Category: speculation

Why Why the German Republic Fell is Hard to Find

Bruno Heilig’s 1938 essay Why the German Republic Fell is posted and freely available on the Internet. Unfortunately, the Scholars at the School of Cooperative Individualism are not the world’s greatest proofreaders, so google has some trouble finding it, but it is here.  There is also a nice abridgement here.  Hardcopy, of course, is for sale cheap at Schalkenbach.

I read this booklet about 25 years ago, didn’t remember a thing about it, but hoped it would give me some insight into how the Weimar inflation was dealt with. No such luck, it really begins after inflation had been tamed and prosperity commenced, but it’s all the more worthwhile for that.   Heilig asserts that the rise of Hitler was caused by land speculation. I am no expert in German history, but he does seem to make a good case.

Not by land speculation exclusively, of course, but land speculation as an ingredient along with:

  • public aid to large landlords, encouraging them to withhold land from use
  • privatization, on especially favorable terms to connected individuals and groups
  • failure to fully utilize farmland, resulting in unemployment as well as high food prices
  • tariffs, raising prices of consumer and industrial goods
  • public subsidies to favored enterprises
  • control of the major news media by the landed class

Land prices soared, wages fell, eventually the economy slowed, and:

Although it was obvious that the, “invariable costs” — i.e. the tribute land monopoly exacts from the working people — were eating into all production, the responsible men and the leading exponents of what was taught as economics kept their eyes, as if under some hypnotic influence, fixed upon the worker’s pay-packet.

Reformers advocated unworkable or ineffective solutions: If progress brings poverty, they urged that we retard progress.

The newspapers, of course, served the interests of their owners:

I need not explain what that propaganda organization meant in operation. Its effect was to sway public opinion into believing that the interests of the landowners were the interests of the nation. Subsidizing the landlords was the accepted policy for preserving and even saving the sources of subsistence of the people: the higher tariff walls were for the benefit of the wage-earning population: increase in land values meant increase in the national wealth: and so on…

[A]s unemployment grew, and with it poverty and the fear of poverty, so grew the influence of the Nazi Party, which was making its lavish promises to the frustrated and its violent appeal to the revenges of a populace aware of its wrongs but condemned to hear only a malignant and distorted explanation of them.

Much in this essay is similar to today, tho Heilig never uses words like “TIF” or “terrorism.”  Some things are decidely different, for example I don’t think Germany at the time had anything like a well-paid public employee class, nor a large class of small-scale investors, such as workers with 401k’s.  But it’s easy to see how today’s conditions could lead to similar results.

Car plague and bankster plague intersect

I have long tried to avoid any dealings with the various tentacles of Chase Morgan Stanley, figuring somehow or other I would be injured by them.  Apparently, at least in Colorado, some (or all?) of their staff are exempt from prosecution for assault.  Google finds only two reports, one from the UK Daily Mail , one from the Vail Daily, local to the event.

In case these links disappear, the first three sentences from the Daily Mail story give a pretty good summary.

A financial manager for wealthy clients will not face charges for a hit-and-run because it could jeopardise his job, it has been revealed. Martin Joel Erzinger, 52, was set to face felony charges for running over a doctor who he hit from behind in his 2010 Mercedes Benz, and then speeding off. But now he will simply face two misdemeanour traffic charges from the July 3 incident in Eagle, Colorado.

And from the Daily Vail:

Erzinger, an Arrowhead homeowner, is a director in private wealth management at Morgan Stanley Smith Barney in Denver. His biography on Worth.com states that Erzinger is “dedicated to ultra high net worth individuals, their families and foundations.”

Erzinger manages more than $1 billion in assets. He would have to publicly disclose any felony charge within 30 days, according to North American Securities Dealers regulations.

The decision to drop felony charges was made by the local prosecutor, over the victim’s objections.  One infers from the articles that the Erzinger will pay some monetary restitution.

More details from the Daily Vail:

Erzinger drove all the way through Avon, the town’s roundabouts, under I-70 and stopped in the Pizza Hut parking lot where he called the Mercedes auto assistance service to report damage to his vehicle, and asked that his car be towed, records show. He did not ask for law enforcement assistance, according to court records.

Erzinger told police he was unaware he had hit Milo, court documents say….

Meanwhile another motorist, Steven Lay of Eagle, stopped to help Milo and called 911.

It appears that neither the perpetrator nor the victim is British, so it’s kind of curious why the Daily Mail covered this.  Or maybe more curious why only one paper in North America did.

ht Naked Capitalism

Are you smarter than a hedge fund trader?

As for me, I’m just a little dumber than average, among the people who undertook the Trader’s Brain Scan, a test of memory and pattern recognition skills which presumably are important to profitable trading in financial markets.  Nothing on the test about bribing Congressbeings or extracting inside information from officials. Maybe that’s in one of the other modules.

This is among a dozen tests for (actual or aspiring) investors, traders, and entrepreneurs at Marketpsych.  Free registration (giving them an email address and signing their agreement) is required, but the results appear right in your browser as well as in the emails they send, and your name is not requested.

Medallion prices now posted by Chicago Dispatcher

Now that Chicago Dispatcher is posting Chicago taxi medallion sales prices in a defined area of their web site, it may no longer be useful to post any of them here. (Chicago Dispatcher’s print edition was the source for all recent reports I posted, but posting of the information on the web wasn’t consistent.) They continue to calculate an “average” monthly price; unfortunately it seems to be a mean or mode, not a median. At last report (pdf), this figure was $183,000, indicating little change in recent months.

Taking risk for modest returns

As interest rates on “safe” bonds and CD’s decline, those with cash to invest may look to riskier options in order to generate significant return. M P McQueen in the WSJ identifies possibilities including cellphone towers, self-storage facilities, parking lots, and offcampus student housing.

The article notes some cases of > 100% returns, but what’s scary is the indication that an ordinary investor with reasonable luck is told to expect returns more in the range of 7% – 10%.  Does that compensate for the risk involved?  Or is everyone still counting on selling out at a profit several years down the road?

Of course another option is peer-to-peer lending, such as Lending Club or Prosper, who claim returns in the same range. There’s still plenty of risk, but a modest investor can diversify by participating in a hundred or more loans.  Liquidity is limited, but at least in the case of Lending Club loans can be bought and sold (no guarantees about the price, however).

Time to buy land?

Bloomberg reports that upscale homebuilder Toll Brothers is starting to buy land even tho it already has enough for 15 years of development at current rates. This is a change from the prior several quarters, when they disposed of most of the lots they had held.  And Toll isn’t alone. “The 12 largest homebuilders by market value added 14,214 lots to their control over their two most recent quarters.”

It appears Toll spent $27 million in recent weeks to purchase land interests from a failed bank at “40 cents on the dollar,” presumably 40% of what somebody claimed the land was worth at one time.  This is just part of a reported $250 million that Toll has spent to acquire land so far in 2010. Still, they seem to have over $1 billion in cash available for further purchases.

Securities analysts quoted by Bloomberg don’t appear impressed by this strategy, suggesting that the cash would be better used to buy back shares, or acquire one of their more down-market competitors.  I dunno, somebody is gonna buy land at the bottom, maybe it’s Toll?

Steve Keen on the financial crisis

Aussie economist Steve Keen, whom I have mentioned before in an investing context, has interesting recommendations for dealing with our economic meltdown.  His analysis distinguishes between capitalists and financiers, recognizing the former as labor’s allies in the production of wealth, and the latter as parasites who crashed the economy. His immediate solution for rebooting the economy now is that about 2/3 of the debt needs to be written off, tho he recognizes that legitimate savers must be protected in this process.

But long term, how to prevent something like this from happening again?  It seems that his key proposal is to restrict stock trading. Corporations could still issue stock, with voting and dividends as today.  And the stock could be traded.  However, as soon as a share of stock is traded, its “perpetual” life would be shortened to 30 years.  He says that would prevent people from leveraging the purchase of stock, which represents a big part of the debt that got us in this mess. Certainly it would require investors to look more closely at what their money is actually being used for, and would tend to make corporate ownership more focused on the long-term future.

His second proposal seems to be a restriction on the amount of debt that can be secured by real estate, limiting it to 10 times the rental value. (However, the video is truncated before he can discuss this point.)

How Georgist is this?

In a geoist world, privilege would be eliminated or taxed, including public collection of essentially all economic rent.  As a result, the value of stock could only represent real capital, which generally lasts less than 30 years.  And of course, with rent publicly collected, investors would (we expect) realize that real estate leverage cannot be profitable.  So I think Keen is proposing an alternative, more complicated way of achieving something similar to a Georgist reform.

There’s much more in the video, about his modeling work and the details of the mess we’re in.  Probably the most interesting part is near the end, where he makes his 30-year-limit-on-stock proposal.  The (New York) audience, probably people in the securities business, cannot accept this.  “Who would trade stock if doing so reduced its value?” “If people didn’t trade stock, how would traders know what it was worth?” “If I didn’t buy Microsoft stock when it was first issued, how could I buy it?”

Just as with land, everybody assumes that they will get rich off the stock market.  And that they should.

note: This link (repeated from above) takes you to Keen’s blog article, which includes  links to an MP4 video of the presentation as well as a pptx file (pretty much readable by Impress) of his slides.  There is also a paper (which I did not read).

Martin Wolf wants to socialize land rent

As do pretty much all of us who understand economics from a geoist perspective.  Wolf happens to be a columnist for the influential Financial Times, and in this column he endorses Fred Harrison‘s analysis of the fundamental cause of periodic economic meltdowns.  (Since FT probably won’t leave this accessible for very long, here is the citation:

Financial Times:
Why we must halt the land cycle
By Martin Wolf
Published: July 8 2010 22:28)

But Wolf goes on

Socialising the full rental value of land would destroy the financial system and the wealth of a large part of the public.

As if the recent financial collapses did not very nearly do the same.

That is obviously impossible. But socialising any gain from here on would be far less so.

I believe this was proposed by John Stuart Mill, and evaluated by Henry George as “better than nothing.” Which it is, and had it been seriously and honestly enforced since George’s day we wouldn’t worry much about financial crashes now.

UK-based Wolf also infers that, with land price gains impossible, there might be less need for direct controls on what Americans call “sprawl.”

via Dave Wetzel

More general ignorance of economic fundamentals

Fannie Mae’s new National Housing Survey, intended “to gauge the public’s current attitudes toward housing,” shows that Americans still believe buying a home is a good investment, and socially beneficial. Both ideas are, as Felix Salmon put it, “horribly misguided.”  Public policy subsidizes owner-occupants in numerous ways, all of which get capitalized into the price of real estate making it even less affordable.  One might be able to time the market so as to buy and sell one’s house profitably, but it’s not something to count on and many of us have had things go disasterously the other way.

Salmon’s done a good job of describing some of the social costs

[T]he top two reasons to buy a home are that “it means having a good place to raise children and provide them with a good education”; and “you have a physical structure where you and your family feel safe”. Reading between the lines here, I think that what we’re seeing is the effect of rental ghettoes, and the fact that neighborhoods with high levels of homeownership tend to be safer, and have better schools, than neighborhoods which are mostly owned by landlords. That’s a negative aspect of homeownership, in the grand scheme of things, but it’s clearly here to stay: no one’s anticipating a more sensible world where it’s commonplace to be able to rent a house in a good school district.

And most of those surveyed– renters, unmortgaged owners, mortgaged owners, underwater mortgaged owners– still think that now is a good time to buy themselves a house.  Imagine how they’d react if told that now is a good time to shift more taxes on to the land they want to buy. Will they sit still long enough to understand the mechanism that makes housing easier to afford when land is taxed?

100% mortgages still available…

… at Prairie Park in Beecher, courtesy Uncle Sam. And, with the $8,000 credit Uncle also provides, you’ll take out some cash right away!

I guess the target market is folks who can’t save a few thousand dollars for a down payment. Or maybe the purpose is to keep some construction workers employed, builders solvent, and housing finance gangsters profitable. It’s a Department of Agriculture program, thus the houses are remote enough that any big increase in gasoline prices will be a problem.  (This DOA site indicates that 50,000 homes will be 100% financed, funded by the American Recovery and Reinvestment Act.)

I thought that, at least for a little while, the authorities would pretend to have learned the lesson, that poor people have better uses for their energy and money than becoming highly-leveraged “homeowners.” Silly me.