Howard's End

Howard Hughes was, arguably, the last truly innovative American capitalist. Today, the likes of Apple are gifted with patents on such silliness as a rounded corner rectangle. The processor in that rectangle was created by a bunch of Socialist Brits, for crying out loud. And built by, titularly Communist, wage slaves. What the hell is going on?

Well, some reporting today lends more weight to the underlying thesis: real investment is, if not dead, on life support.

Apple, and the like, sit on ever burgeoning cash piles. The Icahns, aka The Smartest Guys in the Room, want some/much/all of that extra cash sent to them. So, from one billionaire's idle, unspent cash pile to another's. The net-net, from a macroeconomic point of view, is a big fat zero. Nada. Goose egg. Diddly squat. The whole raison d'etre of capitalists' (as distinct from the capital manifest) power is that they've the smarts to invest the moolah productively. Smarts that The Common Man (or The Common Man's proxy, Gummint) just doesn't have. But not happening. Their taxes haven't been this low in decades. They keep getting extortionate Gummint subsidies (I'm talking to you, Boeing) to keep their factories running. And so on. But they still can't figure out how to allocate that fiduciary capital in productive ways. Why do these guys get such lofty wages?

Floyd Norris on the dark side of emerging markets tells the tale of the markets' failure to capitalists. (Aside: I've no idea whether anyone at The Times gets the Pun; Pink, Floyd, Dark, Moon.) Once again, capital goes hunting for non-productive (thus, assumed to be, low risk), yet high yield, places to stash moolah. "Money for nothin', and the chicks for free".

The widespread worry about emerging markets -- investors are also nervous about Brazil, India, Indonesia, Thailand, Taiwan and Malaysia, to name a few -- can in some ways be traced to the fact that they did remarkably well during the credit crisis that began in 2008. Many of them had hefty foreign currency reserves, and their growth attracted foreign investment.

That investment helped to push up local asset prices, which intensified the boom and brought in more capital. Eventually, money flowed in from investors chasing performance, a sort of "What goes up must keep going up" attitude. The currencies appreciated, and countries began to buy more things from abroad while their industries were losing competitiveness. Current-account deficits began to soar, but that did not immediately matter because the capital was still coming in.

Just like US house prices. And tulips a few centuries ago. And what most Wall Street quants call a stable time series.

At least one, thank goodness, analyst asked the right question. The answer isn't so pleasant.

What, [David A. Rosenberg, the chief economist at Gluskin Sheff, a Canadian research firm] asked, happened to all that capital that poured in? "One can reasonably draw the conclusion that, as we have seen time and again, the foreign capital inflow was squandered either on conspicuous consumption or noncompetitive investments," he wrote.

Figures. Not even a red blooded American; just some failed hockey player with store bought teeth.

If that sounds like housing, government infrastructure, and bridges to nowhere, you'd be hearing right. The notion that non-productive uses of fiduciary capital are self-amortizing is the Great Lie of financial engineering. Only productive uses of moolah (and none are guaranteed to be so) can generate the vig. As The Great Recession demonstrated to anyone who was looking, residential mortgages generate only some psychic income (and, then, only if one holds that such income even exists) to the holder. Paying the vig has to come out of the resident's real income; if rising productivity flows only to capital and none to labor, then such investments must fail for lack of moolah, sooner or later. If said income isn't rising to meet the vig; well, it all falls apart. It did here. It is in China. And it is in the variously acronymed emerging markets. They aren't emerging organically, only sopping up Western (mostly) excess moolah. Natural resource extraction being an exception, of course. But third world resources tend, strongly, to be located in fascist locales, like Texas and North Dakota; the unwashed masses have no right to their country's largesse, resources are, and should be, private. And Idi, or whoever, will use the Army to enforce the property rights.

Yet, our Titans of Industry continue to sit on piles of moolah. Mostly, they use it to buy out competitors, the better to gain market power, i.e. screw the consumer sooner than later. Intel is something of an exception, but it, too, has shuttered work (on a new fab).

Next, is a story that's bizarre: Goldman wants to buy a significant position in Danish national electric power?? What on earth? If you don't care whether investment banks get involved in electric systems, you should: Barclay's and JP Morgan. Goldman has been found with its hand in the cookie jar (aluminum variety). The Danes have cause to not trust Goldman.

Under the terms of the deal, Goldman would invest about $1.45 billion for an 18 percent stake in Dong Energy, the state utility, which has become a green energy exemplar in its push for electricity from wind turbines. Though the deal buys far from a controlling share, the minority stake would come with special privileges.

Goldman would get a seat on the utility's board. And the bank, along with two Danish pension funds, would have veto power over changes in the utility's strategy or its executive suite -- specifically the utility's chief executive or chief financial officer.

Oh, and Lloyd just got his paycheck. I'd be smiling, too, getting paid that much to ride along. As some wag, not I alas, once pointed out: "A sock puppet could run one of these corporations".

Finally, if it's Friday, it must be Krugman. He tiptoes up to the basic question: where does growth come from to pay the vig on investment? Doesn't address it head-on, but

Most obviously, faced with a private sector that wants to save too much and invest too little, we have pursued austerity policies that deepen the forces of depression. Worse yet, all indications are that, by allowing unemployment to fester, we're depressing our long-run as well as short-run growth prospects, which will depress private investment even more.

Once again: they ain't no way to pay interest on money that ain't actually generating new output. That vig has to come from some other productivity generating source, and if wage earners (by far the largest part of the 99%, on smallest of the 1%) aren't garnering any of that growth, then the whole taco falls apart.

If the Titans of Industry can't or won't invest in real capital with zero cost of funds, when will they?

SNAP, Crackle, Pop

In today's news from Wal-Mart:
"... the sales impact from the reduction in SNAP (the U.S. government Supplemental Nutrition Assistance Program) benefits that went into effect Nov. 1 is greater than we expected."

OK, so Goliath took a hit. How long will it be that all them good ole Southern capitalists' toadies start complaining about the Gummint hurting bidness???

Balloon, Meet Pin

Watching Keith Olbermann voice-over sports clips is to see an utter waste. I had no concept of Olbermann before is MSNBC stint, but I do catch bits of him whilst waiting for the local weather to come on. And thus I discovered "bye, Felicia". Who the hell is she? Near as I can tell it's a young-uns expurgated version of 'perform a non-procreative auto-intercourse'. Or thereabouts.

Apple reported earnings after Mr. Market went home yesterday (he didn't really go until 8:00 pm, but ...), and the share dropped to $500 betwixt 4 and 8. As I type it's a tad over $500 in pre-market. The pundits have already spewed much typing (to which I am adding, alas) over the meaning of it all. Tally ho!!!

This endeavor exists in multiple versions, some with a preamble of quotations appropriate to the version. This missive will appear in all, but the quote I need is this:

As mass production has to be accompanied by mass consumption; mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery.
-- Marriner Eccles

Eccles was an advisor to FDR, so the time of the quote was during the Great Depression. Recent times have delivered more than few "bye, Felicia" moments, all tied, one way or another, to Eccle's observation.

- Perkins' assertion that Progressives are Nazis.

- Data that 85 individuals hold as much wealth as the lower half the planet's population.

- Chris Christie and The Bridge.

- Revelation that all that manufacturing growth is at burger flipping wages.

- Boeing, among others, carving out subsidies orders of magnitude greater than the per capita cost of jobs "saved".

- Papa John bemoaning that ACA will make him poor.

- Evisceration of SNAP/Food stamps.

- The realization that John McCain is a liberal.

- The continued burgeoning of corporate cash piles.

- All that QE money, yet total employed hasn't moved.


In terms of Apple, and all those companies focusing on the top X% of the population, eventually there's no more growth to be had, simply because the headcount of your X% of income/wealth is stagnant, at best. Some times, and some places, concentration leads to smaller market opportunity.

In Apple's case, when we (if there is a we in the future) look back, the iTrashCan (aka, new Mac Pro) will be the inflection point; and not a good one. Apple, perhaps in a "bye, Felicia" moment of great irony, introduced the Mac with the "1984" commercial. What has gone largely unnoticed over the years is that, as a device purveyor, Apple is completely fascist in its relationship to its users: Jobs/Ive/whoever tell the user what they should do, how they should do it, and provide no way to alter the device. Contrast with the PC clone world, where customization is standard; oxymoron though that may be.

With the iTrashCan, Apple has told its diminishing professional/prosumer clients that a computer is really just a toaster, "no user serviceable parts inside".

So, tonight is the State of the Union, which will bring a multi-hundred point drop in Mr. Market. Mr. Market doesn't like to hear anything which contradicts his "I am the Job Creator" self-image. The "let them eat cake" crowd never gets that capital is worthless without consumers. They just never get it. The frog and the scorpion. The corporations, and the 85, are clearly at the limit of their tolerance. They've accumulated all that moolah, but just can't seem to find ways to get 10% per annum in free money. Consumers, damn them, just don't have the demand for goods and services they used to. There just doesn't seem to be any guaranteed source of unearned income anymore. Ingrates!!!

Balloon, meet pin. With all that moolah sitting with the 85, deflation is the only sure way to make that moolah more valuable. Unearned income on steroids. They're going to give us a Depression such that we'll never, ever, again get so uppity.

We All Scream For Ice Cream

All these limp wristed whiners need to shut up. Yes, it might be a tad chilly in the Meadowlands for the Super Bowl (and on Ground Hog's Day, in case you forgot; census day on Block Island, too). So what? Here's some important data.

Here's the rundown on the NFL Championship games. Almost all north of the Mason-Dixon line. At the end of December, mostly. Here's a fact from meteorology: seasons aren't determined by solstice/equinox dates, but by actual weather. So, summer is June/July/August. And winter is December/January/February. January is the coldest month. February is the end of winter, not the middle.

I suppose that most of the whiners are too young or stupid to know about The Ice Bowl (NOAA's page). Just look it up lots of places for more detail.

The 1967 NFL Championship Game between the Dallas Cowboys and the Green Bay Packers, played on December 31 at Lambeau Field, is known as the Ice Bowl, arguably one of the greatest games in NFL history.

Yes, yes it was.

Treading Water

The quant/bankster types took something of a hit during/following The Great Recession (it is over, right?) for being the enablers of The Giant Pool of Money to bubble up through the housing markets. Yes, plural; Spain and Ireland to name just two others. I've gushed untold keystrokes in these endeavors on the notion that The Giant Pool has not gone away. If anything, with corporate profits in the ionosphere and the Fed gifting cash to large holders, the Pool has gotten deeper. Anecdotally, no question.

I use NBC News as my home page since Yahoo!/Mayer screwed that pooch. Well, today brings this "news".

Insatiable demand from hedge funds, private equity investors and foreign buyers, all armed with ready cash, are elbowing first-time buyers out of the housing market.

First-time buyers tend to purchase lower-priced homes, but all-cash investors have cornered the market on those, leaving little behind. All-cash purchases accounted for 42.1 percent of all U.S. residential sales in December, up from 38.1 percent in November, and up from 18.0 percent in December 2012, according to a new report from RealtyTrac.

Well, it isn't all that new. Way back in August, this, more extensive, data were reported. The comments to this piece are refreshingly Darwinist.

The low rates promoted by the Fed were cast under the umbrella of helping out regular families but in reality, they have turned into the next hot money play for banks, hedge funds, and Wall Street. The fact that 60 percent of all purchases in 2013 are being driven by the cash crowd is crazy (a 200 percent increase from the 20 percent pre-crash levels).

At this point, it's difficult to follow a breadcrumb trail from quants to crash. This appears to be a case of what you get when you try to push a string. Greenspan did it first, beginning in late 2001, and gave us The Great Recession as his going away present. The gift that keeps on giving. But it is further evidence of the few exploiting the many. Contrary to some comments to the August piece, Joe Sixpack didn't go into Countrywide and dictate the structure of a liar loan, rather, Joe was told that such a loan was not only feasible but in his best interest. It was found that mortgage companies and banks, some more than others, steered Joe into higher profit exotics even when Joe could have gotten a conventional, but less profitable, mortgage. Incentive, incentive, incentive.

Remember: you can't push a string, and that incentives matter more than data when the two disagree.

Stockholm Syndrome [update]

Shiller gets to go to Stockholm and bloviate, while I'm stuck here in Arctic New England. Life ain't fair. At least, he's provided a precis of the proceedings. And, in the process, elevated my view of Left Wingnuts.

There are two major points: first, quants mostly get it wrong; and second, homo economicus is a myth. The first occurs because the second is true.

Does it make sense to suppose that economic decisions or market prices can be modeled in the precise way that mathematical economists have traditionally favored? Or is there some emotionality in all of us that defies such modeling?

Of course. The field was originally named 'Political Economics', and there's little in human existence that's more attached to emotion than politics. How else to explain Kansas? All those gun loving, God fearing folks voting for the corporate manipulators eager to keep them poor. Well, except for those few who get fat farm subsidizes. Not that such moolah is welfare, of course.

It is hard to sum up all this discussion, however, because of a basic problem: defining "rational."

Aye, matey, thar's the rub. A frequent quote from the housing bubble amounted to: "we all have to keep dancing as long as the band plays; all the others are dancing". Another way to put (from J.K. Galbraith, variously phrased) it: "financial genius is a rising market". Thus Li was able to foist a mechanistic formula on human behavior, which is to say, where they make the rules rather than Mother Nature. The ultimate basis of quants is that the rules are, more or less, stable and *not under the control of the analyst*. Such analysis works well with microarray data, for example. This is the crux of Shiller's point, too.

He closes:

The question is not simply whether people are rational. It's about how best to describe their complex behavior. A broader notion of irrationality may someday be reconciled with one of rationality, and account for actual human behavior. My bet is that real progress will come from outside economics -- from other social sciences, and even from information sciences and computer engineering.

In other words, don't assume that one can model human decisions using only "normal" data. If policy (those musical chairs during the housing bubble) trumps data whenever enough people decide that the policy is more fun, then data loses. The best that financial quants can hope to do is front run changes in money flows. Which is not to assert that data is useless in bubbles; those that noted the massive unsticking of house prices and incomes made money going up and coming down. But not so many. And that means Joe Sixpack with his PC and standard data and R doesn't stand much of a chance to beat the pros with their HPC machines and proprietary data. You're better off tracking Briefing.com, with an eye to spotting grey swans; watch for events.

[update]
I've spent the last few hours looking for more views on the subject, and found this one. Very interesting. Could have been written by me (well, in a dream, may be).

From page 20:

The very complexity of the mathematics used to measure and manage risk, moreover, made it increasingly difficult for top management and boards to assess and exercise judgement over the risks being taken. Mathematical sophistication ended up not containing risk, but providing false assurance that other prima facie indicators of increasing risk (e.g. rapid credit extension and balance sheet growth) could be safely ignored.

And, from page 24 (the punch line, in the gut):

New generations of students will have to use the tools and techniques of QRM [quantitative risk management] wisely in a world where the rules of the game will have been changed.

Many Unhappy Returns

A couple of dovetail bits of news today.

First, a debate about whether stocks, broadly, are overvalued.

Second, Intel's dog not barking in the night.

Anecdotal evidence, to be sure, but another couple of data points aimed at the emerging thesis (separate and apart from the QE perturbation) that capitalists just can't find useful ways to convert fiduciary into real. Thus, the real rate of return on capital has to fall. And, despite what Brown asserts, it's not a Good Thing that services dominate the capital allocation decision. After all, we can't all eat subprime mortgages. And, if capital flows willy-nilly into software and the like, that's just more software that has to find a willing buyer. More supply, price falls. I've got a trunk load of tulip bulbs, if you're interested.

Major Kong Falls Over Switzerland

Net neutrality is dead!!! Long live Robo Cop!!! Or, what does the future hold now that net neutrality is gone?? The problem for quants is that, while data driven analysis makes perfect sense in the real world, i.e. the ones driven by forces of nature, the process gets squishy when the rules of the game change at the whim of humans. Most often, those rule changes are made by those who benefit from the change, and which change is often hidden from the public at large. And that group includes many of the quants.

When there is massive policy change such as this, the job of analysis is to consider how behavioural incentives have changed. What behaviours, previously forbidden, and which can turn a profit, are now legal? Who wins and who loses? The swan may not be black, but gray enough as to not matter.

Verizon, the entity which initiated the court action says:

"Verizon has been and remains committed to the open Internet, which provides consumers with competitive choices and unblocked access to lawful websites and content when, where and how they want," the company said in a statement. "This will not change in light of the court's decision."

By way of comparison, after the voting rights act ruling, those who made the ruling claimed that the law had worked, and nothing would change, because, well, the law had worked. Within 48 hours, those purely democratic Southern states which would never, ever return to past bad behaviour, set about undoing voting rights. You can look it up. Follow the incentive.

Anyone who actually believes that is a fool. The whole point of killing neutrality is to segment the market, and dump any segments which aren't "profitable enough".

In 2002, the agency said Internet service should not be subject to the same rules as highly regulated utilities, which are governed by regulations on matters like how much they can charge customers and what content they can agree to carry.

So, who was running the FCC in 2002?

Michael K. Powell, who was F.C.C. chairman in 2002 when the agency set up its Internet governance structure, said, "Today's historic court decision means that the F.C.C. has been granted jurisdiction over the Internet."

Then, who is Powell? Well, he's Colin's son; appointed by Clinton; and toadied for Bush. He now heads up the cable lobby.

Who, in the current world of Darwinist Capitalism, is the master of market segmentation? That would be Apple. Market segmentation means not only varying price to capture consumers' surplus (the notional version of the gambit) but also to remove market segments from supply. There has been in the common lexicon for some years the term 'digital divide', wherein the less wealthy have less of the digital domain. If the less wealthy don't have access to the innterTubes on a level playing field, this becomes yet another case of not wearing an Old School Tie (the Brits will get that; Yanks may be not so much). To the extent that current affairs reporting becomes beholden to innterTubes for dissemination, we can expect a few changes. First, the ever more concentrated control over the innterTubes will provide only 'good news'. And, second, the less wealthy will get 'good news' which portrays them as the cause of all that is bad with society. Fascism, as defined by Mussolini, is government by and for capitalists. As the information superhighway becomes the only path for information, and is controlled by a handful of capitalists, what's the incentive to not mold the information?

Remember: the 'free' parts of the innterTubes run on adverts (Wikipedia being an exception), and Apple has shown that segregating out the non-buyers from its sphere is more profitable. With the carriers now free to segregate their customers, why would they not? Why would they not make deals with Netflix, et al, to provide highspeed connections to wealthy neighborhoods/towns/cities, but not to South Buttfuck? Of course they will. There are sites already which catch my use of Adblock Plus, which is more to preserve bandwidth than to avoid ads (although I've never clicked on one and never will). Some won't let me in, others can be fooled. Market segmentation at work.

Of course, there is no such incentive. The incentive is to, Darwinist/Rand fashion, crush the weak under the boot heel. And, there is no punishment for being a bad actor.

The allure of innterTube ads is that they're more focused than print ads. But net neutrality limits the ability to segment aggressively. The time will come when sites will not only block those that don't view or click ads, but don't buy. Who better to enforce this segmentation than the carriers? Rather than each advert owner having to keep track, the carriers offer up a throttle: they'll keep track of those who buy and those who don't. Those who don't get blocked from some sites, and get reduced bandwidth in the bargain. In due time, the innterTubes will become like the Apple ecosystem: of, for, and by the top 20% of the wealth curve. That Old School Tie will be adorned with the Verizon Hyperspeed tie tack.

R, How to Write It, and Some Bad Quant

The stream of R books continues. Amazon sent this one along this morning. This is the chapter 10 Title:

Loops, The Un-R Way to Iterate

A step in the right direction. Which brings us to a couple of posts that popped up on R-bloggers, also this morning.

"R as a second language".

In most languages if one wants to do something many times the obvious way is using a loop (coded like, for() or while()). It is possible to use a for() loop in R but many times is the wrong tool for the job
...
There are some complications with some of the design decisions in R, especially when we get down to consistency which begets memorability. A glaring example is the apply family of functions and here is where master opportunist (in the positive sense of expert at finding good opportunities) Hadley Wickham made sense out of confusion in his package plyr.

Both statements ring true: the apply() functions are set-oriented (fits the RDBMS mind-set), and their lineage makes the syntax a Google-able construct which in turn makes the plyr package so much better.

Hot on that post's heels is this one, with a similar point to make.

... in R it is much simpler to take advantage of the R idioms to get there a lot faster. With this approach there is no need for loops or conditional branches. There is also no need for iterative array construction. Instead everything is done in one shot using a set-theoretic approach combined with function transformations.

Again, we read about set. While I've always been irritated by the fanboi need to cloak R in OOD/OOP/functional mystique (rather than actual syntax/semantics/structure), the (nearly) declarative approach to syntax (and, thence semantics) is comforting. R is just FORTRAN's function/data, and folks should just let it go at that. Iteration belongs on the metal, modulo true array processors (which don't explicitly need it); the continuing bottom of the brain stem memory of assembler (and, face it, C) likely accounts for loops in so-called higher level languages. Bah.

So, now we're on to concerns of quants. It seems that Big Data is Dead?

Google Trends shows searches of the term "Big Data" peaked in October, ending a nearly ceaseless climb that began three years earlier.

Huge flatfiles of un-normalized bytes may finally be seen as The Emperor's New Clothes by The Deciders out there:

In the case of Big Data, this probably means less focus on back-end technologies like new types of storage or database frameworks, and a rethinking about how best to integrate human knowledge, algorithms and diverse sets of data.

Can you say: "I want my PL/R"? And have I mentioned: the free-as-in-beer DB2/LUW can accommodate 15 terabytes? You don't get all the really cool bells and whistles, but that's pretty big data.

And now, for a little night music. Jenny Lind was the "Swedish Nightingale", which is close enough to a canary for government work. "We have our canary!" cried some. I'd noticed that house prices had been on a run, but not enough to put fingers to keyboard. This writer is from the AEI, so he blames The Damn Gummint, of course:

Both this bubble and the last one were caused by the government's housing policies, which made it possible for many people to purchase homes with very little or no money down.

Which, of course, is baloney. The bubble was motivated, widely known by anyone not hanging out with Mussolini's ghost, by the financial sector seeking high (but risk free) returns. So, they invented 'interesting' mortgages in order to sell more houses/mortgages which could be packaged together to make high yielding, but low risk (housing is always safe, isn't it?), securities. It wasn't the $10/hour bus drivers who went to CountryWide and said, "make me a mortgage that looks like this". Not the way it happened. The author is clearly confused, because he says:

In 1997, housing prices began to diverge substantially from rental costs. Between 1997 and 2002, the average compound rate of growth in housing prices was 6 percent, exceeding the average compound growth rate in rentals of 3.34 percent. This, incidentally, contradicts the widely held idea that the last housing bubble was caused by the Federal Reserve's monetary policy. Between 1997 and 2000, the Fed raised interest rates, and they stayed relatively high until almost 2002 with no apparent effect on the bubble, which continued to maintain an average compound growth rate of 6 percent until 2007, when it collapsed.

But, later on:

They claim that people will not be able to buy homes. What they really mean is that people won't be able to buy expensive homes. When down payments were 10 to 20 percent before 1992, the homeownership rate was a steady 64 percent -- slightly below where it is today -- and the housing market was not frothy. People simply bought less expensive homes.

Ya can't have it both ways, Jake. The moolah, whether Chinese, German, or American, flooded the mortgage process, pushing up housing costs, while the Banksters went about making mortgages for this housing stock available to the larger number of buyers needed to "clear the market" (cute econ speak, what?). Affordability was swindled in order to conjure the securities. In the short term (and we're definitely in the short term with the Bubble/Recession), only so many units could be built, yet to accommodate the Giant Pool's valuation (Banksters chasing mortgages with ever more bulging pockets) prices had to rise to "clear" the Pool's value. The builders were the ultimate winners:

When anyone suggests that down payments should be raised to the once traditional 10 or 20 percent, the outcry in Congress and from brokers and homebuilders is deafening.

Couldn't agree more; said it before.

I disagree with the use of rental payments as the measure of bubbles, however. There's no material difference between rent and (full load) mortgage; just go read up on what's going on in the Oil Plains States to see the effect of localized inflation of housing. The measure that matters is (local, for some definition of local) median income. No, what drove the Bubble/Recession was the flood of moolah. Without that flood, no amount of fiddling with mortgage lending rules would make a difference; there'd be no reason to generate ever more mortgages made possible by fiddling the rules, since there'd be no increased demand for the resulting securities; no demand means no supply, Laffer be damned. One could argue, even, that had the chronology happened the other way (relaxation of rules, first), no flood of money would have been conjured, since such mortgages would be clearly wonky to those who *need convincing* to part with more moolah, which they either didn't have at all or would have to move from other instruments. It was at the behest of the Giant Pool that the mortgages were conjured. Causation makes a difference, both in assessing blame and determining regulation from here.

In the end, it wasn't The Gummint which drove the The Great Recession. Without the flood of moolah seeking better than Fed rates (so, I guess the author should be pointing the j'accuse finger at Greenspan?), the housing bubble couldn't have happened. Without the quants figuring out how to abuse copulas, it wouldn't have happened. Without the collapse of demand for technical brains in technical professions (thus being 'freed up' to pursue finance, in the sense of automation 'freeing' farmers to work in Detroit after the turn of the 20th century), it wouldn't have happened. Without the decline in median income, and thus the willingness to spend unearned (and unexpected, largely) equity on consumption, it wouldn't have happened.

The author's most egregious lie:

By 1994, Fannie was accepting down payments of 3 percent and, by 2000, mortgages with zero-down payments. Although these lenient standards were intended to help low-income and minority borrowers, they couldn't be confined to those buyers. Even buyers who could afford down payments of 10 to 20 percent were attracted to mortgages with 3 percent or zero down. By 2006, the National Association of Realtors reported that 45 percent of first-time buyers put down no money. The leverage in that case is infinite.

Yet, he contradicts himself with regard to the driving enemy:

In effect, then, borrowing was constrained only by appraisals, which were ratcheted upward by the exclusive use of comparables in setting housing values.

And who drove the appraisals? I guess it must have been The Gummint? For what it's worth: Fairfax County Virginia was using stat analysis of home sales (as opposed to on-site inspection) to do appraisals by, at least, the mid-1970s (I was there). Such software is a big seller, and has been for a long time. Here's one example:

Based on a 20-year proven relational data model and common value approaches (Cost, Market, Comparable Sales and Income), the CAMA module produces reliable and accurate results which also apply if or when an assessment must be defended through the appeal process. Comprehensive comp sheets, ratio analysis and a CAMA valuation sheet that lists all items on a property and the dollar results of each component help automate the document management process.

For the finance types, infinity is (sorta, kinda) accurate. But not for a bus driver earning $10/hour facing an ARM reset. Not even close. The mortgagee is just a homeowner, not a titan of Wall Street. There's no 'real return' to be earned by the homeowner; the homeowner doesn't use the house to build either more or better (or both) 'psychic return' home widgets which he then sells to the market (a la Herbalife). Doesn't work that way. A house isn't an assembly line, or one robot, or even a simple milling machine; it generates no real return to anyone, not even the finance guys (they only get moolah). Leverage is just a red herring.

So, clearly there's more moolah flowing (not, yet, flooding) to the mortgage market. Recent stories have shown that hedge funds (at least) have gotten into the landlord business, buying up large tracts all to once. A more cogent analysis (assuming there's sufficiently granular data) would measure separately for owner-occupied and investor-owned units. It's pretty obvious that median income measures (which are still stagnant, at best) don't support increasing prices. I'd bet on deep pockets looking to monopolize SMAs fighting amongst themselves. Lots of money to be made being the major/sole source of shelter in an SMA.