The Haiku of Finance for 02/23/16

Phony crowdfunder
"Angel" faking his background
Dumb founders get fooled

The Limerick of Finance for 02/07/16

Wells Fargo's big mortgage fraud due
Resolved after folks went to sue
Now they're clear for new scams
Ignore credit exams
Underwriters must still get a clue

The Haiku of Finance for 12/10/14

Continual fraud
Raising a stream of red flags
No one even cares

Iran Takes Lead From West In Executing Banksters

I do not normally congratulate Islamic theocracies for brutality.  Today I shall make an exception.  Iran has executed a billionaire for his role in a massive banking scam.  This bankster defrauded a state-owned bank to buy state-owned assets.  Gee, that sure sounds a lot like some of the chicanery that transpired in the US during the 2008 financial crisis.  Iran sends a clear message about scammers that is lost on American executives.

The difference here in the US is that we don't execute the CEOs who commit bank fraud.  We would rather let them roam free to buy off politicians and donate their ill-gotten gains to museum endowments.  Our legal institutions prefer to turn a blind eye to their frauds out of concern for systemic stability.  Those concerns are overblown, since the FDIC has never had qualms about shutting down unstable banks.  The piles of bad mortgage paper on the Federal Reserve's balance sheet are a weapon of mass destruction.  Better that we had destroyed a few big investment banks instead.

America can learn a good lesson from Iran, a former ally until they went nuts for radical Islam in 1979.  The US should start prosecuting the unrepentant bankster CEOs from 2008 and ship the convicted ones to Iran for ultimate punishment.  Hanging a few billionaire Westerners from lampposts in downtown Tehran would give their executioners some more practice.  It may even provide a basis for an eventual US-Iran rapprochement.  We can show the imams that we can meet them halfway.

Sending American white collar criminals to Iran is of a course a modest proposal, in the tradition of Jonathan Swift.  Coddling them here in the good old USA is an unsatisfactory alternative if they live to steal again another day.

Full disclosure:  I find ethnic Persian women to be phenomenally attractive.  None of them have tried to scam me yet.

Pure Internet Gold From The Minds Of Reddit Bitcoiners

I check out Reddit once in a while for random inspiration.  It's a jungle out there and I like cutting through it with the brute force digital machete that is Alfidi Capital.  I never know whether I'll find pearls of wisdom or juvenile ramblings.  It's usually more of the latter but that's okay.  Arrested development adolescents need to let their primal screams out somewhere.  Better that they spew to Reddit threads than deface a bathroom stall.

The Reddit community on Bitcoin must be oodles of fun for people with no lives.  It is the only corner of the financial world where overgrown infants, naive dreamers, and other cutting-edge crybabies can congratulate themselves for knowing nothing about money.  They find a worshipful audience on Reddit.  I've selected some of the best recent comments from the Bitcoin subreddit below in italics.  Errors in spelling, capitalization, and other fundamentals of intelligible communication remain as their authors intended.  I will not identify the perps because they may want to grow up someday.  My own comments always follow.

So i should recommend to my 70 year old grandma to put all her savings into bitcoin (what's the easiest way to teach her bitcoin? took me years to teach her email/skype... think she might be dead before she's able to transfer funds on her own)? How will this stop the government from taking her tax refunds which are not in bitcoin? What happens if the price drops under the current 400$? I love bitcoin and what it stands for but you needa stop drinking the Kool-aid.

Stop right there, dude.  The apple didn't fall too far from the tree if grandma's tech learning curve is indicative of this Bitcoiner's abilities.  Oh BTW, the government can and will assess the value of your Bitcoin for tax purposes since the blockchain is publicly available.  I think the easiest way to learn Bitcoin is to watch a video of 1990s teens playing with "Magic:  The Gathering" cards.  That's kind of how the Mt. Gox Bitcoin exchange got started anyway.  Kids using cards to pretend to be wizards is just like grown adults playing with digits and pretending to be bankers.  See, it's really easy for granny and her quilting bee.  

I bought about $1,000 worth just for the sake of holding on to it long term. It's a decent chunk of change for me but it's also an amount I'm comfortable losing.  But this is exactly why I'm not discouraged over "losing" almost half of my $1k investment. There will be another spike at some point and I will either hang on until that happens or until I lose it all.

What was your cost basis for tax purposes?  Can you prove it?  The IRS will want to know and federal tax returns are due in four days.  Oh, wait, I'm talking about a bunch of people who think they don't have to pay taxes.  Never mind, idiots.  Just hang on until you lose it all.  It's funny that this person conflates "long term" with some point where they may "lose it all."  This person is definitely not Warren Buffett.  

Long term speculators don't create as much instability.  

Say what?  What exactly is a "long term speculator" anyway?  That might be a conventional investor like me who performs a valuation analysis before committing to an investment, but to Bitcoiners I'm just another gambler.  Moral equivalency is great when you don't have to account for cognitive deficiencies.  

Bitcoin is way more influential than Dogecoin is. Marketing does matter, or else our dog-based coin wouldn't have gotten this far. DOGE is honestly a lot more style over substance but obviously style is important to people. I hope that Dogecoin will teach Bitcoin about style in the same way that I hope that our community looks towards Bitcoin for substance.

Dogecoin teaching style . . . means Bitcoin will need an animal mascot.  Somebody already picked the honey badger.  Bitcoin teaching substance . . . means Dogecoin will be based on nothing.  Oh, that already happened.  Maybe these Reddit people aren't as cutting-edge as I had assumed.

This sort of thing is baffling to me on the altcoins. A new business shows up and because it has an address, and an office there is immediate trust in them. We have seen large scale operations fail time and time again.  We need businesses involved in the currency but we also need healthy skepticism when it comes to verification. 

The above comment might be the all-time winner for far-out fantasy.  It deserves a prize of some sort but Alfidi Capital has no prizes to give.  Follow this one down the rabbit hole.  A business with a known physical office and identifiable employees is somehow less trustworthy than a bunch of random hashes floating through cyberspace that hackers can steal and duplicate.  Yeah, ooookaaaayyyy.  This implies that the only thing more trustworthy than Bitcoin would be something completely unverifiable, like a fantasy land of fairies and unicorns.  Wait a minute . . . that takes us right back to "Magic:  The Gathering" again!  Brilliant.  

I just can't believe people would run scams as public figures, when it's so easy to do it in the Bitcoin crowd as anonymous figures. People around here are very trusting of anonymous figures.

OMG!  OMG!  Just when I thought there was an all-time winner, another gem falls out of the sky!  Here's a Bitcoin fan admitting the ease of scamming the rest of the community.  Anonymity is some kind of holy grail on Reddit.  It allows emotional cripples and shut-ins to pretend to be knowledgeable.  Anglo-Saxon cultures have long recognized anonymous communication as a form of free speech because it can shield unpopular authors from abuse.  The downside is that the rest of us have to wade through Bitcoin garbage to find comedy.  

In the bitcoin world embezzlement is indistinguishable from a hacker attack.

Exactly.  They both come with criminal penalties in the real world.  In the Bitcoin underworld, these things confer street cred.  I expect the next crypto-coin fork to allow graffiti artist tags.  

I still believe that bitcoin is the most regulated currency in the world. Criminals are way too vulnerable when using bitcoin.

This is awesome.  Precisely one IRS decision covers Bitcoin, and that was all anyone needed to move Bitcoin into the "asset" column of a balance sheet.  Calling it the "most regulated currency" ignores the wire transfer protocols, bullion holdings, transfer pricing agreements, and other facts that govern real currencies.  Calling criminals "vulnerable" in Bitcoin insults the abilities of the thieves who busted Mt. Gox out of millions.  They still haven't been caught.  I know, Bitcoiners, facts are hard to understand.  It's so much more fun just to make things up.

The bottom line on all of these Reddit commenters is that they are dumber than dumb.  There may be some pseudo-intellectuals in there to give the Bitcoin community a natural ruling elite but they function much like wooden decoys on a duck hunt.  They make it easier to identify the fowl that respond to hunting calls.  Reddit brings out the worst in people who are too immature to be trusted with adult responsibility.  Bitcoin will never be a currency but its advocates' stupidity is pure Internet gold.  

Gullibility, Distractibility, And Availability In Undue Influence

Dr. Patrick O’Reilly, author of Undue Influence: Cons, Scams and Mind Control, shared his wisdom today at the Commonwealth Club.  I learned enough about three major definitions - gullibility, distractibility, and the availability heuristic - to reduce my own chances of getting ripped off.

Gullibility is our natural state during periods of emotional vulnerability.  We accept presented information less critically when we are weakened by stress or trauma.  Distractibility from noise, crowds, and everyday details diverts our attention from critical thinking.  The availability heuristic is the human tendency to accept vivid imagery that has an emotional impact.  These biases combine with other forces to enable con artists to rip people off.  Read Undue Influence for more details on fallacies and traps.  

This line of work is relevant to me for a couple of reasons.  I first encountered multilevel marketing (MLM) scams during my active duty military service in the mid-1990s.  I knew enough about how these schemes worked from the junk mail I used to receive in college.  Several fellow officers pitched me MLM ideas of various stripes, all of which I rejected once I realized what they were.  I was very disappointed that people who pledged to live honorable lives were trying to prey on people junior to them in rank.  I was very polite and professional when I declined all further contact with these losers.  

My most severe encounter with fraud came a few years ago in San Francisco.  One very charming but disgusting veteran wore falsified valorous decorations on his uniform while defrauding donors who supported veterans organizations.  American Legion Post 911 in San Francisco was the vehicle for this scam.  That post's continued existence brings shame to the veterans' community of San Francisco.  The victims and incurious dupes who continue to enable the primary con artist's fraud don't strike me as particularly vulnerable or easily distracted.  They are mostly accomplished professionals, making their continued collaboration with a scammer all the more inexplicable.  Social proof probably plays a role among people who can't bring themselves to admit being hoodwinked over cocktails at their private club.  I accept that they don't want to explain themselves to me.  They will eventually have to explain themselves in court.

Bernard Madoff's Ponzi scheme proved that even successful investors fail to perform due diligence when someone in an affinity group possesses asymmetric information.  That's the best explanation I can find for high-profile fraud among the elite.  Extraordinary claims of fantastic results may seem completely plausible to high achievers who are accustomed to obtaining extraordinary results themselves.  It takes a Herculean effort to show them the truth.  I'm up to that challenge and I have facts on my side.  Bring on the "Mickey Mouse" opposition.  

The Haiku of Finance for 02/08/14

Fraud epidemic
Few senior bankers in jail
Investors lose trust

Aristotle's Mayfly And Modern San Francisco Liars

I read broadly to avoid confirmation bias.  I like opinions that are different from the norm, in all directions from my own.  This leads to the discovery of some pretty radical assertions that beg fact-checking.  The lesson for would-be fact-checkers follows later, so I ask your patience.

My interest in mining and energy investments has sometimes led me to Peak Oil websites.  The resident doomsayers claim the nearsightedness of the world's scientific establishment blinds us to the pending end of advanced civilization.  One radical cites a common quote wherein Aristotle supposedly observed that a fly had only four legs and naturalists repeated his observation for centuries without any independent verification.  That is just total baloney.  No such thing happened.  This science blog article "Aristotle On The Mayfly" deconstructs in detail how this false canard was born.  It just goes to show that plenty of scientifically-minded people have been sufficiently curious for thousands of years to fact-check simple observations.  Dogmatism among lazy "thinkers" with angry agendas inhibits quality research.

I want to contrast this empirically based behavior with the attitudes of other less inquisitive humans I have experienced in modern America.  I have contacted a large number of people in my local area who have had contact with one very glib and crafty Stolen Valor fraud.  His lies are easily disproven with a Google search of his name, but the people who continue to support him show absolutely no interest in checking facts for themselves.  They instead recoil in anger when presented with facts and continue to enable this person's lies.

I marvel at the stupidity of my contemporaries.  I have tried to understand this behavior from many angles.  Perhaps accepting comforting falsehoods provides humans with emotional satisfaction.  That would certainly explain the persistence of the world's monotheistic mystery religions well past the birth of scientific rationalism.  It may be that the people I've tried to warn are just lazy or stupid.  That puts them in good company with the majority of the human race.

If my focus on facts is insufficiently impressive, then karma will have to suffice.  The universe does not tolerate injustice indefinitely in human affairs because even extreme behavior reverts to some mean.  I do not tolerate injustice at all if I have the power to fight it.  The vile Stolen Valor criminal who hides among The City's steel canyons will eventually meet justice in our nation's court system and his supporters will be powerless to help him.  I do not expect them to understand what will happen or why, any more than I expect dogmatic radicals to perform deep background research on how ancient philosophers addressed scientific knowledge.  That is simply too much to ask of most humans.  

The Intersection of HYIP and Bitcoin

It's been a while since any high-yield investment program (HYIP) popped up on my radar.  Checking my Twitter feed for retweets reveals that some of the "accounts" retweeting the same news items I read also tweet about HYIP schemes.  HYIPs typically promise astronomical rates of return on investments that are simply impossible to obtain with normal assets.  Social media is an easy way for HYIP promoters to prey on unsuspecting investors.  The SEC knows that these schemes are baloney and has noted the signs of such prime bank frauds.  I've noted some confluence of HYIP and another hi-tech baloney idea . . . Bitcoin.

Consider the obvious similarities.  HYIP and Bitcoin both appeal to low-information segments of the population that don't understand conventional investment concepts like compound interest or collateral.  Both heavily rely on social network channels where "true believers" congregate and skeptics are either ridiculed or banned.  Enthusiasts for HYIP are unable to explain how the underlying program generates gains.  Reading chatter on several Bitcoin forums shows me that crypto-nerds show a similar inability to explain whether the concept is an asset, a currency, or something else.

These two schemes are now beginning to populate each other's worlds.  A Google search for "Bitcoin HYIP" reveals that some HYIP sites are accepting Bitcoin payment, and Bitcoin talk forums are discussing HYIPs.  I noted that some people on the Bitcoin forums point out the Ponzi nature of HYIPs without any irony about their own crypto-currency.  I think some HYIP promoters who take Bitcoin payments are in for a taste of their own medicine once they try to cash out.  Every attempt to sell a large Bitcoin block crashes that market, and a bunch of HYIP scammers doing it in sequence will be hilarious.  It will be even more hilarious when the dumbest Bitcoin owners start investing their precious digits in HYIP just to cash out themselves.

If you need proof of just how attractive these two communities are to each other, I give you the screen capture below from one of the sites that popped up in my Google search.

Read the nonsense in those paragraphs if you need some amusement.  The elementary due diligence required to see through Bitcoin is beyond the ability of its promoters.  HYIP promoters share the same weakness.  That's precisely why they appeal to one another.  I don't know of any precedent in the history of finance when two separate communities of idiots and scammers combined to prey upon each other.  HYIP and Bitcoin are about to make history.  I'm going to enjoy watching law enforcement and security regulators take them all down.

The illusion that this nonsensical non-currency called Bitcoin can gain value in interest-bearing accounts takes stupidity to a whole new level.  That's why it migrates to non-investment accounts in HYIP scams and not to conventional accounts in banks or brokerages.  We've all seen this story before when E-gold allowed aspiring bullion traders to create huge digital trading accounts backed by very little gold.  That ended badly when the system's operators proved unable to bring their concept into compliance with money transmission regulations and could not police their system to eliminate fraudsters and hackers.  Bitcoin's backers are unable to see the similarities in their own schemes.  That will prove to be Bitcoin's undoing.  The penetration of HYIP scams into the Bitcoin community will accelerate that day of reckoning.  

The Serious Disadvantages of Bitcoin

You've all heard about Bitcoin.  No one knows who created it, although some writers have made very educated guesses about the identity of the pseudonymous creator.  I have sometimes wondered whether Bitcoin is the product of some transnational criminal organization or rogue state that wants to undermine developed economies by casting their payment systems into doubt.  I am less concerned with Bitcoin's origin than with its flaws.  I shall enumerate those flaws forthwith.

Bitcoin enables fraud and other criminal activities.  This is absolutely the single most salient feature of Bitcoin's anonymity.  Conventional currencies are indeed subject to laundering and counterfeit.  There is probably no way to eliminate those risks completely.  Bitcoin magnifies those risks because it can only be exchanged anonymously.  It dominates dark networks that have been known to traffic in narcotics.  Law enforcement efforts to shut those networks down will terminate the ability of any financial actor to transact in Bitcoins even for legitimate reasons.  When the network is down, your Bitcoins are gone.  Conventional currency doesn't work that way in real transactions.  Banks and brokerages have offsite business continuity backups.  Securities exchanges and central banks maintain counterparty records.  These mechanisms lack Bitcoin's anonymity but make up for that in resiliency and trustworthiness.

Digital QR codes make it vulnerable to theft.  One Bloomberg TV anchor learned this the hard way.  Transmuting digital Bitcoins into a paper medium means the QR code reveals their underlying location.  Scanning that QR code means anyone can anonymously steal Bitcoins.  That's the bad part about anonymizing a currency.  Masking ownership means no audit trail to recover a thief's digital fingerprints.

Mining Bitcoins is a health hazard and energy sink.  People run obsolete hardware just because the video cards can process random digits into raw Bitcoins.  This is a kind of "mining" that's unlike the real-world mining I've studied for years, because it transforms nothing into an encrypted version of nothing.  Nerds who run multiple machines overnight to mine Bitcoin risk heat stroke from the machines.  If you don't believe me, do a Google search of "Bitcoin heat" and note all of the cooling problems Bitcoin miners discuss amongst themselves, with the real world watching them fry.  Crypto-nerds advocate data furnaces as an economic solution to waste heat generation from Bitcoin mining.  Gimme a break already.  There is no way a distributed network of Bitcoin mining operations could ever be a backbone for currency transactions or an alternate energy grid.  No cloud provider in its right mind will ever farm out data storage needs to distributed servers with zero physical security.  Bitcoin's so-called solutions just multiply its problems.

There is no central bank for Bitcoin.  Indeed, there never will be one, because Bitcoin's evasion of central control appeals to its users.  The Federal Reserve, for all of its flaws, has enabled the US to withstand financial panics because it could manage a unified national currency.  A central bank manages fractional reserve lending that allows a national economy to expand.  The supply of crypto-currency is limited by algorithmic design, so an economy running on Bitcoin cannot expand to accommodate a larger population or natural resource base.  A Bitcoin economy cannot grow because it cannot deploy excess capital for innovation.

Minting copycat currencies is easy.  Run through the gamut of crypto-currencies like Litecoin, Dogecoin, Namecoin, Peercoin, and others to see how unserious most crypto-currency enthusiasts are about money.  Dogecoin in particular is obviously a joke based on an Internet meme.  Using a currency named after memes doesn't impress me.  Imagine someone in the early 20th Century printing a dollar with Mickey Mouse's smiling visage and convincing others to take it seriously.  The US economy tolerated decentralized currency minting for some of its history until the settlement of the frontier demanded a nationally integrated economy.  Copycat currencies destroy the credibility of Bitcoin.

I am totally convinced that Bitcoin is at best a joke and at worst a fraud.  Hi-tech startups should be be radical, disruptive, transformational, chaotic, revolutionary, and all that but those are not the characteristics of a currency.  People who use currencies as a medium of exchange and store of value need them to have conservative characteristics, so that one unit today has pretty much the same value next year.  Stability enables consumption and investment in reliable amounts at acceptable intervals among counterparties.  Bitcoin does not accomplish these purposes.

Bitcoin is baloney.  I'm waiting for some jokester to create Baloneycoin that will evaporate when minted and play some funny animation.  Look up "Cosbycoin" for an early attempt at turning this idea into a joke.  The parody site that features Cosbycoin is hilarious but the real joke is on anyone who takes Bitcoin seriously as an investment.  I do not use Bitcoin, nor will I do business with anyone who wants to transact in Bitcoin.  I may be a nerd but I'm far too intelligent to use something as stupid as Bitcoin.  

Open Questions for Fraud Enablers in the San Francisco Bay Area

These inquiries are directed to a few people in particular.  They know who they are because I've tried to make them see the light.  I know enough about their characters to expect no answers.  

Do you consider fraud to be immoral?

Do you consider misrepresentation of a professional background to be immoral?

Do you perform due diligence on the people you invite into your circles of trust and confidence?

Do you continue to associate with someone of questionable character after you've received evidence of their many deceptions?

Do you understand that a public association with a known fraudster can expose you to charges of complicity in said person's frauds?

Finally, are you aware that the revised Stolen Valor Act provides for criminal penalties for those who obtain benefits from false portrayals of their veteran status?

I totally understand your reluctance to answer my questions.  That's normal for people in denial or who have something to hide.  Fraud can't be hidden forever.  

The Haiku of Finance for 02/13/13

Con-man at breakfast
Smiling, lying, and praying
Phony and grifter

Questions for the San Francisco Prayer Breakfast

The local supporters of the national Prayer Breakfast phenomenon held their annual breakfast today at the City Club.  I have open questions for them.

Do you believe that a Christian should possess personal integrity?  I define "personal integrity" very broadly as the general ability to distinguish right from wrong and the ability to tell the truth.

If so, do you tolerate members of your group who do not possess personal integrity?

Do you know anyone who has willfully and repeatedly worn unearned military decorations and has been expelled from the American Legion for misconduct?

Do you believe that military veterans who engage in fraud and misconduct after leaving the service should be held to account in a court of law?

I do not expect this group to answer me but I had to publish this article to put my concerns on the record.  My colleagues already know how I would answer these questions.

The Haiku of Finance for 01/28/13

Glib liars love fraud
Fooling gullible backers
Until indictment

The Limerick of Finance for 01/13/13

Hucksters are so brazen and bold
Fleecing fools once their story is told
Hold on to your coin
It's their plan to purloin
Finding suckers will never get old

The Haiku of Finance for 01/01/13

Con artist beware
Law enforcement watches you
Time to go to jail

The Haiku of Finance for 12/06/12

Chinese pump/dump scam
Penny stock for dumb traders
Investor beware

Chinese Banker Admits China Is Ponzi

The supposedly inscrutable Orient just pulled the mask away to reveal a panicked visage.  Some top Chinese banking dude voiced a public warning that his country's shadow banking system was breeding Ponzi schemes.  I fear for this man's safety but he may be sufficiently ensconced in the Party apparatus to have a protection network.

Compare this guy's candor to the lack of candor from American bankers.  The CEOs of all the U.S. Ponzi banks that collapsed in 2008 insisted right up until the end that they were healthy.  We hear the same thing today from American bankers and only a few big-mouthed people (like me) outside the system are willing to point out that the emperor doesn't have a stitch.

The Chinese folks who bought into wealth management Ponzi products are going to see their dreams dashed.  At least they tried to invest for their futures.  Most Americans haven't saved jack squat for retirement and have no intention of doing so.  Americans would rather place their faith in the one big Ponzi scheme called Social Security than take personal responsibility for themselves.

This news makes me even more glad that I sold out the last of my long China equity position.  

The Haiku of Finance for 09/18/12

Peregrine chief thief
Admits fraud in guilty plea
Many more go free

The Haiku of Finance for 07/25/12

Libor bankers lie
Fed allowed them to do it
They won't go to jail