The Great Unwind

Plus: Banks in Disguise (Naked Wines), JPMorgan's Reflexivity, Chinese Bank Protests

In his book, The Great Crash 1929, economist John Kenneth Galbraith introduced the concept of the bezzle. He defined it as the inventory of undiscovered embezzlement that exists in an economy – at any time amounting to many millions of dollars. He argued that in the good times, when people are “relaxed [and] trusting, and money is plentiful” the bezzle expands, and in a depression it shrinks. 

Galbraith recognised that the bezzle has a powerful stimulating effect on consumption. At its peak, everyone’s a winner – “the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss.” At this moment in the cycle, the embezzler spends more because he has more income, while the man he has embezzled spends as before because he doesn’t yet know that any of his assets are gone. “There is a net increase in psychic wealth,” suggests Galbraith.

But undiscovered embezzlement isn’t the only source of psychic wealth. Charlie Munger takes the concept further. At a breakfast mee…