Saturday, January 3, 2015

Skimming the Masses, the New America Business Model- The Sunday Collage

...or as my friend Billy likes to say, "We are all trying to make the most money with the least amount of work."

Yesterday, I got into a spirited back and forth over my most hated topic- the ACA or Obamacare. Midway through, I realized the person I was speaking with didn't understand the "skim." He was busy blaming me for the costs of healthcare which I have always found to be a peculiar argument. You know the type. "Don't expect me to pick up the tab when you find yourself uninsured in the E.R." That sort of guy.

I have the proceeds of my work- called a work product or money. I enter into a contract or agreement for some good or service when my need for that particular item meets or exceeds the value of my work product. A seller has an item or service of value. He becomes a seller when he perceives that the price I am willing to pay meets or exceeds his expectations. We enter into an agreement based on a given price point. There is no opportunity for anyone to "skim" additional money from the transaction other than the state which now attempts to collect sales tax on every transaction. The state has the power to skim because it has the force of law and the ability to jail you if you do not submit.

The easiest way to make money with the least amount of effort is to simply "skim" a percentage of any transaction. You are not expending a great deal of energy nor are you producing anything. This cannot be accomplished when there are only two parties to a transaction. It is not in the interests of a buyer to over pay- nor is it in the interests of the seller to reduce his profit. Therefore any interested third party must find a clever way to convince both buyer or seller that his services are essential and worth the price. In other words- the buyer and the seller enter into a secondary agreement with some middle man who then skims a profit from the transaction.

Therefore any third party seeking to skim any transaction must (a) have the force of law or (b) try to create an essential or seemingly legitimate need for his services in the minds of a buyer and seller- generally through fear- founded or unfounded but well sold (c) be in a position to simply exert control over the proceeds of transacted business and skim money without getting caught or punished. Or (d) a combination of any and or all three above.

An example (a) is a government entity which is able to impose it's will on you to extract your work product. It accomplishes this by convincing you that you are receiving a good or service and that if you do not pay for it, your assets can be seized and you will be imprisoned. A taxing entity simply imposes it's will on you. There is never really a buyer/seller transaction where you are able to measure what you are actually receiving in consideration for your work product and then voluntarily entering into a trans-actional agreement. Government simply tells you what your share of the cost of a public good or service is- and they take that amount from you. That of course, is the perfect skim. We have no say in the matter of government skimming our work product- nor are we able to influence how they spend it. It is an incredibly frustrating situation- like having a daughter charging drugs and booze on your credit card- and you are unable to do anything about it except pay the bill. I personally believe 95% of all arguments involving "politics" involve this specific situation.

An example of (b) is a little more complex. Very often, third parties find and match buyers and sellers and drum up business. Interested third parties are then able to convince buyers and sellers that their services are essential. They create the illusion of obligation and/or need in the minds of buyers and sellers. They generally do not have the force of law to impose their ability to skim and often they are subjected to a competitive marketplace. However, highly efficient skimmers enlist the force of law anytime they see an opportunity to skim buyers and sellers. Floating to the top of this list are bankers and insurers. Bankers offer loans (money that does not exist or only exists as fractional reserves) to buyers and skim several percentage points or interest over the longest time frames imaginable. Compounded interest over long time frames causes buyers to cough up hefty sums, sometimes doubling or tripling purchase prices. Bankers find multiple ways to skim. They also enlist the aid of additional skimmers such as loan originators, brokers and re-sellers, title companies, insurers, appraisers, inspectors. Bankers monopolize the marketplace. They essentially price fix their costs and uniformly force compliance using any number of lending strategies. They even find ways to skim the government (treasuries) and pass those costs on to us as well. Bankers are at the very pinnacle of the skimming food chain. They are professionals.

Insurers are only one rung below bankers. They have enlisted the aid of government when forcing you to buy their services. There is an opportunity cost (high risk insureds) for them which reduces margins- however those losses are more than recaptured when you consider that they have been quite successful at forcing an entire nation into buying homeowners insurance, auto insurance, and now health insurance while slashing any claim to the bone. They are very adept skimmers who have enlisted the taxing authority of government to impose their costs upon us via the force of law. They have us all convinced that they are essential and without them we would all perish and die which of course, is untrue.

An example of (c) is anyone who exerts control over the proceeds of buyers and sellers and simply skims the proceeds hoping not to get caught or punished. Embezzlers and the mob come to mind.

Skimmers have no problem skimming the proceeds of producers, buyers, and sellers. If they can skim- they do. Smart skimmers recognize the skim. They constantly seek to eliminate or reduce skimmers from getting a piece of their own wealth. The story I am about to tell you is true-

Years ago, my ex wife was a loan originator. One day a wealthy woman walked into the bank and demanded a 90 day interest free loan for a million dollars. She had a million dollar CD on deposit which was nowhere near term. Not only did she infer that she would remove her million dollars from the bank- but the bankers realized that they would lose the opportunity to issue an additional 9 million dollars in loans using her million dollars as a fractional reserve requirement. Therefore, they approved the loan- interest free. When my ex tried to charge a loan origination fee of 250.00 bucks- the borrower screamed bloody murder and those documents were torn up. The wealthy woman understood the power of the skim and used it to her advantage.

Most of the aristocracy recognizes the skim. It seeks to impose the skim where it can and avoid being skimmed. A beautiful example is CNBC's shark tank. Creators or producers submit their ideas to the skimming aristocracy in return for working capital. Producers do the work and produce. The skimmers do nothing except offer financing and then try to extract as much wealth as possible using someone else's creativity and work product. The seek to gain the most money with the least amount of work and in so doing- they replace our would be bank skimmers. I hate watching Shark Tank for that very reason. Seeing the aristocracy ripping off creators, producers, and the people who work- just galls me.

Recognizing the tremendous advantage that the skimmers have- is the first step in reducing their ability to steal your work product.

Any time government has to pass a law to get you to buy something- that is not a buyer/seller agreed upon transaction. In other words, government understands that the buyers would not voluntarily purchase the goods or the services of the seller without the force of law. The buyers are receiving very little in consideration for the vast amount of their work product that they must surrender. The sellers have perfected the skim and in this case- enlisted the enforcement arm of the Federal government to essentially seize your money or suffer the consequences. It is a Robin Hood, mob rule democracy theft arrangement- where two wolves (government and subsidized patients) and a lamb decide what's for dinner.

Mitt Romney understands the skim. Not only did he skim the work product of producers invested in the funds he used to manage which made him incredibly wealthy- but he off shores and hides as much of that money as he possibly can- trying to keep it from the greedy tentacles of government skimmers.

I don't think our enemy is some anonymous goofball offering up his hatred in a comment thread. It is not some person who is desperately seeking adequate health care to survive and cannot afford it. People so desperate that they are willing to steal to survive. I understand those things and I might do the same.

Our enemies are those who have hijacked a very simple and voluntary transactional process between a buyer who agrees to purchase something for a reasonable price- from a seller offering a service for a reasonable price. Our enemies are our very own government and the swarm of skimmers they have allowed and facilitated in the health care space. It probably started during the reign of FDR.

The skimmers blame each other. The insurance companies blame everyone but themselves for rising costs. Other skimmers, like medical device and diagnostic tool makers and pharmaceutical companies while seeking patent protection for themselves, blame other skimmers like ridiculous insurance and malpractice rates as part of the reason for their ridiculous pricing. Hospitals want to operate and seek non profit status to prevent government from skimming them while charging outrageous amounts of money. Lawyers seeking unlimited awards for damaged parties while taking half of those awards for themselves on contingency- don't want awards and settlements capped by insurance. All of the skimmers it seems- think they are essential. None of the skimmers see themselves as the problem. They all believe they are essential. In the midst of all of their mutual finger pointing and accusations- there are real people, patients, who get used as the kickball. These are decent people who aren't demanding free healthcare but who are willing to pay a reasonable price for a reasonable service which they can no longer get.

And somehow, this giant, convoluted mess of pillagers and skimmers made possible only through the efforts of government, lobbyists, and campaign contributions- have turned what was once a pretty simple and successful buyer and seller arrangement with healthy competition- into a burning bag of decades old dog shit and left it on our doorstep.

Sorting this mess out, through massive reform and bi partisan support will be monumental. In our history as a country, I can only think of one other life and death issue that was ignored for this long until finally the unthinkable came to pass. That problem was kicked down the road and eventually solved with a civil war.

Ignoring this problem will not make it go away. There is only one solution. They will deal with the problem and solve it or they will wait until it has become a full blown emergency and then solve it. Real people will die needless deaths because of this. Don't fall for the cheap arguments of the skimmers who want to divert attention from themselves and pit one class of consumer against another. It's a cheap trick that has worked thus far- but it's days are numbered. Sooner or later, people are going to get wise to this. Consumers aren't the enemy. They never have been.

Corporate America, perfecting the skim (PBS) and worth a look:






















































30 comments:

Dagny Taggart said...

Well said.

Fredd said...

Shark Tank venture capitalists (Mr. Wonderful, et al) are not skimmers. Nothing happens in the business world without capital. Resources. Something to work with other than a bright idea.

You are suggesting that access to capital should be free. Something that Karl Marx would also agree with. Or Ghandi.

To produce anything, you need three things: land, labor and capital. And all of those things are not free, nor are anyone charging rent (for access to land), wages (the price of labor) and interest or 'skim' (the price of access to capital) evil, such as you suggest, (they gall you).

Falcon said...

Sure, I understand Fredd, what you are saying. But like anything our Government does it has a million regulations and outside contractors who SKIM the big dollars right off the top. Prime example is Gruber and his mess. Here is an outside contractor who skimmed for the ACA. You mean to tell me that the Government did not have one person that could come up with the same model and not call the American people stupid? I was in defense logistics and let me tell you about skimming off the top. Besides, again, the government has no business in insurance and so forth to supply goods to people. Like anyone else I hate to have the Government shove these so called goods shoved down my throat while the Insurance companies are laughing like hyenias at us. They still get their money no matter what. Talk about a scam.........

Compleat Patriot said...

Brilliant description of a fraud Brian.

Fredd said...

Falcon:
I was only commenting on the one example Brian used: Shark Tank (it galls him). No skimming there, only free market capitalism at work. No skimming. My only point. Now government getting its ham fist into our wallets, that's another thing entirely.

Frankenstein Government said...

You are of course, right- and I agree. Shark Tank is a wonderful example of a 2 party transaction. Oddly, so was the transaction between Bill Gates and his 50 year deal with IBM. We are all paying the price for that including the shitty windows 8 I am using now. Specifically, this is what I hate about Shark Tank.

The deals really are for chump change amounts. The entrepreneurs, the producers, are asked quite often to give away controlling interest for nominal amounts of money from people who in some cases are billionaires, like Cuban. I see no difference between that and loansharking really.

Not to mention the producers, are at a tremendous disadvantage. They lack experience, business acumen, and corporate lawyers.

The entrepreneurs would be better off going to kickstarter or a similar place for financing. At least then they would not be subjecting themselves to agreements that they can't get out of, giving their ideas and work away, and then fighting some team of corporate lawyers. Fuck that. I love it when the entrepreneurs tell them to shove it.

Having said all of that- you are right Fredd. I just wish they weren't so greedy. Glad to see you back.

Brian

Fredd said...

We are then in complete agreement: just like you, Brian, I don't jump up and down with ecstatic joy when someone in a business transaction gets the shitty end of the stick. But someone always gets a slightly better or slightly worse deal in any transaction (give or take). Or even a much better or much worse deal. This is America. Walk away if you think the deal sucks.

And yes, someone who has no bargaining power such as some of these bozos on Shark Tank get hosed from time to time by Mr. Wonderful with one of his sucker royalty plays. But we must also agree that these Shark Tank venture capitalists have on more than one occasion backed losers, and have lost their investments in their entirety. Those failed deals just don't get the coverage on future episodes like the winning propositions. Makes for bad TV, you know, something the network execs avoid at all costs.

I like watching Shark Tank. A lot. And we must agree that there is one overwhelming truth about this show: nobody, and I mean NOBODY, has a gun held to their head and forced to do business with any of those guys. Just showing up on Shark Tank and getting air time with a national audience is worth quite a bit all by itself for many of these entreprenuers.

Fredd said...

Complete Patriot:

No fraud, here. Just commerce. And our duly elected government at work, for better or for worse. Still, we live in one of the only places on earth where people risk their lives trying to get here and take a shot at the American dream. And contrary to the news lately, the American dream is not dead. You are not doomed to work the same gig as your father and grandfather. If you have some gumption, the sky is the limit, even with a corrupt and inefficient federal government that does its best to take whatever they can from you.

Frankenstein Government said...

All true. However, I do love it when they ask for too much and the producers tell em to fuck off.

I had to quit watching the show Fredd. It was making me kind of sick. I think I object to greed more than anything. And these people are poster children for greed and gluttony.

I don't think too many deals fail. And even if they did- the chump change the aristocracy offers updoesn't amount to much more than a few tanks of jet fuel.

All things in moderation Fredd. Including capitalism.

Thanks for keeping me straight.

Brian

meeester said...

Generally I agree with the point of your essay. I think there is room to respect the efforts of some skimmers though. There are any number of things where a skimmer's familiarity is useful. It's up to buyers to pay attention.
Shark Tank is a good example of a skim of value and Kickstarter does also while also serving to show market response to a need for an alternatives in a similar market. Good luck to all concerned.
Now as for government skimming and the supporters of some of the worst examples . . . Oh what nightmares we can point to there! Isn't it ironic that many of the same people who consider civil disobedience reasonable when an individual chooses to and are also disrespectful of rights as noted in the 2nd Amendment are also the same people who will send armed eople to your house if you won't comply with their preferred legislation.

Anonymous said...

In the movie Platoon, the actor Keith David whose characters name was King
said to Charlie Sheen, "the rich have been fucking the poor since the beginning
of time, always have always will".

Frankenstein Government said...

I suppose the smart guys win and the poor guys lose. It's hard to escape that fact. In a combat setting- I've always said if they would impose the draft on all Ivy League schools we'd never fight another useless war.

Fredd said...

You're welcome, Brian. I think my job here is done.....

Anonymous said...

Mission Accomplished

"Plunderers of the world, when nothing remains on the lands to which they have laid waste by wanton thievery, they search out across the seas. The wealth of another region excites their greed; and if it is weak, their lust for power as well.

Nothing from the rising to the setting of the sun is enough for them. Among all others only they are compelled to attack the poor as well as the rich. Robbery, rape, and slaughter they falsely call empire; and where they make a desert, they call it peace."

Tacitus, Agricola

Anonymous said...

"The tendency of things is, indeed, to make matters worse still. The poor are every year becoming poorer, and more dependent upon those who feast upon their sufferings; while the wealth and power of the realm are annually concentrating in fewer hands, and becoming more and more instruments of oppression.”

John C. Cobden, 1854
https://www.youtube.com/watch?feature=player_embedded&v=Tv1XL1akTco
David Cay Johnston: The Monopolists Rule

“You will even read about an insurance company owned by one of America’s most admired billionaires [Buffett] that asked a paralyzed man to die because the cost of keeping him alive was cutting into the insurer’s profits.”

“No other modern country gives corporations the unfettered power found in America to gouge customers, shortchange workers and erect barriers to fair play. A big reason is that so little of the news, which informs us about the world around us, addresses the private, government-approved mechanisms by which price gouging is employed to redistribute income upward.”

David Cay Johnston

Third World America.

Anonymous said...

FINE PRINT SKIMMING;

https://www.youtube.com/watch?v=HTQQtZKKiCM

Anonymous said...

TWINKIES SKIM:

https://www.youtube.com/watch?v=RPwsBPraC6Y

Frankenstein Government said...

What a fantastic quote. I would have used that in the piece. Thank you for posting it here!

Brian

Anonymous said...

Please see the video I posted at the end of the piece- thanks to another reader.

Brian

Frankenstein Government said...

Watched the piece and added it to the blog. Thank you very much for posting these links!

Brian

Anonymous said...

TARGET EXECUTIVE'S ENORMOUS SKIM:

That's quite a contrast with the average Target employees' retirement plans. Steinhafel's total package is 1,044 times the average balance of $45,000 that workers have saved in the company's 401(k) plan.

More from Bloomberg.com: Euro Forecasters See More Pain After Worst Year Since 2005
Steinhafel's Package

Steinhafel's package included $27.7 million from a combined pension plan for top executives and a deferred compensation plan, according to proxy filings. He was also paid $9.8 million from an earlier deferred compensation plan, as well as an additional $9.9 million in interest payments on that sum.

In addition, Steinhafel, a 35-year Target employee, got a $7.2 million cash severance payment and $4.1 million from vested stock awards when he left at age 59. This was on top of the more than $20 million in cash salary and bonus he earned over the prior five years and $56.4 million in realized equity gains over the same period, according to company filings.

That's quite a contrast with the average Target employees' retirement plans. Steinhafel's total package is 1,044 times the average balance of $45,000 that workers have saved in the company's 401(k) plan.

More from Bloomberg.com: Euro Forecasters See More Pain After Worst Year Since 2005
Steinhafel's Package

Steinhafel's package included $27.7 million from a combined pension plan for top executives and a deferred compensation plan, according to proxy filings. He was also paid $9.8 million from an earlier deferred compensation plan, as well as an additional $9.9 million in interest payments on that sum.

In addition, Steinhafel, a 35-year Target employee, got a $7.2 million cash severance payment and $4.1 million from vested stock awards when he left at age 59. This was on top of the more than $20 million in cash salary and bonus he earned over the prior five years and $56.4 million in realized equity gains over the same period, according to company filings.

Anonymous said...

IMO, the SHARK TANK is a quasi-skim 'of scale'. The SHARK's have it (scale), and use it as they see fit. In this example, the pilot fish have the option to swim with the SHARK's, taking a chance to be eaten, profit from the relationship, or swim away. This differs from the mandated gov't and by extension, corporate skim that ensues.

Anonymous said...

You got it Brian.

A86

Compleat Patriot said...

I find it odd that it takes a few bailouts and a flake president to get folks to notice business as usual in the Kingdom of fraud.

"Governments have universally exercised a despotic control of consumptions, sometimes from humane, but chiefly from fraudulent motives. Laws for limiting the prices of consumable articles, unattended by the desire of transferring property are of the former description; and laws for controlling consumptions, with the covert intention of transferring property, of the latter. But whether the motive by which such laws have been dictated has been good or bad, their effects have been uniformly tyrannical or pernicious. They have even sometimes created the famines they intended to prevent. The whole code of these laws is a commentary upon the policy of subjecting consumptions to the absolute control of governments, however constituted. When these laws designed to provide the multitude with bread, they starve them; when they pretend to supply the multitude with money, they impoverish them." ~John Taylor: Tyranny Unmasked

HISTORY OF THE GREAT AMERICAN FORTUNES VOLUME 1 - Gustavus Meyers
http://www.gutenberg.org/ebooks/30956?msg=welcome_stranger


Read: Gangs of America by Ted Nace, this thing has always been corporate, meaning proprietary, meaning owned and not by any citizens living today. Therefore America not being yours to "take back", you cannot restore what you never had or what never was. You can keep adjusting your moves on their corporate chessboard under their "laws" of how they define commerce. If one has to. I don't has to no more.

Legal Puffs said...

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Anonymous said...

CORRECTION : IT IS NOT 'NEW', JUST WAY MORE CRAVEN, WAY MORE SOPHISTICATED.

BIGGER N BADDER: THE FED'S MISSION STATEMENT.

Compleat Patriot said...

“Everywhere and at all times groups, organizations and leaders meet in closed meetings, before going ‘public’. A minority of policymakers or advocates meet, debate and outline procedures and devise tactics to secure decisions at the ‘official’ meeting. This common practice takes place when any vital decisions are to be taken whether it is at local school boards or in White House meetings. To label the account of small groups of public officials meeting and taking vital decisions in ‘closed’ public meetings (where agendas, procedures and decisions are made prior to formal ‘open’ public meetings) as ‘conspiracy theorizing’ is to deny the normal way in which politics operate. In a word, the ‘conspiracy’ labelers are either ignorant of the most elementary procedures of politics or they are conscious of their role in covering up the abuses of power of today’s state terror merchants.”~Prof. James Petras

Compleat Patriot said...

If no one has all the answers yet... how would you know when someone does?

Falcon said...

Just saw Atlas Shrugged-----UMMMMM

Jim at Asylum Watch said...

Middle men and skimmers _ a lot like women; you can't live with them and you can't live without them. (Women say the same about men.)