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Are Businesspeople Really Fooled?
The Austrian Business Cycle Theory (ABCT) rests on the idea that the manipulation of interest rates disrupts the coordination between the intertemporal utilization of resources and intertemporal consumer demands. In other words, the divergence of the interest rate from the natural rate that would prevail in the absence of manipulation causes business to invest in resources differently than they otherwise would. This skewed investment creates a production structure for which there is insufficient support, demand, or both.
One of the questions raised by this theory is: what if the businesses were fully aware that interest rates were being manipulated? What if they knew exactly how and why this was happening? Would they still misallocate their investments?
As it happens, I find myself in exactly this position right now. I’ve followed the Austrian school economists through the tech and housing booms and, through this experience, have gained an appreciation of just how accurate they’ve been. I’ve been following the most recent operations of the Fed as they’ve pumped money into the system. I could tell you where the money has gone and why it’s gone there. Now, I’m faced with the prospect of making a significant business investment decision.
I’m a commercial real estate appraiser. For the past several years, I haven’t pursued bank lending work. Most banks require that appraisers be added to their approved appraiser list before they will use them. Getting on this list requires providing each bank with whatever documentation they request. Among the items that I’ve been asked to provide in the past are proof of errors and omissions insurance and various sample appraisal reports. Since professional appraisers are bound by confidentiality to their clients, the clients must either all agree to the release of the reports to the banks or the reports must be “sanitized,” so that neither the property nor the client can be identified. All of this requires a significant amount of time and expense. With the implementation of Dodd-Frank, I’m sure the requirements are now even more onerous. Since the banks have not been doing very much commercial lending, I decided not to pursue it.
Instead, I’ve kept myself busy with property tax appeals and corporate reorganization work. These types of work do not require the same regulatory compliance that the banks do. Furthermore, I have been assisting in the reallocation of resources so that they would be better coordinated with the structure of production.
Recently, however, bank lending has made a roaring comeback. On March 11, the Mortgage Bankers Association released the latest Commercial Real Estate/Multifamily Finance Mortgage Debt Outstanding report for the fourth quarter of 2012. It indicates that banks lent $17.1 billion more in the fourth quarter than in the third quarter. This is the largest increase in lending since the second quarter of 2008. Furthermore, in my personal discussions with bankers they have confirmed that they are expanding their lending.
All of this puts me in a rather awkward position. Assuming that the increased bank lending will continue for a while, there will be fewer opportunities for property tax appeals and reorganizations. Meanwhile, the opportunities for lending work will increase. I know that much of this increased lending will contribute to another bubble, but, in the mean time I have to make a living.
I’ve decided that I will pursue the lending work. I do this with full knowledge that, by doing so, I will be contributing to a bubble that will eventually collapse. My only adjustment to strategy that comes from my additional knowledge is that I will shift as many expenses as I can from the fixed category to the variable category.
I admit that my decision is this regard is just one anecdotal example. Nonetheless, I’m convinced that most businesspeople, facing a similar situation, would make similar decisions. Knowing that resources are being misallocated does not allow businesses to forego the profit opportunities that are created in the process. If they are to survive, they must operate in the system as it is, not as it should be.
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This thinking is the origin of the concept; "That's why I am richer than you," said Jamie Dimon.
"I’m a commercial real estate appraiser. For the past several years, I haven’t pursued bank lending work. Most banks require that appraisers be added to their approved appraiser list before they will use them."
And if staying on that list means listening to some hopped-up "originator" insisting on "negotiating the value" of your appraisal? Best to stay away from the bank work.
"If they are to survive, they must operate in the system as it is, not as it should be."
----said the lemming on his march towards the cliff
MY CULTURAL REVOLUTION NIGHTMARE
I see myself at a reeducation camp yelled at by teenagers in red berets demanding I atone for my part in supporting our FIRE economy.
Until then I'll dance as long as the music is playing.....and I hope it's a long song.
Might as well ask why people voluntarily join the army knowing they will be doing immoral acts. Are they excused if they lack the intellignece or forseight to anticipate what they will, in all probability, be ordered to do?
Hell yes "business people are fooled"!!
This article implies that the average business person KNOWS what is going on, and then makes the 'hard decision' to play along anyway because they need to "eat and pay bills". Observable reality indicates that most of these folks have no clue what is going on. Certainly some folks "get it" and make decisions based on that, but most of the lemmings...(large & samll).... continue down the path oblivious to what is happening.
One of the questions raised by this theory is: what if the businesses were fully aware that interest rates were being manipulated?
They'd probably go into more debt than now - corporations loving the zero percent interest rates, buying up smaller companies left and right.
It's a good time to be a monopoly.
You gotta love these words. Is Bill Buckley back?
Did Buckley ever really die? He's probably hanging out with Elvis on a south Pacific island.
"I admit that my decision is this regard is just one anecdotal example. Nonetheless, I’m convinced that most businesspeople, facing a similar situation, would make similar decisions. Knowing that resources are being misallocated does not allow businesses to forego the profit opportunities that are created in the process. If they are to survive, they must operate in the system as it is, not as it should be."
Or they can change careers and get out......as I am now in the process of doing. This does not make me holier than thou in any way, shape or form. But there comes a point when we must decide if selling our soul is worth the thirty pieces of silver. In my case I have decided it is not. But I also admit that I have lived with, and earned from, this cognitive dissonance for many years.
When my son was young I often told him that knowing the right thing to do was easy. Doing it was the hard part. It is also much easier telling others what is the right thing to do than it is to actually do it. My hands are not clean. I am now attempting to use plenty of soap and water and make some amends.
Progress…..not perfection.
Better late than never....
This person is the reason we are in the mess we are in. If everyone just said, no, this is destroying the world, I am not OK with this, then we could begin to change things. Easy for me to say as a person without any other mouths to feed. Tougher for people supporting others.
"I am a parent, I don't have the luxury of principles." Remember that line from the movie The Patriot?
"Don't fight the FED" Sad but true.
People think they will be able to jump ship before it crashes and sinks. Most likely thought that back in '29 too.
Most people playing (like 401k suckers) are being forced to do so by the state. That was not the case in '29.
once the john puts the tip in you've officially become a whore
"... penetration, no matter how slight, is sufficient to complete the offense."
I always thought it was measured from the point of the money exchange. From there it is simply a business transaction.
I think the actual act of fucking makes it what it is-no matter what the fucking cops say. the money can always be given back before the act.
"I can't describe a whore to you, but I know one when I see him in the mirror." Anonymous Chief Justice of the Supreme Court
ABCT does not say that people are UNAWARE of intervention. In your case above, interest rates are being suppressed. Many people know this and it is a strategy of many real estate investors to lock long term committments at these rates -- being dollar short without playing in the FX markets. Others are once again buying and building large lavish homes because 'money is cheap'. We know a few folks that are building and locking in large morgages because of these low rates. This will probably end badly for most and be a brilliant move for some.
Unfortunately, wages matter and when fraud is the status quo, possession is the law. Get your tribe in order as all eCONomies are really local and will become even more so shortly.
The question that anyone should be asking is "are business people and bankers really being honest and accountable." If not, execute the fuckers. It really is that simple folks.
what?... wrong web site
This is not a web site of fantasy but of reality. "people will work within the confines of the system so defined" is not "out there." nor is saying "this is a stinking pile of donkey doo and we need to change." what one perceives as criminal activity could be nothing more than someone else "trying to put food on the table." where the Austrians fall flat on their face however is when they start talking in terms of "policy making." we must say something in this regard because "just calling them a bunch of stupids" doesn't change the fact that "they will engage in said activity irregardless." Needless to say trying to get them to "hear your voice" is a challenge indeed. Not nearly as big as trying to figure "what's the right thing for them to do" as well. All thoughts in this regard...from ANYONE...are gladly accepted.
"what one perceives as criminal activity could be nothing more than someone else"-
LMFAO!! If that "activity" impacts my ability to put food on my table or that of any of my tribe, you can bet your ass there will be fucking consequences. I am afriad it's a bit more complicated, this is why honest valuations and accountability are so fucking important. Something busness "leaders" seem to have forgotten.
Don't hate on the players, hate the game. Actually, eliminate the makers of the game!
If you are participating, you are part of the "making", don't like the game? Don't fucking participate. either way, many players will be eliminated, the laws of Nature and physics will see to that. hedge accordingly.