The Grift Economy
Is there something unique about the United States that seems to produce an economy of constant grift and scam or would I hear similar stories if I lived in Europe?
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A lot of these comparisons are probably related to greater American openness and (this may not be quite the right word) media populism. We talk about this a lot, and we have a law enforcement and court system that ensures a lot of dirty laundry is aired for anyone to view. And unlike the UK, the US doesn’t have libel laws that might limit individuals or media from naming names.
Another partial explanation is that there is a translation filter between the domestic media and public conversation of European countries. A story about a local outrage in Krakow is going to be written and discussed in Polish, and wouldn’t be translated unless it was of particular interest to an international audience. Unfortunately for America’s reputation, English is widely known and Americans are very loud on the internet and global media, so Europeans et al can’t help but hear about these stories.Report
Its not so much as openness to media populism as the First Amendment has some very interesting effects. It more or less devastates a lot of libel and defamation suits even though it doesn’t technically limit them.Report
No, only in ‘merica. You know that those Europeans live in the brotherly love of socialism. Seriouly, what make you think human nature is any different over there?Report
Its not so much about socialism as that there is something peculiar about Americans in that they like to abuse every smidgen of power they get their hands on. For instance, labour laws are much laxer (and much more toothless*) in Singapore and still employers do not abuse their workers the way American employers do. Culturally speaking Americans are just more aggressive, abusive and violent than lots of other places.
*There aren’t even any prescribed penalties. They are just prescribed guidelines. I would say that in Singapore, the few business regs that we do have tend to work as coordination points.Report
It’s called sarcasm and mockery.Report
Oh really? Is that what they call it now? Why we just never would have figured it out unless you told us.Report
Murali didnt appear to have gotten it. Im surprised you would even ask such a silly question.Report
Why we just never would have figured it out unless you told us.
Yes we would have!Report
Do they employers not abuse their employees, or do the abuses just not make headlines because they’re not crimes / not prosecuted / not seen as newsworthy? (and, how would one know the difference?)Report
Alas, it is everywhere, I expect, Mr. DeGraw. Though, Americans practice it better than anyone else. By far. Of course, Republicans are exceptional at it, but so are Democrats.
Report
And, before the teeming masses jump in to say “And THAT is why I am a Libertarian”, I’ll just add this:
And, so are Libertarians. Even more so than Democrats and Republicans.Report
@john-howard-griffin
I never heard that Twain catcheism before.
To be slightly fair, cognitive functions and a relativeness do produce situations where one person’s grift is another person’s idea of honest business. There are probably plenty of people who would call my plaintiff’s law stuff as grift. Hence the term ambulance chaser.
I obviously don’t see it that way. @leeesq has mentioned getting heat for being an immigration lawyer in private practice instead of being a do-gooder at a non-profit.
I am not opposed to Capitalism or the profit motive. But I would like to think that these can exist without fraud, grift, or scheming.Report
I am not opposed to Capitalism or the profit motive. But I would like to think that these can exist without fraud, grift, or scheming.
Alas, this is only possible in stories, I think. Humans, and Americans specifically, are lazy and greedy apes. We have made ourselves this way over time. So has Capitalism. Twain’s Catechism is sorrowfully true. It is the American Dream writ holy.
It takes great effort to resist these impulses. Effort most do not wish to expend. As you say, one man’s grift is another man’s job. That Upton Sinclair quote applies here, I think.Report
And Europeans are more evolved apes? It is sad to see this turn into a bash America thread. As if there was no fraud or corruption in communist countries like china or the old ussr.Report
Some of them, yes. The scandinavian countries are remarkably free of graft. I shouldn’t say the same thing about Spain, and no one says the same about Italy or Greece, they wouldn’t dare.Report
Well, let’s start with some basic mathematics:
If you notice I said “Humans, and Americans specifically, are lazy and greedy apes.” The set of Europeans is contained within the set of Humans. I could also say that Europeans is a sub-set of Humans. This stuff about “sets” is from mathematics. In mathematics, a set is a collection of distinct objects, considered as an object in its own right. If every member of set A is also a member of set B, then A is said to be a subset of B, written A ⊆ B (also pronounced A is contained in B).
Of course, I think you knew all that and were being obtuse to start an argument.
Further, if you bothered to think about it a little bit, you would see that I was agreeing with your implied American Exceptionalism. Americans are best at everything. Including Fraud, Grift, and Scheming.Report
@saul-degraw
I am not opposed to Capitalism or the profit motive. But I would like to think that these can exist without fraud, grift, or scheming.
Well, the rule of law helps with that, but don’t tell anyone a libertarian told you that.
Anyway, when I’m trying to figure out from the article is how it’s purported present values are calculated.
I guess I’ll have to do some numbers myself. I’ll get back to you.Report
@saul-degraw
Congratulations. You stumbled upon the kind of topics I like to tackle.
One clarification to my previous point – the inclusion of the $338k or so present value number may be highly misleading. Present values are discount rate driven and different types of investors will value an annuity stream at different discount rates if their respective cost of funds are different.
It’s obvious to me that Access Funding applied a high discount rate, but what I want to know is how high.
Something else to keep in mind that the present value of those payments get extremely low once you go out past 20 years or so. In any case, when I get a chance, I’ll run some numbers. I’m not sure if I’ll share the results in a comment or in a separate post.Report
Saul,
It’s only wrong if you’re aiding and abetting thieves and liars.
Otherwise, well, someone needs to stick up for the folks…with money, at least.
(well deserved kudos to you if you’re doing any pro bono, natch).Report
Fraud and grift involve a lot less hard work than coming up with innovative products and services. Finding a source of money and figuring out a way to steal it legally will make you wealthy faster than figuring out the next big thing consumers might want, convincing people to invest in your idea, developing the product, and releasing it on the market with advertisements and fingers crossed. People want to make money earlier than latter. Even if they can’t get to Bill Gates level wealth this way, they are willing for lesser but faster wealth.Report
In fairness, William Tweed was a baseball supporter. At one point in the early 1870s he was bankrolling the Mutuals, apparently out of his personal funds (in the sense of funds he had personally stolen from the public treasury). So he had that going for him.
Of course George W. Bush was also a baseball supporter. Is this a totally unfair comparison? Perhaps. Bush used the Rangers to suck funds from the public treasury, instead of sucking the funds elsewhere and putting them into the Rangers. So that is different.Report
That’s humorous, Mr. Hershberger.
===
I always thought Twain should have ended the Catechism:
“…and William Tweed is his Profit.”
It just fits better from an American angle, I think.Report
I wouldn’t suggest that America is exceptionally corrupt, but I do believe we are not exceptionally honest either.
It could be that a culture that valorizes wealth and individualism both produces a toxicity, where boundaries between work and gift become blurred.Report
This touches on something Brandon & I had a small exchange about elsewhere, how there is this idea that wealth & success are virtues unto themselves, absent how they were acquired. This isn’t just an American thing, as you can see crime lords being venerated in other parts of the world for their wealth & success by the populations they victimize.
As much as I grouse about regulations, etc, I do recognize that they are largely an (imperfect as it is) effort to make sure people play fair.Report
I think what makes this sort of things worse in America was that a lot of our religion traditions originate in some form of Calvinist thought. John Calvin thought that worldly success was a sign of God’s grace but he did not mean this to be the sole sign of God’s grace or suggest that everybody who was wealthy was one of the elect. However, just as what Marx actually taught got dumbed down to Vulgar Marxism so did Calvin’s ideas about wealth as a sign of God’s grace get reduced to a sort of Vulgar Calvinism where wealth and success are virtues in themselves rather than a potential sign of God’s grace. As America grew more secular and less religious, we opened ourselves more to a debased version of what John Calvin taught about wealth.Report
Historically, the number one place that people leave Calvinism for is not “let’s not be Calvinist anymore” but “Let’s switch to Arminianism.”
Of course, Atheism and New Atheism have made decent inroads… but not all alternatives to Calvinism are bright and shiny.Report
I’m not really sure, but I think we hold the grifter differently in America than in Europe. We have dozens of “lovable grifter” types in films. There’s George Clooney in Oceans’ Eleven and earlier in Out Of Sight. Steve Martin has done this, notably in Leap of Faith. We have Robert Preston and The Music Man. You could even sort of describe Obiwan Kenobi as a sort of lovable grifter. He has a certain looseness with the truth, and a comfort with the criminal world, after all. Not to mention Han “I don’t have the money with me” Solo.
Alec Guiness has also played criminals in European films, but they don’t seem to work the same way.
To be fair, the character Moist Von Lipwig in Terry Pratchett’s Discworld also approaches this ideal. Maybe The Pond isn’t so big these days, I don’t know.
Eddie Izzard has described the American Dream as “to be born in the gutter and raise and grow up and get all the money in the world and stick it in your ears and go “. He goes on to speculate that the European dream might be to be “in the South of Europe, in Greece, in Italy, in Spain and to be on a moped, to be riding along helmetless and to be going ‘Ciao!'”
I don’t think that’s unrelated.Report
There are more than a few charming rogues and loveable grifters and seducers in European media. The aforementioned Alec Guinness criminals are some of them. Alfie is another.. James Bond might count even though he works for the government. French and Italian cinema also has more than a few but I can’t come up with any specific names at the moment. Maybe Peter O’Toole’s character in the movie he starred with Audrey Hepburn counts as an example but I’m not sure if that is a European movie or a Hollywood movie that takes place in Europe. Most of the “heroes” of the Merchant of Venice are supposed to be charmingly roguish.Report
@saul-degraw
I took the starting monthly payment of $956.13 and projected 420 monthly payments starting January 2017. I assumed 2% increases each January. The aggregate sum matched the article.
To keep things simple and on an annual basis, I assumed a present value as of January 2016. This is important to note because anyone buying this structured settlement and expects to receive payments one year later need to factor that into consideration.
The article claims that the present value of this settlement is $338,000-ish. To get to that number, one has to apply a 3% discount rate to that stream of cash flows. To put it in perspective, the discount rate being applied to a structured settlement is about equal to the current discount rate on the 30-year U.S. Treasury. If given a choice, is someone going to invest $338,000 and get the full faith and credit of the U.S. or an even-longer term structured settlement?
It’s a no brainer. The assumed present value in the article is bullshit, if only because there are ZERO buyers at that price, especially if the alternative is U.S. Treasuries.
At best, if one charitably tries to compare a structured settlement to fixed income securities, which is a stretch but I’ll bite, given the long-term nature of the cash flow stream, I’d assume a discount rate range of 7 to 8%. That puts the present value of the income stream at a much more reasonable range of $150,000 to $175,000-ish.
However, the market for these products aren’t dominated by lower cost of capital fixed income investors, but specialty niche investors that may be using credit lines to purchase settlements but are ultimately going to have to be accountable to their equity investors, investors that are going to require a substantially higher rate of return. What return is Access Funding getting? 17%. While my view is admittedly biased being in finance, I don’t think this is a high discount rate given that investors like this are niche players and need to raise capital from investors willing to enter into these kinds of deals, something that has a cost, especially when investing in extraordinarily long-dated cash flows streams.
Sure, they’re going to make money, but there are publicly-traded Fortune 500 companies generating higher returns and the private equity firms do much better. These players are hardly robber barons.
This reminds me a lot of my payday lending post:
a) Like payday lending, from what little I know about the structured settlements business, it seems to target a similar demographic.
b) People point to numbers that fit their preferred political narratives (APR’s in payday lending and the low % of an assumed(cough, bullshit) present value here), but when we look at them deeper, the numbers tell a far more complicated story.
c) In both, the potential for predatory practices is extraordinarily high although I think the potential is much worse in payday lending.
d) I don’t care much for either business on social justice grounds, but attempts to regulate either one will simply cut off access to capital, just like it has in states that passed interest rate caps on consumer loans. Payday lenders don’t operate in those states.
If the author of the article was looking to blow something open, call this one an epic fail, and next time, it would be nice to see someone with a little understanding of basic finance address the subject. If I’m going to roll my eyes at people attempting to stoke the fires of outrage, I’d rather do that when I’m at the gym where I can throw kettle bells at the TVs running Fox News.Report
@dave
To be clear, I am not against structured settlements. I understand that people can need lump sums of cash though I would advise my clients of their pros and cons.
What I am appalled by is a company taking advantage of people who were profoundly damaged by exposure to toxic lead paint. The Washington Post article mentions that this women can barely read because of her exposure to lead. So it is not so much offering her a structured settlement but how it was done. It seems to me she was conned out of the money.
I don’t have the libertarian impulse that everyone is always 100 percent capable and acting in their own rational interest. I’ve expressed my anger at caveat emptor many times. It seems to me that the theory of someone always acting in their own self-interest is a way to hand-wave away topics like consideration and ethics and maybe just because you can do something, doesn’t mean that you should.
Is this paternalistic? Yes to an extent it is but we know that scammers like to pray on the elderly, the lonely, the poor, etc.Report
@saul-degraw
To be clear, I am not against structured settlements. I understand that people can need lump sums of cash though I would advise my clients of their pros and cons
I agree with this.
What I am appalled by is a company taking advantage of people who were profoundly damaged by exposure to toxic lead paint. The Washington Post article mentions that this women can barely read because of her exposure to lead.
Ok…yes, but…
The entire framing of this article is completely fished. Read the picture caption. Am I supposed to believe that a woman on $1,000 per month is set up for life? Really? Great lead-in for a story though. “Woman Set For Life Screwed By Finance People”. It’ll sell great in progressive circles I’m sure.
Snark notwithstanding, while the author’s zeal for a story puts his credibility into serious question, at least in my eyes, I’ll address some of your points.
No, I don’t like the fact that a woman with brain damage unilaterally entered into a contract even though, despite the article’s wording, the company’s lawyer did properly disclose the terms.
It seems to me she was conned out of the money.
Also, as far as being conned, I am willing to concede that to the extent she was conned, the conning had to do with getting her to agree to the transaction and accepting one thing for another, each of relatively equal value. That isn’t a justification for her entering into the transaction because if she preferred the payments over the lump sum, then there’s a problem.
Where I significantly disagree with the author’s faulty if not fatally flawed analysis is that the conning was in terms of value. His point was that she received $63,000 for something worth $338,000. That’s just flat out wrong. No one purchases long-dated structural settlements at a 3% discount rate so for the author to use that crap and mislead readers, including maybe yourself, that a company screwed someone out of several hundreds of thousands of dollars of present value is irresponsible at best.
I don’t have the libertarian impulse that everyone is always 100 percent capable and acting in their own rational interest.
Ok, that makes two of us.
Is this paternalistic? Yes to an extent it is but we know that scammers like to pray on the elderly, the lonely, the poor, etc.
https://ordinary-times.com/blog/2013/04/17/payday-lending-some-thoughts/
I don’t recall you being part of this discussion, but my views haven’t changed since I wrote that.Report
It is even more outraegous becasue the folks being scammed are black people as the article goes out of it’s way to say in the headline.Report
Yes, but as was stated in the article, these people were legally capable of making these agreements because their impairment was less than the legal threshold required for someone to be appointed to assist them.
Just how do you propose this should be fixed / remedied?Report
That is the rub. People who have enough mental acuity to understand they have agency generally chafe at the notion that they should not have agency.Report
@damon
Information asymmetries are a fact of life, but with respect to consumer finance, it never makes me comfortable to see them between finance institutions and the more vulnerable classes of our society because there’s no way in hell that the gap is ever going to be bridged.
I suppose I’d go for a belt and suspenders approach on consent and disclosure in these transactions. Plain language in agreements, recitation of certain terms and conditions that require signed consent at the time, and perhaps a mandatory short-term put provision to allow someone that sells a structured settlement the right to reassume the structured settlement. That would have to be a very short term provision, probably no more than 10 business days.Report
I don’t know about the federal level, but lots of states have short term get out clauses for major deals. I seem to recall being told I had 3 business days to walk back from my house purchase last fall. Seems this would be a happy middle ground.Report
The company itself reportedly says:
To repeat Damon’s question What’s the actual response to this problem? Do we just make this kind of transaction illegal for anyone even if they have a good reason to want to do it? Do we make anyone who wants to conduct make such a deal hire representation? We don’t have have such requirements for other important things like buying a house or getting married or switching jobs.
One option might be to create some sort of intermediate status for people who aren’t so bad off as to be made wards of someone else but are nevertheless not to be trusted to know what’s best for them. Anything consequential that they want to do needs some sort of approval, but day to day they can pretend they are real people.Report
The court made a halfhearted try when they required that the settlement be a structured payout instead of a lump sum (as the article notes, there was concern that the recipients weren’t competent to make decisions about money, due to the injury suffered.)
The thing is, if they weren’t competent to make decisions about money…um, why not set up a trust fund?Report
That’s a good question, especially given how relatively straight forward that is (my son has one as part of our estate planning, was a small part of the overall effort for our lawyer).Report
This seems like the most logical solution.Report
“attempts to regulate either one will simply cut off access to capital, just like it has in states that passed interest rate caps on consumer loans.”
The article does also describe someone who was, presumably, far less impaired, but had to sign over the structured payment because she needed more cash than she had on hand. This person might well have benefited from a short-term loan, even at high rate, so that she could keep the structured payment coming.Report
Why ever would you think Europe is any different? There, you’d hear about exploitation of Algerian migrants in France, discrimination against Turks and Greeks in Germany, and Gypsies and Tunisians in Italy and Spain, skin-color-based racism creeping into Sweden and Norway, and segregation of Muslims from Christian/secular society in the Netherlands.
The flavors are a little bit different, sure, but it’s pretty much all the same stew.Report
The difference in Europe is that the various countries still have stronger welfare states that is applied in a more egalitarian manner than the United States one. A lot of the social justice that is handled through big lawsuit settlements in the United States gets taken care of by access to universal healthcare and other similar social services in Europe. Since these things are handled through civil service agencies directly rather than courts indirectly, screwing becomes a bit more difficult.
It is an interesting question on whether or not the European welfare state can survive the social changes going on in Europe. The programs have the advantage that they have been going on for a long time and are generally popular. On the negative side, ethnic homogeneity seems to play a big part in whether or not a welfare state gets implemented in the first place. People like to help those like themselves.Report
“There’s no such thing as birds that fly”, said the man who only looks down.Report
Who is Jerome Kerviel, Alex?Report
It’s likely everywhere, but I suspect it’s somewhat more common in the US than in most European countries. The reason for the discrepancy is that one system makes corrections by fining the offending corporation, the other often by criminally prosecuting those who did the deed. (In theory, anyway. Grift abounds, everywhere.)Report
Are we allowed to count “countries that hire people from third world countries as imported manual labor and then confiscate their passports and then treat them like slaves” as a grift?Report
Yes, yes, “Both Countries Do It”.Report
Both sides of the Atlantic do it.Report
Structured settlements, like the one Rose received, aren’t as evil as they seem at first blush. If Rose invested her money and got an annual return of 5%, she’d have about $348K in 2052… Not too far off what she was entitled to. And that assumes a fairly moderate rate of return on an investment that size for that length of time. A fundamental ignorance of compound interest can make supposed tales of woe seem far more dire. Some folks could come out on top if their investments go right. Of course, this assumes no withdrawals.
Now, that said, preying on a woman with brain damage severe enough she cannot read the contract she is signing is morally repugnant in the least. And the above math is unlikely to apply since her inability to hold a job means she probably can’t sit on an investment.Report
@kazzy
My general observation and experience with cashing in structured settlements is that people need the cash now to pay bills and what not. So valid point but perhaps something that happens rarely.Report