ponzi schemer Allen Stanford (second left) displays $20 million at Lord’s Cricket Ground to former cricketing greats, including Sir Viv Richards (far left).

Copyright © 2009 Telegraph Media Group Ltd.

Ponzi, Madoff and Stanford contrived to deceive their investors for decades. Each knew that if his strategy became known to the public, it would be ‘game over’. Of course it would. A scam of such magnitude and audacity could never be perpetrated in full view of the world. No? Actually, it can, and it is happening right now. The debt crisis in Europe worsens by the day. Greece is in particular peril, followed by Spain, Italy, Ireland and Portugal. Insolvent central banks are lending money to insolvent banks who buy government debt from insolvent governments who lend money to the International Monetary Fund which then lends it to insolvent governments to pay back insolvent banks. What is this, if not the mother of all Ponzi schemes?

I am not alone in drawing this conclusion. Former governor of Argentina’s central bank and Bank of England adviser Mario Blejer (Figure 44.3) made this accusation in the Financial Times. He argued, most eloquently, that European Central Bank chief Jean-Claude Trichet, European Financial Stability Facility head Klaus Regling and Deutsche Bank chief Josef Ackermann ought to join Bernie Madoff in jail for running a public sector Ponzi scheme which could, in theory, continue indefinitely. Blejer was exasperated that banks and bondholders are deviously hoodwinking, and ruining, future taxpayers.

Figure 44.3: The outspoken Mario Blejer. The truth is out.

Copyright © 2012 Bloomberg L.P.

Why is Blejer’s warning being ignored? Why have millions of Europeans not already taken to the streets? One contributory reason is this. In 100 CE, Roman poet Juvenal, in Satire X, wrote: Already long ago, from when we sold our vote to no man, the People have abdicated our duties; for the People who once upon a time handed out military command, high civil office, legions — everything, now restrains itself and anxiously hopes for just two things: bread and circuses.’

The Romans knew how to distract the masses from their corrupt rule. How eerily coincidental it is that Euro 2012 is currently in full swing.

Enjoy the football.

Copyright © 2012 Paul Spradbery

Wednesday, June 20, 2012

Tino's Best

Who doesn’t occasionally wonder: ‘What was I doing exactly ten years ago?’ Perhaps, with the present unpredictable and the future unknown, we all dwell on the past because it is secure. Rarely am I less than amazed when I consider how radically life changes from one decade to the next. Keeping a journal helps to fills holes in an otherwise reliable long-term memory.

Almost ten years ago to the day, I had just begun working in the English seaside town of Southport. I enjoyed it, but three days per week were quite enough. Free time midweek enabled me to travel to cricket matches, indulging a lifelong passion for the game.

Liverpool Cricket Club (Figure 43.1) is situated in the leafy suburb of Grassendale, a mile from where John Lennon grew up. It stages some of Lancashire’s county matches each year, and 2002 was special: the visitors were the flamboyant West Indies, whom I had worshipped as a cricket-mad kid. Alone and relaxed, I took a Merseyrail train from the city centre to Aigburth station. From ‘there, beneath the blue suburban skies’, I walked along the boulevards to what is a quintessential English cricket ground. What could have been more peaceful than a day listening to the sound of willow on leather (Figure 43.2)?

Figure 43.1: Liverpool Cricket Club’s pavilion, built in 1880, as photographed by myself a decade ago.

Copyright © 2002 Paul Spradbery

Figure 43.2: West Indian batsmen prepare to face Lancashire’s teenage fast bowler, James Anderson. Since then, Anderson has represented England in 70 Test matches, and only four English bowlers have taken more wickets.

Copyright © 2002 Paul Spradbery

Well, things started peacefully enough; that is, until West Indies’ muscular 20-year-old speed merchant Tino Best ran in to bowl to Lancashire batsman Graham Lloyd. Despite the delivery coming his way at 90 mph, Lloyd dispatched it with contempt to the boundary. Best ran in to bowl again. Same result. Then again, and again. Four boundaries in succession, and Best was furious. Understandable, given that all fast bowlers – I was one myself (Figure 43.3) – aim to dominate and intimidate the batsman in what is, after all, a gladiatorial arena. (It is no coincidence to me that a cricket ground resembles a coliseum.)

Figure 43.3: Another teenage fast bowler – yours truly, playing club cricket

Copyright © 1985 Paul Spradbery

Best, ball in hand, raced to the wicket again. This time, the ball did not bounce on the pitch at all. It shot like a tracer bullet towards the batsman’s head – a delivery known as a ‘beamer’, which, deemed dangerous, is outlawed in all forms of the game. Best signalled an apology to both Lloyd and the umpire before returning to the start of his run-up. Now, anyone who has played cricket can testify that most beamers are deliberate, whatever the bowler might claim, often that the ball had simply slipped out of his hand. It is generally a response to being humiliated by a skilful batsman.

Anyone who was prepared to give Best the benefit of the doubt was compelled to reconsider after the very next ball. It was another beamer, which could have put Lloyd in the neurological unit of Liverpool’s Walton Hospital. The batsman lost his temper. He charged down the pitch and threw his bat at the bowler. I could scarcely believe my eyes. Cricket is a gentleman’s game, epitomizing everything about civilized behaviour. This crazy altercation was not quite what I had anticipated.

Next morning, an hour before play was scheduled to begin, an athletic young man in a West Indies tracksuit passed me at the boundary edge. One glance at his powerful shoulders confirmed his identity: Tino Best (Figure 43.4). He sat down next to me for a while and we talked cricket, mainly about former Caribbean greats, whom he knew personally and whom I had admired before he was born. Friendly, well mannered, with a strong Barbadian accent, he was instantly likeable. I could, however, see in his eyes that same icy concentration characterized by his all-conquering predecessors. Clearly, Tino Best intended to be Tino the Best. Before he returned to the pavilion, I asked him about his spat with Graham Lloyd. He claimed the beamers were unintentional. Innocent until proven guilty, I thought, although the circumstantial evidence weighed heavily against him.

Figure 43.4: Autographed match programme. Tino’s ‘Best’ wishes are bottom left.

Copyright © 2002 Liverpool Cricket Club

I have followed Best’s career ever since. Interestingly, in 2008, he was sacked by English club Leek for misconduct. Chairman Brian Mellor said: ‘Tino ... in his first few performances, looked a world beater ...’ However, he then added: ‘He started trying to knock people’s heads off ... got accused of bowling deliberate beamers ...’ A-ha.

Last week, Best, now 30 years old, represented West Indies in a Test Match against England at Edgbaston, Birmingham. I am pleased to report that he distinguished himself in unparalleled fashion. Batting last, he scored 95 runs (Figure 43.5). This is a record for a number eleven batsman in Test cricket, which has been played since 1877. No one has ever scored a century, and Best fell a tantalizing five runs short. Nonetheless, the record is his and might well remain so for another hundred years.

Figure 43.5: A magnificent innings. Tino Best at Edgbaston, June 2012.

Copyright © 2012 BBC

The following morning, I read Sam Sheringham’s match report on the BBC web site, and his choice of words, although probably unintentional, took me back exactly ten years. During his thrilling innings, Best ‘threw the bat at anything wide ...’ That, I suppose, was better than having a bat thrown at him.

Copyright © 2012 Paul Spradbery