Word of the Day: The Bezzle (Money)

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Word of the Day: The Bezzle (Money)

Tuesday, March 10th, 2009 | Word of the Day |

March 30, 2000 we were the first to note that a chunk of the money supply that John Kenneth Galbraith referred to in his 1954 book “The Great Crash 1929” as the bezzle, derived from the word embezzlement, grows when money is free flowing during a boom and no one is motivated to ask why. The bezzle shrinks when, after a financial bust investors start counting up the money they have left only to discover that not only has Mr. Market taken away a good amount but another pile was stolen by crooks. For Bernard Madoff’s hapless investors, if allegations turn out to be true, the amount left over appears to be zero and the bezzle an astonishing $50 billion, a new record for a single incident.

And from Galbraith, same link:

To the economist, embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or even years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in — or more precisely, not in — the country’s businesses and banks. This inventory — it should perhaps be called the bezzle — amounts at any moment to many millions of dollars. It also varies in size with the business cycle. In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression this is all reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks.
- John Kenneth Galbraith, 1954

The bezzle becomes more visible as the economy shrinks. Or as Warren Buffett put it, when the tide goes out you can see who’s swimming naked.

The currently-shrinking economy is exposing the bezzle in crooked investors, rotten mortgages, bad lending standards, over-leveraged businesses, and crony relationships between politicians and industry.

Galbraith above notes that embezzlement also includes money not put in. That would include underfunded, over-generous public employee pensions and the great American ponzi schemes of Social Security and Medicare.

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