Ethics – Page 9 – The Aleph Blog

On Penny Stocks (2)

Posted on 5 October 20115 October 2011 by David Merkel

Yesterday, I received a pitch in the mail for a penny stock.? They should put a big red X over my address, but alas, they don’t.

Now for all of my prior penny stocks that I have been written about, all have done horribly.

Now we have AER Energy Resources [AERN] which has done horribly, and does not file financial statements, having “gone dark.”? From a research note on the web, this is what they said:

Please be advised that VictoryStocks.com has been paid $1,300,000 by Sanaz Trading Inc. to perform promotional and advertising services for a one month profile of AER Energy Ressources Inc. which services include the issuance of this release and the other opinions that we release concerning AERN ? VictoryStocks.com has not investigated the background of Sanaz Trading Inc. the hiring company. Anyone viewing this newsletter should assume the hiring party or , affiliates of the hiring party own shares of AERN of which they plan to liquidate, further understanding that the liquidation of those shares may or may not negatively impact the share price. VictoryStocks.com has received this amount as a production budget for advertising efforts and will retain amounts over and above the cost of production, copywriting services, mailing and other distribution expenses as a fee for our services. As such, our opinion is neither unbiased nor independent, and you should consider that when evaluating our statements regarding AERN. VictoryStocks.com is owned by: FreePennyAlerts, LLC, 40 East Main Street, Suite 572, Newark, Delaware 19711. Questions regarding this release may be sent to Editor @ VictoryStocks.com.

I only ran into that scam because I Googled Lone Star Gold [LSTG], and that popped up.? Lone Star Gold is a negative income negative net worth stock.? A promoter for Lone Star Gold snail mailed me, complete with handwriting and excess staples, but the horrid disclosure in teeny tiny type was this:

IMPORTANT NOTICE AND DISCLAIMER: This paid email advertisement by XXX (hereafter “XXX” does not purport to provide an analysis of any company’s financial position, operations, or prospects and this is not to be construed as a recommendation by XXX, or an offer to sell or solicitation to buy or sell any security. Lone Star Gold Corp. (hereafter “LSTG”), the company featured in this issue, appears as paid advertising. Mermaid Finance Ltd has paid $1,768,000 for the dissemination of this info to enhance public awareness for LSTG. Although the information contained in this advertisement is believed to be reliable, XXX makes no warranties as to the accuracy of any of the content herein and accepts no liability for how readers may choose to utilize it. The information contained herein is based exclusively on information generally available to the public and does not contain any material, non-public information. Readers should perform their own due-diligence before investing in any security including consulting with a qualified investment advisor or analyst. Readers should independently verify all statements made in this advertisement and perform extensive due-diligence on this or any other advertised company. YYY has received twenty thousand dollars for this and related marketing materials. YYY/XXX also expects to receive new subscriber revenue, the amount which is unknown at this time, as a result of this advertising effort. YYY and XXX nor any of their principals, officers, directors, partners, agents, or affiliates are not, nor do we represent ourselves to be, registered investment advisors, brokers, or dealers in securities. XXX is not offering securities for sale. An offer to buy or sell can be made only with accompanying disclosure documents and only in the states and provinces for which they are approved. Research and any due diligence was conducted by an outside researcher for this advertisement. More information can be received from LSTG’s website at www.lonestargold.com. Further, specific financial information, filings and disclosures as well as general investor information about publicly listed companies and other investor resources can be found at the Securities and Exchange Commission website at www.sec.gov and www.nasd.com. Any investment should be made only after consulting with a qualified investment advisor and only after reviewing the financial statements and other pertinent corporate information about the company. Many states have established rules requiring the approval of a security by a state security administrator. Check with www.nasaa.org or call your state security administrator to determine whether a particular security is licensed for sale in your state. This advertisement is not intended for readers in any jurisdiction where not permissible under local regulations and investors in those jurisdictions should disregard it. Investing in securities is highly speculative and carries a great deal of risk, which may result in investors losing all of their invested capital. Past performance does not guarantee future results. The information contained herein contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933 and Section 21 E of the Securities Exchange Act of 1934, including statements regarding expected continual growth of the featured company. Forward-looking statements are based upon expectations, estimates and projections at the time the statements are made and involve risks and uncertainties that could cause actual events to differ materially from those anticipated. Forward-looking statements may be identified through the use of words such as expects, will, anticipates, estimates, believes, or by statements indicating certain actions may, could, should, or might occur. Any statements that express or involve predictions, expectations, beliefs, plans, projections, objectives, goals or future events or performance may be forward-looking statements. In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the publisher notes that statements contained herein that look forward in time, which include other than historical information, involve risks and uncertainties that may affect the company’s actual results of operations. Factors that could cause actual results to differ include, but are not limited to, the size and growth of the market for the company’s products and services, regulatory approvals, the company’s ability to fund its capital requirements in the near term and the long term, pricing pressures and other risks detailed in the company’s reports filed with the Securities and Exchange Commission. XXX is a trademark of YYY. All other trademarks used in this publication are the property of their respective trademark holders. XXX is not affiliated, connected, or associated with, and are not sponsored, approved, or originated by, the trademark holders unless otherwise stated. No claim is made by XXX to any rights in any third-party trademarks.

Each promoter paid more than a million bucks.? Given the light level of trading in the stocks, and the low share price, the promoters were trying to do a significant pump-and-dump.? Personally, I think it would be really tough to squeeze over $1 million off of these tiny horrible companies, but maybe I don’t know the revenue model so well.

As I frequently say, “Don’t buy what someone want to sell to you.? Buy what you have researched, and what you think has value.”? Ignore penny stocks, with all of the ads that are on the web.? Short them if you dare.? These are horrible companies; any stock that has someone paid to promote it is a sell.? Sell, sell, sell!

This could not be simpler, so ignore the touts that promote penny stocks.? Short them if you dare, “the market can remain insane longer than you can remain solvent,” as Keynes said.

Penny stocks are for losers who dream of great gains.? They get the losses that they deserve.

Book Review: Saving Capitalism from Short-Termism

Posted on 24 August 2011 by David Merkel

This book was surprisingly good, and ambitious.? It takes on the short-term nature of our business culture in many areas:

The nature of the problem is that the owners no longer work for the corporations, and so managers run companies for shorter term objectives.? Owners would care more about the survival and long run profitability of the firm.
Much of the financial crisis stemmed from managing for the short-term, as financial institutions moved from a originate-to-hold to an originate-to-sell model.
Corporations focused on meeting quarterly earnings estimates, possibly to the exclusion of longer-term profitability improvements.
Investment managers manage for the short run as they try to beat indexes in the short run rather than over the long term.? Investors pulling money in the short term influences that.

The book then takes on these problems, and proposes solutions:

Create the proper long-term incentives for all parties: Executives, Line managers, and Employees.? I think he gets it right.? Make them long-term, and relative to a proper market index.? Or do it on a book basis, but make the hurdles reflect the cost of capital.
Communicate to the external world that you are no longer going to play the short-term game, like Berkshire Hathaway.? No more earnings guidance, and no more pseudo-earnings guidance where the analysts get enough to publish their estimates.
Most boldly: adopt new accounting principles that revolve around free cash flow, not earnings.? Make balance sheets probabilistic.? (even as an actuary, I don’t think we are ready for that, good as it would be)
Incent investment managers properly.? This is probably the weakest part of the book, because the problem of incenting investment managers properly is probably impossible.
Finally, how to make money.? Concentrate your investments, and if you are a good investor, you will make money over the index.

Now, some of these insights are truisms: sure concentrate your investments, and if you have good insights, you will do well.? Duh.? Most professional managers don’t have good insights, but they aren’t dropping out, and their investors are sticky enough.? That will be hard to change.

But creating longer term incentives for managers and realizable goals for workers are significant ideas.? I have argued for these for some time.? At my fellowship admissions course for the Society of Actuaries, I remember arguing with a consultant over these ideas, where she told me that longer-term incentives were unrealistic.

In a similar vein much of the book argues that you should think like a life actuary (my words, not the author’s).? Discount over the long term, taking into account interest rates and likelihood of the cash flows occurring.? I can heartily back that idea, though I wonder how well the average professional would deal with the concept.? Imagine a new income statement that has a pessimistic, realistic, and optimistic scenarios, and has ranges for accrual items off of that.? I would enjoy that, but the average investor would blanch at the complexity.

Average professionals, much less investors, don’t do well with probability? They want a point estimate and that is human nature.? Are we trying to create the NEW CAPITALIST MAN here?

Maybe, and I actually like the effort, though I think it won’t amount to much. Eliminating self-interest is very difficult; channeling it is another matter.

Quibbles

The book uses the exact same quote from Peter Bernstein on pages 54 & 130… come on, you can do better than that.? Where is the editor?

Beyond that, if you are going to rework the income statement, then differentiate between investment capital expenditures, and maintenance capital expenditures.

I think the proposed excess return versus shortfall ratio is flawed.? Under your definition, a manager who beats once by a lot, and loses often by a little, but loses versus the index overall would look good.? I think it is better to just look at long term returns versus the index, and consider Buffett’s dictum, “I would rather have a noisy 15% than a smooth 12%.”

Who would benefit from this book: Those who want to see a better capitalist economy built could benefit from this book.? If you want to, you can buy it here: Saving Capitalism From Short-Termism: How to Build Long-Term Value and Take Back Our Financial Future.

Full disclosure: The publisher sent me a copy of the book for free.

If you enter Amazon through my site, and you buy anything, I get a small commission.? This is my main source of blog revenue.? I prefer this to a ?tip jar? because I want you to get something you want, rather than merely giving me a tip.? Book reviews take time, particularly with the reading, which most book reviewers don?t do in full, and I typically do. (When I don?t, I mention that I scanned the book.? Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.? Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.? Whether you buy at Amazon directly or enter via my site, your prices don?t change.

Hypocritical Buffett

Posted on 16 August 2011 by David Merkel

Computer-wise, things haven’t been going my way lately.? My laptop seemingly died this evening, and my Gmail account has hacked by Chinese hackers last week.? Apologies to those who got spammed by my Gmail account as a result.

But that doesn’t mean I can’t keep going.? I backed up all of my files on Saturday, and I have my most commonly used files backed up in real time by Microsoft Live Mesh.? It’s inconvenient, but the data is safe, and I can keep working and serving clients.

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Almost everyone argues their interests on tax reform, excluding me, but including Buffett.? Buffett is in favor of increasing taxes that he doesn’t pay.? Estate tax?? Buffett isn’t paying it, he’s giving his fortune away to the Gates foundation, largely.? Income tax?? Relative to the increase in his net worth, Buffett pays almost nothing in taxes because we don’t tax stocks until a dividend is paid, or until some stock is sold.? What’s more, BRK has a $38 billion deferred tax liability, which measures taxes that would have been paid on GAAP income, but weren’t paid because taxable income was lower for reasons that may revert, someday.

Thus, I say Buffett is a hypocrite on taxes.? Let him argue for the following:

Unrealized gains on assets should be taxed each year, for corporations, partnerships, and individuals.? Losses should receive deductions.
Eliminate deductions/credits from the personal and corporate tax codes.? We could eliminate the deficit instantly with that one simple change.? Don’t use the tax code for social engineering.? Much as I favor a Balanced Budget Amendment, perhaps a “No Social Engineering” Amendment would be better.? Or an amendment that incorporates my anti-gerrymandering idea.
Tax corporations on their GAAP income, or better, whatever they represent to investors as the true increase in period-to-period net worth.
Add in an EBITDA tax on private equity, and everything like it, such that we assume a 15% ROE for tax purposes that trues up when the partnership closes.? Everywhere, make the tax basis equal to GAAP, or modifed GAAP, where it exists.? Where it doesn’t exist, make the taxes punitive enough that adopting GAAP is preferable.

With the present tax rates, implementing all of these would put the budget in a decided surplus, WITHOUT RAISING RATES.? You would even eliminate the estate tax, because estates would finally be taxed year-by-year.? The tax code would then be close to fair, like it was with TRA ’86.

But there is one place where I agree with Buffett entirely:

People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what?s happened since then: lower tax rates and far lower job creation.

Taxes affect business decisions when the definition of taxable income gets changed or credits get offered.? I’ve seen it working on section 42 housing credits, and in insurance company accounting.? I’ve seen it with private equity; I’ve seen with clever investors that max out debt while growing net worth.

In that sense, the definition of income, and the offering of credits make a huge difference in the behavior of those taxed.? But within reason, tax rates don’t make that much difference.? Yes, up 10%, there will be some effect on economic activity.? The bigger changes come from deductions and credits.

You want a pro-growth tax code?? Eliminate the deductions, credits, and deferrals.? Tax us year-by year on an estimate of our increase in income including unrealized capital gains and losses.

Yes, there will be unemployed accountants, actuaries, attorneys and administrators.? But the system as a whole will be better off, and for once, who will argue in favor of preserving the nation, and ignoring special interests?

What Buffett suggests will get little in the way of results.? A focus on defining income properly will bring in more than sufficient taxes, and especially from Mr. Buffett, one of the least taxed relative to the increase in his net worth.

The Rules, Part XXIII

Posted on 2 August 20112 August 2011 by David Merkel

A Ponzi scheme needs an ever-increasing flow of money to survive.? Same for a market bubble.? When the flow?s growth begins to slow, the bubble will wobble.? When it stops, it will pop.? When it goes negative, it is too late.

Here’s how a Ponzi scheme works for the promoter:

Prior Net Assets + Receipts + True Investment Earnings (if any)? – Withdrawals – Expenses = Net Assets

But this is what it looks like to the investor:

Investor Prior Net Assets + Receipts + Reported Earnings – Withdrawals = Investor Net Assets

The investor’s view of the assets is higher than the actual assets by the cumulative difference between reported and true investment earnings, and cumulative expenses. The promoter wants to keep the good times rolling, and keep the ratio of actual to investor net assets as high as possible.? But to do that requires additional receipts, and a lack of withdrawals, which in turn requires an attractive reported rate of earnings, higher than what could be ordinarily achieved. But the higher the reported rate of earnings goes, the further behind the promoter gets.? Also, at very high levels, the authorities take interest.? At very low levels, the Ponzi dies.? Part of the evil genius of Madoff was striking the balance.? He also did four other things:

Soft-peddled the marketing so that it was like joining an exclusive club.
Discouraged withdrawals by saying you would not get back in (for some).
Deluding regulators into thinking that it was a front-running scam.
He did not rake off much.

Most Ponzi schemes die rapidly because of the greed and impatience of the promoters.? All Ponzi schemes eventually fail. So how does this relate to market bubbles?? With a market bubble, the increase in market values significantly exceeds the increase in intrinsic values.? This could be due to a number of factors:

Players see that borrowing to chase a rising asset is a winner.
Promoters make it easy to do for inexperienced investors.
An easy monetary policy lowers financing costs, aiding bubble financing.
Players seek stock gains, and disdain debt claims.
At the end, investors have to feed the asset to keep it afloat, giving up current income to support the “asset.”

Positive cash flow into the bubble asset class supports valuations for a time, the cash flows driven by momentum, but eventually positive cash flows are overwhelmed by negative cash flow from an overvalued asset class. My advice: avoid speculating on momentum, particularly after it has gone on for a few years.? Put a margin of safety first in your investing, such that you will always be around to invest in the future, no matter how bad the? investment environment is.

The Costs of Illiquidity

Posted on 13 July 2011 by David Merkel

Liquidity is underrated.? What’s that, you say?? You are earning nothing on your slack cash balances?

Well, welcome to the club.? I am earning nothing there as well.? To earn money on short duration assets in this environment means taking risks, like Pimco does with its ETF with the ticker MINT.

Now, many will offer yield in an environment like this, but at a cost — a long surrender charge.? The long surrender charge hides the transfer of future yield to the present.

I am talking? about more than annuities here.? There are other illiquid investments being proffered today that offer a high “yield,” notably fixed payment streams from insurance companies that are life-contingent.

This is the deal:? There are some annuitants who would rather have a lump sum than a payment stream.? Some firms will buy the payment stream at a price attractive to them.? Then they try to sell the payment stream to an investor at a higher price, thus eliminating their risks on the annuitant prematurely dying.? But how good as an investor would you be at evaluating the risks?

You do realize that you aren’t buying a bond here — at the end you are not getting your principal back.? So what’s the yield? — it isn’t the annual payment divided by the purchase price because part of each payment is an uncertain partial return of principal.? Do you have your own actuarial consultant to calculate the yield, or are you blindly trusting the seller?
So you bought out the annuity of another person.? How certain are you that he will live a long time?? Why are you smarter than the seller regarding? his own life?
Unlike an annuity on your own life, the payment stream may end before or after you die — a classic asset/liability mismatch.
Is there any possibility that you will not get paid?? Is your contract illegal?? Have you retained your own counsel in the matter, or are you trusting the seller?
Do the IRS immediate annuity tax rules apply in this situation?
If you need cash, you will have a hard time selling this — one of the few potential buyers is the friendly guy that sold it to you.? The price spread between selling and buying is huge, and not in your favor.
You do realize that unlike an annuity on your own life, this is not judgment-proof.

There are all manner of illiquid investments offering yield, but almost all of them lock the investor up for a time.? Think of them as quirky Certificates of Deposit, minus the FDIC.? Particularly egregious are EIAs with long and high surrender charges.? (The agents are paid a lot to sell those.? Never trust an insurance agent who is receiving a large commission to sell you an annuity.? Note: if they won’t disclose the commission, know that it is roughly the size of the initial surrender charge.)

The Cost

Illiquidity means a loss of flexibility.? If your money is tied up during a fall in the market, you will not be able to take advantage of what could be a 30-50% return over one or two years when the market bounces back.? That is a lot to give up for a little bit of yield.? Personally, I prefer flexibility.

The costs of illiquidity are quiet.? The extra yield seems free until there is a need for ready cash, whether to spend or to take advantage of investment bargains.? Personally, I’ll take the loss of income, and keep the flexibility.

Also, avoid unusual investments that are hard to evaluate unless you have expertise greater than that of the seller.? Don’t buy what someone wants to sell you; buy what you have researched and want to buy.

PS — this is another reason why I encourage people avoid “sales loads” in investing.? Mentally, it ties your hands, because you want to recoup the load, or not incur the surrender fee.

Full disclosure: I have one client that owns MINT in his portfolio with me as a cash substitute.

Enduring Ponzi

Posted on 2 July 20113 July 2011 by David Merkel

Why did Madoff’s Ponzi scheme last so long?

He didn’t take that much from it.? If the gross exposure was $60 billion, he took only 1/2% of it — $300 million.
The growth rate was high enough to attract investors but slow enough to not exhaust cash rapidly.
The SEC was clueless, with little expertise in quantitative investing, and little basic auditing knowledge where one traces every transaction back to the source, which would have revealed Madoff in an instant.? There were no assets in the accounts.
He had a reputable business that produced significant profits, and was viewed by many as an industry leader.? Many Europeans, among others, thought he was front-running, and Madoff implicitly encouraged that idea while explicitly denying it.? The idea of “front-running” was a honey pot to distract regulators from the idea that a Ponzi scheme was going on.
The marketing club.? You are the lucky one who is invited to partake of the gravy train.? Don’t question, just enjoy, and refer friends, maybe we will consider them.
Feeder funds that were looking for looking for a high-ish return and a low standard deviation found Madoff irresistible.
“Pus luck.”? There were many times where the scheme almost died, but new cash flows bailed them out.? The term, “pus luck” was unique to my block where I grew up in Brookfield, Wisconsin, and described a situation of undeserved luck.? A brother of my friend, and a friend of my brother always seemed to get the lucky break at unusual moments.? We called it “pus luck,” perhaps in an effort to denigrate his skill in unlikely situations.
Madoff did not encourage a marketing frenzy.? He tried to keep it low-key.? That kept it below the radar, and allowed it to be marketed to a wide number of people who would not fall for a hard sale.

And so it was for Madoff, skating through unlikely situations where others would have easily died, until it got too big, as all Ponzis do.

We know when it ended, but have no idea on when it started, ’60s, ’70s, ’80s, ’90s…? We really don’t know.?? Madoff has revealed a lot, but he has never given a date earlier than 1992.? His associate, DiPascali, suggested it may have started in the late ’80s.? There is some evidence that it may have gone all the way back to the ’60s.

I find DiPascali’s words to be more reasonable than Madoff’s.? The late ’80s were more desperate than the early ’90s.? If you could survive ’87 and ’89, you could likely survive ’92.

Recoveries?

When the Ponzi was revealed, few thought there would be any significant recoveries. But now, net losers from the Madoff Ponzi may get back over 50% of their money.? Why?

The Picower family gave in, and released their profits from the Madoff scheme.
Many large financial companies played small roles in the scheme, and they will all probably pay something to make the lawsuits go away.
Some net losers were involved in money laundering and are unlikely to pop their heads above water to make a claim on their ill-gotten funds.? More for the rest.

In one sense, the slowness of the Madoff Ponzi allowed for a less wasteful class of investors to be bilked.? Including Madoff, these were not the sorts of people that were big spenders as a fraction of their income.? Many investors were buy and hold with Bernie, and indeed, he encouraged that.

So the endgame may not be as bad as expected.? Many will get a large portion of their net investment back.? There will still be regrets, but they will be much reduced.? Good for them.

Book Review: The Wizard of Lies

Posted on 2 July 2011 by David Merkel

This is the best book that I have read on the Madoff scandal so far.? Why is it great?

It is well written.
There are few if any factual errors in the text.
She talked with a wide number of people to try to get the full story.
It’s neutral.? it doesn’t takes positions on a wide number of unanswered questions, and treats what Madoff says with skepticism.
It takes you through the previously unwritten history of the scam, where the only real doubt is when the scam started — did it start in the early ’90s, late ’80s, or in the ’60s?? We still don’t know.

Now, I have reviewed the books by Markopolous, and the Madoff “victims.” Each tries to make themselves look good.? The author of this book has no dog in the fight, and nothing to prove.

According to this book, Markopolous discredited himself via crude behavior, fear of retaliation, and inability for the SEC to understand simple quantitative investing concepts.? The “victims” did not exercise common prudence.? The biggest red flag over any investment business is no independent custodian, and that was glaring with Madoff.

Yes, they were victims, but they were people who should have known better.? To call oneself a victim here is to call oneself stupid.

There will be another article after this one to explain why the Madoff Ponzi lasted so long, and why the recoveries ended up so much higher than anticipated.

Book Structure

The book starts with the blow-up, and then reverts to telling the life story of Madoff, progressing to the eventual demise, but with many blow-ups averted in the interim.? After that, one-third of the book deals with the aftermath, with the suicides, estrangement, and aggressive lawyers that recover far more than was originally expected.

It’s quite a tale.? I learned a bunch here, and recommend the book to you.

Quibbles

None.

Who would benefit from this book:

If you want to understand how Madoff did it, this is the book to read.? If you want to get a feel for how to avoid con men, this book will also be useful.? Give it to your overly credulous brother-in-law.

If you want to, you can buy it here: The Wizard of Lies: Bernie Madoff and the Death of Trust .

Full disclosure: The publisher asked me if I wanted it.

Quibbles

The main difficulty is this: just because A follows a similar power law to B, does not mean that A & B have something in common.? There are often spurious correlations.

Who would benefit from this book:

Most serious investors and academics could benefit from the book.? It will challenge your preconceptions.? That doesn?t mean that everything Mandelbrot writes is correct, but most of his criticisms of MPT are correct.? The question becomes what to replace MPT with?

If you want to, you can buy it here:?The Misbehavior of Markets: A Fractal View of Financial Turbulence.

Full disclosure: I bought the book with my own money.

Plan Your Giving

Posted on 15 June 2011 by David Merkel

During hard economic times, fundraisers for charities get desperate.? Their endowment, if any, has shrunk, former less-well off patrons are less certain of their wage incomes, and are less prone to give; well-off patrons have fewer appreciated assets to offer.

I’ve been getting a spate of such calls recently.? I tell them that I plan my giving each year, and do not give to anyone else, no matter how worthy.? If they want to be considered for next year, send data to me via postal mail.

They never send it, at least not yet.? They only want the money now, not in one year.? If that ‘s the attitude, I don’t want to give.? For years I have wanted to give money to the local volunteer firefighters, and I talked to the chief, and said that I would give, but for my charitable giving trust, I needed their tax ID number.? He said that he would certainly get it to me.? He never did.

We all have different goals for charitable giving.? I’m not telling you where to give.? But analyze how much is spent on the mission in question versus supporting organizational infrastructure.? You want to see a high ratio there.

I only give to organizations where I know those that run the place; sometimes I help out.? But when I trust an organization entirely, my gift goes to? “where most needed.”? Why? Because someone has to support the internals of the organization in order for the mission aspects of the organization to operate.? If you know that the leaders are minimizing costs, acting honestly, and dead-set on pursuing the mission, give without restrictions.

And that brings up another aspect of my giving.? Give big to a few, and nothing to others.? The few that you support you should know well, to the degree that you might not only give money but time.? Charitable giving should be an expression of what you value most in society.? And by focusing, you will only support worthy causes, rather than “a little here and a little there,” where you lack of oversight allows charities to misspend money.

Final notes: by planning your giving, you eliminate those that make emotional appeals, and give rationally to what you would like to see prosper.? At worst, leave a small percentage of total giving for unexpected appeals. ? One value of this is that it starves the paid fundraisers that eat up a large part of the money given, who are not a charity at all, and charities should be discouraged from using them.

In the end this will reward the best charities, and starve the worst, which is a win-win.

On Redistricting

Posted on 11 June 201120 June 2017 by David Merkel

Given all the brouhaha that exists over redistricting, I thought I would give one simple idea that would free our nation and states from tyranny. ;)? Turn the job over to a computer.? Yes, take the blood and politics out of it, and let computers make fair districts.

How do we do that?? Simple.? You need a computerized map of the political entity being divided, and the locations of the voters.? You give the computer a simple instruction: minimize the length of the internal boundary lines within the political entity, subject to the districts being roughly the same population.

No one can argue that such a method is not fair.? It produces compact, convex districts that look? fair, and no one needs to say a word — just accept the output of the computer.

What would be the benefit?? Districts would be a lot less polar, and seats would not be as safe for incumbents.? And when the new census comes out — boom! Many politicians would find themselves fighting for their lives in new districts that don’t fit them.

This could herald the return of the citizen-lawmaker, because it would be difficult to maintain a seat for a long time.? Perhaps with some help, such as permanently disallowing politicians from being lobbyists, it could make a genuine change in the way our government works.

PS — In my life, I have been approached by others to use my math skills to gerrymander a large state in the US.? I refused (at age 29), though I knew how it could be done.

Book Review: Miles Away… Worlds Apart

Posted on 4 June 2011 by David Merkel

This book is unusual.? Let me give you my quick view: this is a book written by an Orthodox Jew regarding an unscrupulous Jew who used his abilities to communicate to swindle others in a Ponzi scheme.? This is a surmise, because of all the ill-will toward Jews created after the scandal broke, the author tries to differentiate between one who is nominally/ethnically a Jew, and one who takes the ethical principles of Rabbinic Judaism seriously.

As such, this is really two books.? One on the author’s congregation, friends, and extended family, and the good things that they have done as Orthodox Jews, and a book on how the author concluded earlier than anyone else that Scott Rothstein was a fraud, and probably running a Ponzi scheme.? (Alternatives were money-laundering, drug transport, etc.)

I appreciate the logic that the author brings to the table in the book.? I myself have uncovered a variety of investment scams from life settlements, collateralized stock loans, Nigerian schemes, and penny stock promoters.? The author zeroed in on the lack of data to verify the cash flows, and the unlikelihood of so many cases being handled by one man, Scott Rothstein.

As an aside, always be wary when you meet someone that wants a lot of information, but is averse to sharing information.? Divide-and-control is an excellent way to gain power in an organization.? Fight it by connecting with others.

Once the author came to a firm conclusion that Scott Rothstein was dishonest, he faced the question of where to take the information.? Because Rothstein had used some of his clients’ money to buy favor with state and local officials, he decided to go to the FBI as the most competent interested federal organization.? After less than two months after talking to the FBI, the Scott Rothstein’s organization collapsed from a lack of cash flow, partly due to the efforts of the author to convince potential investors not to invest.

And now Scott Rothstein and more than a dozen of his associates are doing time in jail, because of a $1.4 billion Ponzi.? Not the hugest, but give the author credit, he kept it from becoming bigger.

One final note: the title of the book is delicious, because the author and the felon were miles away in distance, but worlds apart in what they valued.

Quibbles

There are a few misspellings, but nothing major.

I understand why he brings up the good deeds of Orthodox Jews, but to have it occupy so many pages of a book dealing with financial fraud will leave some cold.

Also, I disagree with the way Rabbinic Orthodox Judaism interprets the Law (Torah).? We are not to create a hedge around the Law, as the author states.? We cannot be holier than God.? To add to God’s Law is to take away from God’s Law and substitute Man’s Law in its place.? Far better to understand the Law the way Y’Shua Ha’Mushiach (commonly called Jesus) did, and understand that it applies to our hearts and actions, as best expressed by the Larger Catechism Questions 91-153.

Who would benefit from this book:

Most people would benefit from this book — it will make you aware of financial fraud on two levels: the way that the finances of a fraud don’t make sense, and the outward aspects of the life of one committing fraud.? If you end up more suspicious of those offering opportunities that are too good to be true, that will be worth more to you than the price of the book 100 times over.

If you want to, you can buy it here: Miles Away… Worlds Apart.

Full disclosure: I asked the author for this book, and he sent it to me.? I read and review ~80% of the books sent to me, but I never promise a review, or a? favorable review.