THE FORMULA THAT NEVER FAILS

(Pay attention)

Here it is---DA, DA, DA

"You tell me the rules; I'll tell you if I want to play the game"

That's it. Don't forget it.

Got it?

Don't forget it.

Understanding THE FORMULA THAT NEVER FAILS is the key to understanding how we continually stumble on the "greatest surprises in the world"  UNINTENDED CONSEQUENCES!

Let me explain this.  Each of us does an analysis, it may be conscious, or autonomic, when we are confronted with an opportunity to comply, or not comply-with almost anything. Our analysis considers the probable result of complying versus the negative consequence of not complying.

In days gone by, in school, we had opportunities to choose to be "good kids”, or “bad kids". When we realized that better results were probable if we chose to be "good kids" most of the time we chose that course. In many cases we saw the consequence of the other choice.

Applying the school lessons to business we observed stories of great business success, and sometimes, bad failures.  In almost each case, it is possible to recognize “turning points” which occurred where the business took a turn for the worse, or, for the better.  In many of these examples, it is possible to realize that emphasis was on “easy” rather than “right” and the results turned out badly.  There had been no, or very little, analysis about possible consequences of each of the choices. 

In the case of America, we are in a major economic jam due to the fact that we chose what appeared to be “easy” rather than choose other choices that would be harder, but would have better results for the future.

As an example, a major responsibility of the Federal Reserve is to control the money supply.  That means that when the economy is without great stress, and inflation in not wild, payments are steady, employment is at a good level, money supply should accommodate sound growth.  The Fed has abilities (tools) to restrain growth when “bubbles” are developing.  It can reduce the amount of money the banks have available to lend, it can increase interest rates by controlling interest rates to banks, it can loosen up money supply so as to make borrowing easier etc.  There are many ways to put a lid on expansion or to boost the economy.

So when congress, ala Barney Frank, Chris Dodd, and many others, thought it would be a good idea to increase the percentage of home owners in the country, they went to Congress and sold the idea of relaxing lending standards so the down payments were reduced, credit scores were relaxed, income requirements were reduced, and a myriad of new easy to qualify mortgage programs were introduced.   Congress authorized this new relaxation.  No doubt members of congress were pleased because now they could tell their constituents that where many of them seemed to be renters for life, now they could be homeowners.  The fox was in the henhouse.

Now for the bad news.  We had some new rules. “THEY TOLD US THE RULES” and people, companies, and industries had the opportunity to examine these new rules, and make decisions.  Many of them realized that there was going to be torrents of mortgage money available for previously non-able home buyers, which would therefore increase demand for homes.  The increased demand would result in competition for homes, which would increase price levels, and every aspect of the housing industry would boom.  After a quick analysis they decided that “THEY WOULD PLAY THE GAME” Guess what?  That is exactly what happened.  They played. To the hilt.

Because of lower underwriting standards, millions of people were able to sign for mortgages that they were not able to service and pay on time. 

Enough of that.  You understand.  We had loads of “UNINTEND CONSEQUENCES”

Please understand, whenever there are rules, we owe it to ourselves to carefully analyze how they apply to us, and how, or if we should come under their jurisdiction.

One final thing, and I will write about it later, is that something that we have proven again and again, is that the way to create permanent, long lasting jobs is to let Americans get to work-with their own money.  No government “stimulus” no long term debt. We will risk our own money, with our own management, and have the goal of reaping the rewards for our knowledge, efforts and investment.  Later.  Thanks, RW