Thursday, September 29, 2011

European Crisis De-euphemismified

Politicians use euphemisms so no one can understand the truth. The media use euphemisms because they don't understand the truth.

Here, for your viewing pleasure, is a breakdown of the some of the terms used in the discussion about the European debt crisis*. I've used Greece and Germany as examples (represented by their flags), but this really applies to any country. For example, Iceland's government defaulted on its debt to the UK.

The key thing to understand that when people say "Greece is being bailed out", what they are really saying is "Greece is being given European taxpayer money so they can pay foreign banks back".

And as for all the self congratulating yesterday that the crisis had been averted, mark my words: Greece will default.

Oh, and if you are wondering why I'm drawing up flowcharts about economics when I'm supposed to be an engineer, it is because I have layers, like a parfait**.

* This is available in wallet size, so you can carry it around and look like a dork!
** Euphemism for "I took an economics course once and now I think I understand world economies, plus its lunchtime and I'm bored."

Saturday, September 24, 2011

Poker pile-on

Full Tilt Poker, an online poker site, just recently was called a Ponzi scheme. The US governement has upped its attack on poker sites, and in the process, will cost Americans a lot of money.

Full disclosure: I have $14 in my account at I also used my frequency player points to buy a mug and a cap. I originally deposited $50 back in 2005, took out $100 in 2006, and have vacillated between $10 and $30 in the account since then. Obviously, I have a lot riding on this. If Pokerstars goes under, I'm going to have to have that difficult conversation with the wife: "I know I've made some bad decisions. That massage chair for $800 which I never used. Those fur coats for the dogs. Three big screen TVs in 3 years, each time saying, yes, this one is finally big enough for me*. But now, its going to be Kraft dinner and tuna for the next few weeks. Wait, what?! I just found $14 in the couch ... never mind!"

Back in 2006, the US government slipped a section into the SAFE Port Act that made sending money to online gambling sites illegal. This was a big blow; some sites pulled out of the US and others declared they would still serve Americans. The next few years, online floated along in a grey area (like Canadians getting US satellite signals or picking up a chocolate bar off the ground and still eating it) and then "Black Friday" (Apr. 15, 2011), where the US government arrested representatives of the big online poker sites and shut down the websites. Their big claim is that poker site "tricked" banks by disguising charges. Now the US has made a further complaint, that Full Tilt is a Ponzi scheme and doesn't have enough money to allow players to get their deposits back.

This is so annoying. Hey, you know what else is a Ponzi scheme? CPP! The money young people give to the Canadian Pension Plan isn't invested or put in the friendly giant's mattress; it pays for the old retired fogies. But don't worry, when you're an old fogy, there will be a new batch of suckers to pay for your retirement. Or something.

That was annoying thing #1. Here's number #2**: poker players warned about this. Hey Sherlock, if you make it hard to get money out of a poker site guess what? It becomes hard to get money out of a poker site. The reality is people are going to play online poker because casinos are creepy. I'd rather sit in my underwear and play poker with my wife sitting in her nightie on the couch next to me ... wait. Okay, that's a bad example because 14% of the time you'll see that exact scene in a casino. But you get my point. And with the US government making it much harder to legitimately get money on/offline, you push poker players into having to use shadier methods. Like sending checks to the pokersite with sneaky names like the "Ace of Spades Non-Gambling Charity Foundation".

Annoying #3 is poker is not gambling! I know, you might think it is because there are cards and a dealer, like blackjack (which is gambling). But its not, because there are players that consistently win. What's that? Your aunt Sally wins at blackjack? No, actually she doesn't. She's stealing from you uncle. But the other reason why it can't be a game of chance is that you don't have to show your cards to win. You can bluff. The last reason is that you get to check your cards first before you voluntarily put money it. In blackjack, craps, and roulette you have to pay before you get your cards, the dice are rolled, or the wheel is spun (raggedy man!) Not gambling mean laws that apply to gambling don't apply to poker.

So what we have is an activity that adults freely engage in and the US government has declared war on. So what that a bunch of players are going to lose a bunch of money. Collateral damage.

Now Full Tilt isn't helping by mismanaging its funds. But the scary thing is the exactly same thing would happen if everyone decided they wanted their money in their TD checking account (worse ... see below). The US government is making a big deal about the fact Full Tilt has $400MM in liabilities and $40MM in cash. But what they don't mention is these sites make about $1MM a day in profit. Like all businesses, cashflow is much more important that net assets. But if the US would stop being so anti-online poker, these sites could set up in the US and be regulated. This is win-win, because they would pay taxes and they would be regulated so they would be required to keep some percentage of deposits available.

Okay, now something that will scare the hell out of you. Full Tilt had 10% of its deposits in reserve. In banking, this is called the "reserve rate". And Canada phased out "reserve rates" back in the 90s. Yes, that means that banks in Canada are free to lend out 100% of the money you deposit. But don't worry. Because the powers that be are dealing with this huge gambling problem.

* Phrasing!
** This is like saying "number number 2", but it made me laugh, so it stays in.

Tuesday, September 20, 2011

Unite without unions?

Air Canada flight attendants, members of CUPE (Canada's largest union), are planning to strike tomorrow. It was only back in June that the government nearly had to legislate the Air Canada call-centre staff back to work. Some questions come to mind when I hear all this. Why aren't there strikes at Westjet? Why does the government have to legislate people back to work? Why are unions necessary?

When I was in college, the teachers at my high school went on strike. They needed people to help the students, so I volunteered. My dad, at the time, didn't say much, as I was an adult. But I think it was pretty scandalous, me being a scab. Frankly, I needed some money, and I felt bad for the kids, so I decided to help. I didn't have to physically cross any picket line, however.

In the years that followed, I started to feel bad about doing that. That is about the time I read a lot of Noam Chomsky, and thought "the man" was screwing everyone over. I worked at a lumber mill one summer, and I remember a poster in the shop: "Your boss needs you, you don't need your boss." I've come to realize that capitalism is a heartless economic system, but it better and freer than any other system out there.

Collective bargaining is entrenched in law in Canada, while in other places it is voluntary. Here is why I think mandatory collective bargaining is not necessary.

Say I go into Walmart and I want to buy a $10 soccer ball. I say to the manager, "I want 10% off this ball." He says no, and I leave the store. Both of us are free to bargain and then agree to terms.

Now lets say I go into Walmart and I represent a soccer league (a collective). I say to the manager, "I'm going to buy 100 soccer balls and I want 10% off." There is now incentive for the manager to deal with me. He can sell a lot of balls at once and since he's just dealing with me, there are savings (rather than selling 100 balls to 100 people). He counters with 5%, and we are both free to accept or decline the terms.

Imagine that I want my 10% but he is unwilling to give me that, so I barricade his doors and shut down his store. This is essentially what Canada's collective bargaining laws are like. There is already incentives for management to deal with a group of people, rather than just each person separately. There is no need to make it law. But when it becomes law, it distorts the normal functioning of the market.

If employees bargain as a group, they gain some leverage over a company. But there needs to be balance, or else it is just legalized extortion. If a collective's demands outweigh the cost to fire all of them and retrain new employees, then the company must have that option. Of course, smart companies know that this is a last resort and would only be done if the employee collective was being totally unreasonable. But company management understands the broader picture. Public companies have stockholders who must be paid. They know the market climate. Employees are just one piece of the puzzle.

Because employers are not allowed to fire unionize employees, we end up with a system that constantly needs government interference and legislation. If collective bargaining were voluntary, like all contracts, the market would function much better.

It is tough to talk about this because I know many people with government pensions. I think talking about pensions (specifically) and unions (in general) usually gets bogged down in the historical function of unions, which was to protect workers from oppressive and unsafe working conditions. I don't really think these are an issue anymore because they are now covered by Canadian law. And I don't think non-unionized companies are unpleasant to work for.

I think my biggest concern with unions is they foster an "us" vs. "them" attitude between employees and management. This is why, I believe, Westjet doesn't have strikes. The union isn't necessarily concerned about budgets and cashflows. Its mandate is to get the best working conditions and the highest salary. I don't even think they are that concerned about maintaining workers for the future. For example, if there is a 10% cut to a school districts budget, and the teachers union declares they have to let go 10% of the teachers (mostly the new hires), they are being disingenuous. Everyone could take a 10% pay cut and then everyone could keep their job. (Of course, upper union managment couldn't afford $1000 pants anymore*.) These are the types of compromises that other companies make all the time. Smart companies know that everyone taking a pay cut while times are tough will significantly save training money in the future when business picks back up. These are the types of things that unions aren't really concerned with.

I think unions may have outlived their usefulness. I think people should be free to enter into legal contract with whoever, and however, they want. I think workers and management, pulling together with the same goal (success of the business) is a much more effective strategy. Of course, if I ever get a unionized job with a pension, forget I said any of this.

*I'm serious. I'll tell you about it someday.