Monday, December 29, 2008

One giant Ponzi Scheme

For the last couple months i've been thinking about the spiraling downfall of the American economy as based on the loosening of credit standards. In a conversation with my father, he reminded me that historically, banks only made business and corporate loans. For the majority of the American experience, if you wanted to buy a house, you talked to the person that owned the land and made some kind of deal that you could build a house on his land and make payments to buy that parcel of land. If the house already existed, we would in modern terms call this a rent-to-own agreement.

But somehow, someone got the idea that it would be a good thing if people owned their own homes, and Uncle Sam got in the act of creating Freddie Mac and Fannie Mae to help 'average' Americans get enough credit to purchase their own homes. Sometime around the eighties, two things happened that i think laid down the infrastructure of our current downfall. First, lending institutions started lending to a lot more homeowners. Second, the widespread application of the 401(k).

The growth of the 401(k) meant that there were tens of thousands of more new investors in the stock market. This steady influx of money for the next two or three decades fueled the average increase of the price of a stock. The growth of access to consumer credit for home ownership enabled people to purchase houses that were formerly unattainable, not just too expensive. As more and more people got home loans, prices for those homes steadily rose [above historical norms - but that's speculation on my part].

So what's happening, is that people are investing their money and 401(k) are putting money into an inflated product simply because the market price is higher. The same thing for home ownership. But with homeownership its worse.

With home ownership, even though historically prices have been rising (for the reason i mentioned above plus inflation), there is a modicum of risk that you'll owe more than you're worth. This isn't a problem with stocks because you buy stocks outright. Back to homeownership . . .

Now, if you default on your home loan, both you are out of a home, and the bank is out of both its money and its profits. So by giving more people the ability to borrow from banks, this puts them at greater and greater risk the more loans they have. Hence our bubble.

So what was happening in the mortgage industry is that banks would make unsubstantiated loans (see this NYT article). But they weren't left holding the bag because they then sold these loans to investors (whose company smaller investors invested in).

Now, the structure of a Ponzi scheme is that i tell one guy to give me ten dollars and i'll give him twenty next week. then i get two more people to give me ten, and i pay the first guy off. That first guy then re-invests, and gets his friends to invest too. Then i pay off the second group with the new money and the re-investment. Now, what happens is that I then have more and more people coming in to get their guaranteed returns. And the cycle perpetuates until i get less people coming to pay the people already in.

So, we hear of this with the Madoff scandal, which rocked to the tune of 50Billion large (well, small these days). The reason Madoff made off with so much money is that he didn't do the doubling in a week. He paid relatively stead premiums let's say once a month. So if you get a guaranteed return of 12% a year despite what the market does, and over the course of ten years this is guaranteed money, of course you'll tell your friends and associates. That was the wonderment of his Ponzi scheme, the slow but steady returns.

Some folk, including myself, realize or say that the Social Security system has the same structure, and that's why there's what we call an 'unfunded mandate'. But more or less on that later.

Now, though this scheme was working flawlessly for Madoff for his twenty or whatever years in business. I'm saying that that's child's play. I'm saying that the bailout is really a response to a larger uninentional Ponzi scheme. This larger unintentional Ponzi scheme was a direct result of the loosening of available credit using automated software. This automated software that allowed banks to process hundreds of times more loans than before, making 'competition' against the next guy not finding the good borrowers but lending to more and more people. So the housing bubble was perpetrated on selling the higher priced house to the next schlep that comes along. The sorry thing was that the next schlep didn't have to certify that they made enough money to pay the bills, but only that they had half-way decent credit?!

Another thing that accelerated the increase in housing prices was that the couple of schleps in the middle borrowed against and pulled equity out of their houses to pay down unsecured credit card debt (who the hell would trade unsecured credit for secured credit? just stop paying the suckers). So these consumer/homeowners were robbing Peter to Pay paul, and making Timothy foot the bill.

So the confluence of the increase in available credit, automated loan-processing software, laxer lending standards, unsecured credit

The Housing collapse is evidence of the greatest Ponzi scheme ever perpetrated.
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Tuesday, December 16, 2008

we elected the auto bailout

Every once in a while a couple things swirl into a theme. I was listening to NPR earlier today and they were interviewing people who went overwhelmingly for McCain, and are still weary, not hopeful, of an Obama presidency. That was one. Two, i read about the Madoff scandal, I only got interested due to another story on NPR, but that is besides the point, so that's not actually point #2.

The real point #2 is i read on Slate, my favorite e-rag (bad pun on electronic rag/magazine . . . no google hits) a nifty article about the foreign car companies doing wonderful business in the American South. They say it was partly because of the fact that these are 'right-to-work' states. Right-to-work states are those that make illegal the 'forced' collective bargaining rules of some unions that make deals with employers that say that all employees have to at some time sign-up for the union. [the wikipedia article has arguments for and against].

But what got me was when i saw a graphic of the right-to-work states:


as compared to the outcome of the 2008 election:


I found it interesting that the vast majority of right-to-work states went for McCain and the union-friendly states went democratic. This just sparked some thinking along the lines that there's a fundamental schism in American politics, and this shows it. It is the economy stupid. But people vote their wallets, not what's actually in them, but they vote according to how they can and are able to make money.

I still find this hard to swallow, on account of reading the rise of the corporate class across America in the book Who Rules America by William Domhoff and how there is a union vs corporate 'class war' going on and how the white shirts and bean counters got the upper hand. The comparison between these two maps doesn't sit well with the white vs blue collar warfare, as overwhelmingly i don't think of the southern and mid-western states as anything close to wall-street business owner types.

ah well, such are the contradictions and nuances of life. I had the thought it would be nice to have some deep insight that solved this problem, but i've got better things to do than heal the American schism, i just put a guy in office to handle that.
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Thursday, December 11, 2008

typalizer

i just happened upon a link to the typealyzer website. It analyzes blogs to figure out where they sit on the Myers-Briggs typology scale.

I'm an ISTP, or rather my blog is an ISTP. Not bad, in college i was an INTJ. So this means that i'm more connected to the world than my intuition, and i'm less judgmental. Not bad. Not good either. Just is.
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Monday, December 08, 2008

being in communication

So this weekend i helped out on production for a communication course run by Landmark Education. It was fantastic. I already took the course, and it was nice to be able to be a gadfly enough to be able to leave the room, but in there enough to sample the course again.

What i want to talk about is the different perspectives of NLP and LE (Landmark Education). They both deal with humanity, NLP deals with a more scientific/epistemological filter, while LE takes the metaphysical/ontological tack. Both 'systems', if you will, look at the development of humans as individuals, and as communicators. NLP focuses much more on developing effective communication skills than self-development.

NLP suggests that highly effective communicators are adept at creating rapport with people. This means that they can create an experience of familiarity with others. NLPers came to this by looking at and imitating the behavior of highly social folks. What they notice was that people who were in rapport, performed similar behaviors, gestures and sometimes in a nice little rhythm.

What's weird is that people are cautioned to not literally mimic the actions of the other person, but to do miniature motions that approximate the gestures of the person they want to be in rapport with. This is funny, because apparently people have a filter that tells them when others are mocking them, and matching (what NLP calls it) the person's behavior might set of these alarms.

LE, on the other hand, asserts that being in communication or affinity is a way of being, not a set of gestures. A more new-agey take would say that a 'way of being' is the way that your consciousness resonates (pun not intended) throughout your behaviors to influence it. So when you are being related to someone, you overtly and subtly behave in a way that that person picks up on your comfort and connection with them, but they probably couldn't put their finger, nose or ear on just what it is about how you're acting that tells them your comfortable with them. As opposed to, say, you doing the same things while being bad. It isn't the inflection of the voice, its the inflections of the inflections that resonate and broadcast our 'way of being' or emotional state. [note to reader: i wrote the section you just read after having written the section you're about to read]

Both of these positions seem different, and seemingly irreconciliable. But i think the clue is something i learned in high-school chemistry. My teacher (a real nerdy physicist with a sense of humor, man i forgot his name) asked us when we were learning about waves and stuff "if a flute and a piano both make the same note, let's say 'middle C', why do they sound different". I blurted out sub-cycles somehow, and he said 'correct'.

what?

Yeah, notes vibrate at different frequencies. When two different instruments make the same note, the vibrations have their own set of vibrations (see fractals if you're bored). I think this gives a clue as to the seeming discrepancy.

So, if i'm being angry, then my behavior is going to go one way. But if i'm being delighted, then my behavior might go another way. I'm asserting that even if i perform the same 'exact' gesture while being those different states, you'll be able to tell that there's a difference between the two 'mental states' or 'ways of being'.

What i'm supposing is that embedded in human behavior, there is another layer of behavior that's a little deeper than we may be able to consciously notice. Sure, i can 'sound' like i'm delighted or angry, but that may not be the case. How you can know when i'm faking is the fact that you can pick on the 'sub-cycles' of my communications.

I think that's all i wanted to say. That being an expert at creating rapport, attempting to not 'be in rapport' has a limit past which you cannot go because the NLPers are unable to convince the other person of their 'congruency' without actually being congruent (word choice unintended).
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network of conversations 'bout marriage

So, i'm engaged. And i was exchanging messages with an old friend on facebook, and she asked why i didn't respond to her "congrats". At first, i thought not much of it and said that i started to take the congrats for granted. Then i left it at that.

Not two minutes later i realized why i take the congrats with a grain of salt. What happens is that i find that a lot of people my age are getting married. And, it seems that people i know about ten or so years older, are getting divorced. So it seems like people are getting divorced like its a new pair of hot shoes. And i don't want those shoes. So i'm a little scared (when looking from the outside, at statistics, not from the quality of my relationship) that it's predictable that i'd get divorced sometime in the future.

I thought a few seconds later (and wrote this too) that saying congrats to someone getting married is like congratulating someone on getting a new job at Ford or Goldman Sachs. Granted, the job is great, but the environment surrounding the job seems toxic. knamean?

Now, about being married for a long time. There's a group (i'm too lazy to find them) that tape record a couple having an argument, while hooked up to all kinds of machines which measure heart rate, blood pressure etc, who can predict with like 90% accuracy whether a couple will stay married or get a divorce. Apparently, how people habitually react to the other person's communications stabilizes, and if their reactions are negative, then it predicts a tumultuous relationship leading to divorce.

My remedy is my knowledge of communication that i've learned from Neuro-Linguisitic Programming (NLP) and my experience as an introduction leader for Landmark Education. Both of these technologies/educational methodologies place a premium on open, honest and flexible communication. I figure that i'm a bit insulated from getting stuck in too many patterns, cuz i see them in a matter of weeks (even though sometimes i leave them alone, and don't do nothin about them). So i figure i'm good. But that's just my opinion. The proof will be in the 50 year anniversary. 2059, here we come!!!
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