bostonbubble.com

[CL]

It is probably unwise to jump into the discussion, but -

1) By design, CRA pressured banks to make risky and unprofitable mortgages. The law is targeted to low income group, thus the loan be nature is risky, and if the loan is profitable then there is no need for law, so the combination is essentially risky and unprofitable mortgages. If the risk is fully compensated, you need no laws. Banks can always smell profit.

2) It is hard to pin all the blame of the financial crsis on CRA. Most of the damages on ground level (mortgage origination level) were done not by regulated banks, but by independent mortgage companies (remember Countrywide?)

3) CRA, however, did expose a deep and fundamental problem of the housing market in this country, probably the reason of the housing crisis. Americans in general value the social benefit of home-ownership too much, as such the government is willing to provide very substantial subsidy to put people into, not only a house, but OWNING a house. CRA is just one manifestation of it. Look, every government in the world wants to have the social benefit of homeownership but only in US do you have all the tax breaks of home-ownership. Why? The reason is simple - owning a house typically involves very high leverage (4X-5X for 20-25% downpayment) and no reasonable government can expect most of its citizens to have the ability to handle that. So they let the market (banks) to discern which one can handle the risk and which one cannot.

Somehow, for reason I still don't understand, US government thinks it's okay to play down the risk and play up the social benefit of homeownership.

The problem is, as the subsidy becomes higher and higher and encourages more and more people owning homes, home-ownership becomes too big to fail. Which is essentially what's happening now.

[admin]

[john p]

I think you guys are missing the point about the CRA.

The point isn't the percentage of CRA loans, the point is that subprime lending was DANGEROUS to our economy as EVIDENCED by our current economic condition. The danger the CRA posed was that it had all the Democrats doubling down on subprime lending; how could they position themselves to reform or even talk about the risks when it became a sacred cow and in doing so you would be labeled a racist? The genesis of the CRA was in stopping Redlining. It actually had admirable roots, but like many liberal or conservative policy it gets messed up in time because when the policy needs a tuneup defenders herd together and fight it.

Repealing Glass Steagal was about opening up our society to risk so that we could get the reward of being strongly positioned in a global market. Many argue that the Military spending of Reagan and Bush helped thaw the Cold War and the free markets opened up and lots of money flowed to the remaining superpower during Clinton. There were a lot of rewards and we had a baby boom in their peak earning years with lots of discretionary buying power. Now although I think Clinton benefited from many positive forces, even the CRA Amendments he proposed wasn't that risky a proposition at the time. Yes, MPR you heard that right; at the time that policy wasn't so bad. What magnified the CRA was that banks could use Government's support of subprime lending as an excuse for taking on too much subprime debt. I mean how can Obama chastise the banks for taking on too much debt when we were guaranteeing these same subprime loans? With the repeal of Glass Steagal and the Commodities Futures Modernization Act which created these derivatives that exponentially magnified these subprime risks, Democrats, Republicans shouldn't have both been able to honestly address the risk of the underlying asset without being labeled a racist or someone that didn't care about the poor. I mean if they actually cared about the poor we would have tuned the motor and created noble social engineering that ran properly. I agree with a certain degree with social engineering, but what is dangerous is when it becomes a sacred cow and you can't even be critical of it when it needs to be tuned.

The reason why I am hammering Democrats is because they control power. If you look at my posts a few years ago, I was hammering Bush. My concern today is that we elected Obama for a fresh start, change. Because he chose Geithner and Summers, as he peels back the onion and realizes that these guys and other allies like Schumer and Hoyer and Frank made the wrong call with allowing Adjustable Rate Mortgages, lowering lending standards to too much of a degree (subprime), letting it magnify with the Commodities Futures Modernization Act, and removing the firewall between commercial and investment banking in Graham Leachy or the repeal of Glass Steagall. These guys have to admit that they were wrong and because we have these guys in office, they will stand by these bad decisions because their names are on it. Volkler is liked so much because he was the voice of opposition back then and he is being muffled now by the same voices that made the wrong call back then. And Renting, if Volkler had a lot of criticism specific to CRA out there, he wouldn't even be considered to be an Obama advisor. It's kind of like answering the question of "Do you think Clinton was wrong with the whole Monica Lewinsky thing", by saying "lying under oath is wrong". You can avoid saying "Clinton was wrong", by saying "Lying under oath is wrong". (by the way, I never gave a shit about Clinton and Lewinsky; that was a big waste of time and taxpayer money).

When the subject of subprime lending came up, Democrats schooled together (the defense mechanism of schooling; kind of like herding). In defending CRA they defended subprime lending; the percentage of subprime loans that were CRA is beside the point, the truth is that if banks didn't offer subprime lending they risked having to be forced to be under CRA control; most people try to deny this invisible hand. If you disagree, how do you rationalize the Sarbanes-Oxley Act of 2002 where Bush proposed, get this, REGULATIONS for the financial industry. The Democrats fought those regulations being applied to GSE's like Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac were totally corrupt and we have video footage of Barney Frank and others claiming that there wasn't a housing bubble and Fannie and Freddie weren't under any significant risk. I dont' need to read a book when I can see actual footage of the man saying the most absolute incorrect thing. This is the truth and there is no denying it in an information age; you're either on the side of truth or you're not.

Where I do side with ACORN is in their claim that banks were putting people in subprime categories that shouldn't have been. What people failed to realize was that by not being open to criticism of the aggregate load of the subprime lending which was magnified by these newly created derivatives, that we were blinded to the real risk to the poor which was that weight collapsing on them. I mean a bad economy hurts the poor the worst and by being critical of subprime lending and the magnification thereof to limit the risks of an overall collapse, one actually shows love and caring for the poor. When a parent scolds their kid when they run out in the street, it is an expression of love provided they don't enjoy the brutality in being brutally honest.

This is a source that is biased for sure, so take it with a grain of salt, but it does lay out the breadcrumbs.

http://www.therudenews.com/archives/1263


http://en.wikipedia.org/wiki/Garn-St_Germain_Depository_Institutions_Act


from above:

[john p]

http://images.politico.com/global/news/091222_nelson_schumer_ctsy_full_size.JPG

[Renting in Mass]

[CL]

I think if there is one politician who is going to be forthright and not afraid of saying the right thing despite of the potential painful outcome, it's Volcker.

[john p]

I think Volker is smart enough to know that the CRA wasn't part of the solution.

http://www.nytimes.com/2009/02/05/business/05bank.html

He wants to end Fannie Mae and Freddie Mac; what does that tell you?

from above:

[mpr]

Asking whether the pro home ownership tilt of the govt is wise social/economic policy is certainly reasonable. However I dont buy
that this was a contributor to the crisis:

First that tilt - the tax deduction etc - has been around a long time.
Nothing changed after 2000 or in the few years following that when the
bubble began. So you have to explain why the bubble happened then
as opposed to earlier if you think that was a driver.

Second its clear that the bubble was fueled by credit supply rather than
by credit demand. For example, the banks began manufacturing synthetic
MBS because there was not enough of the real thing.

Perhaps you just mean that the home ownership culture encouraged
people to take on more debt than they could afford. That is certainly
true, but I regard the availability of that credit as the driver. From a cold
rational point of view those who took out no money down mortgages
were acting rationally, since they got a free option on the property.

I do agree with your points 1) and 2) below, but they seem to completely
exonerate CRA: if institutions unconnected to CRA were aggressively
lending to subprime borrowers it surely was a function of the market.

Of course Johnp would claim that this behavior took place because
it was legitimized by the federal government. Perhaps you as a fund manager
could tell us the last time you bought a security of some kind because
the government told you it was a great investment .

[balor123]

The housing support was not the cause but I think it could have prevented or at least lessened the impact of the bubble. The impact of housing support is on business, which you are seeing as the wage arbitrage war being fought on America right now. As a result of the deductions there, we have to increase taxes elsewhere.

But setting a goal of home ownership isn't the problem. For that matter, other entitlements aren't a problem either. We can and I think should have universal healthcare. The problem with the Democrats isn't the goals but the means - they have only one tool in their toolbox and it's spending money. They threw money at home ownership instead of looking for ways to make housing naturally cheaper. I think that happens because bringing down costs is unpopular to voters and in large scales a disaster according to economists. For housing they could have passed laws that require growth of housing stock (more land or taller buildings), break up unions that raise the cost of labor, introduce competitors to sticky markets, strengthen eminent domain laws, etc

[CL]

Well, my 2 cents

I don't think CRA alone caused the housing crisis. I don't think the government caused the crisis neither. What I do think is the government did not prevent the crisis from happening when they could, and probably should, have. I think there is a tilt for the government to pick social benefit of homeownership ahead of the potential risk of bubble burst, and that bias led the government and Fed to underestimate the potential risk of asset bubble got out of control. It is not expressed by CRA or other regulations, but by NOT introducing regulations and control when they should have. Like Fed should have raised rate when Taylor rule indicated but didn't, securitization got thinly regulated, investment bank leverage allow to go up without people caring the risk, etc.

You are right in a sense that the consumer action is rational and it's a function of market, but that does not excuse the government from their responsibility to regulate, not regulate, and deciding when/how to do so. I think since the government loves the social benefit of the homeownership, it let the market to accelerate without applying brake, and all bubble bursts after a while.

[mpr]

I totally agree that there was a massive regulatory failure, and
its hard to argue that part of this was not due to tilt towards home
ownership as you say.

However I think one also cant ignore that the same administration
was suspicious of regulation in general and undermined regulation
in many other areas too (clean air/water, food safety etc.)

For example its not clear that when regulators lowered or relaxed
capital requirements for banks they were thinking about access to credit
for home buyers. They simply had an ideological bias against regulation
in the first place.

[balor123]

[john p]

Stepping back, after WWII our nation's economy was very strong. Most of the industrial world had blown themselves to bits and two oceans separated us from much of it. We built most of our infrastructure during the decade following this War.

The 60's we saw had racial tensions and internal stresses of capitalism came up. We saw industry leave areas where the Unions got too strong. The Unions, the academics, the minorities and the old school democrats (mostly hard working immigrants or descendants thereof) formed the basis of the Democratic Party. Equal Rights for Women came into play and formed a plank of the Democratic Party. These "Progressive" Groups gave Democrats a ton of power, and with that power they started to layout a plan to build a stronger middle class. You had JFK quoting Robert Frost, writing legislation to allow Unions into Government, and pushing for Civil Rights.

In the 70's people started to move out of the cities because they were becoming industrial wastelands. Industry was leaving as Unions got too strong and made companies less competitive. Unions started to move into Government and getting a government job required connections. People were getting jobs they weren't qualified for but for what neighborhood or what politician they held signs for. With a corrupt government and a corrupt police force, drugs overran neighborhoods. Gangs controlled neighborhoods and the police were paid off to let the rackets continue. Governments were selling buildings in cities for $1 and giving low interest loans to anyone who would rehab. them. Because there was so much corruption, many contractors were slum lords who would steal from the money set aside for the poor. If they had the right connections with politicians and bought off police an inspection agencies they were clear to practice. Tony Rezko, the slum lord that gave $250k to Obama was of this ilk. Rezko embezzled money meant for the poor and bought off politicians; he was convicted of 16 counts of political corruption. People became "Advocates", and you had advocacy planning. People felt that the corruption was so bad that they were forced to use radical means to protest. Saul Alinsky became a favorite role model; a man who fought against the abuses of the poor in Chicago before WWII. You got a weird mix of the nutcases and the truly inspired. Bill Ayers was a nutcase who bombed government buildings and he would be hanging around others who truly wanted to fight for positive change. Martin Luther King was sort of the opposite of Alinsky in that he wanted goodness and civility to overcome. What happened was that many would be as pure as doves and as wise as serpents (harbor both King and Alinsky in their hearts). This formed the ideology behind creating a sacred cow and then being willing to kick the crap out of anyone who came near it. This ideology created the inbreeding that eventually hurt those it was meant to help. Guys like Al Sharpton are emblematical of this inbreeding in ideology and his nonsense lies in his inability to recognize when any policy has run its course or isn't working to help those it was meant to serve. It is what keeps him from questioning teachers unions and how their self preservation interest actually hurts teaching. Now this isn't to say that what most of these people were fighting for wasn't valid or worthwhile.

Banks, who's job it is to conserve and protect money and limit risk (you put your money in the bank for security) naturally did not want to lend money to neighborhoods that people were fleeing or leaving boarded up and seeing the government selling for $1. Why would a bank absorb such a risk? These neighborhoods were like ganglands completely polluted with violent crime; why on earth wouldn't families head for the hills? In fact, many surrounding communities DID NOT WANT the commuter rail or MBTA to extend into their towns because they didn't want the filth of the city to come to them. The government wanted to arrest this exodus and get capital to come back to these cities. They tried busing and we saw neighborhoods in Mattapan and South Boston throwing rocks at buses of school children. On the flip side there was abundant cheap land surrounding the cities and people could get land and get a cheap ranch or cape built. The surrounding quiet communities tried to arrest the sprawl and created "Snob Zoning" to prevent city people from moving to their town. Chapt 40B came in to override local zoning meant to prevent affordable housing. The Community Reinvestment Act fought the practice of redlining which was bank policy to not lend to neighborhoods where values were plummeting and selling for $1 (typically neighborhoods that had minorities living there). Now, in my mind this is sort of a noble intent, but those that fled the cities were actually leaving beautiful neighborhoods for minorities to buy at very low prices. Now, when someone is dirt poor, $10 might as well be $10,000. Now make no mistake, it was the crime, not the racism that drove people from the cities. The North fought to free the slaves so we were always predisposed to giving relief to minorities, but not many white families wanted to raise their children in areas that were overridden in violent crime. Now academics would come to the aid of the minorities because people were becoming confused with stereotyping. Academics started to make token gestures to pretend like they cared about minorities. Prep schools would give a few scholarships to token blacks from the inner city i.e. Deval Patrick, but you never saw them really make significant steps towards helping beyond the token moves. So if you were from the suburbs you were hearing academics telling you that you were bad for having stereotypes, but you heard people telling you to not even stop at a stop light in Roxbury, and if you were in Roxbury you' have cops telling you "what the hell are you doing here, get the hell out of here". Despite all of this, Massachusetts remained loyal to providing relief and programs for decades to minorities (which I am proud of).

In the 80's, the 128 Belt became more of a white collar technology belt. People began to understand better the divisions between Democrats and Republicans. Democrats were pushing for social programs, equality, fairness, and Republicans were pushing to eliminate crime and behavior that would lead to downward spirals and keep people in a perpetual less fortunate status. The families that bought the cheap houses surrounding Boston, this newly created Middle Class started to have a lot more buying power and labor becomes much, much more expensive. Because people still did not want to invest in the city and the buildings were neglected, instead of painting the homes, because painters now cost a fortune because wages went up (we used to have a skilled lower class but now the skilled workers were middle class), they started to wrap these gorgeous homes in vinyl siding. We started seeing more pressure on oil prices so people were replacing their windows and siding their homes. Many of these tacky vinyl sided homes were absolutely parts of gorgeous neighborhoods. Many families that owned many of these triple deckers and such used to raise the rent on the poor, so wealth would go from the rentals of the poor in the city to the families that owned them in the suburbs. They came out with rent control to keep people from gouging the poor in the city. The rules that went along with rent control completely favored the renter so people weren't looking at property as an investment in these areas. We started to get traffic around the city because families now in the suburbs were still having lots of children like their culture taught them (a culture rooted in agriculture societies). Much of the value structure was Christian based. The Catholics started to control government and Cardinal Mederios, a very humble man from Fall River, taught Catholics to be kind and give liberally to the poor. Because many of these newly empowered people came from modest roots, the anthem was to "Not forget where you came from". If someone started to talk about conservative values, they were considered a "Triple Decker Republican", meaning that once they got out of the triple deckers they were now a rich Republican. Because Massachusetts was still a strong union state, industry kept leaving Massachusetts. Dukakis opened up the flood gates and hired many politically connected to the ranks of government. The philosophy was that it was better to give someone a job than to pay them welfare. At the time, government jobs paid much less, but as unions began to control the public sector, their wages started to go up. As industry was leaving Boston, we were neglecting and overloading our infrastructure, and we put too many in the ranks of government.

On a Federal Level Democrats introduced laws to help the poor buy homes. Their invention was called the Adjustable Rate Mortgage. We started getting into the business of creating little short term fixes. Inflation was a big worry an interest rates made homes a lot less affordable. This invention by the Democrats, the adjustable rate mortgage was put into place to help the poor, but as we now know actually hurt many of them. I remember recently listening to Chris Rock who was talking about how people's mortgage rates would go up $1,000 from one month to the next; and then he proceeded to blame Bush. What is funny is that the ARMS were invented by the Democrats. During the 80's we also saw Democratic policies meant to help the poor actually hurting the minority culture. Welfare benefits often rewarded unwed mothers. People actually got less benefits for being married so it wasn't in their best interest to get married. Conservatives saw this breakdown of the family unit as a poison to the minorities culture and their messaging was so out of touch that people just laughed at them. Conservatives cared and believed in the family but many became too preachy and judgmental. Conservatives saw that drugs were decimating the poorer areas and George H. Bush got really tough to fight drugs to purge them from the poor neighborhoods. Nancy Reagan had the "Just Say No" mantra that people laughed at. She was considered a joke for trying to get people to stop having underage sex out of wedlock and taking drugs. Cultural icons at the time, the liberal elite, were promoting sex and drugs so Conservatives saw this as a poison to the poor and a major reason why they were they were in this perpetual downward spiral. What is interesting was that when Obama mentioned that many black fathers were being irresponsible it got Jesse Jackson to say "I want to cut his balls off".

In the 90's Clinton saw that the policies of Welfare were keeping people stuck for decades. We barely had any industry in Massachusetts so the poor couldn't even access skills and the jobs available to them were the McDonalds assembly line type. The middle class were also part of this new assembly line style, and the skilled labor started to become upper middle class. Now, you really had a hard time getting a contractor to come to fix something. Contractors were becoming wealthy. It became cheaper to see a show at the Wang Center than a Patriots Game. You'd start to see the no-show workers at the MBTA talking about their stock portfolios at the golf course. You started seeing Mayors of major cities getting caught with cocaine and with hookers. Governments started to neglect the infrastructure and cut out certain parts of their Budgets entirely. They started adding fees and to tolls. Meanwhile the money kept pouring in to these local agencies like ACORN who administered it. Deval Patrick worked for the NAACP and worked to try to release a grandmother rapist because he claimed that the jurors were bigots. They found that Ben LeGuer was actually guilty after DNA testing. Deval Patrick gets a job with Clinton and when the Democrats are out of office, he gets on the Board of Ameriquest and collects hundreds of thousands of dollars by one of the worst predatory lenders.

At the end of the 90's and into the 2000's we started to get this unholy marriage of banking and these democratic groups that were fronting as helping the poor but really were now the third generation who were exploiting the systems and were profiting on others misfortune. They didn't want people to ever be fortunate, it was too profitable to keep the poor down. The worst of what a Democrat is would be that everyone is on food stamps, that the politically connected control the food stamps and sell them to the black market, like the Tony Rezkos, and they buy off the police to keep the racket going. This was the 70's, and with Obama we might get it again. Imagine the waste in the caulking for clunkers; imagine the inspectors who get bought off to say that the work is done when people have just pocketed the money and given a taste to the hacks. The MBTA no show inspectors were political appointees, one of which was a former Union President. Now an inspector can make one's life miserable unfairly and another's easy. This is why inspectors are typically political appointees; to keep money flowing to their cronies. When a system gets polluted, it can take a decade to purge itself. This is the gridlock we are very close to right now. The problem is that it isn't just small time corruption like Tony Rezko, it is big time corruption and both certain Democrats and Republicans with the banks are steering us towards a total system failure. It was both Democrats and Republicans who invented ARMS, allowed for the securitization of subprime loans, repealed Glass Steagall, gave us the Commodities Future's Modernization Act which allowed the magnitude of subprime lending to scales that took down our economy, etc. etc.

My fear is that people aren't opening their eyes to see that those that are pretending to help them are actually the predators and we then find ourselves fighting in a Democrat versus Republican argument when in fact, those two groups got tired of fighting eachother and are now passing legislation where they both get their cronies their pieces of the pie. This is the downward spiral, when both Parties don't care, or the individuals who do care are either caught up in a political debate that they can't see the forest from the trees. Think about it, Deval Patrick got hundreds of thousands of dollars by being the token minority to sit on the Board of Ameriquest, one of the worst predatory lenders that targetted the weak and the poor. He was a Judas to his people and he made rich white men richer. He didn't follow in the footsteps of MLK, he preyed on the poor and minorities and the sad thing is that they don't even understand that. Further, he is pushing for casinos that totally prey on the poor. How can a Democrat say that casinos don't prey on the poor? Wake up, many Democrats are on the take by rich people that want to prey on the weakest in our community. I think that Massachusetts people aren't dumb and the reason why the Independents are growing is that we recognize the unholy alliance between corrupt democrats and republicans i.e. Deval Patricks and Jack Abramhoff.

[john p]

Hey MPR:

I read your book "The Origin of Financial Crises" by George Cooper.

http://3.bp.blogspot.com/_SZwAMJo1dp0/SyQYP85NaYI/AAAAAAAAAPA/vm_-P5lfl2U/s400/41GuqZGWFRL._SL500_.jpg

My favorite part is that the guy who designed the cover gives himself a credit line on the back cover. This cover design sucks....

Anyway, I have an MBA so like 95% of the book was matter I already knew; he is a very nice writer so it was entertaining and his analogies certainly help smooth out one's understanding.

I couldn't find any section of the book that counters anything that I have said; if you disagree, give me the chapter and section. In fact, on this blog I have talked about tuned dampers...

I'd like to talk about two points:

The first has to do with the structural force of uplift. Cooper's premise is that credit expansion creates bubbles and those on the ground are helpless and just get sucked up.

http://www.chamberlinltd.com/attachments/contentmanagers/817/Ronnie%20Erdman%20_%20wind%20uplift.jpg

The above link shows a billowing like a bubble of a roof membrane due to uplift.

Here is how in my industry we control bubbles:

http://www.imetco.com/images/FEMA%20wind_zones.gif

We identify where the wind loads are.

http://www.ultraframe-conservatories.co.uk/image/Roof%20Test.jpg

http://www.roofingcontractor.com/Articles/Feature_Article/33165f18c67ad010VgnVCM100000f932a8c0____

We look at the wind zones, we look at the microenvironment, the location of the building and we model the scenario and create a performance factor rating. We have ratings like FM-90, FM-120 etc. Factory Mutual is an INSURANCE company that rates the performance of construction assemblies and assigns the suitability to the environment they are used. These "stress" tests are part of our Industry, and is a new deal to the Financial Industry. The difference is in my industry we have creative, problem solvers who actually take professional responsibility seriously and we care about our users.

I see the problems as being manageable. Uplifting forces from credit expansion can be held down through fundamentals. If banks were forced to lend within certain underwriting benchmarks i.e. price to earnings or debt ratios, the banks would eventually not be able to lend to people and the brakes of capitalism would work. When the Democrats invented Adjustable Rate Mortgages, allowed the securitization of subprime loans, encouraged subprime lending, magnified risk by signing legislation that increased leverage limits and allowing exotic derivatives (the Commodity Futures Modernization Act), they allowed too much slack. That roof membrane is just going to fly up like a sheet in the wind. It needs to be pinned down with anchors, and those anchors are affordability benchmarks and underwriting in lending. The Democrat's policy left the people they care about defenseless to uplift. The internal stress of a family struggling to make a payment is like the screws that hold down the roof membrane. Democrats don't want individuals to feel any load, and without any screws, the whole roof fails. Individuals in a government of the people need to take load and hold when the storm comes because if there are enough screws pinned down with fundamental affordability underwriting policy, there is safety in numbers (more screws). An FM-120 roof has more roof anchors and has a specific spacing than say an FM-90 roof.

The second point relates to Cooper's "Governor" concept. This was my favorite part of the book. Cooper states that as say a saw that cuts logs needs a governor to tune up and down the speed depending on the resistance and how the cycles of up and down resistance are like the surges of credit bubbles and how instability is more the norm than the exception. He states that the central bank ought to manage the turbulence. My view is that standing outside of the problem like he describes is one way, but his premise is also kind of based on the notion that people in the investment industry are irresponsible, greedy and stupid. I look at it like if a motor is creating too many vibrations, maybe it needs to be tuned or redesigned. The sound and vibration of a Harley Davidson is actually based on an imperfection in the engine design. The Japanese motorcycles run much quieter and are much more powerful, yet, Harley Davidson has a patent on it's flawed engine design and actually the sound it makes... Anyway, a good mechanical engineer would look at the ratio of the gears, the spacing and proportion of them and all the other parts. An Efficient Market can exist if people actually know how to read Income Statements, Cash Flow, Balance Sheets, Annual Reports, Moody's Ratings and understand markets, customers, product life cycles etc. Sure excess capital will come in and out and cause distortions and resistance, but what I'm saying is that what Cooper says the Central Banks ought to do as a "Governor", I'm saying each business leader should also govern themselves accordingly.

If you notice any theme from me I hope it is this: We are a Government of the People; individuals need to take load and govern themselves accordingly. Academics and elites believe that power ought to be centralized because they think that everyday people are morons and susceptible to be blown away with the wind. I am a builder and I know you need to build a society one individual at a time from the ground up. Who we are as individuals is our constitution. The collective constitution of individuals creates the Constitution of our Nation. I don't believe in heros or centralized power; I believe what the Founding Fathers believe, that power corrupts. Our values are our governors and if we are weak and can be easily uprooted we're a weak society.

Beyond that, I'd like to discuss Cooper's points relative to say government budgeting. I was on my town's finance committee. We had an operating budget and a capital budget. Operating Budgets we had a handle on and we paid for them with revenue. Capital Budgets were mostly paid with revenue, but larger projects like building a new school required debt. What I was pressing for was having an amortization schedule of all capital elements of the town so that we had a sense of when a building needed to be rebuilt, a roof redone etc. One could look at a budget and see a small debt amount and think that things were great, but if all the buildings and infrastructure were on borrowed time there was a big bill ahead of us. Now step back and think about the spending for WWII, Korea, Vietnam, the War on Terror etc. Think about the huge amount of spending to build our infrastructure during the Eisenhower years. Think about the spending that was done in the Military to end the Cold War and how that afforded prosperity and Clinton to significantly cut Military Spending. Think about how our $650 Billion Military acts like a GOVERNOR. We are the policeman of the world and by being as benevolent as superpower as has ever been seen in History the Economy we have contained many serious risks. Prior generations had crazies i.e. Hitler. We also had our own Hitlers, but we were able to keep them in check. Miloshevic and Bin Laden would have been more destructive if we were not as powerful. The world is better off for our Military. I know it is sport for academics and many in the international to bash the US, but we have provided security for hundreds of millions in the earth.

I'd like to ask Cooper when he thought we ever had it right. I talk to my father and ask when things were ever right. He says that things were always a bit fucked up and there was always risk. I told him that our bubbles were bigger than prior decades, and he said that our generation never had to worry about being drafted. The expansion and contraction of credit often has to do with rebuilding after War and that during a huge global expansion, millions each month are buying their first cell phone, first house, etc. China and India are exploding; of course the M3 is going to expand and these markets go online. By having the US Dollar as the global median of exchange, the velocity of flow is creating a negative pressure in our more contained market and you can boil water using negative pressure, and that was the bubble, it was like the heat of decay like a pile of fermenting corn.

What we need are builders; builders of men and builders of societies and we need to learn from their values. We need professionals who take responsibility and are smart enough to solve problems and anchor us to weather any storm. I coached lacrosse one time and I was having trouble understanding why the flow was getting impeded, so I put on my helmet and got in there to see what these guys saw. On paper certain things worked, but you have to get in there and get your hands dirty to see the real breaks in the game. The academic community came out with this bullshit that there are managers and there are leaders. This was just an excuse for laziness and a hall pass for these elites to circumvent their formative learning in the trenches. We have too many non technical people who don't have the capacity to understand or solve problems. I mean Lawrence Summers?

We need Thomas Edisons, Henry Fords, etc.

[mpr]