FT197: “Global warming insurance would probably sell as well as Obamacare.” —Old Pithy

Posted by PITHOCRATES - November 22nd, 2013

Fundamental Truth

The Scam of the Ponzi Scheme is that there is no Investment

A Ponzi scheme is a pyramid scheme.  An investment scam.  Here’s how it works.  Say three scammers build an investment fund that they promise will return an 18% return on investment.  A pretty good return these days.  If they have 100 investors who invest $25,000 each that brings in $2.5 million into the investment fund.  Now here’s where the scam comes in.

They pay each investor an 18% return each year.  So their $25,000 returns $4,500.  A return they can’t get anywhere else.  An investment just too good to be true.  Some take that $4,500 check and spend it on something special for themselves.  Others leave it in the fund.  While others beg to get into the fund.  Of course they wouldn’t do these things if they understood what happened to the $2.125 million that the fund didn’t pay out to investors.  That went into the pockets of the three scammers.

That’s the scam of the Ponzi scheme.  There is no investment.  The scammers collect the money people invest.  Put aside some money to pay out as a generous return on investment.  While keeping the rest.  These scammers sit on top of the pyramid.  And the more people that join the investment fund the wider the base of the pyramid gets.  Pouring more money into the scam.  Providing more money to pay out even higher returns on investments.  Getter ever more people begging to get into the fund.  While burying the scammers under an avalanche of cash.

Our Aging Population is sending the Health Insurance Industry into a Death Spiral

All Ponzi schemes share these characteristics.  And one other one.  They all fail.  And the scammers go to jail.  Why?  Simple.  The scam works as long as the base of the pyramid continues to grow greater than the top of the pyramid.  As the base grows larger the scammers spend more money, though.  Because there is more money to spend.  And spend they do.  Putting down deposits and paying on large mortgages and loans.  Buying very costly things that have a voracious appetite for cash.  So over time more money flows out at the top of the pyramid.  Which isn’t a problem until money stops flowing into the bottom of the pyramid.  Or begins to flow out.  Because people want to use their money for something else.  Like for a down payment on a house.  And once the money flowing out of the bottom of the pyramid exceeds the ‘return’ on investment the fund pays those high returns on investments shrink and disappear.  Exposing the scam.

This is what has happened to Social Security and Medicare.  Thanks to an aging population.  Women are having fewer babies than they did during the baby boom generation.  So today we have fewer taxpayers entering the workforce who pay the taxes that pay for Social Security and Medicare.  While the baby boomers are retiring and leaving the workforce.  And living longer into retirement.  Consuming far more money than they ever paid into these entitlement programs.  So there is far more money flowing out of the top of the pyramid than is flowing into the bottom.  Inverting the pyramid.  And putting these programs onto the path to bankruptcy.

Health insurance is little different.  It just covers so much these days that insurance premiums have soared to pay for this ever expanding coverage.  And the aging population just makes a horrible situation worse.  The elderly are living longer and consuming the lion’s share of health care services.  Further raising the cost of health insurance.  Making it unaffordable to many.  So people simply choose not to buy it in their youth when they are young and healthy.  And wait to buy it later in life when they need it.  Such as when they start raising a family.  At which time they’ll try to find employment somewhere that has good health insurance.  When they start consuming health care services.  Creating adverse selection.  Where only those who consume health care services buy health insurance.  While those who don’t consume health care services (i.e., the young and healthy) don’t.  Creating a death spiral.  As there are no non-consumers of health care services subsidizing the high cost of the large consumers of health care services.  So premiums rise.  To allow fewer people pay for more.  More people drop their insurance because they can no longer afford it.  Shrinking the insurance pool.  So premiums rise.  To allow fewer people pay for more.  More people drop their insurance because they can no longer afford it.  And so on until the cost of health insurance equals the cost of the health care services.  And the insurance market goes the way of every Ponzi scheme before it.

When Reality hits People in the Pocketbook they tend to Lose their Idealism

Enter the Affordable Care Act and the mandates.  Forcing the young and healthy to buy insurance they won’t use.  So they can use their premiums to pay for the old and sick.  The greatest generational theft in history.  Something the young and healthy see.  And don’t like.  For they are not running out and buying health insurance on the health exchanges.  In fact the majority of the people to enroll thus far are the high consumers of health care services.  Which is basically the opposite of the goal of Obamacare.  The young and healthy may have supported President Obama and the Affordable Care Act but that was only in generalities.  Yes, we should help those who don’t have insurance.  And, yes, we should do something to save the environment.  We should stop discriminating against the LGBT community and let them get married.  In the abstract these are all noble goals.  But when the reality hits their pocketbook then it’s no longer an abstract thing to feel good about.  Especially when they can’t get a job with their college education because they had the misfortune to enter the workforce during the worst economic recovery since that following the Great Depression.  The Obama recovery.

This is when youthful idealism turns into skepticism.  As reality settles in hard.  This isn’t raising taxes on the rich.  Something they won’t have to deal with until much later in their career.  This is in the here and now.  When they stop hearing inspiring words from the president about what we can do if only we implement his policies.  But only hear B.S. and lies.  For if they had that youthful idealism they would be rushing to the health exchanges to buy health insurance to make the world a better place.  But they’re not.  And this has the left worried.  Not just about trying to fix the broken Obamacare website.  But will this skepticism spread to other items on their liberal agenda?  Such as the fight against manmade global warming?  They still want their carbon tax.  And they’ve worked hard to get kids graduating from high school convinced that we’re destroying the planet and need to make polluters pay.  If the young lose their faith on Obamacare they may just stop fearing global warming to the point that they may start driving big SUVs again.

In the abstract the youth will support many things.  Until it starts hitting them in the pocketbook.  And if we make the fight against global warming hit them in the pocketbook they would quickly become indifferent about manmade global warming.  Even becoming manmade global warming skeptics.  Perhaps even noting that the glaciers once stretched down from the poles to near the equator.  And moved back towards the poles.  Before there was any manmade global warming.  Something that probably bothers them today but they’re not yet ready to question the left about manmade global warming.  But if we made them buy insurance to protect themselves from the ravishes of global warming they probably would.  The prognosticators can run off a list of calamities that will befall us from unchecked global warming.  So actuaries should be able to put a cost on that.  And set insurance premiums to cover the cost when the calamities of manmade global warming hit us.  Putting these premiums into a Save the Planet from Manmade Global Warming Trust Fund.  Just like the Social Security Trust Fund that has nothing in it but government IOUs.  Let the youth start paying a monthly premium to save us from manmade global warming and see how soon they become global warming deniers.  If we did this global warming insurance would probably sell as well as Obamacare.  Because when reality hits people in the pocketbook they tend to lose their idealism.  And this is the biggest fear the left has.  Because they count on that youthful idealism to win elections.  For once people lose their idealism they tend to vote Republican.



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