Blue Marble Sustainable Investing

Ponzi Schemes - The Suspension of Disbelief

Yesterday the BC Securities Commission levied the largest fines ever on the perpetrators of a Ponzi scheme that cost 800 investors about US $ 13 million. They have to pay $ 26 million in penalties and disgorge (give back) $ 16 million. Good luck. This money is most likely long gone and the possibility of the fines being paid is remote at best.

Ponzi schemes are alive and well and always will be. I used to think "OK, now people will smarten up and there won't be anymore of these" after the latest Ponzi scheme was uncovered, exposed, and prosecuted. Especially after the Madoff one. I was wrong. I will always be wrong to think this.

It seems there are two factors that contribute to this endless trail of financial ruin. First, there is no shortage of people looking to make a fast buck by taking advantage of others. In fact, I believe that our society contributes to this problem by focusing on the things that wealth can bring instead of the real work that is required to attain it. The second factor is the ability of people to completely suspend disbelief when presented the opportunity for quick riches.

Ponzi schemes are everywhere. I know. I was approached by two characters once. All the red flags were there. It was a High Yield Investment Program (HYIP) that offered 50% returns per month by trading secret high yield bank instruments. It was simple. You gave them money, they sent it to their guy in Bermuda (flaming red flag), he trades it with his secret trader, they send you 150% of your money within a month. Of course I would have had to sign a confidentiality agreement and by the way would any of my investment clients be interested?

What they did not now was that I had been a bond trader and knew how the system worked. After I had ripped apart their offer I told them it was a Ponzi scheme and that it would end in tears. I also reported them to the local securities commission. They were not happy when they drove away in their severely rusted 15 year old luxury vehicle. It happens.

It could happen to you. Here is a big tip. When ANYONE offers you investments that produce an annual return greater than the long term rate on Canada bonds or the long term rate of return on equities (about 7% per year) then start to ask questions. Your instincts will give you valuable information that you should listen to. If it seems too good to be true it likely is.

Everyone likes to think that they are savvy investors. Frankly few are because they are human and subject to two emotions that get them into trouble all the time. Fear and Greed.

So the next time you are talking to someone about an investment scheme and you start saying to yourself things like "this is great I am going to be rich", or "this is too good to be true", or "wow this is amazing, I cannot believe these returns" stop and take a moment. Remove yourself from the situation. Do not make a decision. Tell them you will get back to them. Then call the securities commission first to see if they have heard of the offer. Next, get professional advice. Seek out a Chartered Financial Analyst (CFA) and ask about the offer.

Do this, and you will save yourself embarrassment, the pain of severe financial loss, and the nagging feeling that you should have known better.

Crazy Ideas or Lazy Ideas? Maybe both!

I have little time to watch television as I find much of it is a waste of my grey matter. I can actually feel my brain cells dying when I watch certain "reality" shows. But once in a while when I flop down on the couch after a day of work I may end up watching an hour if I am too tired to read.

Last night was such a night and I happened to end up watching 20/20 with Elizabeth Vargas and the two authors of Freakonomics and their latest effort Super Freakonomics . I have to say it was an extremely interesting show and I plan to pick up the reading to add to my "to read" mountain I have in my bedroom.

While interesting, one of the ideas presented really made me think. The authors of the books have been in touch with a firm called Intellectual Ventures that spends its days coming up with new and innovative inventions. Frankly, it is an impressive enterprise and tackles some very important problems solving them with science and engineering.

That may be well and good but one of their ideas made me stop and question whether or not it was a crazy idea, a lazy idea or both. The idea essentially is to raise a tube the size of a garden hose to a level of 100,000 feet or so into the atmosphere of the planet and pump sulfur dioxide through it to help cool the planet and thus help solve global warming. The thought being that it is easy, cost effective, and doable in the near future.

I imagine there will be many that will say "What an excellent idea. We don't have to change what we do and we can still cool the planet by pumping sulfur dioxide (the precursor for acid rain) onto the atmosphere". Yes, sulfur dioxide is the stuff that we have for years been trying to reduce emissions of into the atmosphere by coal fired power plants principally because it causes acid rain. Does anyone see the problem here?

What struck me at that moment is how human it is to look for the cheap easy fixes that typically have unintended consequences. And because of their expediency and the tacit permission they given humans to keep doing what they have always been doing instead of the real work that has to be done for permanent change, they are widely accepted, approved, and implemented. They are, in essence, crazy and lazy ideas at the same time.

It is my honest hope that humans are better than this.

Gutless Wonders

I used to think Canada was a leader. I used to think that Canada was run by people who wanted the very best for its citizens. I used to look at the Canadian flag with pride and know that the world viewed our country as the place to be.

I will always remain an unwaveringly loyal Canadian. To my country. But not to my politicians. In the context of global warming and leadership we have, through our government (?) in Ottawa, the equivalent of the world's most gutless wonders.

John Baird the previous Minister of the Environment and Jim Prentice the current Minister of the Environment are nothing more than shills for the Alberta tar sands producers. And yes it is tar sands not oil sands. I know because I ordered a 5 gallon pail for testing and there is NO way on this planet they could ever be called oil sands.

Canada, under the Conservatives, has become the laughing stock of the Kyoto Protocol. They have basically ignored the Kyoto Implementation Act, a law of Canada. I wish I could ignore the Income Tax Act in the same manner. And to think it was a Canadian that lead the Rio Earth Summit in 1992. Frankly the Liberals faired no better. And the NDP would likely not know what to do if they ever attained power. I carry no colours.

But now, the Canadian government is being particularly obstinate in this period preceding the Copenhagen talks in December. They insist on smaller reductions when everyone is looking for greater commitments. They want China and India to agree on binding caps but they do not produce their own plan and want the tar sands to be able to continue expanding, environmental train wreck that it is, under intensity based targets.

For what it is worth, and this is my opinion, Canada and its government should man up, strap on a pair, and get to work. By committing to serious reductions and getting on with the work required to achieve them, there is no reason why Canada could not become a leader in this field. Do we have enormous challenges? Yes. But if we rise to the occasion and meet them head on the technologies we develop could be world class and provide many of the jobs lost in the last year.

Right now our country is the equivalent of a buggy whip manufacturer in 1901 and it is the actions of this collection of Gutless Wonders in Ottawa that will keep us there. And we all know what happened to the buggy whip manufacturers.

Copenhagen

Copenhagen. The city not the chewing tobacco. Perhaps one of the most important climate change meetings that will occur this century.

The document that will be produced and  the global carbon finance compliance regime that will follow the Kyoto Protocol is quite likely to be viewed as one of the most important inflection points in human history.

 While that may seem overly dramatic, the truth of it is in the air we breath, the oceans we sail upon and the land we live on.

 Performance on the Kyoto Protocol has varied from the overtly pathetic and gutless actions of the Canadians (yes we are the pariah of the Kyoto Protocol) to the stellar performance of Denmark, the host country of the meeting.

 So what are the issues that face the talks at Copenhagen?

 For starters China, India, and Brazil are some of the big players that will have to be included in the final document. More and more they are becoming very large carbon emitters. And the argument that current developed nations polluted in the past is reason enough to allow newly developing nations to pollute in the same manner now is no longer valid.

 Of course the next issue is the United States of America. Like it or not, they will have to participate for the new document to have any serious hope of accomplishing the mammoth task ahead of the governments of the planet.

 Why is it important for the USA to participate? They produce over 25% of the planet's greenhouse gases. If China also participates then combined we will have two countries that account for almost 55% of the planet's greenhouse gasses.

 As you are likely aware the USA signed but never ratified the Kyoto Protocol which while tough was better than Canada signing, ratifying and then reneging on their commitment.

If the USA signs on, and it looks like they will, then we have a much greater chance of making the new agreement that much stronger. Having the majority of the world’s countries sign on would be a very positive step.

 The next issue then becomes dealing with developing countries and refining the current mechanisms for carbon emission reductions and credit generation.

 The two current mechanisms are the Clean Development Mechanism or CDM (developed country to developing country project) and the Joint Implementation process or JI (developed country to developed country projects).

 The CDM has been plagued by a slow and bureaucratic process and the costs of registering a project have steadily increased. For it to be an effective process, and it certainly could be, there must be more staff, faster approvals and lower costs.

 The JI process has been used very little and it may just be a wise move to eliminate it altogether and simply use one process for all projects no matter who the country participants are.

 The next issue is to make the commitments required by all countries significant enough to make a difference. A real difference. 20% reductions from the current levels are not near enough. We need at least 50% reduction from 1990 levels to make a serious difference.  There has to be hard penalties for non-compliance. Otherwise you will have the possibility of countries pulling a “Canada” and signing the agreement without any real intent to actually meet their commitments.

 Finally, the new agreement should be permanent with 20 year commitment periods and 5 year performance review and penalty periods.