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!

Forced eugenics programs where “sub-standard” humans are involuntarily sterilized are evil. You don’t have to be a libertarian to agree with that. But leaving aside the fundamental objection to the injustice of such programs, the most notable case upholding an involuntary negative eugenics policy in the United States reveals something else troubling about proponents of the command-and-control state.

Carrie Buck

In his Buck v. Bell decision, that titan of modern American “legal realism” Oliver Wendall Homes, Jr. famously justified his decision to allow the forced sterilization of Carrie Buck by stating “three generations of imbeciles is enough.” The 1927 ruling inspired a blossoming of eugenics laws across the United States targeting not only the mentally handicapped, but also petty criminals and social undesirables like the poor, women who were sexually promiscuous, and others who happened to be of a different ethnicity than the eugenicists.

But poor Carrie Buck wasn’t even really retarded. She was a troublemaker or a rape victim, depending on who you believe. Her daughter (the third generation to which Holmes referred) wasn’t an imbecile either. She was actually on her school’s honor roll the year before she died of measles. If Paul Lombardo’s version of the story is correct, that case is a terrible, terrible example of the trauma of a woman’s victimization in rape and subsequent pregnancy being compounded by central planners. Holmes the eugenicist was too concerned with aggrandizing the power of the state at the expense of the individual to be concerned with whether the woman to be sterilized in the case before him was even “unfit.”

[Note: For more on the Progressive historical context in which Buck v. Bell was decided, see Michael Giuliano's September 2008 article in The Freeman.]

A cop-turned-black-market-intelligence-entrepreneur was arrested in Watertown, Massachusetts after he heroically warned medium-scale commodities importers of his former colleagues’s conspiracy to rob, kidnap, and enslave them.

A fired Watertown police officer has been charged with giving information about an international drug investigation involving millions of dollars and several other Watertown men to the people being investigated, leading to them allegedly intimidating other law enforcement officers.

More than $2.7 million in drug proceeds in Newton and Bedford in October 2010 was seized during the course of the investigation, according to the U.S. Attorney’s Office. After searching Watertown and Waltham residences on May 24, officials reportedly seized more than $700,000 in U.S. currency,seven kilograms of gold bars, 80 pounds of marijuana, four weapons and several vehicles.

The police officer, Roberto Velasquez-Johnson was charged with conspiring to defraud the government by impeding a drug investigation. He faces up to five years in prison to be followed by 3 years of supervised release and a fine up to $250,000 if convicted.

With the central government now directly controlling some 20-30% of staple food production, Venezuelan president Hugo Chavez is certainly striving to put other people’s money where his mouth is. According to CNBC:

Mountains of rotting food found at a government warehouse, soaring prices and soldiers raiding wholesalers accused of hoarding: Food supply is the latest battle in President Hugo Chavez’s socialist revolution.

Venezuelan army soldiers swept through the working class, pro-Chavez neighborhood of Catia in Caracas last week, seizing 120 tons of rice along with coffee and powdered milk that officials said was to be sold above regulated prices.

“The battle for food is a matter of national security,” said a red-shirted official from the Food Ministry, resting his arm on a pallet laden with bags of coffee.

Centrally planned economies fail because they can’t calculate. Venezuela is just another tragic example. No matter how many grocers Hugo Chavez terrorizes, he won’t be able to fix the flaws inherent in any command economy.

“The truth is that legislatures and Courts have made lawyers a privileged class, and have thus given them facilities, of which they have availed themselves, for entering into combinations hostile, at least to the interests, if not to the rights, of the community – such as to keep up prices, and shut out competitors. The natural result of such combinations also is, that the mass of the members will do more or less to screen individuals from suspicion. The consequence is, that the people have imbibed an extreme jealousy towards them…. Now if the profession were thrown open to all, lawyers would no longer be a privileged class – they probably could no longer enter into combinations that would be of any avail to them, and the jealousy of the people towards them would be at an end.” Lysander Spooner, To the Members of the Legislature of Massachusetts, August 26, 1835.

Lawyers, like doctors, are part of a class of people who must join what amounts to a labor cartel in order to lawfully ply their trade. Bar associations have territories, and they drive up the price of legal services in those territories by limiting entry by service providers. Talk of the lawyer’s “professional responsibility to provide legal services to those unable to pay” stems from guilt about this anti-competitive status quo in the legal services market. Why should lawyers owe anyone relief if they didn’t first create the burden to be relieved?

Now, this is not to say that lawyers ought not engage in pro bono work–to the contrary, making a habit of being generous towards others can be an ennobling exercise. But it is hardly charitable to bang out the recommended fifty hours of pro bono work annually and then to wash one’s hands of the labor cartel’s negative externalities. Nothing could be more self-serving than assuaging one’s own guilt.

Lawyers shouldn’t have to feel guilty. The use of intercessories for dispute resolution is a hallmark of civilized societies throughout history. A careful, conscientious advocate and counselor has no reason to be ashamed of his vocation per se. The reason lawyers are resented is in large part because many people see that lawyers have special access to the levers of the State and jealously control that access.

Specialization and the division of labor are crucial in a free society of any scale, and certainly some individuals are better equipped than others to advocate a position before a judicial body. However, we are all best served when specialists are subjected to the rigors of competition: consumers are unburdened by artificial price inflation and are empowered to make informed decisions, while those practitioners with particularly sharp skills are most reliably rewarded for their excellence.

Promoting a free market in legal services, where lawyers truly compete and can fully differentiate their services from those of their competitors, is the surest way to reduce the ranks of those who are “unable to pay” for an advocate. Competition drives prices down. Cartels drive them up.