Monday, January 2, 2012

Unfortunately There are Three Types of Debt

Except for PhD economists and government officials most rational people are beginning to understand our nation’s most urgent economic problem.

By any measurement the United States has borrowed far more than can ever be paid back.

As a percentage of GDP we hold twice as much total debt and off balance sheet liabilities than we have ever held before.

But unfortunately this is not our nation’s biggest dilemma. Our biggest problem is that we are ignoring our nation’s horrendous addiction to debt.

This is because the PhD economists that help our elected officials create policy are not trained in accounting or simple finance. All debt is the same to them whether it is borrowed to add more lanes to a congested stretch of highway or to add more layers to our monumentally bloated government.

Training PhD economists to treat all debt the same is like training a Doctor to think of the stimulants Ritalin and Crystal Meth as equal remedies for a child with Attention Deficit Disorder.

Thanks to our nation’s incompetent economists the economy is presently overstimulated on the Crystal Meth of debt, also known as Dysfunctional Debt.

Dysfunctional Debt is the exact opposite of Productive Debt.

Productive Debt is a financial tool that can create economic growth.

Dysfunctional Debt is almost always a political tool. It is used by government officials to reward their political favorites. It is exactly like Crystal Meth. It reduces the junkie’s drive to produce and it is highly addictive.

To understand the corrosive nature of Dysfunctional Debt one must understand the nature and function of debt.

Productive Debt: Is a business, government or personal financial tool that allows resources to be used in the most efficient way today without affecting the future.

There are very few examples of Productive Debt:

• In business, money can be borrowed to create new product markets and new technology that don’t compete with our current markets.

• In government, bonds can be sold to create new infrastructure that is required for optimal future growth. Like adding lanes to a congested highway.

• In households, money can be borrowed to purchase undervalued real estate.

Productive Debt is a financial tool that creates a permanent improvement in our economy’s growth curve. It does not pull resources from the future.

The fastest GDP growth that our nation has ever experienced was from 1933 to 1953. This remarkable growth was financed by Productive Debt that built a new manufacturing base, constructed needed infrastructure and financed the purchase of undervalued homes.

Non Productive Debt: Is a business, government or personal financial tool that moves money from one entity to another:

• In business, money can be loaned to one businessperson to compete against another businessperson.

• In government, bonds can be sold to repair existing infrastructure.

• In households, money can be borrowed to purchase fairly priced real estate.

Non Productive Debt keeps our nation moving forward at a constant rate. It is a financial tool that works as a buffer to maintain stable economic growth. It is the most common type of debt in a healthy economy.

Dysfunctional Debt: Is a political tool that creates a destructive liability with the help of a false promise and phony accounting. I use the term Destructive to mean the opposite of Productive. This is because the nature of the liability is hidden as the money props up bad business and rewards bad investing. In extreme examples it permanently corrupts free market mechanisms. This is what we are seeing today.

Before this generation there are very few examples in this country of Dysfunctional Debt. Unfortunately today there are too many examples to list. There is layer upon layer of gifts to favored individuals and groups by our government that is hidden by false promises, phony accounting and market manipulation.

Real Estate is a good example of a sector of our economy that is addicted to Dysfunctional Debt. In 1985 homeowners on average had 70 percent equity in their homes. Since then the government has made it a priority to give resources to the real estate sector to help it grow.

Resources were robbed from the future to support unwise decisions in the present.

This has caused home equity to go down almost every year since the government made real estate a favored sector of the economy.

According to the Federal Reserve homeowners on average own just 38% of their homes today. Half of the amount in 1985.

This is sad but it is not the problem. The problem is that the government is adding trillions of taxpayer debt to support the bankrupt banks. Trillions in the future will be borrowed to support the losses that Fannie Mae and Freddie Mac are incurring now.

Adding the trillions in hidden government debt to the $10 trillion in mortgage debt means that taxpayers owe more money than their homes are worth. This makes our housing market insolvent. Like addicts we have taken the crown jewel of our nation's wealth and with the government's help we have sold it off for immediate gratification.

The dysfunctional real estate market is easy to see but there are many other sectors of our economy that have used government debt to rob productive resources from the future.

The economy of the next ten years will be the antithesis of the miracle economy of 1933 through 1953. Destructive Debt has replaced the Productive Debt that fueled the record growth of our grandparent's generation.

The next decade will see the slowest GDP growth in our nation’s history.

Thanks to PhD economists, government officials and the Crystal Meth of Dysfunctional Debt.

Friday, December 2, 2011

How to Determine the Value of a Primary Residence

I sold my home in 2007 and I am still renting today. According to the three mathematical valuations methods that I use it no longer made sense to own a primary residence in 07’. The irony was that everyone else in the country was climbing over themselves to buy a home in the most overpriced housing market in our nation’s history.

I used my three mathematical valuation methods to determine that it was a fantastic time to buy a primary residence in 1996. Back then I stretched to buy a home that was 5 times my household income. Maybe the purchase was a bit imprudent but what the heck, it was a great time to buy. And, even though houses were cheap, The Herd of clueless investors didn’t whan to buy a home in 96’.

We are animals and our Herd Mentality usurps our common sense much of the time.
It is happening today:

• Why does everyone want to purchase gold now at $1,800 an ounce? The time to buy was in 2001 at $275 an ounce. Today investors are climbing over themselves to purchase an overvalued asset that gives no investment return and is difficult and expensive to sell.

• Why would anyone in their right mind buy a 30 year treasury bond now? Yields are at historic lows which means prices are at historic highs as people are rushing to purchase this “perceived” risk free investment.

• Why would anyone have a significant portion of their retirement in the stock market now? We are heading into a global recession and the worst economy in the past 70 years. Most publicly traded companies are not growing; they are cutting costs to increase their profits. But investors don’t care about the quality of the growth or what will happen in the near future, they are only concerned with following The Herd into the current overvalued market.

• Why would anyone pay bubble prices in the housing market? Some young families are still purchasing overpriced homes that will be underwater in 5 years.

People are Herd investors.

This is why it is imperative that you use some sort of time tested valuation method to put a price on the most expensive asset you will ever own.

Perhaps the best method to determine if it makes sense to purchase a home is to:

• Compare the monthly cost of owning vs. the monthly cost of renting.

Without considering inflation, you should be able to own a home for a little less per month than renting a similar home. You will pay less to own because of the lost return on your 20% down payment and the ridiculously large transaction costs when it’s time to move.

The Rent vs. Own comparison method has been used for generations to determine whether it’s better to buy or rent a home. It always works.

The only other variable that effects the equation is inflation.

So now that we are in deflation, which is the opposite of inflation, it makes sense to pay less to purchase a home compared to renting a similar home.

In 7 to 10 years once inflation rears its ugly head, it will then make sense to pay a bit of a premium to own a home.

It makes no sense to pay a premium for a home in a stagnant economy. This is why I am not rushing out to purchase a home in Walnut Creek and Pleasant Hill. It is still a little cheaper to rent.

Then there are the “higher end” areas of Lafayette and Alamo where it is much, much cheaper to rent. Many “high end” areas are still stubbornly stuck in a bubble as young families purchase homes that will almost certainly be underwater in their mortgages in 5 years.

The second valuation method that can help determine the fair value of a primary residence is:

• Comparing Household income to Home Price.

Throughout history families did not speculate on their “primary residence. They wanted to be able to “afford” their home.

It may seem strange now but historically people have felt that it was prudent to pay between 2 to 4 times their household incomes for a primary residence. During good economic periods they would pay up to 4 times their household income and during questionable economic periods they would be more conservative and pay 2 times.

Our grandparents chose to buy homes at 2 times their household income.

Contrast the prudence of our grandparent with our generation.
Five years ago, as a nation, we were desperate to pay 8 times our household income for a place to live even though we could rent for half the price of owning.

In California buyers were climbing over each other to pay 10 times their household income for 4 walls and a roof.

It did not make any mathematical sense then and it still doesn’t today.

Many buyers in Walnut Creek, Pleasant Hill and Lafayette are still paying 6 times their household income for a house.

Considering that we are in deflation and that we are entering the worst economic period in our nation’s history, would it not make more sense for home buyers to be paying 2 times their household income for a home?

This brings us to our last valid method to value real estate. It is driven by looking at historical trends:

• Comparing Current Sale Prices vs. Historical Trends

This method is used by professors Karl Case and Robert Shiller. They created the Case-Shiller index. With the Case-Shiller index Robert Shiller was able to intelligently argue that we were in a massive real estate bubble from 2003 through 2007.

The fact that no one listened to him creates a good argument that it is extremely foolish not to use mathematically driven valuation methods to determine when to buy real estate.

In 2007 I made my own graphs of the national and local real estate markets. I compared aggregate income to house prices. The charts pictured a huge bubble. I tried to show this bubble to a number of people and no one could see it. In nature herd animals focus their attention side to side watching the actions of The Herd instead of straight ahead.

So it made sense that no one in The Herd could look at something directly in front of their face.

I am absolutely certain that the Rent vs. Own; Household Income vs. Home Price and Historical Trend Methods are the only 3 viable ways to determine the utility value of a primary residence.

Unfortunately our government, the financial sector and most economists do not seem to want anything to do with mathematically driven valuation methods.

Their goal is to keep our nation of clueless investors in a herd. For the past 8 years they have been content to stand at the edge of the financial cliff and wave The Herd into purchasing overvalued homes.

Even the Chairman of the Federal Reserve Ben Bernanke, who is a math genius, would never conceive of using a mathematical method to value the housing market. In 2006, just months before the housing market crashed Dr. Bernanke continued to profess there was no problem with real estate values in this country. He gave his blessing for young families to purchase the most overpricing housing in our nation's history.

Dr. Bernanke was gleefully waving a whole nation of real estate investors toward financial abyss as I was desperately fixing my home to unload it.

Today Chairman Bernanke and The Federal Reserve have been instrumental in destroying our free market interest rates in an attempt to trick more buyers back into the herd of homeowners. Even though in many cases these young families would be much more financially secure to rent for a while.

I don’t feel that tricking young people into buying an overpriced primary residence makes for a healthy housing market.

I feel that fairly priced assets and transparent and free markets are the foundation of a healthy economy and a free society.

Unfortunately Dr. Bernanke, our financial sector, most of our government and The Herd of clueless investors feel that overpriced assets driven by unsustainable debt and corrupted markets hidden by economic disinformation will lead to economic prosperity.

I will wait to buy a home until it makes financial sense for me to do so.

Saturday, November 5, 2011

The Battle of The Upper End Housing Market

There are three separate battles that must be fought in the war against the Housing Bubble.

The first battle was the bloodiest and has already been fought. The banksters have carpet bombed the lower end of the housing market with foreclosures. The speed and thoroughness of the operation could be compared to the Blitzkrieg by Nazi Germany in World War II. Robo signers replace the Messerschmitts that reighed terror from the sky.

There is no loss of life of course, but lives have been destroyed all the same.

Mercifully the destruction is complete and the battle of home prices is over. The banksters are moving out, and on to greener pastures of exploitation.

Lower end areas like Antioch, Pittsburg and many parts of Oakland are selling below 2000 prices. It is time for the citizens of these markets to come out of their bunkers and rebuild.

The destruction has laid a foundation for growth. For the first time in 8 years young families are buying homes at affordable prices and investors are getting a fair return on their investment. The lower end housing market has wrested itself free of the tyranny of greed caused by the banksters and the bubble.

There is still some fighting in the middle tier of the market. This would be the Walnut Creek and Pleasant Hill areas. In these areas there is reasonable value for the discerning buyer but there is still a small cohort of overpriced resistance fighting back.

The banksters are using a different and more cunning strategy than in the battle of the lower end. They are strategically unloading just enough foreclosures in an attempt to keep prices in the bubble. This market manipulation allows for a slower more painful decline in home prices. It’s more like the punji stick booby traps in Vietnam.

But home buyers are on the offensive. They are purchasing homes at median 2002 value, so this battle is close to an end. Unfortunately for the buyers there are still a few homes that are listed at 2007 prices. These landmines can booby trap an undiscerning young family that is not skilled in reading the new terrain.

It is exactly like an explosion. The 2007 purchase price radiates mispriced value out amongst the surrounding area. A devastating event for the young families involved. Indirectly there is collateral damage to the market. But as time goes by this will happen less and less. The new buyers coming into the fray will learn from the mistakes of their fallen comrades.

Looking at the numbers it appears that Walnut Creek and Pleasant Hill buyers are learning to avoid the landmines. The pending sales numbers are starting to trend at 2001 values. Once these pending sales are closed, it will mean affordable pricing for comparable homes in the future.

As long as there are no new Covert Operations, like the Homebuyer Tax Credit by our government, the neutral zone between buyer and sellers will be drawn at 2001 prices. The white flag will be raised just south of the bubble and the battle will be over. Young families will be able to safely enter into the Walnut Creek and Pleasant Hill markets in 2011.

The final battle rages in the high end markets of Alamo and Lafayette with no hope of ending anytime soon. Overall the market is selling at 2005 prices, solidly in the bubble. Young buyers are totally outmatched in this fight.

There are many homes that are still being sold at 2007 prices. Each sale creates a comparable that enables other sellers to price their home at peak bubble price. These booby traps will continue to snare young families into a home that in all likelihood will be underwater in 5 years as prices slowly trend downward to 2002 values.

To make matters worse for the young buyers is that the banksters have allied with the sellers in this battle. The same banks that carpet bombed the homeowners in the lower end housing market, and used punji sticks to demoralize the middle tier buyers are now stockpiling foreclosures in the high end market. This stockpile of foreclosures could very well become a weapon of mass destruction in the future when they are unloaded onto the unsuspecting young people purchasing homes today.

Another powder keg that could explode is the pent up force of rising interest rates. There are many more interest only loans in the upper end market compared to the middle and lower tiers of the housing market. This trip wire has the potential to blow the whole high end market back to the Stone Age.

But what should be most distressing to young home buyers is that the Black Ops team at the Federal Reserve has helicopters in the air. Even though there is no chance of winning the war, The Fed is fiercely fighting free market interest rates in an effort to stretch out this battle for as long as possible. This Kamikaze mission by The Fed is meant to Shanghai young high end home buyers into joining their futile battle against our nation's free markets.

The high end market is like the fight between brothers on opposing sides during the Civil War. Except in this fight the rich older brother that started the war is borrowing money from China to continue the war and sending the bill to the poor younger brother that had nothing to do with starting the war in the first place.

War is definitely Hell.

For the next 3-5 years this battle will continue between the young and the old in Alamo and Lafayette. I don’t see how the young people that want to move into these markets have a chance. The high end home sellers have the money and the means to hold out for bubble prices. They have also formed an alliance with the banksters and The Fed.

The young buyers that enter this battlefield are set to become the cannon fodder that allows many rich sellers to escape from the bubble with all of their false profits as it imprisons an unsuspecting young family into an overpriced home in a very, very unsound economy.

If you are a young family looking to purchase a home, I would urge you to stay clear of this war zone.

Sunday, July 10, 2011

Zero Gravity Flight

Over the past 4 years our government at all levels has borrowed $6 trillion in future productive resources that taxpayers must pay back. Little of this largesse has made it's way back to private sector Middle Class Producers. Much of this money is pooling in the bank accounts of; The Rich, Big Banks, Multinational Corporations, Overseas Investors and Wall Street.

The Federal Reserve is redistributing our savings in the same fashion. Ben Bernanke has the Federal Funds rate locked permanently at 3,000% below the 10 Year Treasury bond Yield. This is in effect confiscating the investment returns of savers. The money is pooling or "stagnating" in the reserve accounts of the Big Banks.

Although the amounts are getting larger and more aggressive, these policy choices that I mentioned above have been consistent for the last 15 years. We continue to rob resources from the future to reward government favorites now.

Taking resources from private sector production and savings and then distributing them randomly to the government’s public sector favorites is not a formula to create sustained growth in an economy. At the very best it will create economic stagnation, which is easy to see in our economy today. For the past 15 years real household incomes have stagnated. We continue to lose private sector jobs, while the total size of the public sector has been growing faster than Mississippi sumac in summertime.

Looking at the situation logically, the policy choices that our government has made over the last 15 years should lead to economic stagnation.

For the past 15 years we have had economic stagnation.

How could any rational person not see the cause and effect.

The problem is that investors don't seem to understand the cause and effect of this situation. It is very important that the market understand the probable outcomes and consequences of our government’s policy choices:

“We have borrowed extreme amounts from the future and locked ourselves into a slow growth economy now. The limited resources available during our slow growth period will probably continue to be directed by the choices of government officials as much as our free markets.”

The previous statement would give full disclosure to our current economic situation. Our future will be a slow growth environment with resources being allocated by the capriciousness of government officials instead of the free market.

But when the facts are distorted, the misinformation becomes a big problem for our investment markets and our economy.

Presently government policy makers continue to tell our financially incompetent populace that more private sector jobs are coming and economic recovery is on the horizon.

Obviously this is an impossible outcome given our government’s current policy choices and our limited economic options.

Therefore this erroneous information from a trusted source creates a large disconnect between reality and expectations. Misinformation is creating huge investment bubbles in our economy. We are now at the apex of our third bubble in 12 years.

Investment prices are floating dangerously higher than the valuations that support them.

Our present bubble is like an airplane achieving its maximum altitude as it flattens out and begins a quick decent. Presently we are at the point in the parabolic arch where gravity no longer exists. This is called Zero Gravity Flight and in an airplane or an investment market this period can only be temporary.

Zero Gravity Flight can be very enjoyable if you understand what is happening. But it can be very dangerous if the captain of the airplane tells his passengers that this weightless condition will continue for the rest of the flight.

So if everyone on the airplane becomes detached from their seats at the apex of the parabolic loop with unrealistic expectations, it becomes a mania. These unrealistic expectations of the future can come crashing down once gravity exerts its force.

Overvaluation in our assets will bring the same result as our economy slows.

Presently just about all asset classes are overvalued. Commodities and bonds are historically overvalued. Investors are only interested in watching their investment returns sail to the moon. They are blind to the consequences.

Investors are desperate to stretch the risk curve, at absolutely the worst time in the economic cycle to stretch the risk curve.

So as Investors are joyously bouncing off the sides of the airplane cabin and as our captain has permanently turned off the “fasten your seatbelt” sign.

There has never been a better time for the prudent investor to sit down and buckle your seat belt tight.

Tuesday, July 5, 2011

Hummingbird Economics

Biff has been fixated with hummingbirds since he was five years old. He has written many books and articles on the care and feeding of nature’s most important bird.

Unfortunately none have ever been published.

Amazingly, hummingbirds don’t seem to be a priority for most people. So Biff never received the recognition that his brother Ben receives.

Biff used an inheritance to purchase a 1000 acre valley in upstate Vermont. The parcel has always been known as Honeysuckle Valley. He bought the property to be closer to his birds and to distance himself from Princeton and the success of his brother.

Biff like his brother Ben has always been focused on improving his environment, so he started placing honeypots out in the open to lure more hummingbirds to his property.

Over the years Biff began noticing a change in the hummingbirds. They seemed to be growing in size so it was obvious that his honey was helping the birds. The only puzzlement was that the extra bulk seemed to make the hummers less nimble in escaping the advances of their predators, the hawks.

Biff thought about this constantly. He remembered his brother talking about disequilibrium in an economy. Could this be the same?

He called his brother Ben and asked for help. Ben explained his theory about stimulating slow moving economies with more money. So together they surmised that it made sense to stimulate the slow moving hummingbirds with more honey.

Biff started his own version of Economic Stimulus for his hummingbirds. This seemingly small event turned into a watershed moment in economic history.

As Biff provided more and more stimulus for the hummingbirds an amazing equilibrium came about that no one could have predicted.

Like the hummingbirds, the bears have learned to use Biff’s stimulus. The bears now stay by the honeypots constantly waiting for honey. The slow moving hummingbirds have also learned to stay by the honeypots to utilize the benevolent bears as protection from the hawks. Continuous economic stimulus has created a new higher standard of living in Honeysuckle Valley for the hummingbirds and the bears.

Many years ago economic philosophers such as Plato and Jefferson suggested that a government that chooses “winners” and “losers” in a society would always end in corruption.

Then Keynes and Friedman postulated that small amounts of “temporary” stimulus during economic downturns could bring positive overall benefits to an economy provided the government manipulation was reversed after the recession ended.

Biff with the help of his brother Ben provided the research that has allowed government economists to take the final step away from our inefficient free markets and toward the inevitable “managed economy”. The findings in Honeysuckle Valley have proved that constant stimulus by a benevolent third party can increase the standard of living of all participants equally.

(It must be noted that the brothers decided that the hawks did not merit being a variable in their study because the pesky creatures left the valley and moved to New Hampshire midway through their research.)

Economists from all over the world now come to Honeysuckle Valley to study the first documented case which proves that continuous and unlimited economic stimulation can create a higher standard of living for everyone. This new theory is presently being utilized in Japan, Portugal, Ireland, Italy, Greece, Spain and of course here in the United States by Biff’s brother Ben.

Biff is rich and famous and is getting the recognition that he deserves.

There is only one thing that bothers Biff now.

He hates the first question that comes from all new visitors to Honeysuckle Valley:

“What in the heck is that Smell?”

Saturday, June 25, 2011

The Recession Wolves

Our economy is at the peak of the third economic bubble in 12 years as we are desperately mortgaging our country's productive resources to reward reckless speculation and to fight the free market.

This new bubble is driven by borrowing and then wastefully spending $6 trillion over the past 4 years to prop up false prices. Compounding this tsunami of waste, the Federal Reserve has destroyed free market interest rates by pushing the Federal Funds Rate more than 3,000% below the 10 year Treasury bond yield.

Our country and the world are ablaze in the intoxicating glow of easy money. Just like in 1999. Just like in 2005.

The government and The Fed have again poured gasoline on our campfire to keep The Wolves of Recession at bay.

Can this continue?

We can temporarily sustain the debt portion of the bubble if we decide to continue our financial child abuse and borrow another $10 trillion dollars that we have no intention of paying back. Surprisingly financial child abuse is not a crime in our society and being drunk, especially on debt, seems an adequate excuse.

But there is no way that nature will allow us to abuse our free markets much longer. Even if Chairman Bernanke wanted to keep the Fed Funds rate 3,000% below the 10 year Treasury bond yield for an extended period, it is not possible. As phony rates turn real, they will become a drag on the economy.

The government’s bond fire that keeps the predators outside will eventually dim. This will allow the Three Wolves into our camp.

The first to enter will be the Wolf of Free Markets. It will mercilessly attach the artificial interest rates and kill them dead.

Then and only then will the second and fiercest preditor be allowed to enter. Its bloodthirsty eyes will spy the surroundings as it looks for the focus of its rage. It will spot the children cowering, lying in the smoke and soot from the government’s smoldering bond fire. With lightning speed it will jump to their side. The Debt Wolf will stand bristling and snarling in between us and the children.

The third Wolf will then be allowed entry. Every ounce of its being will be focused on us. We have attempted to live far above our means by robbing resources from future generations in a vain attempt to manipulate asset values. The Wolf of Fair Prices will allow none of this. As the Debt Wolf and the Free Market Wolf protect the children, the Wolf of Fair Prices will tear our manipulated and bloated asset valuations to shreds.

The Three Wolves will lie next to the children and for the first time in their lives they will get economic warmth, protection and love. Nothing shows more love than blessing children with a sound government, free markets, fair prices and low debt. Our forefathers wished it for us many years ago, before we had our first taste of the drug of easy money.

They will fall to sleep, finally free from our greed and abuse of power. As the children wake to the safety of the economic sunrise the Wolves will be gone. The previous night will be a vague memory that is forgotten with time.

As sure as corrupt and abusive government policy nurtures unsustainable debt, false markets and unfair prices, The Recession Wolves will be there to protect the future generations.

Thursday, June 2, 2011

Daddy and Maddie Ride the Bubble Coaster

“This is going to be fun Maddie. First we will ride Cinderella’s Fairy Boat. Then maybe we can work our way up to Fannie Mae’s Teacups.”

“Daddy, those are baby rides. I want to go on the Bubble Coaster.”

“Madison, the Bubble Coaster is only for grownups.”

“No, Daddy you’re wrong. The Bubble Coaster is best for kids or people that think like kids.”

“Well, Maddie we will give it a try. What do we have to lose?”

“Daddy, I want to spend the whole day on the Bubble Coaster.”

“The car is moving now, and we are climbing to the top of the first Bubble. Hang on tight and get ready for the big fall.”

“No, Daddy, the man behind me, Mr. Greenspan just said that the coaster only goes in the air and levels off. He said it was just like Cinderella’s Fairy Boat, only higher. He guaranteed that there would be no big drops.”

“But Maddie, Mr. Greenspan is wrong. Look ahead. Can’t you see that the tracks go way up and then go way down? That’s why it’s called a roller coaster.”

“No Silly Daddy, Mr. Greenspan said it, so we must believe it.”

“Hang on tight Maddie, the coaster is ready to descend.


“Wasn’t that fun … hey, what’s wrong Maddie?”

“Daddy, I didn’t expect that to happen! I was so scared. I want out now.”

“Sorry, Maddie, there is no way to stop the ride now.”

“Wait, Daddy, Mr. Greenspan just told me that if we give him enough money he will be able flatten out the dips and make it a smoother ride. It will only cost $1,000.”

“Maddie, don’t you remember that Mr. Greenspan was wrong before, and what on earth is the $1,000 for?”

“It’s nothing for you to worry about Daddy. Mr. Greenspan has a friend that owns a big bank. He said I was highly qualified for a $1,000 loan. Isn’t that great? Now we are safe and we don’t have to worry about the dips anymore.”

“Maddie, quit talking to strangers and hang on! This is real estate; it is the biggest drop on the coaster.


“Daddy, I didn’t expect that at all. We need to get out of this now.”

“Poor Maddie, the ride will be over after one more dip. Then I will have a talk with the carnival security about Mr. Greenspan.”

“No Daddy it’s not a problem anymore. I talked to the driver of the coaster, Mr. Bernanke and he said he can transport us over to Cinderella’s Fairy Boat to avoid any more drops. All he has to do is call the helicopter.”

“What! Maddie, look around, we are five hundred feet in the air. Cinderella’s Fairy Boat is on the other side of the carnival. Mr. Bernanke cannot magically transport us there. It’s not possible.”

“Mr. Bernanke says he can do it and we have to believe him Daddy. He says the helicopter will only cost $10,000.”

“ I am not sure if Mr. Bernanke is a thief or if this is part of the ride but I am not going to give him $10,000. Now get ready for the next fall, it is the Last Bubble and it’s the sharpest drop on the coaster.”

“Daddy, it’s no problem. Mr. Bernanke’s Chinese friend said he would loan us the $10,000. They say that the helicopter is on the way.”

“Madison, I am not going to borrow $10,000 from Mr. Bernanke’s Chinese friend. It doesn’t make sense. None of this makes any sense. It’s like a freak show.”

“Mr. Bernanke said he would help, Daddy. So we have to let him help.”

“Maddie, shouldn’t Mr. Bernanke be focused on driving the coaster safely instead of filling little children’s heads with thoughts of magic helicopters and large amounts of money?”

“No Daddy, you’re wrong.”

“Maddie, this is absolutely insane!”

“Daddy, you don’t understand. You have to give Mr. Bernanke the money! Please Daddy say it, for me, PLEASE!”

“OK Maddie. I want to borrow the money now.”

“Daddy, look really hard. See the helicopter coming to rescue us.”

“Maddie, I think I see it. We are going to be rescued!”


“Maddie, I was not expecting that at all. I have never been so scared in all of my life. Get me out of this!”

“Do you understand how to play the game now Daddy?”

“Wow Maddie! I never would have figured that out in a million years.”

“Daddy, that’s because you were acting like a grownup. This is a make believe game for kids or people that think like kids.”

“Do you want to ride again Maddie? I think I might like this game.”

“Daddy, I told you, I want to spend the whole day on the Bubble Coaster.”