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RE: [LandCafe] AIG/Lehman lessons

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  • Harry Pollard
    Mark, What other collectibles - other than land - are you thinking of? You said: Most of the leveraged credit has been used to buy land, fuelling the land
    Message 1 of 18 , Oct 6, 2008
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      Mark,

      What other collectibles - other than land - are you thinking of?

      You said:

      "Most of the leveraged credit has been used to buy land, fuelling the
      land price boom."

      I think it was the land price bubble that fueled leverage credit and
      the other financial skullduggery.

      When you are going to double your money in 6 months, or one month, or
      next week, I think credit will find a way.

      The stock market registers what people think of things and did in
      1929.

      You'll remember less than ten years ago, the stock market run-up (as
      good an example of collectible speculation as one could get). It was a
      bubble in which the analysts could only bleat about p/e ratios. A
      significant characteristic of collectors is that their attention is on
      price. They couldn't care less about income - a characteristic shared
      with "collectors" of land.

      Before that, when the stock market collapsed on "Black Monday" the one
      day drop was more severe than any day during the Depression - yet the
      economy didn't crash. The factories went on producing, the service
      sector kept on servicing - no-one appeared to notice. In the Market,
      some lost and others gained. No big deal (except to those who lost).

      Try this scenario - rack-rent is constantly bleeding production away
      rising as the economy advances. This leaves no room for error. If
      anything shakes the economy, the lot is likely to come down. doesn't
      need a great shock. InterStudent uses the following to explain this.

      Let's say that in the normal course of things, 6 factories fail. These
      factories are replaced by 7 other factories - the extra factory for
      the increasing labor force. However, land prices have increased so
      much that the seventh factory cannot be built.

      So, six factories fail, six factories are built. Everything seems
      fine. However, the people who would earn wages in the 7th factory -
      don't! Without wages they don't buy. The sixth factory makes fewer
      sales and as it could barely make the rack-rent, it goes out of
      business. Now the fifth factory is in trouble and then the fourth -
      and so it goes.

      The bubble is something different. This is a purely collectible
      phenomenon and I would separate it from the pressures of rack-rent. It
      is on all fours with the tulip craze, the exorbitant prices paid for
      Paddington bears, the Beanie Babies, and other "irrational
      exuberances".

      The difference with the present bubble, which is significant, is that
      we live in houses. What happens to collectible tulip bulbs, or
      Beanies, isn't altogether significant (except to those who found
      themselves with a garage filled with Beanies that no-one wanted).

      With this bubble, a sizeable number of those who speculated in houses
      live in what has become something special - their home.

      Most will try to keep their homes, many will lose them.

      Without doubt, the clever people in the mortgage business were largely
      responsible for getting people in over their heads. Yet, they had a
      template provided by Fanny and Freddy. Democratic leaders wanted
      people who couldn't afford it to live in their own homes, so F and F
      were encouraged to lend to people who were poor risks. A laudable goal
      but not too sensible.

      Well Fanny and Freddy got their comeuppance, but several bosses got
      away with comfortable multi-million severance packages. We've got a
      package too and we are assured that we might eventually make a profit.
      Have we ever known Government to make a profit?

      I bet they are already hiring cost overrun specialists from Lockheed.

      Harry

      *******************************
      Harry Pollard
      Henry George School of Los Angeles
      Box 655
      Tujunga CA 91042
      (818) 352-4141
      *******************************



      -----Original Message-----
      From: LandCafe@yahoogroups.com [mailto:LandCafe@yahoogroups.com] On
      Behalf Of Mark Porthouse
      Sent: Sunday, September 21, 2008 9:28 AM
      To: Walter Horn; LandCafe@yahoogroups.com
      Subject: Re: [LandCafe] AIG/Lehman lessons

      Hi Walter,

      Very good point about the regulatory loosening/tightening cycle - I
      think that the only way out of this is to change the type of money
      system that we use away from a debt based money.

      Basically it is regulation of the reserve ratio of credit. We have
      maxed
      out on leverage at the moment and the intermediaries (the banks who
      lend
      out your money) are finding that they don't have enough reserves to
      comfortably be able to meet demands from savers who want to take their

      investment out (and other similar deleveraging scenarios where
      reserves
      are reducing either by mark downs, losses or withdrawals).

      Most of the leveraged credit has been used to buy land, fuelling the
      land price boom. We know that a land tax can prevent such speculation
      on
      land, but what are the risks from leveraged credit speculation on
      other
      collectables?

      The 1929 stock market crash seemed to be caused by leveraged credit
      being used to pump up stock prices (which were being treated as
      collectable because investors where virtually only investing in traded

      stocks rather than starting up new companies). A land tax will not
      solve
      the fundamental problem with credit fuelled collectable booms and
      busts
      - although it does fix the worst case boom (which we have just seen),
      the land price boom.

      In my mind this seems to mean that land tax is only half the issue and

      that the nature of the monetary system is the other half of the issue.

      However, I have seen a paper (from 2004) by the Bank for International

      Settlements (BIS) that shows a relationship between the 'Twin Peaks'
      of
      land and equity prices
      http://www.bis.org/publ/qtrpdf/r_qt0403g.pdf
      So are land prices booms largely to blame for other collectable or
      asset
      price booms after all?

      Cheers,

      Mark

      Walter Horn said the following on 19/09/2008 19:27:
      > It strikes me that there is something like a
      > deregulation/reregulation cycle that it is almost impossible to do
      > anything about. For example, after the Lehman and AIG failures (and
      > the subprime debacle, generally), there is a great deal of pressure
      > to impose regulations that will limit the extremes of financial
      > behavior�likely restricting profits as well as losses, but at a time
      > when profits are hard to come by in any case.
      >
      > However, when times are good, such regulations are opposed
      > vigorously, since keeping them in place will cause capital to flow
      to
      > industries or jurisdictions where go-go activity is allowed and
      > possible gains are considerably higher. At those times, failure to
      > remove such regulations will be seen as a sure road to putting the
      > regulated entities out of business.
      >
      > This seems like an iron cyle to me. That is, it seems not only that
      > the pressure from lobbyists will take a u-turn depending on the
      state
      > of the industry in question, but that public utility itself is
      > maximized by nearly total deregulation in certain environments and
      by
      > very strict (re)regulation in others. And these regulatory actions,
      > in turn, may speed up the coming (or exacerbate the results) of the
      > environments that inevitably lead to their reversal.
      >
      > As we Geoists know anyhow, all this talk about regulation and
      > deregulation miss the real point.
      >
      > Best,
      >
      > Walto

      ------------------------------------

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    • Mark Porthouse
      Hi Harry, Well, you mention some collectables that I had in mind. However, those collectable bubbles did have some effect on the general economy and wealth.
      Message 2 of 18 , Oct 7, 2008
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        Hi Harry,

        Well, you mention some collectables that I had in mind. However, those
        collectable bubbles did have some effect on the general economy and
        wealth. Every bubble is a misallocation of wealth which would otherwise
        have been better spent - even if land bubbles are the worst. Now, it
        seems to me that bubbles are basically the result of a sales technique
        where something is ramped up and the 'suckers' jump on the bandwagon
        sometimes by borrowing someone else's capital stupidly thinking that
        they will be able to easily repay it and walk away with profit.

        I've been giving this all some more thought and it seems to me that
        salesman like ramping is one factor of a bubble and misplaced trust is
        the other. This misplaced trust is often lubricated by 'distance'
        between the investor (the one who actually has the wealth to start with)
        and the investment - this allows misinformation to creep in or at least
        a lack of information reaching the investor.

        So my three ingredients are (1) a collectable, (2) a salesman and (3)
        poor information (often caused by negligent distance between investor
        and investment).

        A credit based monetary system assists 2 and 3 as it can help separate
        the investor from the investment (think savings accounts in danger of
        losses and risky mortgages!).

        Land tax, of course, nullifies the biggest potential collectable.
        However, we are still left with credit (allowing distance between
        investor and investment) and other collectables which can cause a
        misallocation of wealth.

        Regulation seems to only be needed if there is distance between investor
        and investment, to protect the investor who can't be bothered to get
        informed. So you could say that regulation actually encourages distance
        between investor and investment and therefore encourages bubbles!!!

        An article in New Scientist recently proposed that bubbles were a good
        thing as they lead to investments that otherwise wouldn't have been made
        leading to various breakthroughs. Well, the judgement as to whether a
        particular breakthrough in this way outweighs the non-bubble allocation
        of capital, labour and land has to be subjective. I find the idea that
        bubbles are good rather appalling!

        Cheers,

        Mark

        Harry Pollard said the following on 07/10/2008 03:33:
        > Mark,
        >
        > What other collectibles - other than land - are you thinking of?
        >
        > You said:
        >
        > "Most of the leveraged credit has been used to buy land, fuelling the
        > land price boom."
        >
        > I think it was the land price bubble that fueled leverage credit and
        > the other financial skullduggery.
        >
        > When you are going to double your money in 6 months, or one month, or
        > next week, I think credit will find a way.
        >
        > The stock market registers what people think of things and did in
        > 1929.
        >
        > You'll remember less than ten years ago, the stock market run-up (as
        > good an example of collectible speculation as one could get). It was a
        > bubble in which the analysts could only bleat about p/e ratios. A
        > significant characteristic of collectors is that their attention is on
        > price. They couldn't care less about income - a characteristic shared
        > with "collectors" of land.
        >
        > Before that, when the stock market collapsed on "Black Monday" the one
        > day drop was more severe than any day during the Depression - yet the
        > economy didn't crash. The factories went on producing, the service
        > sector kept on servicing - no-one appeared to notice. In the Market,
        > some lost and others gained. No big deal (except to those who lost).
        >
        > Try this scenario - rack-rent is constantly bleeding production away
        > rising as the economy advances. This leaves no room for error. If
        > anything shakes the economy, the lot is likely to come down. doesn't
        > need a great shock. InterStudent uses the following to explain this.
        >
        > Let's say that in the normal course of things, 6 factories fail. These
        > factories are replaced by 7 other factories - the extra factory for
        > the increasing labor force. However, land prices have increased so
        > much that the seventh factory cannot be built.
        >
        > So, six factories fail, six factories are built. Everything seems
        > fine. However, the people who would earn wages in the 7th factory -
        > don't! Without wages they don't buy. The sixth factory makes fewer
        > sales and as it could barely make the rack-rent, it goes out of
        > business. Now the fifth factory is in trouble and then the fourth -
        > and so it goes.
        >
        > The bubble is something different. This is a purely collectible
        > phenomenon and I would separate it from the pressures of rack-rent. It
        > is on all fours with the tulip craze, the exorbitant prices paid for
        > Paddington bears, the Beanie Babies, and other "irrational
        > exuberances".
        >
        > The difference with the present bubble, which is significant, is that
        > we live in houses. What happens to collectible tulip bulbs, or
        > Beanies, isn't altogether significant (except to those who found
        > themselves with a garage filled with Beanies that no-one wanted).
        >
        > With this bubble, a sizeable number of those who speculated in houses
        > live in what has become something special - their home.
        >
        > Most will try to keep their homes, many will lose them.
        >
        > Without doubt, the clever people in the mortgage business were largely
        > responsible for getting people in over their heads. Yet, they had a
        > template provided by Fanny and Freddy. Democratic leaders wanted
        > people who couldn't afford it to live in their own homes, so F and F
        > were encouraged to lend to people who were poor risks. A laudable goal
        > but not too sensible.
        >
        > Well Fanny and Freddy got their comeuppance, but several bosses got
        > away with comfortable multi-million severance packages. We've got a
        > package too and we are assured that we might eventually make a profit.
        > Have we ever known Government to make a profit?
        >
        > I bet they are already hiring cost overrun specialists from Lockheed.
        >
        > Harry
        >
        > *******************************
        > Harry Pollard
        > Henry George School of Los Angeles
        > Box 655
        > Tujunga CA 91042
        > (818) 352-4141
        > *******************************
        >
        >
        >
        > -----Original Message-----
        > From: LandCafe@yahoogroups.com [mailto:LandCafe@yahoogroups.com] On
        > Behalf Of Mark Porthouse
        > Sent: Sunday, September 21, 2008 9:28 AM
        > To: Walter Horn; LandCafe@yahoogroups.com
        > Subject: Re: [LandCafe] AIG/Lehman lessons
        >
        > Hi Walter,
        >
        > Very good point about the regulatory loosening/tightening cycle - I
        > think that the only way out of this is to change the type of money
        > system that we use away from a debt based money.
        >
        > Basically it is regulation of the reserve ratio of credit. We have
        > maxed
        > out on leverage at the moment and the intermediaries (the banks who
        > lend
        > out your money) are finding that they don't have enough reserves to
        > comfortably be able to meet demands from savers who want to take their
        >
        > investment out (and other similar deleveraging scenarios where
        > reserves
        > are reducing either by mark downs, losses or withdrawals).
        >
        > Most of the leveraged credit has been used to buy land, fuelling the
        > land price boom. We know that a land tax can prevent such speculation
        > on
        > land, but what are the risks from leveraged credit speculation on
        > other
        > collectables?
        >
        > The 1929 stock market crash seemed to be caused by leveraged credit
        > being used to pump up stock prices (which were being treated as
        > collectable because investors where virtually only investing in traded
        >
        > stocks rather than starting up new companies). A land tax will not
        > solve
        > the fundamental problem with credit fuelled collectable booms and
        > busts
        > - although it does fix the worst case boom (which we have just seen),
        > the land price boom.
        >
        > In my mind this seems to mean that land tax is only half the issue and
        >
        > that the nature of the monetary system is the other half of the issue.
        >
        > However, I have seen a paper (from 2004) by the Bank for International
        >
        > Settlements (BIS) that shows a relationship between the 'Twin Peaks'
        > of
        > land and equity prices
        > http://www.bis.org/publ/qtrpdf/r_qt0403g.pdf
        > So are land prices booms largely to blame for other collectable or
        > asset
        > price booms after all?
        >
        > Cheers,
        >
        > Mark
        >
        > Walter Horn said the following on 19/09/2008 19:27:
        >> It strikes me that there is something like a
        >> deregulation/reregulation cycle that it is almost impossible to do
        >> anything about. For example, after the Lehman and AIG failures (and
        >> the subprime debacle, generally), there is a great deal of pressure
        >> to impose regulations that will limit the extremes of financial
        >> behavior–likely restricting profits as well as losses, but at a time
        >> when profits are hard to come by in any case.
        >>
        >> However, when times are good, such regulations are opposed
        >> vigorously, since keeping them in place will cause capital to flow
        > to
        >> industries or jurisdictions where go-go activity is allowed and
        >> possible gains are considerably higher. At those times, failure to
        >> remove such regulations will be seen as a sure road to putting the
        >> regulated entities out of business.
        >>
        >> This seems like an iron cyle to me. That is, it seems not only that
        >> the pressure from lobbyists will take a u-turn depending on the
        > state
        >> of the industry in question, but that public utility itself is
        >> maximized by nearly total deregulation in certain environments and
        > by
        >> very strict (re)regulation in others. And these regulatory actions,
        >> in turn, may speed up the coming (or exacerbate the results) of the
        >> environments that inevitably lead to their reversal.
        >>
        >> As we Geoists know anyhow, all this talk about regulation and
        >> deregulation miss the real point.
        >>
        >> Best,
        >>
        >> Walto
      • Harry Pollard
        Mark, You said: The 1929 stock market crash seemed to be caused by leveraged credit being used to pump up stock prices (which were being treated as
        Message 3 of 18 , Oct 8, 2008
        • 0 Attachment
          Mark,

          You said:

          " The 1929 stock market crash seemed to be caused by leveraged credit
          being used to pump up stock prices (which were being treated as
          collectable because investors where virtually only investing in traded

          stocks rather than starting up new companies). A land tax will not
          solve
          the fundamental problem with credit fuelled collectable booms and
          busts
          - although it does fix the worst case boom (which we have just seen),
          the land price boom."

          We all know Irving Fisher's remark a couple of days before the '29
          Crash - "Stock prices have reached what looks like a permanently high
          plateau." That's how he lost his reputation.

          He also thought that stocks at the time were undervalued and some
          economic historians appear to think he was correct on this.

          Certainly the "collectible" run up of stock prices a decade or so ago
          didn't affect the economy at all - though I've seen a possible a paper
          connecting it with 1% increased unemployment - but I doubt the
          connection is valid. I could be wrong.

          A major problem is the media. The stock market shows expectations, not
          necessarily reality. But when the market falls "Financial Panic" said
          our local daily.

          At the end of 1995, the DJIA closed just over 5,000. In 1999, it went
          over 10,000 - above 11,000 before year's end. The latest shows it
          below 9500. Hey! Since 1995 it has almost doubled!!!!

          It reminds me of the recently graduated Harvard economist going home
          in 1934 to Illinois to see his father who had a highly successful
          hamburger diner.

          Some 200 miles away from his father , he saw a large billboard
          advertising his father's hamburgers. Another after a few miles, yet
          another and still more. This continued all the way to the hamburger
          stand where he had a hard time getting into the diner. It was crowded.

          Later that evening, as they were having a beer, the economist
          mentioned all these billboards. "Dad," he said. "Don't you know we are
          in the middle of a depression? You shouldn't waste your profits on all
          those billboards."

          The father thought about this. After all his son was a Harvard trained
          economist. He should know. So, father cancelled all the billboard
          leases, saved a lot of money.

          Trouble was, his son was right. There really was a Depression and he
          went broke.

          Land prices don't have to bubble to be a problem. Rack-rents pushing
          the edge of the envelope place every economy in jeopardy. The trigger
          that sends the economy over the edge can be anything (hence the dozens
          of theories of depression that should really be theories of
          "triggers").

          Banking problems are land related too. Reserve ratios aren't the
          problem. In a free Georgist economy, I don't think that reserves
          should be mandated. If you want a 100% reserve in your bank with
          little interest (you would have to pay them to take your money) you
          can deposit there. If I used a 1% reserve in bank I would probably get
          a pretty high interest. (The conditions of deposit and withdrawal
          would be very different!)

          The only requirement would be that they publish their business
          procedures. The customers can make their choices.

          There was a time when prudent bankers would never lend on land because
          of its 'volatility'. Now they lend indiscriminately on land. The
          trouble is that their collateral may suddenly drop from $100,000 to a
          $1.95. (So, my hyperbole intrudes.)

          The bank's commitment to pay out hasn't changed but their ability to
          recover something from a bad loan is diminished - or it disappears.
          So, foreclosing a mortgage gives them possession of the "$1.95" but
          they still owe $100,000.

          This happened in Japan, it was the reason for the Eastern "banking and
          currency" failures, it's the problem now in the US.

          However, the latest policy suggestion appears to be to buy up failing
          mortgages. This means the landholders will get something for their
          $1.95 land.

          Oh, well.

          Harry

          *******************************
          Harry Pollard
          Henry George School of Los Angeles
          Box 655
          Tujunga CA 91042
          (818) 352-4141
          *******************************


          -----Original Message-----
          From: LandCafe@yahoogroups.com [mailto:LandCafe@yahoogroups.com] On
          Behalf Of Mark Porthouse
          Sent: Sunday, September 21, 2008 9:28 AM
          To: Walter Horn; LandCafe@yahoogroups.com
          Subject: Re: [LandCafe] AIG/Lehman lessons

          Hi Walter,

          Very good point about the regulatory loosening/tightening cycle - I
          think that the only way out of this is to change the type of money
          system that we use away from a debt based money.

          Basically it is regulation of the reserve ratio of credit. We have
          maxed
          out on leverage at the moment and the intermediaries (the banks who
          lend
          out your money) are finding that they don't have enough reserves to
          comfortably be able to meet demands from savers who want to take their

          investment out (and other similar deleveraging scenarios where
          reserves
          are reducing either by mark downs, losses or withdrawals).

          Most of the leveraged credit has been used to buy land, fuelling the
          land price boom. We know that a land tax can prevent such speculation
          on
          land, but what are the risks from leveraged credit speculation on
          other
          collectables?

          The 1929 stock market crash seemed to be caused by leveraged credit
          being used to pump up stock prices (which were being treated as
          collectable because investors where virtually only investing in traded

          stocks rather than starting up new companies). A land tax will not
          solve
          the fundamental problem with credit fuelled collectable booms and
          busts
          - although it does fix the worst case boom (which we have just seen),
          the land price boom.
          ************************





          ************************
          In my mind this seems to mean that land tax is only half the issue and

          that the nature of the monetary system is the other half of the issue.

          However, I have seen a paper (from 2004) by the Bank for International

          Settlements (BIS) that shows a relationship between the 'Twin Peaks'
          of
          land and equity prices
          http://www.bis.org/publ/qtrpdf/r_qt0403g.pdf
          So are land prices booms largely to blame for other collectable or
          asset
          price booms after all?

          Cheers,

          Mark

          Walter Horn said the following on 19/09/2008 19:27:
          > It strikes me that there is something like a
          > deregulation/reregulation cycle that it is almost impossible to do
          > anything about. For example, after the Lehman and AIG failures (and
          > the subprime debacle, generally), there is a great deal of pressure
          > to impose regulations that will limit the extremes of financial
          > behavior�likely restricting profits as well as losses, but at a time
          > when profits are hard to come by in any case.
          >
          > However, when times are good, such regulations are opposed
          > vigorously, since keeping them in place will cause capital to flow
          to
          > industries or jurisdictions where go-go activity is allowed and
          > possible gains are considerably higher. At those times, failure to
          > remove such regulations will be seen as a sure road to putting the
          > regulated entities out of business.
          >
          > This seems like an iron cyle to me. That is, it seems not only that
          > the pressure from lobbyists will take a u-turn depending on the
          state
          > of the industry in question, but that public utility itself is
          > maximized by nearly total deregulation in certain environments and
          by
          > very strict (re)regulation in others. And these regulatory actions,
          > in turn, may speed up the coming (or exacerbate the results) of the
          > environments that inevitably lead to their reversal.
          >
          > As we Geoists know anyhow, all this talk about regulation and
          > deregulation miss the real point.
          >
          > Best,
          >
          > Walto

          ------------------------------------

          To post message to group: LandCafe@yahoogroups.com
          Please think twice before posting to the group as a whole
          (It might be that your note is best sent to one person?)
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          No virus found in this incoming message.
          Checked by AVG - http://www.avg.com
          Version: 8.0.169 / Virus Database: 270.7.0/1683 - Release Date:
          9/21/2008 10:10 AM
        • Mark Porthouse
          Nice points Harry - thanks. Particularly liked you bit about reserves - totally agree. Cheers, Mark
          Message 4 of 18 , Oct 8, 2008
          • 0 Attachment
            Nice points Harry - thanks. Particularly liked you bit about reserves -
            totally agree.

            Cheers,

            Mark

            Harry Pollard said the following on 08/10/2008 20:27:
            > Mark,
            >
            > You said:
            >
            > " The 1929 stock market crash seemed to be caused by leveraged credit
            > being used to pump up stock prices (which were being treated as
            > collectable because investors where virtually only investing in traded
            >
            > stocks rather than starting up new companies). A land tax will not
            > solve
            > the fundamental problem with credit fuelled collectable booms and
            > busts
            > - although it does fix the worst case boom (which we have just seen),
            > the land price boom."
            >
            > We all know Irving Fisher's remark a couple of days before the '29
            > Crash - "Stock prices have reached what looks like a permanently high
            > plateau." That's how he lost his reputation.
            >
            > He also thought that stocks at the time were undervalued and some
            > economic historians appear to think he was correct on this.
            >
            > Certainly the "collectible" run up of stock prices a decade or so ago
            > didn't affect the economy at all - though I've seen a possible a paper
            > connecting it with 1% increased unemployment - but I doubt the
            > connection is valid. I could be wrong.
            >
            > A major problem is the media. The stock market shows expectations, not
            > necessarily reality. But when the market falls "Financial Panic" said
            > our local daily.
            >
            > At the end of 1995, the DJIA closed just over 5,000. In 1999, it went
            > over 10,000 - above 11,000 before year's end. The latest shows it
            > below 9500. Hey! Since 1995 it has almost doubled!!!!
            >
            > It reminds me of the recently graduated Harvard economist going home
            > in 1934 to Illinois to see his father who had a highly successful
            > hamburger diner.
            >
            > Some 200 miles away from his father , he saw a large billboard
            > advertising his father's hamburgers. Another after a few miles, yet
            > another and still more. This continued all the way to the hamburger
            > stand where he had a hard time getting into the diner. It was crowded.
            >
            > Later that evening, as they were having a beer, the economist
            > mentioned all these billboards. "Dad," he said. "Don't you know we are
            > in the middle of a depression? You shouldn't waste your profits on all
            > those billboards."
            >
            > The father thought about this. After all his son was a Harvard trained
            > economist. He should know. So, father cancelled all the billboard
            > leases, saved a lot of money.
            >
            > Trouble was, his son was right. There really was a Depression and he
            > went broke.
            >
            > Land prices don't have to bubble to be a problem. Rack-rents pushing
            > the edge of the envelope place every economy in jeopardy. The trigger
            > that sends the economy over the edge can be anything (hence the dozens
            > of theories of depression that should really be theories of
            > "triggers").
            >
            > Banking problems are land related too. Reserve ratios aren't the
            > problem. In a free Georgist economy, I don't think that reserves
            > should be mandated. If you want a 100% reserve in your bank with
            > little interest (you would have to pay them to take your money) you
            > can deposit there. If I used a 1% reserve in bank I would probably get
            > a pretty high interest. (The conditions of deposit and withdrawal
            > would be very different!)
            >
            > The only requirement would be that they publish their business
            > procedures. The customers can make their choices.
            >
            > There was a time when prudent bankers would never lend on land because
            > of its 'volatility'. Now they lend indiscriminately on land. The
            > trouble is that their collateral may suddenly drop from $100,000 to a
            > $1.95. (So, my hyperbole intrudes.)
            >
            > The bank's commitment to pay out hasn't changed but their ability to
            > recover something from a bad loan is diminished - or it disappears.
            > So, foreclosing a mortgage gives them possession of the "$1.95" but
            > they still owe $100,000.
            >
            > This happened in Japan, it was the reason for the Eastern "banking and
            > currency" failures, it's the problem now in the US.
            >
            > However, the latest policy suggestion appears to be to buy up failing
            > mortgages. This means the landholders will get something for their
            > $1.95 land.
            >
            > Oh, well.
            >
            > Harry
          • Harry Pollard
            Mark, There seems to be nothing written about collectible economics . Lots of books around giving you advice on how to keep your collectible in mint condition
            Message 5 of 18 , Oct 9, 2008
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              Mark,

              There seems to be nothing written about 'collectible economics'. Lots
              of books around giving you advice on how to keep your collectible in
              mint condition and suchlike, but that's about it, as far as I know.

              The collectors often seem to have abandoned reason. Here is part of an
              LA Times report. Google Beanie Baby madness for more.
              ****************************

              Beanie Babies Fever Hits Full Boil at Show

              May 31, 1998 in print edition A-3

              There are levels of madness when it comes to Beanie Babies.

              There are die-hard collectors�folks who wait hours to pay big bucks
              for a bean-filled animal they will plunk into a clear plastic
              container and never, ever touch.

              And there are the profit-seekers, who know every detail about all 146
              Beanie Baby models and have stepped into the toy industry�s hottest
              phenomenon to make enough, they hope, to help pay their children�s
              college tuition.

              On Saturday, close to 5,000 buyers of all extremes and 100 vendors
              converged in a cavernous building at the Orange County Fairgrounds for
              the Beanie Fest Trade Show, one of dozens that have cropped up in
              Southern California in the 18 months since the craze of collecting the
              bean-filled toys became an international hobby.
              ****************************

              The guy who made them finished up with more than $1 billion. Many of
              the 'collectors' finished up with a garage full of Beany Babies they
              couldn't get rid of.

              It is certainly a misallocation of funds, but I don't think it does
              harm to the economy - just to the people who lost their shirts in the
              madness.

              As we know, when this happens with land, it is no longer fun. But, I
              would say the problem isn't the bubble but the underlying fragility of
              the economy caused by rack-rents. Any trigger may tip us over the edge
              in a basically feeble economy (even though all the numbers may look
              good). In this era of controlled economies, keeping the engine going
              requires state action which in the long term is harmful.

              Added to the old standby 'inflation' is artificially lowering interest
              rates (they all seem to be doing this at the moment - as if this
              attacks the problem). 'Bailing out' is the present approved
              desperation. The latest McCain ploy to buy up bad mortgages makes
              one's hair stand on end. (Not that Obama is any better.)

              Here is a nifty subject for discussion. If the economy was not
              inherently fragile, I wonder if the land bubble would harm it?

              Bubbles seem to lend themselves to the poker game analogy.

              Ten men with $100,000 each gather in a room for a poker game.

              In the morning the game ends, and $1 million leaves with the men. So
              from the point of view of the outside world, nothing has changed. Yet
              some will leave with much more than $100,000, others will have lost
              their shirts.

              I think the same may be true of the land bubble. Some will have won
              and others will have lost. These wins and losses affect individuals
              rather than the economy as a whole. The same may be true of the stock
              market. Some win, some lose, without (I would say) any grievous harm
              to the economy.

              As I said in my earlier post to you about today's stock market "Hey!
              Since 1995 it has almost doubled!!!!"

              But, some win, some lose!

              Meantime, I have several hundred Beanie Babies. Would you like a few?

              Harry

              *******************************
              Harry Pollard
              Henry George School of Los Angeles
              Box 655
              Tujunga CA 91042
              (818) 352-4141
              *******************************


              -----Original Message-----
              From: Mark Porthouse [mailto:lists1@...]
              Sent: Tuesday, October 07, 2008 2:22 AM
              To: LandCafe@yahoogroups.com
              Cc: Harry Pollard
              Subject: Re: [LandCafe] AIG/Lehman lessons

              Hi Harry,

              Well, you mention some collectables that I had in mind. However, those

              collectable bubbles did have some effect on the general economy and
              wealth. Every bubble is a misallocation of wealth which would
              otherwise
              have been better spent - even if land bubbles are the worst. Now, it
              seems to me that bubbles are basically the result of a sales technique

              where something is ramped up and the 'suckers' jump on the bandwagon
              sometimes by borrowing someone else's capital stupidly thinking that
              they will be able to easily repay it and walk away with profit.

              I've been giving this all some more thought and it seems to me that
              salesman like ramping is one factor of a bubble and misplaced trust is

              the other. This misplaced trust is often lubricated by 'distance'
              between the investor (the one who actually has the wealth to start
              with)
              and the investment - this allows misinformation to creep in or at
              least
              a lack of information reaching the investor.

              So my three ingredients are (1) a collectable, (2) a salesman and (3)
              poor information (often caused by negligent distance between investor
              and investment).

              A credit based monetary system assists 2 and 3 as it can help separate

              the investor from the investment (think savings accounts in danger of
              losses and risky mortgages!).

              Land tax, of course, nullifies the biggest potential collectable.
              However, we are still left with credit (allowing distance between
              investor and investment) and other collectables which can cause a
              misallocation of wealth.

              Regulation seems to only be needed if there is distance between
              investor
              and investment, to protect the investor who can't be bothered to get
              informed. So you could say that regulation actually encourages
              distance
              between investor and investment and therefore encourages bubbles!!!

              An article in New Scientist recently proposed that bubbles were a good

              thing as they lead to investments that otherwise wouldn't have been
              made
              leading to various breakthroughs. Well, the judgement as to whether a
              particular breakthrough in this way outweighs the non-bubble
              allocation
              of capital, labour and land has to be subjective. I find the idea that

              bubbles are good rather appalling!

              Cheers,

              Mark

              Harry Pollard said the following on 07/10/2008 03:33:
              > Mark,
              >
              > What other collectibles - other than land - are you thinking of?
              >
              > You said:
              >
              > "Most of the leveraged credit has been used to buy land, fuelling
              the
              > land price boom."
              >
              > I think it was the land price bubble that fueled leverage credit and
              > the other financial skullduggery.
              >
              > When you are going to double your money in 6 months, or one month,
              or
              > next week, I think credit will find a way.
              >
              > The stock market registers what people think of things and did in
              > 1929.
              >
              > You'll remember less than ten years ago, the stock market run-up
              (as
              > good an example of collectible speculation as one could get). It was
              a
              > bubble in which the analysts could only bleat about p/e ratios. A
              > significant characteristic of collectors is that their attention is
              on
              > price. They couldn't care less about income - a characteristic
              shared
              > with "collectors" of land.
              >
              > Before that, when the stock market collapsed on "Black Monday" the
              one
              > day drop was more severe than any day during the Depression - yet
              the
              > economy didn't crash. The factories went on producing, the service
              > sector kept on servicing - no-one appeared to notice. In the Market,
              > some lost and others gained. No big deal (except to those who lost).
              >
              > Try this scenario - rack-rent is constantly bleeding production away
              > rising as the economy advances. This leaves no room for error. If
              > anything shakes the economy, the lot is likely to come down. doesn't
              > need a great shock. InterStudent uses the following to explain this.
              >
              > Let's say that in the normal course of things, 6 factories fail.
              These
              > factories are replaced by 7 other factories - the extra factory for
              > the increasing labor force. However, land prices have increased so
              > much that the seventh factory cannot be built.
              >
              > So, six factories fail, six factories are built. Everything seems
              > fine. However, the people who would earn wages in the 7th factory -
              > don't! Without wages they don't buy. The sixth factory makes fewer
              > sales and as it could barely make the rack-rent, it goes out of
              > business. Now the fifth factory is in trouble and then the fourth -
              > and so it goes.
              >
              > The bubble is something different. This is a purely collectible
              > phenomenon and I would separate it from the pressures of rack-rent.
              It
              > is on all fours with the tulip craze, the exorbitant prices paid for
              > Paddington bears, the Beanie Babies, and other "irrational
              > exuberances".
              >
              > The difference with the present bubble, which is significant, is
              that
              > we live in houses. What happens to collectible tulip bulbs, or
              > Beanies, isn't altogether significant (except to those who found
              > themselves with a garage filled with Beanies that no-one wanted).
              >
              > With this bubble, a sizeable number of those who speculated in
              houses
              > live in what has become something special - their home.
              >
              > Most will try to keep their homes, many will lose them.
              >
              > Without doubt, the clever people in the mortgage business were
              largely
              > responsible for getting people in over their heads. Yet, they had a
              > template provided by Fanny and Freddy. Democratic leaders wanted
              > people who couldn't afford it to live in their own homes, so F and F
              > were encouraged to lend to people who were poor risks. A laudable
              goal
              > but not too sensible.
              >
              > Well Fanny and Freddy got their comeuppance, but several bosses got
              > away with comfortable multi-million severance packages. We've got a
              > package too and we are assured that we might eventually make a
              profit.
              > Have we ever known Government to make a profit?
              >
              > I bet they are already hiring cost overrun specialists from
              Lockheed.
              >
              > Harry
              >
              > *******************************
              > Harry Pollard
              > Henry George School of Los Angeles
              > Box 655
              > Tujunga CA 91042
              > (818) 352-4141
              > *******************************
              >
              >
              >
              > -----Original Message-----
              > From: LandCafe@yahoogroups.com [mailto:LandCafe@yahoogroups.com] On
              > Behalf Of Mark Porthouse
              > Sent: Sunday, September 21, 2008 9:28 AM
              > To: Walter Horn; LandCafe@yahoogroups.com
              > Subject: Re: [LandCafe] AIG/Lehman lessons
              >
              > Hi Walter,
              >
              > Very good point about the regulatory loosening/tightening cycle - I
              > think that the only way out of this is to change the type of money
              > system that we use away from a debt based money.
              >
              > Basically it is regulation of the reserve ratio of credit. We have
              > maxed
              > out on leverage at the moment and the intermediaries (the banks who
              > lend
              > out your money) are finding that they don't have enough reserves to
              > comfortably be able to meet demands from savers who want to take
              their
              >
              > investment out (and other similar deleveraging scenarios where
              > reserves
              > are reducing either by mark downs, losses or withdrawals).
              >
              > Most of the leveraged credit has been used to buy land, fuelling the
              > land price boom. We know that a land tax can prevent such
              speculation
              > on
              > land, but what are the risks from leveraged credit speculation on
              > other
              > collectables?
              >
              > The 1929 stock market crash seemed to be caused by leveraged credit
              > being used to pump up stock prices (which were being treated as
              > collectable because investors where virtually only investing in
              traded
              >
              > stocks rather than starting up new companies). A land tax will not
              > solve
              > the fundamental problem with credit fuelled collectable booms and
              > busts
              > - although it does fix the worst case boom (which we have just
              seen),
              > the land price boom.
              >
              > In my mind this seems to mean that land tax is only half the issue
              and
              >
              > that the nature of the monetary system is the other half of the
              issue.
              >
              > However, I have seen a paper (from 2004) by the Bank for
              International
              >
              > Settlements (BIS) that shows a relationship between the 'Twin Peaks'
              > of
              > land and equity prices
              > http://www.bis.org/publ/qtrpdf/r_qt0403g.pdf
              > So are land prices booms largely to blame for other collectable or
              > asset
              > price booms after all?
              >
              > Cheers,
              >
              > Mark
              >
              > Walter Horn said the following on 19/09/2008 19:27:
              >> It strikes me that there is something like a
              >> deregulation/reregulation cycle that it is almost impossible to do
              >> anything about. For example, after the Lehman and AIG failures (and
              >> the subprime debacle, generally), there is a great deal of pressure
              >> to impose regulations that will limit the extremes of financial
              >> behavior�likely restricting profits as well as losses, but at a
              time
              >> when profits are hard to come by in any case.
              >>
              >> However, when times are good, such regulations are opposed
              >> vigorously, since keeping them in place will cause capital to flow
              > to
              >> industries or jurisdictions where go-go activity is allowed and
              >> possible gains are considerably higher. At those times, failure to
              >> remove such regulations will be seen as a sure road to putting the
              >> regulated entities out of business.
              >>
              >> This seems like an iron cyle to me. That is, it seems not only that
              >> the pressure from lobbyists will take a u-turn depending on the
              > state
              >> of the industry in question, but that public utility itself is
              >> maximized by nearly total deregulation in certain environments and
              > by
              >> very strict (re)regulation in others. And these regulatory actions,
              >> in turn, may speed up the coming (or exacerbate the results) of the
              >> environments that inevitably lead to their reversal.
              >>
              >> As we Geoists know anyhow, all this talk about regulation and
              >> deregulation miss the real point.
              >>
              >> Best,
              >>
              >> Walto
              No virus found in this incoming message.
              Checked by AVG - http://www.avg.com
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              10/7/2008 9:41 AM
            • Mark Porthouse
              I ll take a raincheck on the Beanie Baby opportunity thanks Harry! :) You are right to say that on a money-go-round such as poker or the stock market no wealth
              Message 6 of 18 , Oct 10, 2008
              • 0 Attachment
                I'll take a raincheck on the Beanie Baby opportunity thanks Harry! :)

                You are right to say that on a money-go-round such as poker or the stock
                market no wealth is destroyed, just redistributed. The only way to
                destroy wealth is production, production of the wrong thing. If we are
                all producing 50 grand cars because that is what people are buying,
                because they speculate that they can afford the loan on them BUT then
                the unknown future arrives and it turns out they couldn't afford the
                loans, then we find the misallocation of wealth making 50 grand cars was
                actually a destruction of wealth - we should have been making 20 grand
                cars which people could (with hindsight) afford. Not only that, the
                misallocation of capital used to make the cars means we have destroyed
                further real wealth as we end up with factories in mothballs. On top of
                that we have misallocation of labour - all the workers we employed in
                the factories we now have to redeploy, but first we have to allocate
                capital to the new factories for 10 grand cars that is all we can afford
                because we blew our wealth on 50 grand cars.

                Maybe we aren't going to misallocate trillions on beanie babies, but we
                have misallocated trillions on land.

                To address your point:
                > Here is a nifty subject for discussion. If the economy was not
                > inherently fragile, I wonder if the land bubble would harm it?

                It is only 'fragile' because of misallocation and the huge scale of
                changes we need to make to reallocate - during which period we are
                particularly poor as our production is for capital investment not
                consumption (and it is consumption that is our measure of wealth - our
                standard of living goes down when we have to invest in capital at the
                expense of current consumption). In this case the money-go-round was
                land (no land was destroyed, after all) and the misallocation was
                everything else because the land prices made us feel rich and able to
                consume more than we could sustainably afford. Yes, no other bubble has
                proved to be on that scale. The tech stocks bubble did cause
                misallocation (and therefore destruction of wealth), but the land bubble
                misallocation was used to merely temporarily continue that misallocation
                status quo. If we'd stopped and accepted lower growth at the tech stock
                bubble burst instead of inflating another bubble to replace it we
                wouldn't be facing the scale of pain we are now seeing - however, there
                would have been some pain.

                Cheers,

                Mark

                Harry Pollard said the following on 09/10/2008 19:42:
                > Mark,
                >
                > There seems to be nothing written about 'collectible economics'. Lots
                > of books around giving you advice on how to keep your collectible in
                > mint condition and suchlike, but that's about it, as far as I know.
                >
                > The collectors often seem to have abandoned reason. Here is part of an
                > LA Times report. Google Beanie Baby madness for more.
                > ****************************
                >
                > Beanie Babies Fever Hits Full Boil at Show
                >
                > May 31, 1998 in print edition A-3
                >
                > There are levels of madness when it comes to Beanie Babies.
                >
                > There are die-hard collectors–folks who wait hours to pay big bucks
                > for a bean-filled animal they will plunk into a clear plastic
                > container and never, ever touch.
                >
                > And there are the profit-seekers, who know every detail about all 146
                > Beanie Baby models and have stepped into the toy industry’s hottest
                > phenomenon to make enough, they hope, to help pay their children’s
                > college tuition.
                >
                > On Saturday, close to 5,000 buyers of all extremes and 100 vendors
                > converged in a cavernous building at the Orange County Fairgrounds for
                > the Beanie Fest Trade Show, one of dozens that have cropped up in
                > Southern California in the 18 months since the craze of collecting the
                > bean-filled toys became an international hobby.
                > ****************************
                >
                > The guy who made them finished up with more than $1 billion. Many of
                > the 'collectors' finished up with a garage full of Beany Babies they
                > couldn't get rid of.
                >
                > It is certainly a misallocation of funds, but I don't think it does
                > harm to the economy - just to the people who lost their shirts in the
                > madness.
                >
                > As we know, when this happens with land, it is no longer fun. But, I
                > would say the problem isn't the bubble but the underlying fragility of
                > the economy caused by rack-rents. Any trigger may tip us over the edge
                > in a basically feeble economy (even though all the numbers may look
                > good). In this era of controlled economies, keeping the engine going
                > requires state action which in the long term is harmful.
                >
                > Added to the old standby 'inflation' is artificially lowering interest
                > rates (they all seem to be doing this at the moment - as if this
                > attacks the problem). 'Bailing out' is the present approved
                > desperation. The latest McCain ploy to buy up bad mortgages makes
                > one's hair stand on end. (Not that Obama is any better.)
                >
                > Here is a nifty subject for discussion. If the economy was not
                > inherently fragile, I wonder if the land bubble would harm it?
                >
                > Bubbles seem to lend themselves to the poker game analogy.
                >
                > Ten men with $100,000 each gather in a room for a poker game.
                >
                > In the morning the game ends, and $1 million leaves with the men. So
                > from the point of view of the outside world, nothing has changed. Yet
                > some will leave with much more than $100,000, others will have lost
                > their shirts.
                >
                > I think the same may be true of the land bubble. Some will have won
                > and others will have lost. These wins and losses affect individuals
                > rather than the economy as a whole. The same may be true of the stock
                > market. Some win, some lose, without (I would say) any grievous harm
                > to the economy.
                >
                > As I said in my earlier post to you about today's stock market "Hey!
                > Since 1995 it has almost doubled!!!!"
                >
                > But, some win, some lose!
                >
                > Meantime, I have several hundred Beanie Babies. Would you like a few?
                >
                > Harry
              • Harry Pollard
                Mark, see below between lines. Harry ******************************* Harry Pollard Henry George School of Los Angeles Box 655 Tujunga CA 91042 (818) 352-4141
                Message 7 of 18 , Oct 11, 2008
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                  Mark, see below between lines.

                  Harry

                  *******************************
                  Harry Pollard
                  Henry George School of Los Angeles
                  Box 655
                  Tujunga CA 91042
                  (818) 352-4141
                  *******************************


                  -----Original Message-----
                  From: LandCafe@yahoogroups.com [mailto:LandCafe@yahoogroups.com] On
                  Behalf Of Mark Porthouse
                  Sent: Friday, October 10, 2008 6:00 AM
                  To: Land Caf�
                  Subject: Re: [LandCafe] AIG/Lehman lessons

                  I'll take a raincheck on the Beanie Baby opportunity thanks Harry! :)
                  ********************
                  So, here I am stuck with 640 Beanies each worth $1,000. Trouble is,
                  no-one will give me a $1,000 for one. Don't they realize how valuable
                  a Beanie Baby is?
                  ********************

                  You are right to say that on a money-go-round such as poker or the
                  stock
                  market no wealth is destroyed, just redistributed. The only way to
                  destroy wealth is production, production of the wrong thing. If we are

                  all producing 50 grand cars because that is what people are buying,
                  because they speculate that they can afford the loan on them BUT then
                  the unknown future arrives and it turns out they couldn't afford the
                  loans, then we find the misallocation of wealth making 50 grand cars
                  was
                  actually a destruction of wealth - we should have been making 20 grand

                  cars which people could (with hindsight) afford. Not only that, the
                  misallocation of capital used to make the cars means we have destroyed

                  further real wealth as we end up with factories in mothballs. On top
                  of
                  that we have misallocation of labour - all the workers we employed in
                  the factories we now have to redeploy, but first we have to allocate
                  capital to the new factories for 10 grand cars that is all we can
                  afford
                  because we blew our wealth on 50 grand cars.

                  ****************************
                  Don't fall into the neo-Classical trap. "We" don't have to do anyhing.
                  If someone made a wrong decision, he will have to pay for it. He will
                  learn from his mistake. (If he doesn't, he'll be quickly broke!)

                  Georgist friend of mine, Jack Casey, would only buy cheap four year
                  old luxury Cadillacs. He would point out that the old Cadillac had all
                  the "advanced features" being touted on the current crop.
                  ****************************

                  Maybe we aren't going to misallocate trillions on beanie babies, but
                  we
                  have misallocated trillions on land.

                  ****************************
                  Amen!
                  ****************************

                  To address your point:
                  > Here is a nifty subject for discussion. If the economy was not
                  > inherently fragile, I wonder if the land bubble would harm it?

                  It is only 'fragile' because of misallocation and the huge scale of
                  changes we need to make to reallocate - during which period we are
                  particularly poor as our production is for capital investment not
                  consumption (and it is consumption that is our measure of wealth - our

                  standard of living goes down when we have to invest in capital at the
                  expense of current consumption).

                  ****************************
                  Of course, it's the misallocation is of land. We spend a lot of
                  thinking on vacant lots. I rather think that underused land is far
                  more important. Slums become "taxpayers" as landholders await the big
                  sale and they must shiver in delight when 'deep pockets 'arrives
                  carrying out the latest nonsense from Congress or Parliament.
                  ****************************

                  In this case the money-go-round was
                  land (no land was destroyed, after all) and the misallocation was
                  everything else because the land prices made us feel rich and able to
                  consume more than we could sustainably afford. Yes, no other bubble
                  has
                  proved to be on that scale. The tech stocks bubble did cause
                  misallocation (and therefore destruction of wealth), but the land
                  bubble
                  misallocation was used to merely temporarily continue that
                  misallocation
                  status quo. If we'd stopped and accepted lower growth at the tech
                  stock
                  bubble burst instead of inflating another bubble to replace it we
                  wouldn't be facing the scale of pain we are now seeing - however,
                  there
                  would have been some pain.

                  **************************
                  We must recall the big US Savings & Loan crash of the late 80's and
                  90's during which something like 1,000 banks failed. To real estate
                  speculation must be added outright criminality - running, via multiple
                  transactions, a piece of swamp land into a multi-million piece of
                  prime real estate. When foreclosed, it became worthless swamp land
                  again.

                  (Just like the Beanie Babies!!!)

                  Pain yells you that you have a problem. If we didn't hurt, we would
                  probably die a lot sooner.

                  Inasmuch as financial pain is alleviated, so will people be encouraged
                  to do the same thing again.

                  We might ask - will the $700 billion bailout encourage bankers to
                  change their behavior, or repeat it?

                  I doubt that 'bubbles' have a significant economic effect and I rather
                  think that is true of land bubbles too. Much more important is the
                  "normal" crippling effect of rack-renting. Now, there is a
                  misallocation we could do without!
                  **************************

                  Cheers,

                  Mark

                  Harry Pollard said the following on 09/10/2008 19:42:
                  > Mark,
                  >
                  > There seems to be nothing written about 'collectible economics'.
                  Lots
                  > of books around giving you advice on how to keep your collectible in
                  > mint condition and suchlike, but that's about it, as far as I know.
                  >
                  > The collectors often seem to have abandoned reason. Here is part of
                  an
                  > LA Times report. Google Beanie Baby madness for more.
                  > ****************************
                  >
                  > Beanie Babies Fever Hits Full Boil at Show
                  >
                  > May 31, 1998 in print edition A-3
                  >
                  > There are levels of madness when it comes to Beanie Babies.
                  >
                  > There are die-hard collectors�folks who wait hours to pay big bucks
                  > for a bean-filled animal they will plunk into a clear plastic
                  > container and never, ever touch.
                  >
                  > And there are the profit-seekers, who know every detail about all
                  146
                  > Beanie Baby models and have stepped into the toy industry�s hottest
                  > phenomenon to make enough, they hope, to help pay their children�s
                  > college tuition.
                  >
                  > On Saturday, close to 5,000 buyers of all extremes and 100 vendors
                  > converged in a cavernous building at the Orange County Fairgrounds
                  for
                  > the Beanie Fest Trade Show, one of dozens that have cropped up in
                  > Southern California in the 18 months since the craze of collecting
                  the
                  > bean-filled toys became an international hobby.
                  > ****************************
                  >
                  > The guy who made them finished up with more than $1 billion. Many of
                  > the 'collectors' finished up with a garage full of Beany Babies they
                  > couldn't get rid of.
                  >
                  > It is certainly a misallocation of funds, but I don't think it does
                  > harm to the economy - just to the people who lost their shirts in
                  the
                  > madness.
                  >
                  > As we know, when this happens with land, it is no longer fun. But, I
                  > would say the problem isn't the bubble but the underlying fragility
                  of
                  > the economy caused by rack-rents. Any trigger may tip us over the
                  edge
                  > in a basically feeble economy (even though all the numbers may look
                  > good). In this era of controlled economies, keeping the engine going
                  > requires state action which in the long term is harmful.
                  >
                  > Added to the old standby 'inflation' is artificially lowering
                  interest
                  > rates (they all seem to be doing this at the moment - as if this
                  > attacks the problem). 'Bailing out' is the present approved
                  > desperation. The latest McCain ploy to buy up bad mortgages makes
                  > one's hair stand on end. (Not that Obama is any better.)
                  >
                  > Here is a nifty subject for discussion. If the economy was not
                  > inherently fragile, I wonder if the land bubble would harm it?
                  >
                  > Bubbles seem to lend themselves to the poker game analogy.
                  >
                  > Ten men with $100,000 each gather in a room for a poker game.
                  >
                  > In the morning the game ends, and $1 million leaves with the men.
                  So
                  > from the point of view of the outside world, nothing has changed.
                  Yet
                  > some will leave with much more than $100,000, others will have lost
                  > their shirts.
                  >
                  > I think the same may be true of the land bubble. Some will have won
                  > and others will have lost. These wins and losses affect individuals
                  > rather than the economy as a whole. The same may be true of the
                  stock
                  > market. Some win, some lose, without (I would say) any grievous harm
                  > to the economy.
                  >
                  > As I said in my earlier post to you about today's stock market "Hey!
                  > Since 1995 it has almost doubled!!!!"
                  >
                  > But, some win, some lose!
                  >
                  > Meantime, I have several hundred Beanie Babies. Would you like a
                  few?
                  >
                  > Harry

                  ------------------------------------

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                • Mark Porthouse
                  ... Absolutely, when I say we I mean society, I don t mean that government needs to or should interfere! ... We run a twenty year old Mercedes that we re
                  Message 8 of 18 , Oct 12, 2008
                  • 0 Attachment
                    Harry Pollard said the following on 11/10/2008 18:48:
                    > Mark said:
                    > You are right to say that on a money-go-round such as poker or the
                    > stock
                    > market no wealth is destroyed, just redistributed. The only way to
                    > destroy wealth is production, production of the wrong thing. If we are
                    >
                    > all producing 50 grand cars because that is what people are buying,
                    > because they speculate that they can afford the loan on them BUT then
                    > the unknown future arrives and it turns out they couldn't afford the
                    > loans, then we find the misallocation of wealth making 50 grand cars
                    > was
                    > actually a destruction of wealth - we should have been making 20 grand
                    >
                    > cars which people could (with hindsight) afford. Not only that, the
                    > misallocation of capital used to make the cars means we have destroyed
                    >
                    > further real wealth as we end up with factories in mothballs. On top
                    > of
                    > that we have misallocation of labour - all the workers we employed in
                    > the factories we now have to redeploy, but first we have to allocate
                    > capital to the new factories for 10 grand cars that is all we can
                    > afford
                    > because we blew our wealth on 50 grand cars.
                    >
                    > ********Harry***************
                    > Don't fall into the neo-Classical trap. "We" don't have to do anyhing.
                    > If someone made a wrong decision, he will have to pay for it. He will
                    > learn from his mistake. (If he doesn't, he'll be quickly broke!)

                    Absolutely, when I say "we" I mean society, I don't mean that government
                    needs to or should interfere!

                    > Georgist friend of mine, Jack Casey, would only buy cheap four year
                    > old luxury Cadillacs. He would point out that the old Cadillac had all
                    > the "advanced features" being touted on the current crop.

                    We run a twenty year old Mercedes that we're very happy with! :)

                    > ********Harry*************
                    > I doubt that 'bubbles' have a significant economic effect and I rather
                    > think that is true of land bubbles too. Much more important is the
                    > "normal" crippling effect of rack-renting. Now, there is a
                    > misallocation we could do without!
                    > **************************

                    I agree that rack-rent or at the very least land rent being taken by
                    landlords is much more significant. However, I do believe that bubbles
                    do have significant economic effects. Look at the tech stock bubble:
                    Billions of dollars were misaollocated to tech developments - basically
                    this means that wealth created by labour was used to get more labour to
                    waste their time. Then that invested labour and capital had to be
                    redeployed (the redeployment had a cost). This all did make our society
                    poorer - we do all benefit from wealth creation by others after all.

                    Cheers,

                    Mark
                  • Harry Pollard
                    Mark, Your point about the tech bubble is noted. Much mis-allocation . Yet, those who were right made money, those who weren t went to Chapter 11. Things
                    Message 9 of 18 , Oct 16, 2008
                    • 0 Attachment
                      Mark,

                      Your point about the tech bubble is noted.

                      Much 'mis-allocation'.

                      Yet, those who were right made money, those who weren't went to
                      Chapter 11.

                      Things don't always pan out as one would like.

                      The movies are a good example.

                      "Body of Lies" starring Leonardo de Caprio and Russell Crowe, directed
                      by Ridley Scott, was a sure thing - top stars, very good director,

                      It cost $70 million, but has so far brought in a gross of less than
                      $16 million. (The film makers don't get the gross.)

                      Misallocated resources? On the other hand, Fahrenheit 9/11 brought in
                      $222 million even though it cost only $6 million.

                      That's the market!

                      Harry

                      *******************************
                      Harry Pollard
                      Henry George School of Los Angeles
                      Box 655
                      Tujunga CA 91042
                      (818) 352-4141
                      *******************************


                      -----Original Message-----
                      From: LandCafe@yahoogroups.com [mailto:LandCafe@yahoogroups.com] On
                      Behalf Of Mark Porthouse
                      Sent: Sunday, October 12, 2008 5:43 AM
                      To: Land Caf�
                      Subject: Re: [LandCafe] AIG/Lehman lessons

                      Harry Pollard said the following on 11/10/2008 18:48:
                      > Mark said:
                      > You are right to say that on a money-go-round such as poker or the
                      > stock
                      > market no wealth is destroyed, just redistributed. The only way to
                      > destroy wealth is production, production of the wrong thing. If we
                      are
                      >
                      > all producing 50 grand cars because that is what people are buying,
                      > because they speculate that they can afford the loan on them BUT
                      then
                      > the unknown future arrives and it turns out they couldn't afford the
                      > loans, then we find the misallocation of wealth making 50 grand cars
                      > was
                      > actually a destruction of wealth - we should have been making 20
                      grand
                      >
                      > cars which people could (with hindsight) afford. Not only that, the
                      > misallocation of capital used to make the cars means we have
                      destroyed
                      >
                      > further real wealth as we end up with factories in mothballs. On top
                      > of
                      > that we have misallocation of labour - all the workers we employed
                      in
                      > the factories we now have to redeploy, but first we have to allocate
                      > capital to the new factories for 10 grand cars that is all we can
                      > afford
                      > because we blew our wealth on 50 grand cars.
                      >
                      > ********Harry***************
                      > Don't fall into the neo-Classical trap. "We" don't have to do
                      anyhing.
                      > If someone made a wrong decision, he will have to pay for it. He
                      will
                      > learn from his mistake. (If he doesn't, he'll be quickly broke!)

                      Absolutely, when I say "we" I mean society, I don't mean that
                      government
                      needs to or should interfere!

                      > Georgist friend of mine, Jack Casey, would only buy cheap four year
                      > old luxury Cadillacs. He would point out that the old Cadillac had
                      all
                      > the "advanced features" being touted on the current crop.

                      We run a twenty year old Mercedes that we're very happy with! :)

                      > ********Harry*************
                      > I doubt that 'bubbles' have a significant economic effect and I
                      rather
                      > think that is true of land bubbles too. Much more important is the
                      > "normal" crippling effect of rack-renting. Now, there is a
                      > misallocation we could do without!
                      > **************************

                      I agree that rack-rent or at the very least land rent being taken by
                      landlords is much more significant. However, I do believe that bubbles

                      do have significant economic effects. Look at the tech stock bubble:
                      Billions of dollars were misaollocated to tech developments -
                      basically
                      this means that wealth created by labour was used to get more labour
                      to
                      waste their time. Then that invested labour and capital had to be
                      redeployed (the redeployment had a cost). This all did make our
                      society
                      poorer - we do all benefit from wealth creation by others after all.

                      Cheers,

                      Mark

                      ------------------------------------

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                      Please think twice before posting to the group as a whole
                      (It might be that your note is best sent to one person?)
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