In the mid 60's a friend gave me a stock tip, a gold mining company was about to announce a big find.  He gave me the name of a broker.  I sent him some money.  I checked the stock every morning in the paper.  Three days later the announcement was made, the stock went up ten-fold.  Two days later the friend called, "Get out, now!"  So I did.  The next day the New York State Attorney General announced charges were filed against the gold company, there was no there, there.  The stock went down to zero.  I have never invested in a stock since.

Paul Krugman in today's NY Times dips his toe into the great Ponzi scheme know as the U.S. investment industry.  Krugman wraps his column around Uber scammer Bernard Madoff asking the question, "How different, really, is Mr. Madoff's tale from the story of the investment industry as a whole?"

His answer is Uber frightening:

The financial services industry has claimed an ever-growing share of the nation's income over the past generation, making the people who run the industry incredibly rich. Yet, at this point, it looks as if much of the industry has been destroying value, not creating it. And it's not just a matter of money: the vast riches achieved by those who managed other people's money have had a corrupting effect on our society as a whole.

Who are the beneficiaries?:

Consider the hypothetical example of a money manager who leverages up his clients' money with lots of debt, then invests the bulked-up total in high-yielding but risky assets, such as dubious mortgage-backed securities. For a while -- say, as long as a housing bubble continues to inflate -- he (it's almost always a he) will make big profits and receive big bonuses. Then, when the bubble bursts and his investments turn into toxic waste, his investors will lose big -- but he'll keep those bonuses.

How big is the Wall Street scam?:

We're talking about a lot of money here. In recent years the finance sector accounted for 8 percent of America's G.D.P., up from less than 5 percent a generation earlier. If that extra 3 percent was money for nothing -- and it probably was -- we're talking about $400 billion a year in waste, fraud and abuse.

Who's to blame?:

At the crudest level, Wall Street's ill-gotten gains corrupted and continue to corrupt politics, in a nicely bipartisan way. From Bush administration officials like Christopher Cox, chairman of the Securities and Exchange Commission, who looked the other way as evidence of financial fraud mounted, to Democrats who still haven't closed the outrageous tax loophole that benefits executives at hedge funds and private equity firms (hello, Senator Schumer), politicians have walked when money talked.

And, who are the biggest losers in this legalized, politicized swindle?  You, of course.  But don't fret, I got a tip that this gold mining company...

The Madoff Economy