So earlier today I was reading the G-20 statement after they had their Pittsburgh meeting in September. I couldn't help chuckle at how they act like this financial 'crisis' was a big surprise. I mean, these people are pretty much beyond the smartest kids in class. Their entire life is economics and studying its history. So, they obviously know that every boom is followed by a bust. They know that it is inevitable to have a depression when growth is fueled by debt. There is no other way to do it. People get into debt, then have to pay it off. The paying off period is the depression.

Here's the quote that got me:

Global output was contracting at pace not seen since the 1930s. Trade was plummeting. Jobs were disappearing rapidly. Our people worried that the world was on the edge of a depression.

On the surface, nothing is shocking about that statement. But when you realize that the people writing this and discussing this were probably some of the most intelligent people in the world, it sounds a bit funny. They weren't worried about a depression! A depression is supposed to come because that's what comes after a time of prosperity. So they weren't surprised about this financial panic. And this is what they say about themselves:

Our forceful response helped stop the dangerous, sharp decline in global activity and stabilize financial markets. Industrial output is now rising in nearly all our economies. International trade is starting to recover. Our financial institutions are raising needed capital, financial markets are showing a willingness to invest and lend, and confidence has improved.

They avoided the coming depression for now only to have a worse one come on us later - probably in just a few years. There's always a reason, so I can only wonder what the reasons are. Think of yourself as a little part of a giant mess called humanity. Humanity is screwed up. Humanity, without guidance, will be directionless and useless. These smart people at the top know our greed and know how we'll act as a whole when loans are offered and interest rates are low. They know that we'll just get ourselves right back into debt, which is what drives "growth." That's how they avoided the depression. A depression is a time where we are supposed to learn how to live within our means. Instead of a depression, they offered the loans and we fell for it once again. Only this time, there is no way to get the rates lower. So the next crash will come and there won't be a way to avoid it. It'll happen probably in less than five years this time and it'll be nuts.

Just to show you that none of this is new and it wasn't new in 1929 either, here's a newspaper article from January 4, 1902. That's right. It's from over 100 years ago. It has a reprint of a speech made in 1897 called, "Panics and Booms." You'll see that financial panics have happened five times in the 1800's!

Here are a couple of quotes. Remember, this was said in 1897:

This rule also applies to people dealing in real estate. The country is growing; money is easy; the times are good; business is prosperous and therefore speculation is favored. A man worth $5000 can buy four times that amount of property by using his credit, and sometimes he buys ten times that amount or more. While prices are advancing he not only gets the benefits of the advance in the price of the property represented by the capital furnished by himself, but also on the capital furnished by his credit.

Sounds a little like what was happening just prior to this "financial crisis." And then what happens after the credit boom? Check it:

When the people arrive at a point where their credit limit is reached there is necessarily a decrease in the demand for goods and property, and soon the supply becomes greater than the demand and prices begin to decline. This stops speculation. Thousands of people engaged in manufacturing or producing articles of general use are thus thrown out of employment, and this causes a still further decrease in the demand for goods, and hence a further decline in prices. Those who have purchased on credit find themselves subjected to heavy losses because they are compelled to sustain the depreciation on goods they do not own -- that is, goods bought on credit. Because of this decrease in valuations all are compelled to economize in order to adjust their expenses to the new order of things, they being compelled to pay off the accumulated indebtedness with the decreased income. This economy of the masses still further decreases the demand for goods and property and this still further increases the supply over the demand and decreases the prices, throwing more people out of employment and increasing the depressed condition of business.

Sounds like what happened over the past year, doesn't it? And this guy was not writing about this after the Great Depression. He was referring to 'financial panics' from the years 1819, 1837, 1857, 1873, and 1892. So it was nothing new then and it is nothing new now. You can read the whole article here: Panics and Booms.

It was written after a financial panic where banks went bankrupt and unemployment was high. It was at a stage similar to the one we are in. He has this to say to us today, about 112 years ago:

It is a difficult matter to make the people believe that our country is now entering upon another period of prosperity. Each one has a remedy for hard times. And each one sticks firmly to the proposition that better times cannot come again until his remedy has been applied. These remedies are mostly of a political nature. One man believes that a high protective tariff is all that is necessary to restore prosperity to the country, and another thinks the free coinage of silver and gold on a basis of 16 to 1 without making any suggestions to any other nation about the matter would bring good times. There is no question but the legislation on both these questions or either of them would affect the main proposition. Wise legislation will always assist in bringing prosperity, and unwise legislation will always retard the coming of better times, but no legislation, no matter what it be, can prevent the incoming tide any more than the little child on the sandy beach with its little shovel can, by piling up a ridge of sand, stay the incoming surf.

Right now, they're debating on television whether we're recovering or not. I say we are going to have a quick boom fueled by the easy credit, but we'll have a much stronger depression than if we had just gone through with it now.

As a teenager, I had access to a bookie through my friend, Nate - actually through Nate's father. Nate's father was not the bookie; he was a middle man. I never met the real bookie and never learned his name. Every week, I could buy football pools from him or even make bets on individual football games through him, whether they be college or NFL. There may be different rules for different football pools, so I'll explain how it worked with the ones I purchased from Nate's dad. It was simple, once you got used to the rules.

What we called a football pool was simply a slip of paper that listed all the college and NFL football games happening the following week. Each game had a point spread. The underdog would be given points based on their odds against the other team. These points were decided by sports experts. For example, if the Philadelphia Eagles were going to play the Dallas Cowboys and the Eagles were expected to win by two touchdowns, then the pool would give 14 points to Dallas.

To gamble with the pool, you purchase the ticket for at least $5. To win anything, you need choose the winner for at least three games. This is one way of putting the odds against you as a gambler. Remember the point spread. If you are picking the Eagles over the Cowboys in my example, you are not merely saying the Eagles will win. You are betting they'll win by more than 14 points. If you didn't think the Eagles would win by more than 14 points, you could pick the Cowboys. The more games you bet on, the more money you win if you are right on all of them. Since most people playing these pools are gamblers, they will mostly pick more games just in hopes they'll win more. To their loss, they are making the odds against them increase. One of the catches to the pool is that you need to win on every game you pick to win anything. If you chose five teams, but were correct on only four, then you lost your money. The other catch is that the bookie wins on a tie score (after calculating in the point spread, of course).

You don't feel comfortable on picking three or more winners? How would you feel if there was a way to pick just one winner? That's possible, also. The minimum bet is $20, plus a $5 betting fee. You still need to overcome the spread, however. If you win the bet, the bookie pays you $15 ($20 win minus $5 betting fee). If you lose the bet, you owe him $20 plus the $5 betting fee, making your total loss $25.

How can the bookie stay in business if his business depends on chance? Because "chance" is in his favor. In reality, you are not betting against the bookie. The bookie is acting more like a broker, taking bets from both sides, collecting $5 commission from each bettor. The winners get paid with the losers' money. If you've ever studied statistics or probability, you probably know about the rule of large numbers.

The rule of large numbers works like this: A coin toss has a 50% chance of landing on heads or tails. If you flip a coin 2 times and both times it lands on heads, it does not mean that you have proved the 50% chance rule wrong. You'll find that the more times you flip the coin, the closer to 50% you get. The bookie taking bets on games with point spreads is using the same large numbers rule to his/her advantage. Since the games are given point spreads, it is pretty much a 50/50 chance for any team to win the bet. If the bookie has a large customer base, the bets will most likely be divided close to a 50/50 ratio. The bookie simply makes money from commissions.

I really started to get interested in this bookie business around the beginning of my junior year of high school. After playing a few football pools and making one or two individual bets through Nate's dad, I figured I could be a bookie. Why not? All I needed was a way to print up some tickets to start selling the pool. After I built up some money from doing that, I could take bets. It sounded like an easy way to make money. When my friend Geoff told me that he had a typewriter, I knew we could do it. It's funny to think of using a typewriter, but this was 1992 in Olney (neighborhood around North Philly) and nobody in my neighborhood had a computer, let alone a printer. Most of the bookie leg work depended on Geoff. I was mostly just coming up with the ways we could pull this off.

The way we started the bookie business was simple. The first day the game spreads were printed in the newspaper for the following week, Geoff immediately typed up a football pool on his typewriter. We didn't want to sell pools that looked like they were just typed up, so we brought the typed pool to the library to make smaller copies. We set the copying machine to 50% for the first copy. We then made a few copies until we were able to fit four pools on one sheet of paper. We then brought that sheet of paper across the street to a copy shop to get that paper copied as many times as we could afford.

We went home and got busy cutting out each pool. We then used a red pen to give each ticket a unique number. We didn't want the pools to look like they were the first ones printed, so we started the numbers from a random number over 1,000. After that, we were set. Geoff knew some kids at school who were interested in placing bets on football games, so he started with them. He convinced them that he was able to gain the trust of a bookie named Vinny. Vinny would let him sell football pools for now. Hopefully, Geoff would move up in Vinny's world and have the ability to take individual bets one day.

Selling football pools this way worked out for a few weeks. It gave us some capital to work with. It was time to move on up in the bookie world. With $30 dollars in cash, Geoff and I headed to 5th Street and into a pager store. Remember those? Back in Olney, it was thought only drug dealers carried pagers. We bought the cheapest, clunkiest pager and activated it. The pager was to be a true mark of a legit bookie. If any of Geoff's friends had their doubts about Vinny the invisible bookie, those doubts would be cast away once they could call Vinny's pager.

We came up with a brilliant plan. Geoff went into school the next day, giving the good news - he moved further up in Vinny's organization. Geoff was assigned some slots in Vinny's betting circle and could assign them to individuals who could be trusted to make bets and pay if they owe. Geoff was given slots 100 through 110. Geoff was to ask his friends if any of them wanted a slot to make personal bets with Vinny. If they did, they would get one of those numbers and Geoff would notify Vinny on who was betting under which number.

Here's how the betting process would work. Let's say John was assigned number 101 and he wants to place a $20 bet on the New York Giants. He calls "Vinny's" pager and enters the number 101 + John's phone number. Vinny would see the page and know that John is calling to make a bet. Vinny calls John back, takes the bet, and hangs up. No names need to be exchanged over the phone. If the phone calls were done with pay phones, we could keep the feds from tracking us down.

At this point, you should already know that I'm "Vinny." After three of Geoff's friends were assigned numbers, they were to page Vinny so they could get a proper introduction. One by one, Vinny received the pages that night. One by one, I called each one with the toughest, meanest Italian accent and threatened them and their family if they chose to bail out on a losing bet. Nobody messes with Vinny. One of my people will come and break their f*@!%n legs if they even think of missing a payment.

The day after these phone calls, Geoff's friends all told him that they were too afraid to make any bets with Vinny. Being a quick thinker, Geoff told them not to worry. Vinny is really a cool guy, but was just in a bad mood last night because some guy was rough with Vinny's sister. Geoff relayed this to me so that I would tone down my voice the next time they called. That was easy. The next time I spoke to them, I apologized for my behavior and relayed that I felt much better now that I paid that guy back for messing with my sister.

Remember that rule of large numbers I mentioned earlier? Vinny didn't have that working for him. Vinny only had three customers making bets. It worked the first couple of weeks only by luck. One week, a couple of people won bets AND pools. Vinny was broke and could not pay the winners. As luck would have it, Vinny got in trouble with the law and had to lay low for a while. The winners never got paid. Geoff is the one who had to face the others at school, explaining that he hadn't seen Vinny in a while. Comments were made like, "Sure, Vinny will kill us if we don't pay, but he disappears when he has to pay!"

Vinny the bookie vanished forever. He only pops up now and then in stories like this one. Vinny is not the first and only fictional name I've taken on for a money scheme. There are others, but their stories are to be told another time. For now, just remember that if you ever choose to start a business in gambling, make sure the odds are in your favor and that you have the rule of large numbers working for you. Or you could just do business legitimately without entangling yourself into a world of lies.