Over the past twelve months, conversations surrounding national debt have been introduced and then reintroduced after President Biden took office. While it can be said that national debt is money that we, as a country, may potentially owe, there are many schools of thought that either support it or negate it.
In one school of thought, it is assumed that having national debt is logical as long as the growth rate of deficit spending is less than the rate of inflation. In other words, if a country’s spending below the rate at which the value of money depreciates, the government can potentially print enough money to pay off its debt.
In another school of thought, it is considered that deficit spending is good as long as it is used to create long-term assets. When assets like roadways, railways, etc. become usable, they provide a capital rate of return to the economy. Economists believe that as long as the said rate of return is greater than the rate of lending, it makes sense for a government to spend more than its revenues.
Parallelly, another school of thought that has lost its popularity in economic circles dwells in the comparison between the size of the national debt and the size of the economy. The theory was debunked when the US’s national debt crossed its level of GDP.

Charting America’s Debt: $27 Trillion and Counting

While economists are split between the level of deficit spending, they agree that as long as money is used for the creation of capital stock, the economy will continue to expand in the long run.

• Suez Canal, the most valuable sea route in the world, got disrupted on March 23rd, 2021
• Cost of damages are said to be over a billion dollars
• Catastrophic temporary effects on global supply chain health

The Suez Canal is an artificial waterway that connects the Mediterranean Sea to the Black Sea through the Isthmus of Suez in Egypt. This waterway is one of the most valuable sea routes that connects Europe to the rest of the world without needing to go across Africa through the Cape of Good Hope. Since goods with an evaluation of over US $3 billion pass through this waterway daily, it is considered to be a keystone of global supply chain systems. (Tunnelbuilder, 2021). In other words, the blockage of the Suez Canal, if ever, could have catastrophic effects on global supply chain systems.

The unforeseen incident of the blockage of the Suez Canal happened during the early hours of March 23rd, 2021. Since the Suez Canal is narrow, the blocked ship disrupted the supply chain that involved passing through the said canal. As a result, nearly 300 ships were forced to either stand before the Suez canal or go around the African gulf.

While the Suez Canal was unblocked on March 29th, 2021, the insurers of the Evergreen Ship have said that damages could amount to approximately US $1.2 to 2.1 billion (Business Insider, 2021)

However, the global supply chain was deeply affected by the blockage. While some experts in the US like Jeffrey Bergstrand, professor of finance at the University of Notre Dame’s Mendoza College of Business, anticipate a minimal effect, some experts believe that the disruption will have a long-lasting impact on US consumer prices and supply systems. While the time frame is unclear, it can be expected that it could take over three weeks for supply chain systems to re-establish (Pippa Stevens, 2021).

Source:

1. http://tunnelbuilder.com/News/Six-tunnels-under-Suez-Canal-.aspx
2. https://www.businessinsider.com/ever-given-forbidden-leave-suez-canal-until-owners-pay-compensation-2021-4
3. https://www.cnbc.com/2021/03/29/suez-canal-is-moving-but-the-supply-chain-impact-could-last-months.html

• Vincent Kosuga, the king of the onion markets, introduces a plan to manipulate the market
• Purchases and sells batches of onions to ensure high profitability
• Strategy involved extensive use of commodity trading skills

Vincent Kosuga, a New York-based Onion farmer of the 1930s is infamous, not for his success in cultivating onion crops but for his ability to successfully manipulate the onion commodity market.

Vincent Kosuga, ’68, talking to media about his story

After Kosuga finished the cultivation of crops for the season, he would trade on the futures market by betting for or against the rise in onion and other commodity prices. While he started with small bets initially, he decided on securing the onion supply market in 1955. To store the cornered supply, he decided to build warehouses with his partners and associates across the country.

Once his infrastructure was ready, he started buying onions from farmers directly at the time of harvesting. This allowed him to maintain a stronghold on the market. In the meantime, Kosuga with his trading partner Sam Siegel began buying up futures of onion commodities on the Chicago stock market. By the end of the fall, Vincent and Siegel were able to capture 98% of the onion market.

When prices began to rise Kosuga offered onions to small-scale merchants across the country. He sold around 9 million pounds of onion to small-scale merchants and realized profits from high onion prices. Following this, he sold all his commodity holdings and made bets on the decline of retail onion prices.

Stacks of onion

This act of manipulation not just disrupted the onion market but also the commodity market. With onion prices shelved in the hands of one person, the agro-economy had become unstable. The government, heeding pled and requests from Onion farmers, decided to ban Kosuga from trading in commodities for six months, and quite humorously, banned the trading of Onion commodities under the “Onion Futures Act”.

These financial frauds are the brainchild of mastermind strategies, coupled with their doer’s ability to explore loopholes in the system. When Kosuga realized that the onion markets were disorganized and disintegrated, he procedurally unified his contacts, built warehouses, and transported onions from across the country. Subsequently, his purchase of commodities provided him a guarantee against losses. Farmers in his network were too naïve to understand his strategy of cornering all the supplies of onions.

While Kosuga was determined to exploit the onion market. The impact of Kosuga’s acts is still evident. Several regulations like but not limited to, “Onion Futures Act” and “Securities Moderation Act” were made or amended to prevent the occurrence of such an act in the future.

Source: https://www.betterworldbooks.com/product/detail/vincent-kosuga-6135033174

This week we will be talking about the biggest financial crimes of all times. This crime was conducted on the wall street by an investment banker who started trading of penny stocks when he initially founded the company, but eventually got into ponzi advertisement of his investment strategies.

Bernie Madoff started his investment business in the year 1960s that dealt primarily with buying and selling of penny stocks and their subsequent endorsement to their customers. His initial investment into the business was merely US $5,000 which later went to become billions of dollars. This billion-dollar company was started by a single man, however, by the time the fraud was busted, it had become a family run business in which the father – Bernie Madoff, his son and his brothers were involved.

All this being said… Let’s come to the main question – How was this crime done? And, what was the crime?

This crime was done as a culmination of a series of well-organized events that had an objective to obtain maximum possible profit from possible legitimate and illegitimate sources. Madoff investment corporation was involved in daily trade for many clients. Their investments formed the basis for their commissions and hence, they were motivated to invest their clients’ money in the best possible manner. However, in the greed to earn more profits, Madoff Investments used special software’s that introduced stock results from a previous data that had values that were marginally lesser than the actual market rates.

In the entire process, consumers did have a hint of a suspicion on his activity, however, they were not very concerned on contesting the investment firm because they did not lose a lot of money through data misrepresentation. As a result, they were able to take out a large portion of people’s incomes from their stock earnings through illegitimate means.

The problem rose when the overdid it with a big-shot customer. The transactions lost for the said customer were valued around 120 thousand US dollars. And thus, he decided to fight the company. On inspection, the SEC found that the fraud was worth US $64.6 billion. Madoff, because the fraud had been conducted over a course of 40 years, has been put on life arrest for a total time period of 150 years.

Data breaches can be pricy. When breaches occur, they expose data of millions of users while highlighting the flaws that exist in a data system thereby, causing industries to transform their entire data management system. And this transformation typically costs thousands of dollars in data encryption and protection. In 2018, IBM presented a report that an average data breach costs around US $3.86 million (after studying ancillary costs of losing customers and overhauling of the system)

A complicated factor that is involved in data breaches is that it is unlike any theft. The problem is that data breaches are not realized until two or three months after data breeches have been conducted and the news is exposed to the public. This delay is also the major reason why the magnitudes of data breaches are massive.

The purpose that revolves around data breaches is to gather as much personal information possible so that data mining companies are able collect and sell data of individuals to companies like but not limited to advertising companies and campaign management associations. These marketing associations then process the data and categorize people into different pre-set categories, that their customers use to sell a said propaganda and/or a product.

In 2016, Yahoo reported that a data breech that occurred between 2013-14, data of over 3 billion users was mined by ‘a state-sponsored entity’. The data breeched mainly involved names, email IDs and date of birth of Yahoo’s users. Though the culprits were never really found out, the impact of this data breech was immense. Yahoo was put out-of-business for almost 2 weeks, until the investigations were deemed over. In fact, when the leaks were declared to the media, Yahoo was discussing the sale of its majority shares with Verizon. The leaks, resulted in a $350 million kickback to the deal, causing shares to be sold at US $4.48 Billion.

The funny thing about Data breeches is that they cannot be predicted and worked for, with respect to its intensity, in advance. Companies like Yahoo, Facebook and Google invest millions of dollars in erecting a data protection network, and still encounter faults in them on a regular basis. This makes us question, how safe is our data with those companies that are new-born internet-based blog sites and start-ups? How safe is our data with places where we, on a daily basis, voice out our views and opinions?

Just like the previous blog, this week we will be talking about another criminal that impacted the dynamics of the way in which American businessmen interacted with businessmen from other countries. In this blog, I will be discussing Victor Lustig’s scam and how he laid out his plan for selling the Eiffel Tower.

Victor Lustig was born on 4^th January 1890 in the Austria-Hungarian town of Hostinné. He led his life, just like Charles Ponzi, full of crime and criminal opportunities. However, Lustig was forced to perform criminal activities for a living and thus, he was often involved in petty crimes like but not limited to shop lifting and pick pocketing. As time passed by, the seriousness of his criminal activities grew to an extent that he became a full time criminal and subsequently, performed bigtime crimes.

Before his main act of fraudulently selling the Eiffel tower, one of the most known crime of his involves the sale of a machine that could print currency notes using radium, which was, however, nothing but a hoax. In spite this, he sold over 200 machines that could, as he said, print currency notes. Lustig, later, also involved himself with other hoax-based crimes like organizing fake horse race schemes and bogus real estate investments that involved people contributing money to an investment pool built by him. The said plans combined, made him a public enemy and an understated millionaire.

The main game

In the summer of 1925, Lustig went to France to try out a new crime venture in the city of Paris. Lustig commissioned two French government officials and prepared ‘hoax’ property papers of the Eiffel tower. Lustig then began targeting people who would come from the US on expensive cruises and would admire the Eiffel tower during their city tours.

But, how could someone convince a stranger to buy something as significant as the Eiffel tower?

Lustig was smart. While documenting property papers for the Eiffel tower, he made the French officials underline a clause which stated that the Eiffel tower was on sale because the French government needed money to recover from the war and thus, the monument had become too expensive to maintain. The said reason also made sense as the French government did introduce the idea of decommissioning the maintenance of the Eiffel tower after the war. Though never passed, there were newspaper articles having normative statements that indicated the potential sale of the tower.

Using the aforementioned newspaper articles, Lustig developed his case. He invited several Americans to place a bid on his offering. After 3 sessions of continuous bidding, the Eiffel tower was finally sold to a businessman named Thomas Kearns. In order to appreciate Lustig’s cooperation Kearns offered Lustig a trip to his home – the place where the Lustig scam was finally busted.

At Massachusetts, after having a dinner with Kearn, Lustig went up to Kearn’s room where Kearn was supposed to give him cash for the said transaction. However, with the greedy nature that Lustig had, he tried to flee with all the money that Kearn had in his closet. Sadly, Kearn showed up and he was caught red handed by him, and later the police.

Could the crime had been prevented if it was done today? Absolutely, yes.

Would it have been possible to prevent this fraudulent transaction to take place in 1925? Maybe.

As far as I can estimate, it would have been very difficult to avoid such a fraudulent transaction to take place as the governments in 1925 were not as transparent as they are today, and hence, validating the deal would have been next to impossible.

This week we will focus on a financial fraud that revolves around the illegal stock trading strategy of ‘insider trading’.

For beginners, Insider trading is this weird method of trading in which stocks and bonds are purchased legally, however the reason for purchasing them is illegal. In other words, it refers to a situation wherein I, as an investor have more knowledge about a stock and its company than other investors investing in the same market. Though insider trading had been an illegal activity since a long period of time, it’s implementation in the stock market practices was not very consistent, and hence we see that a scam worth billion took place in the 1970s at the behest of Ivan Boeski.

If you go on Wikipedia and search for Ivan Boeski, one of his prominent achievements (I don’t know whether it is an achievement or not, but for the sake of this blog, let’s just call it an ‘achievement’), as described by that page is “insider trading scandal.” So, what exactly did Boeski do?

Boeski was a stock market trader in the 60s and to further expand his profession into a business, he amassed a sun of US $700,000 with the help of his wife’s family and his friends to start a brokerage company that would bet on mergers and corporate takeovers. By 1986, he had a fortune over US $200 million, which was, kind-of fishy. Though his investments seemed legitimate, he never really presented financial documents that indicated how he was able to raise funds to such an extent through his brokerage company so quickly.

Like all the financial crimes I have discussed, this fraud-cum-scam fell apart very quickly. In 1986, a group of partners sued Boeski over fraudulent and misleading partnership documents possessed by him. When the SEC finally woke up, it realized that Boeski had been involved in the internal dealings of companies and had information about several corporate mergers even before other investors or the public was made aware of a said merger through a formalized process. Because Boeski was not willing to hide any information from the SEC after being sued, he decided to come clean. This led to a chain of events causing several people who were engaged in similar act to be convicted.

Favorite question time… Why did this happen?

Boeski was smart. Other investors were not vigilant. SEC was sleeping.

Boeski knew about an opportunity that he could exploit and so, he did. I wouldn’t be surprised if Boeski performed these activities by being influenced by someone equally powerful or infamous. The underlying aspect of his motive to crime was to earn as much as possible in as-little-as possible time, so that he could live a financially profound life. We find evidence of this in his autobiography when he states, “I felt ashamed to beg my in-laws and my friends for money.”

Then why didn’t other investors appeal against his acts? They did; however, they were too late. As stated earlier, Boeski was smart and hence, he knew how to bury his deeds of disgrace. Boeski, until 1986 (the year when he was convicted) kept everything so discreet that it took approximately three years for the SEC to uncover his fraudulent deeds. This also indicates the lax nature of the SEC in during the 1980s.

Today, however, SEC is not as sleepy. Today rules are implemented and often underline themselves with gruesome consequences. Like in the case of Boeski, after the SEC realized that there were widescale violation of rules and regulations, he was charged US $100 million as fines. This is how, in 1986, the fraud/ scam unfolded.

Ever heard someone say that a given scheme or deal is a Ponzi scheme? This week, I will discuss the historical context of the term ‘Ponzi Scheme’.

Charles Ponzi, on whose name the term was coined, was born in Italy in 1882, where he led a life that involved doing minor crimes and frauds adjacent to his primary job. During early stages of his life as a banker, Ponzi was caught forging a signature on a check and was sentenced to serve prison time for 4 years at Quebec. Despite of being caught initially, Ponzi was again involved in a criminal activity wherein he was caught smuggling few Italian immigrants into the United States. After serving prison time again, Ponzi decided to come back to the United States, where he tried multiple minor jobs until he performed his mastermind scandal.

While in the United States, Ponzi could not find a proper job and hence, he was forced to work in his father-in-law’s grocery store. While checking his father-in-law’s mailbox, he found his criminal inspiration on a mail that he received from a European company that offered its shares and bonds and promised a rate of interest of 5%. Ponzi’s criminal mind got an idea that he was later able to use to amass massive sums of money.

While it may seem to a common man that Ponzi’s excitement for this plan could be related to the excitement upheld by the commoner for his stool ideas, Ponzi was, however, not willing to give up on his plan.

Ponzi had had a history of being a failed criminal. He had performed criminal activities, but he was never able to capitalize on them. This time, however, he knew that his plan had some basis – ‘Human Greed’. The first part of his fraud revolved around Ponzi asking his men to buy share certificates in countries abroad and then converting them for air-post stamps in the US, eventually selling them at a premium as high as 200%. To earn more money, Ponzi mass-released a scheme where he offered a 50% gain to people who invested for a span of 45 days and 100% gain to people who invested for a span of 90 days. The scheme spread like forest fire. People started giving money to Ponzi, to an extent that he was able to circulate the money he earned as revenue and the money he gave as interests. Even after doing so, Ponzi was able to amass huge sums of wealth.

However, Ponzi’s dream run did not last long. When Boston Post began investing the source of the returns that he promised, investors began to fear for their money and demanded their money to be return. However, Ponzi was in no situation to return the money. Eventually, on 12^th August 1920, Ponzi was charged with 86 counts of mail fraud and for beholding bad debts of US$ 7 million.

Favorite question time! Why did this happen?

Ponzi was smart. People were greedy. The system was blind.

To explain this, one of my general education courses – criminology – helped. During this course I have understood that people with criminal tendencies exist because of their socio-economic conditions. Similarly, Ponzi was a poor and an under employed person. He knew that if he did not pull-off any such financial trick, he would live a life in solace and poverty.

 Let’s talk about the people who got fooled by this trick.

The offer put forth by Ponzi was too good to be true. If people would’ve compared it with other companies offering investment deals, they should have understood that the deal put forth by Ponzi was bound to have loopholes. However, the greed for money overpowered all their eccentric value systems and further, their ability to analyze situations.

Have we seen any such major Ponzi scheme in the recent history?

Yes, certain cryptocurrencies. In 2017, there was a sudden buzz around cryptocurrencies and the block-chain technology. In fact, in the month of August of 2017, 50 new cryptocurrencies arrived in the market. During an after-math analysis it was realized that many of these 50 cryptocurrencies were self-manipulated. While these currencies offered massive rates of return, they were hollow rises. When these cryptocurrencies were scrutinized, their prices fell dramatically and many people, across the globe, lost a lot of money, including me.