Maggie's Farm

The idea that success is indicative of bad character has very little to do with a Right/Left dynamic. I see it every day.

"It's all about not getting caught."

Well, we hear that in the Olympics, and other sporting events, don't we? If you don't get called out for something, but win, then clearly you're doing something wrong and not getting caught. This is a very common assumption.

I have heard it at cocktail parties with Wall Street bankers who are neighbors of mine. I have no idea what they may do that isn't 'getting them caught', but it's a common refrain. So many parents have used the line "as long as you don't get caught" with their kids.

I never use it. I tell my boys if they get caught, they can expect consequences, so it's better to just avoid the potential of getting caught. It's a tremendous incentive.

It's true the Left is using this as a central part of their view on life. If you're successful, it's because of something you didn't get caught at, or at least it's not because of anything you did right.

Vince Lombardi had it right, though.
http://www.conservativeforum.org/essaysform.asp?ID=12129

"You know, we talk -- right now -- one of the great topics is American freedom, and I think we confuse it with license. There is a great difference. I think before we can embrace freedom we first have to embrace those things which underline freedom, and they are duty, respect for authority, and a development of a mental discipline."

"None of us is born equal, in spite of everything they say about it -- we are born only in certain inalienable rights. But we are born rather unequal. However, I want to say that the talented are no more responsible for their birthright than the underprivileged are and the measurement of each man should be what each does and I want to say that it is becoming increasingly difficult to be tolerant of a society who has sympathy only for the misfit, only for the maladjusted, only for the criminal, and only for the loser.


I think we should have sympathy for them, certainly. I think we should help them, certainly. But I think it is also the time in this country to cheer for, to stand up for, to slap on the back the doer, the achiever, a man who recognizes a problem and does something about it, the winner."

Anyone who thinks the Fed didn't cause the bubble and collapse is simply engaging passive ignorance. It doesn't take much intelligence to know that artificially reducing interest rates will lead people to borrow money they shouldn't.
To be quite honest, I'm considering being stupid right now and taking out a massive loan against my home simply because the rates are so low and, at some point in the very near future, I'll be able to earn that amount and much more back when interest rates rise. But in doing this, I will produce exactly nothing...I will only be shifting dollar bills around.

There is a role for shifting dollar bills when they are being used for capital formation and increases in productive capacity. When the shifting is done for the sake of making huge amounts from tiny margins on the side, which is essentially what has been going on for years, all you do is misallocate resources.

Nothing illegal in all this, of course. Not systemically, or economically anyway. But certainly when money is easy or politics is geared toward certain economic outcomes, moral conduct is often set aside. This is neither a Republican or a Democrat dynamic, it's simply human nature and it's one reason why the Fed is completely and utterly at the center of all that is wrong with the economy right now.

If you've ever done work on a house, you know the phrase "measure twice, cut once."

Saying the Fed should've done more after the problems occurred is always easy in hindsight. Part of the issue with having a Fed is that you have people who say there is no problem (uh - the Fed) and then people who say more should've been done when the problem was recognized (the Fed).

Nobody takes the time to ask what role the people saying these things played.

The "demand for mortgage-backed securities" isn't something that came from nowhere. It developed because it offered outsized returns vis-a-vis the interest rate environment. Which, as you know, was created. By the Fed.

Focusing on the symptom doesn't give you a clue on how to fix the problem. When I've cut the board by 1/8th of an inch more than I needed, will more cutting fix it? Nope....but I suppose in politics you have to try and prove you're doing something - so ask for it to be cut to fit again and you can claim you're "doing something". Even if that something does nothing of value.

The "invention of new securities" didn't occur because something needed to be invented. It occurred because an environment was created by the Fed which allowed for the invention of these securities. Once again, you focus on the symptom, not the disease. You say the buying was based on the belief that prices would only go up - but what CAUSED that belief to become so entrenched? Low interest rates. Rates that were too low, for too long.

I do disagree with Hetzel in the sense that more should've been done after the fact. This is absurdist thought at its worst. I created the problem by lowering rates, so we need to lower rates to fix the problem? I know people think the situation was caused by the Fed raising rates too far - but many have already shown that the problem wasn't that they were raised, but they were so low to begin with. That's like saying suffering through the DTs during rehab is the fault of not drinking anymore. Technically, yes, that's true. But you don't need to go through DTs if you don't drink so much in the first place.

"Which is why we pointed out they were working blind" - which has little or nothing to do with the point I was making. After the fact, I could tell you that you shouldn't have become an alcoholic, or that you should've gone through rehab earlier. Either way, it doesn't necessarily mean you. I'm not sure how that informs the current situation at all. He can always say they could have done more, and others can reasonably argue that less could've been done, for a variety of reasons. Once you're an alcoholic, you don't say we need to treat the patient with more alcohol, we need to be more aggressive in treating those DTs. You have to follow the process to get the correct result.

If the Fed knew what it was doing, and it clearly doesn't, then we would be 'better' already. If the Fed knew what it was doing, and it clearly doesn't, then the situation would never have occurred. I had a long conversation with a colleague of mine in Hong Kong in 2002, a fellow who was heavily invested in stocks and pulling out and putting money in gold over the course of the year. He said Greenspan had lost his marbles sometime in late 1997 and was irrevocably lost to the world. At that point, I didn't agree with him. Hindsight being 20/20, I know now what he meant and agree 100%. This fellow has made a mint realizing that gold is the place to be, and for all the reasons I've changed my views on the Fed over the years.
He remains convinced the dollar will collapse soon after the Euro.

I'd agree with him on the Euro, though I'm less convinced the dollar will soon follow. People will flee to it briefly assuming it is 'more stable'. This will create a short period of stability before it comes unglued.

We shall see. I blame the Fed, and I'm a former fan. And I consider Greenspan quotes post 1998 to be misleading, disingenuous, and self-serving on his part.

We may.
I consider it one of the dumbest ideas I ever came up with, but once interest rates start to rise it won't take long to cash in (particularly since I get a tax write-off, too). But I can get fixed mortgage rates that are just stupid low (and they may go lower in 2-3 weeks, so I'm going to step back and wait since I believe another ridiculous Operation Twist is about to commence, which will solve absolutely nothing, but get plenty more people deeply into debt when they see how low rates can go).

Sounds like you invested it wisely, too, so you get an immediate return. There isn't much I can do that with. Wind, solar and most other alternatives are all mediocre investments around me. I'd love to get off the grid, but even with stupid low rates, write-offs, and subsidies, it's still 20 years to break even. On the other hand I believe I could make break even in 4-5 once rates start to rise again, simply by shoveling the money into short term CDs.

I always laugh at people who think it wasn't the low rates that caused the problem, but the fact rates were rising. Or that it's the 'financial inventions' which caused the problem. These are people who don't take their cars in for a regular tune-up, start to hear a knocking in the engine, and then complain about the car manufacturer making sub-quality products. Then they take it to a mechanic and gripe when he charges them a fortune to fix a blown rod. They don't want to recognize the damage started because a simple step should've been taken and wasn't.