Febezzlement
Munger's coined term for the functional equivalent of embezzlement. Derived from Galbraith's concept of the "bezzle" — undisclosed embezzlement that stimulates the economy because the victim still thinks he's rich while the thief spends the stolen money.
Core Idea
Galbraith's original bezzle is a minor phenomenon because discovery quickly reverses the effect. Munger's extension asks: what are the functional equivalents that operate on a massive scale?
His main example: billions wasted in investment management fees. As long as markets rise, the fee-payer doesn't feel the loss (rising portfolio values mask it), and the fee-collector treats the income as earned. The functional result is identical to undisclosed embezzlement — a "wealth effect on steroids."
Other Examples
- Derivative book profits that were never real (Enron, Westinghouse)
- Pension plans with unfunded liabilities that nobody addresses
- Any system where reported wealth exceeds real wealth, and the gap is hidden by rising asset prices
Why It Matters
Febezzlement creates false confidence and postpones reckoning. When the gap is finally revealed — market crash, audit, bankruptcy — the reversal is sharp and painful. Understanding febezzlement helps identify bubbles before they pop.
Connection to Other Concepts
- bubble-detection — febezzlement is one mechanism inside speculative manias
- incentive-superpower — incentive-caused bias keeps people from reporting the gap
- confidence-cycle — unreported wealth destruction inflates the confidence phase