It seems that Nobel Prize-winning economist and reliable regime apologist Paul Krugman thinks he can wave away the Solyndra scandal with a reference to an iconic business failure from the dot-com era:
But it is indeed a terrible scandal, because the private sector never ever puts money into ventures that end up failing:
No truth to the rumor that he's Obama's new campaign manager.
He then punctuates his point (oh so pithy!) by posting an image of Pets.com and its sock puppet. I’m not sure if the sock puppet is equivalent to President Obama or Solyndra backer George Kaiser, who raised significant funds for Obama’s campaign, in this context.
What I’m also unsure about is if Krugman is an idiot, or just disingenuous, if he believes he can refute the criticism leveled at the Solyndra fiasco – not just from media, but from House investigators wondering how the company secured half a billion dollars in loan guarantees and made it all go up in smoke – merely by pointing out that private investors screw up, too. He cannot possibly be oblivious to the huge difference in moral hazard presented when government throws taxpayers’ money at private business versus when private investors use their own money.
It isn’t that private equity is never lost in business ventures. It’s that there’s a level of accountability when it happens. And there is little doubt that venture capital investors learned a lot from the dot-com bubble. Government will never learn the same lessons, because it throws stolen wealth at the ventures which are best connected politically, not those which it thinks will succeed.
Coyote Blog has a few more salient points in a response to Krugman.
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This is a syndicated post, which originally appeared at Mimi and Eunice » IP. View original post.
Federal prosecutors have alleged in their amended complaint against Full Tilt Poker that the gambling interest was a “Ponzi scheme,” apparently in part because of the company’s level of cash reserves.
FTP owed approximately $390 million to players around the world, with $150 million owed to U.S. players. FTP only had $60 million on deposit in its bank accounts, however, meaning over $300 million is owed to players worldwide.
This was the result of FTP’s payment processing channels becoming so disrupted that “the company faced increasing difficulty attempting to collect funds from players in the United States. Rather than disclose this fact, Full Tilt Poker simply credited players’ online gambling accounts with money that had never actually been collected from the players’ bank accounts. Full Tilt Poker allowed players to gamble with — and lose to other players — this phantom money that Full Tilt Poker never actually collected or possessed.”
$390 million in liabilities and only $60 million in the bank? That means that FTP had a little more than 15% in cash reserves. According to Wikipedia,
A depository institution’s reserve requirements vary by the dollar amount of net transaction accounts held at that institution. Effective December 30, 2010, institutions with net transactions accounts:
- Of less than $10.7 million have no minimum reserve requirement;
- Between $10.7 million and $58.8 million must have a liquidity ratio of 3%;
- Exceeding $58.8 million must have a liquidity ratio of 10%
So because FTP had 15% in cash reserves, the whole operation is a Ponzi scheme. If only the proprietors had started a bank of the same size, they would have only needed 10% reserves!
