Febezzlement
Febezzlement is Munger's term for the functional equivalent of embezzlement. The original idea comes from Galbraith's "bezzle": wealth that has already been stolen but has not yet been recognized as missing. Munger broadens the idea to cover any hidden extraction or false wealth that makes people feel richer than they really are.
Why It Matters
The important feature is delayed recognition. While the loss is still hidden, the victim behaves as if the money exists and the extractor behaves as if the gain is legitimate. Spending, confidence, and valuation all get inflated by wealth that is not truly there.
That is why febezzlement matters far beyond literal fraud. Excessive investment-management fees, fictional accounting profits, pension promises with concealed gaps, or balance sheets supported by wishful marks can all create the same effect. Reported wealth floats above real wealth until the gap is forced into view.
What Makes It Dangerous
Febezzlement is stabilizing in the short run and destabilizing later. It flatters the boom phase because nobody wants to surface the missing value while prices are rising and fees are flowing. When the gap is finally recognized, the reversal is abrupt. The apparent prosperity was partly borrowed from a future disappointment.
This makes febezzlement one of the hidden mechanisms inside bubble-detection and the confidence-cycle. Markets often look safest when hidden overstatement has had the most time to accumulate.