Friday, November 12, 2010

The lure of money

Money makes the world go round, it is said. Money (lack of) also causes a lot of pain and anguish. Money, in places like casinos, also attracts a lot of the affluent, who are drawn by the risk and reward associated with it. It also attracts a lot of young students, mentioning no names (ahem), who want to base their entire lives associating with money.

The flow of money has led to the burgeoning of an entire industry based on it- the so-called financial sector. The finance job today is what the IT job was yesterday and a government job the day before that. We now have some of the best brains in our country vying with each other in order to get into a top-notch B-School and get a finance job after that.

If you step back from all the hype and look at it analytically, it doesn’t make sense. How do you use money to make money? (Can you use washing powder to make more washing powder?) What good does it do for the rest of us? And if we take it that you can’t get something out of nothing (that’s what makes the Big Bang theory so ridiculous) then where does all the money and wealth in the financial sector come from?

If I were tweeting, I’d just end this here by answering the last question in 4 words: It comes from you.

The financial sector works in curious ways. To be a big shot in finance requires as much talent, if not more, as getting into Microsoft Research Labs. The promise of huge salaries, astronomical bonuses, plus the nature of the work involved (what we call as soft power) attracts a lot of talent.

If an oil company attracts a lot of engineers by giving them huge salaries, common sense tells us that the oil company is merely sharing the profits it makes from selling oil with its employees. A finance company, on the other hand ‘sells’ nothing to make profits. To understand how they make profits and pay such salaries, we need to delve into the nature of money itself, because money is the commodity around which this entire industry revolves.

If you are a salaried employee making money working for someone on something, money is the paycheck you receive at the beginning of the month for work done by you in the previous month. This money is given to you by your employer, out of the money you all (your company) made selling your code or bananas to someone else, who in turn sold something else to someone to make the money with which to buy your goods, who in turn did the same. This exchange forms what we call the economy, the buying and selling of goods and services using a medium of exchange called money.

The financial sector doesn’t work this way. It relies on a group of people to make the bits of paper we call money. This group of people produces this paper money the same way newspaper companies produce newspapers- using an apparatus called the printing press.

So, you see, while you have to earn your money by working for someone to sell something of value to someone else, a group of people earn theirs by just pressing a button and making it. They are modern day alchemists- they turn lead (paper and ink) into gold (currency notes).

These pieces of paper are then passed onto banks.

Imagine your favourite movie is going to hit the theatres, and the theatre owner calls you up and gives you first day first show gallery seat tickets for you and your girlfriend at 95% discount, plus free popcorn. Would you pass up the chance?

In much the same way, the group of people who print money pass it on to bankers at a humungous discount (say you pay Rs. 6/- to obtain Rs. 100/-), the catch being that they pay this small amount once a year. They also get free popcorn- the right to give this newly minted paper money to people of their choice at a slightly less humungous discount (say you have to pay Rs. 16/- to obtain Rs. 100/- from the bank), the catch being that you pay that amount every year. The amount given is called a loan, and the extra amount you return is called interest.

The guy who gets the loan uses it to buy something, invest in a trade, start a business etc. with a view to make a profit and repay the loan with interest to the bank. He can do that only by selling something of value to you and taking your paper notes in exchange, which you have earned by producing something of value for someone else.

But in all this, the banker’s job is to collect and give out this paper currency, and collect and give some paper as interest. And the group of people who mint this paper- their job is to keep printing, to keep the party going.

The people who get loans from banks don’t always use the money to produce goods or services to sell. They exchange this paper money for other bits of paper called stocks, bonds, gilts, securities, derivatives, scrips etc. because these bits of paper can later be sold to get more paper money. (To explain how and why of this would be an article in itself).

To sum up, a group of people print money, give it to banks, who lend this money to investors, traders, etc. some of whom immediately use it to buy different bits of papers, and as the paper money changes hands, the new owner keeps using it to buy different varieties of paper bits, and the party continues. Meanwhile, more money keeps getting printed, loans keep getting made and people become rich swapping one type of paper for another.

That’s basically what the financial sector is all about: a party where a group of people turn water into wine, give the wine to their guests, who in turn play games swapping one type of wine for another, and occasionally lending a few bottles to others to drink and enjoy. When they want some solid food, they swap wine for food with the common man, who profits a little.

But, there really is no such magic, though they’d have you believe there is. Water is not actually turned into wine. It’s all deception, a mere illusion kept up by skilled sophists to keep the masses from getting suspicious. But as the saying goes, you can fool some of the people some of the time, some of the people all of the time, but not all of the people all of the time. The truth has a way of leaking out and percolating.

PRINTING YOUR WAY TO PROSPERITY

I’ll illustrate with an example based on RO, a game I used to play. I hope my Non-RO friends understand this too, for it is very complicated to explain using real world examples. In RO, you hunt for items, sell and trade to earn zeny, the currency of RO. A group of people are granted the right, by Gravity, to type “/zeny 1, 00,000” to generate as much zeny as they want. While you work hard (or bot hard) to earn your zeny, someone else conjures it up- out of thin air- by typing a command.

At the psychological level, this is de-motivating but there is more. These people, having the potential freedom to create unlimited money, have lesser regard for it. They’ll pay higher rates to buy items which they want from the market. Eventually, merchants will start to set shop at this high rate on the goods where there is high demand. The average Joe now has to work harder and generate more zeny to buy this same item, all because this group of people produced zeny by typing a command and used it to jack up prices. Sounds cool?

What of the merchants now earning more zeny for selling the same goods, don’t they benefit? Well, no, though it seems like it. It takes a little explaining:

For the purpose of clarity, let’s call the group of people who create free zeny for themselves (and their friends) as counterfeiters. Say they have increased the price of elunium. The first few merchants to sell them the elunium at the new, high price profit a lot. On seeing this, more people start botting or hunting for elunium.

Since, if you are hunting for elunium, you are not hunting for oridecons which you used to supply to the market earlier, oridecons now become scarce, and oridecon buyers are forced to offer a higher price for it in the hope that it would induce someone to hunt for it.

The new person to hunt oridecons because it is suddenly more profitable, stops hunting wind of verdures which he used to supply earlier. Now the same scarcity comes into play, and the wind of verdure buyer offers a higher price for them in order to induce someone else to fill this supply gap. So now, a witch starsand hunter switches to wind of verdure, inducing this scarcity in witch starsand, thereby increasing its price. This incentivizes a poison spore hunter to switch to starsands, and this cycle continues, gradually increasing the prices of all the items in the market.

This phenomenon is termed as inflation.

Let’s say our counterfeiters have a month long water-into-wine party, buying not just elunium but also valk flowers, blank cards, diablos set, vesper cores, stone bucklers etc.. You can imagine the scale of inflation which will be caused.

The current world economy is somewhat like this, but there are quite a few gangs of such counterfeiters rather than just one.

Imagine if a counterfeiter keeps creating zeny and buys all the items in the market at whatever rate you charge. Wow, you’ll be rich! Or so you think. Because he’ll pay a billion zeny for a pupa card, if you want one for yourself, you’ll either have to hunt for it or offer 1.1 billion. Another person who demands it will then have to offer 1.2 billion, and so the inflation continues.

In effect, there comes a point when all that zeny in your virtual bank account still can’t get you a pupa card, the card becomes worth much more in terms of zeny than all the other goods you have sold in order to earn zeny and feel rich. At this point, zeny loses value and you realize that if you want a pupa card, you’ll have to swap a roda frog card for it. You’ll have to keep a chat room open for hours until you find someone who wants to swap a roda frog card for a pupa card. The economy now moves into the most primitive state: barter. When there is so much zeny that it loses all value as a currency, we call it as hyperinflation.

This is no ivory tower high theory, by the way. I just explained what happened in an African country called Zimbabwe using the example of RO. Zimbabwean dollar now makes for good toilet paper.

Let’s say everyone has the power to create zeny using the /zeny command. When everyone’s a counterfeiter, you’ve all entered into the overpriced toilet paper business. And since zeny exists only as bits in a virtual world, you’ve only managed to create pixel dust- you get nothing out of nothing, not even e-toilet paper.

THE CURRENT COUNTERFEITING SYSTEM

Imagine a world where everyone can use the /zeny command. The catch is that if you use it, you’ll be jailed for life and the counterfeit mafia will strip you of all your assets. In this world, although you can potentially counterfeit by yourself and print your way to prosperity, you can’t do it because you’ll lose everything, including your freedom, if you do.

This is how one gang of counterfeiters takes over a country, (and also a group of countries in some places) using the country’s largest and most well-organized weapon of mass destruction: the government.

By now, you’ve cleverly figured out that we could just stop giving away our goods and work in exchange for this future toilet paper made by the money mafia. But alas, you can’t. In a brilliant stratagem, the money mafia devised a means to prevent this. It’s called taxes.

They will force you to accept this paper currency they print, and then give them back a portion of it as taxes. They won’t accept anything but this paper as a tax, so you’re forced to use this counterfeit money in order to pay your taxes. If you don’t comply with the tax regulations, they come knocking at your door, forcibly extort the money they deem as their due, and impose a penalty on you. Using the threat of violence and incarceration, they get their way.

You now live in such a system.

SCIENTISTS AND THE MAFIA

You would think that intellectuals would be against such practices. But no, they’re actually for it. Scientists in general don’t have any skills individual employers want to buy. They live in an ivory tower, surrounding themselves with the leftovers of people long dead, and looking at the rest of the world in a supercilious manner, and always addressing the mass of humanity with arrogance characteristic of them, the people who advance the world through their work, and all us mere mortals are merely pawns to be moved in their game, and in their hubris and megalomania, they try to control and dominate the lives of others, the simple folk, thrusting their ideas down our throats.

They require money and what money can buy to advance their research, so they go to their totalitarian counterparts in the government and demand of them money to fund their research, to be obtained from the traders and the workers. So, they need you in order to rob you of the fruits of your labor, and they also need you to do the menial research work for them, but they show scant respect for you, and live in the ivory tower all their lives, becoming uncaring, unemotional folk divorced from the rest of humanity.

They speak out only to sing praises of the king, for he is their friendly Robbing Hood who robs everyone to fund the nonsense these scientists call research.

THE FINANCIAL SECTOR

The financial sector is the first merchant to receive counterfeit money. They play pass the parcel with it, until the music stops and one person is left holding toilet paper. The loser, in most cases, will not be a finance person, by the way. He is the fall guy, the dumb person who risks his neck due to herd instinct. And sadly, the fall guys are mostly always salaried professionals who get their entire life’s savings wiped out. It is the salaried employee who gets envious of all the money the finance guys are making, and tries to mimic them himself, led by glorious visions of instant riches. It’s a con game, and if you don’t know who the loser is, it’s probably you.

CONCLUSION

A finance job is nothing to be boastful about. The job is supported by the counterfeit mafia and its violent friend. But, the lure of money is strong; morality be damned.

In all fairness, most of them don’t think of what they’re doing in this manner. But that doesn’t change the facts.

The only saving grace is that, some people who are aware of what is really going on in the world of finance, try their best to warn others and protect them from the consequences of these insidious activities, while at the same time producing real wealth by managing the finances of their clients in order to help them escape the disastrous effects of the system.

What’s happening right now, during the great recession, is a battle between Optimus Prime and Megatron, with Megatron in possession of the All Spark (the printing press) which Optimus Prime is trying to wrest from his hands and destroy. The battle has been actively waged since 1634, and there does not seem to be an end in sight.

So remember, in the world of finance, there are the good guys who want to protect you, and the bad guys who want to rob you. Forgive the bad guys, for, as Jesus said, they know not what they’re doing.

And lastly, don’t get fooled. When you read finance news, take it with a pinch of salt, and see if the reasoning is logical. Devise your own bullshit filter and run all articles and opinions (including this one) through it. Don’t associate glamour with finance. Most of what glitters is fool’s gold.