Your Questions About The Stock Market Is A Ponzi Scheme

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James asks…

Has anyone ever heard of this investment philosophy before? It’s kind of weird, IMO.?

Believe it or not, until the recession began in 2008 I had never really heard of this before, but supposedly a lot of people follow this philosophy.

Apparently, back before the financial crisis, many economists told people that it was a bad idea to pay off their mortgage and that they should constantly be refinancing and borrowing against their house. They said that mortgages are good debt and that you could deduct a portion of the interest on the home loan. Both of which are true.

However, I don’t understand the logic behind that. Why would I want to be in perpetual debt to a bank? And yeah, you can deduct some of the interest off of your taxes, but that doesn’t beat not paying interest at all.

Maybe it’s just me, but I don’t like debt…. any debt. I pay off my debts as quickly as possible because I don’t believe in paying interest to a bank. Every time I have to pay interest to a bank I think to myself “That’s XXX dollars I just gave away for the ability to be in debt”. I pay off my credit cards in full every single month.

IDK, what do you think about this logic? Is it good? Is it bad?

There are a lot of people who I work with who are regretting this decision now. I bought a penthouse 6 years ago and I had it paid off in 5 years (on a 30 year mortgage). And when the economic crisis hit and I lost my job, I didn’t have to worry about making mortgage payments, just paying the taxes.

Justin answers:

Borrowing against an asset is only desirable if 1) you can afford to lose the asset, and 2) you are borrowing from it to buy an income-producing asset that you have reason to believe will generate more ROI than any real estate appreciation.

People prior to the 1930’s generally paid off their homes ASAP, because most loans could be called-in by the lender if the lender got into trouble or the economy tanked. The Federal Government supposedly fixed this inconvenience.

There are several of these misconceptions that arise from short-term economic circumstances. I grew up hearing them all:

STOCK MARKET– The stock market won’t ever tank again like it did in 1929 because people aren’t allowed to buy on margin in the same way as they did, cuz the Federal Government fixed that.

THE DOLLAR — The U.S. Dollar is the best currency because it’s back by the full faith and financial strength of the US government.

TERM INSURANCE– “It’s cheaper than whole life or cash value, so go ahead and buy it. It won’t accumulate any cash value, and you can let it lapse in your old age, when you don’t need it.” (Once you hit 50, most term policies expire and when you renew you end up with a medical exam and jacked-up rates. With whole life and cash value, the premiums ultimately start paying for themselves and they act as a positive savings plan.)

SOCIAL SECURITY– This is a sound program that you can depend upon to take care of your basic needs in your old age. (reality check: it’s an unsustainable Ponzi scheme and will go under — along with Medicare– within the next decade unless something is done to fix them, which won’t happen. These two programs will probably take the rest of the national economy down with them, unless our new nationalized health care beats them to it.

Always buy the biggest and best house you can afford, because it always gain value.

Another, fun hilarious thing life insurance reps used to say “No insurance company has ever gone bust.”

I’m sure there are many more of these stupid myths. As for me, my opinion now is that if my colonial ancestors (Scottish and Dutch) wouldn’t buy into it, I shouldn’t either.

You have shown good judgment. Have a blast.

George asks…

Do you think a fair tax could be a type of bail out for our Social Security?

A fair tax on all things purchased except food, shelter & transportation.
This fair tax would be in addition to what we pay on SS already.
deacon, things purchased in the stores. Stocks wouldn’t be taxed either. A small tax, like 2%. But yes, I can see school education shouldn’t be taxed either.
So add investments & education & utilities & medical… to the list of not taxing with a fair tax.

I am talking about a fair tax on things we don’t need for survival. Like a fair tax on clothes & the extras…
White house, that is the tythe.

Justin answers:

Social Security would have plenty of money if the politicians would stop robbing the treasury to pay for things like wars, and tax cuts for billionaires.

Ronnie Raygun raised the SS tax taken out of working people’s paychecks so that there was enough to pay for the future payouts, then he proceeded to steal that money for other things.

Right now, Americans pay SS taxes on incomes only up to $103K, if they got rid of a cap and taxed all incomes, there would never be a worry about Social Security. The worries are manufactured because the private sector would love to get their hands on that money. It’s like the 401Ks, which the rich had the government invent and they set up that they take money out of your pay to put in the Ponzi scheme called the stock market. Most of us have seen a 25-50% decrease in our 401Ks with the Bush administration. Imagine if SS was privatized, we would have no safety net whatsoever.

Donald asks…

Mitt Romney , tax manager or tax cheat ?

Listening to a Sunday morning CNN program the man said what he has done ” amounts to a tax free loan from the US government at the expense of the people ” .
Where can ” we the people ” apply ?
@ Jobs : actually they were interviewing a fellow venture capitalist . don’t let the truth stop you though .
@ Peppers : Next April ask the IRS if you can just delay paying your income taxes and let us know how that goes . If Flipp has such a clean record and clearly the choice of the wealthy few then explain why did McCain pick an unknown Palin ? Tax loopholes are written by the rich for the rich and we all know it . They fleece the working Americans . Privatize the profits and Socialize the costs . The money changers that Jesus threw OUT are now in charge . The King of England that our forefathers threw out have been replaced by the Bank of England ..
Save GM and millions of jobs , bad idea . Save the cheating banksters , good idea ? I think not … Save GM and we got stock in the company . Bail out the banks from liars loans and gambling losses and what did we get ? They kept the titles to the loans we paid for and now are foreclosing .

Justin answers:

Did you know that the Companies like GM and Chrysler that got bailed out with the banks are crony with the banks. Just like Immelt is Crony with the Government and GE. They are all Crony together. All they have to do is pay fines and say I’m Saauuwwwyyy and the Banks prop them up because Geithner says it’s okay to manipulate the GNP for the Stock Market that the people are supposed to invest in to hold our economy together so the government can come up with more Ponzi schemes like Social Security for ALL of our Presidents to Raid since Nixon and the supposedly inviolate 401K that raped lots of folks I know through the years of it’s tricky inception.

We were warned about a central bank because they always steal all the money. Part of their dual mandate was to keep the money stable. This is stable? They are like 12 districts of controlled mayhem in the financial world.

Edit. I think Romney suffers because down deep he knows it’s immoral and doesn’t want to be found out. Not because he is sorry. Our Tax laws are immoral. You can cheat with impunity if you know all the loopholes in Corporate Tax

William asks…

List things you have ‘personally’ down to protect your financial freedom?

Why in politics?…because politics seems to be about addressing the financial independence. We use catch phrases to entice people.

But I want to know….is what YOU as an American have done out of personal responsibility to plan out your future?
Shy Girl,

First I congradulate you on the Credit Card thingy…But just a suggestion….
Credit Cards are not bad if you have discipline which sounds like you do…

They give you Credit History and if you get the right kind…you can get reward points every time you use it. So for someone who is discipline they pay of their card immediately and get points to be cashed in for airfare, gas, other stuff…I mean I pay all my bills except mortgage with the Credit Card. Its same thing as cash cause I pay it off immediately indirectly with money I have in my account.

Just a suggestion

Last year…I got $150 Visa Gift Card and $25 Barnes and Noble Card.

and I didn’t pay anything extra…

Just a suggestion

You should all look into

Roth IRA
and 529 Savings Plan …especially if you are going to have kids…

Just think if you have an 18 year savings plan…then your kid will be in better shape for school.

Also Shy Girl,

At the end of the year…your Credit Card Company normally sends you a break down of you what you spend your money own…i.e airfare, medical, restaurants etc
Its all itemized…

its a good way to see you spending habits and budget future expeditures. It is also a good way to measure your money saving abilities.

I have no quarrel with you…but your response begs me to ask the question….

What is the alternative… nothing?

And Attgurl…
I am disappointed that we didn’t drill in Alaska, and that we didn’t pursue Nuclear energy….all because of fear…

and that we are pursuing ethanol out corn which makes no sense..

all these actions above were because we were rash….and thought we could feel good about ourselves…

Justin answers:

My goodness you are a little corporate toady aren’t you. Just spewing the same corporate media crap that is out there.
I’d like to know why the corporations are getting off the hook with you and the media these days. They have done nothing but waste, squander and manipulate the market for their own benefit and then the corporate politicians in the W.H, Congress and Senate bail them out. What about their freaking responsibility to the shareholder and the borrower and the community? They have all the power then raise prices, gas, food and other necessary items and have the audacisity to tell the consumer to buy more yet at the same time have personal responsibility to save for retirement while they rob that same consumer blind. And, you buy it hook line and sinker. The system is rigged sweetheart. The middle class is falling apart because of the economic ponzi scheme that is being dumped on us all. WAKE UP. Our 401k’s, our insurance policies are being manipulated to take you for a financial ride. If you think you are remotely secure no matter what you have or despite the fact that you may not have credit card debt, you’re delusional.

BY the way if you think I’m angry, I am. And so should you be. You’re all being manipulated. I have no credit card debt, I have a 401k and stocks, I save and live simply. But I’m also noticing the price of gas and food and other necessary items are eating into that savings. Wake up people. You think you’re safe? You’re far from it. And, it’s not terrorists that are the enemy in this case.

Edit: what does drilling in alaska and nukes have to do with your question about personal responsibility and finances? Wow, do you ever have a disconnect going there. But since you brought it up: Bush and the GOP had 6 years to open up Alaska and didn’t. It was voted down in the GOP Congress and Senate. There isn’t enough oil to make it profitable. Nukes are way too expensive to build and far too costly to maintain in terms of storing the spent plutonium. Do you want that in your back yard? I didn’t think so. There are far better ways and more efficient ways to get energy than either one of these. WHere do you get your information? The back of bubble gum wrappers?

Charles asks…

What do you think of this – Shift taxes off wages and onto resources and waste?

What a brilliant insight. With one stroke of the pen, stop subsidizing resource destruction and free up personal capital so each of us can find sustainable solutions.

What will it take to show the light to the reality challenged? Still bogged down in not just 2nd tier problems like our permanent war economy, but 3rd tier problems like abortion and gay marriage, and ridiculous rabbit hole distractions like arguing over the validity of climate science.

1) The reality is we -will- pay for it, as we have in every previous instance other than when the government has collapsed. And in those cases the profits go to organized criminals.

2) That 3 billion will never enter the middle class because the cost of resources will always run just out of their reach. What does that mean for the current middle class? A gradual erosion.

3) A given.

4) Very few people understand that that we a few days or weeks from chaos. I read an interesting article about how, for instance, the former Soviets will do much better than the Americans post collapse because they have been living with broken systems already for decades and have built the ad-hoc systems and relationships necessary to cope.

Justin answers:

There are four premises to the essay. Two are wrong.

Deleveraging need not be a problem. Main St. Should simply refuse to pay for fraudulent financial derivative schemes made on Wall St. There is no need to turn fictional profits for banksters into real profits by paying out fraudulent contracts. Just void the contracts where fraud was committed. If all commodities trades required the buyer to take physical possession and do something useful, the Main St. Economy would improve because the market would factor in actual supply and actual demand. I am currently setting up an industrial operation that will add 300,000 bushels of wheat per year (physical delivery) to the human food supply. 1 bushel feeds 1 person for 2 months. I think that is a bit more useful than a Wall St. Ponzi scheme, albeit a lot less lucrative. If the Wall St. Geniuses did something useful too, the real economy would be in better shape.

The second premise is incorrect too. The size of the global middle class is resource limited. If there are not enough resources to sustain the current 2.5 billion middle class, there won’t be enough resources to add 3 billion more in the next 20 years. Cereal grain yields have increased 300% in the last century, mainly due to massive application of fertilizers made from fossil fuel feed stocks. When these non-renewable fertilizers run out crop yields will decline, but remain above pre-industrial levels due to advances in genetics. The bottom 3 billion will not get promoted to the middle class because there will not be enough food to support a middle class lifestyle.

Although some of the premises are wrong, the general conclusion is correct.

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