Tag Archives: Finance

Private Placement for the Casual Investor

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private placementThere is a type of investment called a Private Placement that, over the last few years, has found an increasing market share in the financial world. Instead of investing in a stock or bond, a Private Placement is an investment opportunity offered to a limited group. It is sort of like Crowd Sourcing for finance.

There is nothing wrong with a Private Placement as long as it is backed by reputable investors. The problem is, more and more of these investment opportunities are really just scams. I recently read an article about a company called Woodbridge Group of Companies LLC that went bankrupt leaving a large number of investors in difficult financial situations.

The idea is simple enough. I plan on making various purchases which will generate a good amount of income. I don’t have the capital to do it. I enlist the aid of accredited investors to advertise my plan and attract investors. They give me money, I use the money on various investments, then I pay back the money as interest on the principal. After a period of time I return the principle to the investors and everyone wins.

Naturally, some people see this as a way to bilk unwary investors out of their money. They enlist others of a shady nature to do the selling and pay them excellent commissions. Eventually the investments don’t earn enough money to pay back to the investors so a Ponzi Scheme begins wherein new investors have their money transferred to previous purchasers. That’s what reportedly happened with Woodbridge.

One of the things that struck me about the Woodbridge case is they were not making outlandish claims of riches. The advertisements were offering a modest 8% return on investment which, in this Bull Market, is actually below what I’ve experienced over the last eight years or so. This level of sophistication might attract a savvier investor who is wary of get rich quick schemes. Certainly, the list of Woodbridge investors has some prominent names.

What does all this mean? For investors who don’t go through brokers, it means a lot. For people like me who use a financial advisor with an excellent track record, not so much. My advisors can spot these sorts of schemes from a mile away. Me? I wouldn’t know a good investment from a hole in the wall. I’m good at writing. That’s why I don’t do my own financials.

Something to think about if you’re considering a Private Placement.

Tom Liberman

BitCoin and the Value of Fake Money

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BitCoinThere are a lot of stories in the news these days about BitCoin and the idea of digital currency as a whole. After a few conversations with people I’ve found there is a lot of confusion about how it works and the potential benefits and liabilities of such systems.

I’ll tell you immediately that I’m a huge proponent of digital currency although I agree that in its early stages there are many dangers. I think the forces arrayed against digital currency do not have the best interests of the individual in mind.

To understand digital currency we really have to understand modern currency as a whole. The coins and bills in your pocket, wallet, and purse have little to no intrinsic value. Even if made of real silver and gold they just don’t. See my post about Elastic Currency and my other post about the Gold Standard for more in-depth discussion on this idea.

What makes such currency valuable is that other people are willing to trade you goods and services in exchange for that currency. This is achieved through backing of the currency, generally by a government agency although not always.

When you win tickets at Dave & Busters you are purchasing currency which can be used buy things. Resort towns sometimes have a currency system for tourists. It’s all the same idea. Rather than carrying around a chicken to trade for something else of value, we use currency.

When a currency backing agency fails then the people who own that currency have nothing of value anymore. Confederate Money after the Civil War for example. When you purchase stock in a company that goes bankrupt so too is your money gone. During the Bank Runs that precipitated the Great Depression people lost all their money because the banks could not back it up. What happened to your retirement account during the recent financial crisis? You didn’t spend the money, you didn’t lose the money, but it still lost value.

No currency is perfectly secure; some are more secure than others and the U.S. Dollar has been among the most secure since the end of World War II.

Digital Currency is like other currencies except it has no physical presence. It is merely a number in an account that you can draw upon. In this it’s not much different from about 99% of your wealth. You don’t have bills and coins; you have bank statements, stocks, equity, homes, etc.

So, why is digital currency better? Because it means your wealth is with you at all time but cannot be stolen, at least in the traditional sense of the word. Yes, your account might be broken into but no one can mug you of digital currency. When you need to go into town to make purchases you are not subject to bandits.

The biggest advantage from a Libertarian point of view is that encrypted digital money is anonymous money. Government officials do not know who holds what. Governments can’t easily control the flow of money and have few if any regulatory powers. Purchases with such currency cannot be involuntarily taxed because of this complete anonymity.

There are dangers in the early days as we see in the headlines. Backing agencies can be corrupt and fail. But this is not a reason to give up on this form of currency.

Imagine a world in which every person has instant and complete access to all their money. You can go anywhere and purchase anything without worrying about tariffs and taxes. It is, after all, your money.

I’ve only touched the very surface of benefits and drawbacks to digital currencies. There are legitimate law enforcement issues in regards to illegal transactions. There are astounding possibilities about alleviating wealth inequality.

It’s a complex subject with no simple answers. I’m of the opinion that those who wish to control money, control freedom, and control the individual don’t like the idea of digital currency. Therefore it appeals to me.

Tom Liberman
Sword and Sorcery fantasy with a Libertarian Ideology
Current Release: The Spear of the Hunt
Next Release: The Broken Throne

Wages Paid via Fee Ridden Cards

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It's My MoneyAn increasingly large number of Americans do not have bank accounts. This number has grown by about ten percent in the last four years and is expected to climb. This presents what some view as a dilemma and others view as an opportunity.

In this internet age it is more expensive for an employer to print out checks and much cheaper to use direct deposit. This being the case, more and more employers are dropping the check option. Whether or not this effects you is dependent upon where you live as there are different rules in each state. It is a growing trend and one that will certainly continue to rise.

The problem end of the issue is how to pay employees who don’t have bank accounts of any sort and cannot accept direct deposits. To solve this issue banks began to allow employers to pay their employees onto what are called payroll cards. At this point all seems well and good. If people choose not to have a bank account that’s certainly their option. If companies choose to save money by using direct deposit that is also within their legal right, depending upon the state.

Banks incur some expenses in issuing these payroll cards and the plan was to recoup this amount through charges on the cards. There is a charge to deposit money on the card, a charge to withdraw money with the card, a charge to inquire on the balance of the card, a charge to receive a statement for the card, a charge to replace the card, and even an inactivity charge if you don’t use the card!

I think you can guess that the banking industry quickly realized that this service they were providing offered an opportunity to make a lot of money. They started to push the idea to the companies, some even give kick backs … er … rewards, to businesses that have their employees use payroll cards.

Companies enjoy these rewards and started to make it easier for employees to get the payroll cards and more difficult for them to use direct deposits. A woman sued because a McDonald’s refused to direct deposit into her Credit Union. That was, of course, illegal and they’ve agreed to start offering direct deposit to their employees now.

Other companies are simply making it very difficult to use direct deposits because banks are offering them major rewards for every employee then can get on the payroll card.

I’m not totally against the banks here. They are providing a service to people who choose not to have bank accounts and that service needs to be paid for with fees. However, it is clear that the banking industry sees this as not a way to provide a service but a way to steal money from people. Yes, I said steal. If the banks were charging some minimal fee and making a small profit on the cards I wouldn’t call it stealing but when they colluded with companies to provide no other option and charge far more than it costs to provide the service they are engaged in anti-trust practices.

This practice affects the poorest people the most as they are generally the ones without bank accounts and without other recourse. They need that minimum wage job and can’t easily go somewhere else. As the check payment method continues to decline their options will become even more limited.

What’s the solution? It’s not easy. The government could start to regulate these payroll cards for excessive fees like they do banks for other services but such efforts often end up with unintended consequences.

What I would love to see is a return to real competition. A group of people sees an opportunity to offer cards with lower fees and starts a Credit Union or Bank. This forces the existing banks to lower their fees until a competitive and fair level is reached. Right now the we don’t live in a capitalistic country anymore. We live in a country where if you tried to do that you’d be legislated out of business by the crony capitalist in your community, your state, and in Washington D.C. Anti-trust practices are ignored. The business that pays for the elections gets legislation passed that ensure their success and rival’s failure.

This system is so dangerous that it could potentially destroy our great nation. It is not the threat Ayn Rand warned us about in the communist dominated era when she wrote her novels but the effects are the same.

Rand warns us of the dangers of giving not what is earned but what is needed; communism.

If she was alive today I think she would have warned us that it is just as dangerous to allow success not to be derived through hard work, fair prices, and good ideas but instead through political connections; crony capitalism.

Tom Liberman
Sword and Sorcery fantasy with a Libertarian Twist
Current Release: The Sword of Water ($2.99 is a fair price for 300+ pages of my hard work, if you disagree, don’t buy it!)
Next Release: The Spear of the Hunt