Minyan Op-Ed: Never Bet Against the House
We are witnessing a very dramatic episode in US economic history; the "end of consequences."
Thanks to Prof. Sedacca for his piece yesterday on bailouts and moral hazards.
As a result of my values and life experiences, I chose conservative personal finances. Due to my preference for security and prudence, I forgo the opportunity for larger gains and windfalls in exchange for the lower risk and security. It used to be that I could live with this trade-off. However, the last decade (and last few years in particular) have made this choice increasingly difficult. Not only have risky investments been deliberately supported by government policy, but less risky paths have been infected by overspill from the risk-taking activities; worse yet, my very own government is treating me as a sucker. I mean openly, which is kind of new.
The increasing role of federal intervention in stimulating certain segments of the economy and bailing out risk-takers has made it increasingly clear that the choice to be a conservative investor was not only foolish, but is being deliberately singled out for punishment by our own government. The flogging of the prudent investor has moved from sublime to ridiculous, as government officials blatantly enter a mode of panicked bailout of preferred gamblers and spreading misinformation about the situation.
Not to be too dramatic, but I am left wondering how to explain this to my children. I was ready to explain risky versus conservative financial preferences. As some of my friends and neighbors seemed to prosper without end in reward for their doubling-down of high personal leverage and asset concentration, I began to wonder how to explain to my children why their dad was such a, well, loser. I kept telling myself that the once-a-generation correction (the same one that stung my grandparents in the 1930s, and my parents in the 1970s) would eventually validate my own choices as a reasonable personal strategy. Now I wonder.
The net effect of these bailout activities is to reward the people who took wild risk and ignored generations of wisdom about debt and gambling. It leaves me trying to explain why I chose a higher-rate fixed mortgage and a modest house and modest consumer debt, with a higher proportion of my investment in low yield supposedly "safe" mutual funds. I am left now, perhaps always on the sidelines, too late to enjoy those low rate ARMs and to jump on the leveraged house purchase bandwagon, watching as my government actively turns the knife in my back.
Dramatic? Perhaps. But I would argue that we are witnessing a very dramatic episode in US economic history. The "end of consequences" and the era of overt elite market socialism? I don’t know yet what I will tell my kids. Something along the lines of: go ahead and be reckless; someone will save your butt – so long as that butt is aligned with the chosen elite butts.
“Never bet against the house”. I get that now.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.