Being a billionaire isn’t such an exclusive group anymore. Back in 1998, there were reportedly 230 billionaires worldwide. Now, according to Forbes magazine, the number has grown to 1,226. The United States still has the most with 425, but now 58 countries have billionaires. Russia and China have nearly 100 each.

Nobody seems too excited about billionaires, likely because a billion is an unimaginable number—a thousand million. There was once a time when being a millionaire meant real wealth, but no more. Most financial planners will say that the average person needs to retire with more than a million dollars socked away to live comfortably in retirement.

The word millionaire was coined in 1720 during John Law’s ‘Mississippi Bubble” to describe those making vast fortunes in Law’s Mississippi Company stock that rose from 150 livres to 10,000 in the matter of months. But just as quickly, the stock and the currency wildly inflated by Law’s Banque Royale, crashed and Law was forced into exile.

Like Ben Bernanke, Law believed France’s economic problems as being one of not enough money. He started small with his privately owned Banque Générale, within a year all royal revenues were to be paid in the Banque’s notes and these notes were to be cashed on sight at government offices, making these offices essentially branches of Law’s bank.

Two years into Law’s system, the livre was devalued again, by 40 percent. Despite the devaluations, Law’s reputation continued to rise and by the end of 1718, the state took over Law’s bank, which became the Banque Royale. A nomadic gambler just three years before, Law suddenly had immense power, controlling the monopoly on coining money, the collection of tax revenues, as well as tobacco and salt revenues. His Mississippi Company (Compagnie du Mississippi) would buy up the debt of the French government, a proposal John T. Flynn compares to Roosevelt’s plan to extinguish America’s debt by having the Social Security Board purchase it.

Law inflated the money supply through the Banque Royale, he created jobs through public-works projects; he attempted to release the hoarded savings back into business with the promotion of Mississippi Company shares; he exploited France’s colonial empire, relieved the debt-ridden government of its debts, and was making money for himself and his patrons.

Law’s system unraveled a mere four years after it began. People fled Law’s paper for the safety of gold and silver, despite Law’s attempts to demonetize and confiscate specie. Ultimately, Law’s system would only serve to forestall France’s bankruptcy, not solve it. Law himself would die near poverty a decade later.

What were once Law’s millionaires are now Bernanke’s billionaires. “Law is the precursor of the inflationist redeemers,” Flynn explained. “Like all the inflationist salvations, his career was short.”

Bernanke has been on the job for six years, and the Gates, Buffetts, and Slims of the world are reaping the benefit. But for how long?

Here in South Africa there is plenty of talk of nationalizing the nation’s mines, especially the country’s platinum mines. After all, SA is no longer the world leader in gold production, while the country still produces 80% of the world’s platinum. In fact platinum group metals (PGM) account for the bulk of SA’s mineral value.

However, as Nazmeera Moola points out in her “economic viewpoint” column in the February 24th Financial Mail, PGM production has been falling since 2007 at the same time profit margins fell, despite elevated prices. Ms. Moola writes that margins dropped 5-10 percent last year from the previous year, with rising wage and electricity costs to blame.

For the first time in years, the platinum price is lagging the gold price, despite the fall in production. And production will likely be further challenged going forward. Strike violence has not only led to 59 hospitalizations but three deaths, with the latest being a contract worker who was beaten to death. The body was found in Freedom Park near Impala Platinum’s Rustenburg mine.

Impala dismissed 17,000 workers over the labor unrest and 3,000 oz. of production is being lost each day. Through February 14th 60,000 oz. had been lost and the company announced that it would fall 40 percent short of fulfilling its contracted deliveries for April.

After six weeks, about half the the dismissed workers had been replaced, but workers are being prevented from entering the mine by striking workers. Some two dozen workers not wanting to take part in the illegal strike remain in the hospital after being assaulted by strikers.

Platinum mining is dangerous business and the South African government’s Department of Mineral Resources, while aiming for zero mining fatalities on the job, have stepped up the number of safety, or Section 54, stoppages. These DMR stoppages can lead to complete mine shutdowns.

According Ms. Moola, Section 54 stoppages accounted for half the 14% year-over-year drop in production at Aquarius Platinum, while causing Anglo Platinum to lose 101,000 ozs. of production in 2011. Impala’s production at Rustenburg was down in 12% in 2011 due to Section 54 stoppages.

“The combination of deeper mines and the increased focus on safety means mining techniques will need to adjust,” writes Moola. “This means less ore will be extracted and costs will rise.”

Platinum expert Steve Forrest makes the point that in addition to rising safety standards, there has been a lack of capital investment in platinum mining, and he believes PGM production peaked in 2008.

Impala has announced that once the strike is settled at Rustenburg, it will reassess the viability of each mine shaft at the project. At the same time Anglo American CEO Cynthia Carroll is considering either curtailing production at Anglo Platinum or getting rid of the company entirely.

South African’s ANC considers platinum a “sovereign resource.” So talk of nationalization could easily turn into heavy-handed government action. In neighboring Zimbabwe, the ham-handedness has already begun.

Just a week ago Implat’s David Brown received a demand letter from Robert Mugabe’s Zimbabwe government giving him two weeks to hand over the ownership of 29.5 percent of his company’s Zimplats operation to the state-run empowerment fund, threatening unspecified sanctions if it did not comply.

Perhaps Brown knew this was coming, as he had tendered his resignation weeks earlier, effective June 30th, with no replacement named. Brown was hoping to meet with government, attempting to negotiate a smaller taking, pointing out that handing over nearly a third (and eventually 51 percent) of the Zimbabwe operation will stop the company’s growth prospects.

Zimbabwe’s Empowerment Minister Saviour Kasukuwere says he is “sick and tired” of Brown’s delaying tactics regarding the ceding of shares under Zimbabwe’s controversial indigenisation legislation.

“We can only engage him if he comes here to implement the law,” Kasukuwere told Reuters, after stating that: “The problem with Brown is that he talks too much. We are sick and tired of his delaying tactics.”

Kasukuwere was quoted by Associated Press as saying that a proposed visit by Brown would not change the government’s decision. He also said he has no plans to meet Brown.

“I don’t need to meet them over anything. Why are they coming to see me? I’m not a zoo,” Kasukuwere told The AP. “I have nothing to discuss. They must respect the laws of this country.”

Just a day after the Empowerment Minister’s threatening comments, Zimbabwe Prime Minister Morgan Tsvangirai spoke to a trade and investment conference crowd in Johannesburg trying to drum up investment in his country. Using his best salesman spin, Tsvangirai called the indigenisation policy “rhetoric rather than reality.”

Business leaders in South Africa are talking about the opportunity for a “platinum valley,” emulating America’s Silicon Valley.

“Both big business and government are singing from the same hymn sheet of diversifying potential demand for platinum within the huge global energy arena,” writes Martin Creamer for Mining Weekly. “Platinum, clean energy and jobs can go hand in hand with the development of hydrogen fuel cells – zero-emission devices that are able to shrink the world’s carbon footprint.”

All this feel-good, job creating, clean energy rhetoric sounds great for spurring platinum demand and putting people to work. However, the government’s thievery (or threats to) of platinum assets only serve to stifle capital investment, leading to continued lower mine output.

Sadly, in a region with unemployment well over 20 percent and rampant poverty, the abundant precious minerals will stay in the ground, while millions living above ground starve.

“They’re a damn nuisance, they are,” offered the man as we walked toward a group of tourists excitedly shooting pictures of two African Penguins standing silently in a drain pipe.

A nuisance? We were among dozens of tourists from all over the world walking toward the Boulders in Simon’s Town to see–the Boulder Colony of African Penguins.

The Simon’s Town local is certainly entitled to his opinion, but as he told us, “If you come to look at them once in your life, they’re cute. But if you live here, they’re noisy, stinky pests,” he was standing in front of a gelato cone stand (single scoop 20 Rand, double 25) located in what looked to be his backyard.

Now it’s possible he and his wife could sell a cone or two without these “pests,” but it’s doubtful. All day long, visitors walk down the residential street to The Boulders to see the cute little penguins.

The penguins make enough noise to be also known as Jackass Penguins, but anyone making a few rand from people going to see them, shouldn’t resent the cute little birds. After all, no one is walking down that street to see he and his wife.

However, the guy reminded me of Las Vegas locals who constantly complain about the tourists who come to Sin City, spend their money, and drive the economy. During the Comdex convention, Las Vegas locals complain about computer geeks. During the National Finals Rodeo, the cowboys are ridiculed by locals. And so on.

Perhaps the cone curmudgeon honestly believes that it’s the quality of his gelato that is driving his traffic, but it’s not. He had the entrepreneurial chutzpah to recognize the needs of customers walking by his house. He should remember what brings the customers to him.

In America the population is collectively on edge at tax time because 140 million people file tax returns out of a total population of 310 million. Of course not everyone who files, pays taxes, but at least all these folks share in the annoyance at filling out (or paying someone else to) the ever-changing, mind-bogglingly complex, 1040 form.

Here in South Africa, I learn that the South African Revenue Service just announced that there has been a 13.8 percent increase in the number of tax returns filed. A record of just over four million tax returns were filed, up considerably from just over 3.5 million in 2010.

South Africa’s total population is well over 50 million. So less than 10 percent of SA’s population is paying for the other 90 percent. But of course, individual taxpayers only cover 35 percent of the government’s budget, while 45 percent comes from the VAT (value added tax) and corporate taxes.

On the other hand, the five million taxpayers likely pay most of the VAT and as Business Times columnist Stephen Mulholland points out, “the more prosperous among the five million also relieve the state of the burden of health costs, education for their children and, in many cases security in their homes.”

The last place you want to go for health care is a government hospital, I’m told, and the walls around the home where I’m staying in Johannesburg are a good 10 feet high, with electric wire at the top. The neighbors have a generator anticipating the frequent power outages.

Roughly one million people work for the South African government, so after those people are netted out, it is really four million people paying for a South African government that spends 50 percent of its budget paying its one million workers. And, while public workers have enjoyed wage increases, SA’s infrastructure crumbles, as little is budgeted for providing the services government insists on providing.

Living in South Africa means learning to live with sporadic brown outs, despite rate hikes of 25 percent each of the last three years. In every city we have visited, the power has gone off for extended periods of time, making it especially uncomfortable, for instance, in sweltering Durban.

But while our hostess is extremely annoyed at her government’s ineptness at keeping the lights on, there just aren’t enough taxpayers like her in this democracy to carry any weight.

The New York Times reports that Greg Lippmann, made a star by author Michael Lewis in The Big Short, for making millions on the housing collapse, is now taking the other side of the bet and buying mortgage backed securities.

On the surface one wonders what he’s thinking. As Azam Ahmed writes,

Take one security, JPALT 2006-S1 1A11, which was built from Alt-A loans, or mortgages that required little documentation verifying a borrower’s income.

On the surface, the numbers are not encouraging: of the 799 mortgages underpinning the bond, many in foreclosure-heavy California and Florida, about 21 percent are more than 60 days late on payments.

The annual default rate is about 7 percent, and of the homes sold out of foreclosure, investors take a 54 percent hit, according to data from Bloomberg. On average, about 5 percent of the homeowners refinanced their mortgages before they were due over the last 12 months.

However, JPALT 2006-S1 1A11 is trading for 70 cents on the dollar, making the security a compelling buy. An investor can still make more than 5.4 percent even if defaults increase, according to Ahmed. And even a slight improvement in the default rate would send returns as high as 8.7 percent.

“Price is a wonderful thing,” said Chris Flanagan, an analyst with Bank of America Merrill Lynch. What was “toxic” at 100 cents on the dollar is compelling at 70 cents.

When prices are allowed to adjust, markets clear. Imagine, if wages were allowed to fall or banks and the GSEs were allowed to fail.

Reuters reports that more of the Beverly Hills crowd are walking away from their underwater mansions.

Despite most of the mortgages in this tony zip code exceeding $1 million, buyers are walking, not because they have to, but because it makes financial sense.

“It’s a business decision, not an emotional one which it is for normal people,” said Deborah Bremner, owner of the Bremner Group at Coldwell Banker, which specializes in high-end properties in the Los Angeles area. “I go to cocktail parties and all people are talking about is whether it is time to walk away, although they will never be quoted in the real world.”

California is a non-recourse state. So, handing the keys to the lender means “Tha-Tha-Tha-That’s All Folks” as lenders cannot pursue borrowers for deficiencies (the shortfall between what is owed and what the house brings at the foreclosure auction).

Those with jumbo loans are more likely to strategically default. ”Now that these homeowners with jumbo loans are finding out you can do this, more and more are doing strategic foreclosures,“ says Jon Maddux the CEO of YouWalkAway.com. Foreclosures on jumbo loans have increased 579% since 2008, greater than any other form of loan, according to a report by Lender Processing Services, Inc.

Tim Reid writes that a “huge ‘shadow inventory’ is building of elite homes that are in default but have not been put on the market,” as lenders have only put 12 homes up for sale of the 180 total distressed properties in Beverly Hills.

As the saying goes, “So goes California, so goes the nation.”

As president, Ron Paul would select Jim Grant as chairman of the Federal Reserve. A president Newt Gingrich would appoint Grant to a gold standard commission. “Unfortunately, I haven’t heard from Mr. Romney yet,” joked Grant when MarketWatch’s Brett Arends called on him in his offices down on Wall Street. “I’m sitting by the phone, I’m ready.”

Arend’s discussion with Grant produces many great points from Wall Street’s foremost wordsmith, including

“The anachronism is today’s system,” he says. We have a “command and control, top down” system whereby the Federal Reserve imposes an interest rate on society. The Fed, in other words, tells us what the price of money should be. It is, Grant says, oddly at odds with the modern age. “We live in a world of collaborative social networks” of the Internet and Facebook, of Wikipedia instead of the old World Book, and so on. And yet when it comes to the price of money, we wait for a committee that sits in private to tell us what it should be.

With the campaign carnival stopping in Nevada this week for Saturday’s Republican caucus, the Las Vegas Sun’s J. Patrick Coolican takes Ron Paul to task for Paul’s call to end the Fed and return to gold. Coolican writes,

To start with, inflation is not a problem right now. The Fed has effectively controlled inflation since Paul Volcker, who was appointed by President Jimmy Carter, began to rein in inflation 30 years ago. (Most important, inflation rates have been stable and predictable, which allows for economic planning by firms and households.)

Let’s see, Tall Paul left the Fed in 1987. Using even the establishment’s numbers via “The Inflation Calculator” what cost a $1.00 in 1987 cost $1.89 in 2010. So the value of the dollar has been cut in half just since 1987 using the most conservative numbers. What’s stable and predictable about cutting the value of the dollar in half?

Coolican doesn’t understand what all the fuss is about concerning the tripling the Fed’s balance sheet (he writes that “the Fed has tripled the money supply” since 2008 which isn’t right M-2 is up 29%). He says prices have increased 1.5% per year. What’s the problem?

Even according to the government CPI increased 3% over the past 12 months. If one calculates CPI the old fashioned way as John Williams does on Shadowstats.com, price inflation is running at more than a 10% clip.

Coolican then enlists the services of UNR economist Elliott Parker, who says monetary matters were a mess before the steady hand of the Fed came to be in 1913. “It’s an absurd argument because before the Fed prices were unstable in the short term, and long term there was a long period of deflation,” says Parker.

Look at any historical long-term chart of the CPI and it’s a flat line until heading skyward starting in 1971. And what’s so bad about falling prices for a long period of time. That’s how we all become better off is when goods and services become more affordable through technological improvements.

The long depression Parker talks about (1870s to 1900) was actually a period of great prosperity. This period of the classical gold standard was marked by gently falling prices leading to increased productivity, raised living standards, and the first glimpses of globalization.

Jim Grant of Grant’s Interest Rate Observer writes, “you can look far and wide without finding a decade so ebullient, prosperous and — in so many ways —so modern as that of the 1880s.”

While prices fell, the US economy prospered. Industry expanded; the railroads expanded; physical output, net national product, and real per capita income all roared ahead. For the decade from 1869 to 1879, the real national product grew 6.8% per year and real-product-per-capita growth was described by Murray Rothbard, in his History of Money and Banking in the United States: The Colonial Era to World War II as “phenomenal” at 4.5% per year.

And no there was no Fed back then to bail out Wall Street, so malinvestment was liquidated quickly and in turn the economy recovered quickly. So while Coolican says, “The world would have collapsed without aggressive action by the Federal Reserve.” The financial world needed to collapse and hasn’t been allowed to as the Fed continues to prop it up. Thus, the pain continues.

Coolican and Parker think falling prices create less incentive to produce. But they leave out the cost side. As costs fall through innovation, profit margins remain. All inflation does is hide inefficient producers. As for the worry of wages falling, it’s not the amount of your wages, but how much will your wages buy.

But the hundreds of years of evidence supporting gold money doesn’t convince Parker. He says, “But there is no evidence that getting rid of the Fed and replacing it with private banking along the lines of a gold standard would help the economy at all. None. In fact, the idea scares the hell out of me.”

Another reminder of the quality economics training that students are receiving at our nation’s universities.

Jim Rogers tells CNBC that finance is a terrible place to be for the next 10-15 years. He echos a point I made in this piece.

In the report dated June 30, 2011 entitled “QE2, Markets and Your Strategic Plan” prepared by Morgan Stanley sales, trading, banking and other non-research personnel, the authors used the work of George Reisman, “The Stock Markets, Profits and Credit Expansion” and Kel Kelly “How the Stock Market and Economy Really Work.”

Who hasn’t seen “The Shawshank Redemption” featuring aging convicts Red Redding (Morgan Freeman) and Brooks Hatlen (James Whitmore)? The movie was set in the 1940s when most prisoners were young tough guys and of course in this case the cerebral Andy Dufresne (Tim Robbins). Redding and Hatlen were finally set free after spending 40 and 50 years behind bars, respectively.

If Shawshank were to be remade today, a good share of the inmate population would have gray hair and be suffering from various medical problems. Ashby Jones and Joanna Chung write for The Wall Street Journal that the number of state and federal prisoners aged 55 or older has quadrupled since 1995 far outpacing the growth of the overall prison population that has grown by a considerable 42 percent.

“Prisons are facing a silver tsunami,” according to Jamie Fellner, the author of the Human Rights Watch study that identifies the new problem for states. “Walk through any prison and you’ll see a surprising number of wheelchairs and walkers and portable-oxygen tanks.”

“Prisons were never designed to be geriatric facilities,” says Fellner. “Yet U.S. corrections officials now operate old age homes behind bars.”

Prisons are not equipped with wheelchair ramps and other accommodations for the elderly. At the same time, the U.S. Constitution requires that prisoners receive adequate health care and basic necessities. So while state budgets continue to be squeezed, it’s estimated that a third of the nation’s prison population will be over 50 by 2030 at a cost currently running $70,000 per older prisoner per year.

America’s prison population has ramped up from fewer than 800,000 in 1980 to over 2.5 million by 2008. And many non-violent prisoners will go gray behind gray bars. In the rest of the world, committing a nonviolent crime is far less likely to land you in prison, and if it does it’s a short stay.

For example, the only advanced country that incarcerates people for minor property crimes like passing bad checks is the United States. Buying too much allergy medicine can get you 20 years behind bars.

“Heart problems, diabetes, cognitive impairment and end-stage liver disease from hepatitis or cirrhosis, these are becoming increasingly common problems in our nation’s prisons,” said Robert Greifinger, a former chief medical officer for the New York City department of correction.

Several states have established medical facilities on or near prison grounds to treat problems most closely associated with aging. In 2006, for instance, New York opened a facility that specializes in treating inmates with dementia. Prisons in Mississippi, Texas and California have centers that offer specialized treatment for geriatric medical problems.

A.T. Wall, director of the Rhode Island Department of Corrections and president of the Association of State Correctional Administrators, tells the HuFF Post that he and his colleagues regularly exchange ideas on how to cope with the surging numbers of older prisoners.

Retrofitting cells with handicap toilets and garb bars are the least of their problems. “Dementia can set in, and an inmate who was formerly easy to manage becomes very difficult to manage,” he said.

Cash strapped states are starting to set elderly prisoners free so the state doesn’t have to pay for their needs.
In “Shawshank,” Brooks and Red wanted to go back to prison once they were let out. Modern prisoners will likely want to stay as well, just for the healthcare.

Zero Hedge reports,

Yesterday the Japanese Finance Ministry made a whopper of an announcement: in the year ending March 2013, total Japanese debt will surpass one quadrillion yen, or ¥1,086,000,000,000,000. This is roughly in line with the Zero Hedge expectations that by this March total Japanese debt would surpass one quadrillion yen.

It’s hard to imagine…16 digits…and then it’s on to quintillion?

So prepare to add quadrillion to the vernacular. At this exponential rate of increase quintillion will appear some time in 2015 and so on. Yet the scariest conclusion is that as Bloomberg economist Joseph Brusuelas points out, America is not only next, it already is Japan.

How can this not end badly?

An applicant’s résumé used to be everything. Type “resume writing” into the search line at Amazon and 4,468 results appear. Book after book containing hundreds of pages each, instructing the reader as to how he or she should put their best foot forward in a page or two.

Now it turns out some firms don’t even want to look at your resume. Instead of requesting résumés, Union Square Ventures asked applicants to send links representing their “Web presence,” such as a Twitter account or Tumblr blog, instead. Applicants interested in the investment analyst job should also send the company short videos demonstrating their interest in the job, reports the Wall Street Journal’s Rachel Emma Silverman.

A résumé doesn’t provide much depth about a candidate, says Christina Cacioppo, an associate at Union Square Ventures who blogs about the hiring process on the company’s website and was herself hired after she compiled a profile comprising her personal blog, Twitter feed, LinkedIn profile, and links to social-media sites Delicious and Dopplr, which showed places where she had traveled.

Ms. Cacioppo says, “We are most interested in what people are like, what they are like to work with, how they think.”

StickerGiant.com founder John Fischer uses online surveys to screen applicants because résumés can’t determine whether an applicant will be a good social fit.

Companies are being inundated with résumés and many run them through applicant tracking systems that weed out unqualified applicants without the use of human time and judgment. The WSJ’s Lauren Weber explains,

today’s tracking systems are programmed to scan for keywords, former employers, years of experience and schools attended to identify candidates of likely interest. Then, they rank the applicants. Those with low scores generally don’t make it to the next round.

Picking employees that will fit in with a company is critical as government mandates and employment laws have made firing someone expensive and difficult. Also, it’s not cheap to hire people. Weber writes,

the costs of hiring a new employee, which now averages $3,479, according to human-resources consulting firm Bersin & Associates. Big companies, many of which cut their human-resources staffs during the recession, now spend about 7% of their external recruitment budgets on applicant-tracking systems, the firm says.

Even at small companies only 19% of hiring managers review all the resumes and 47% say they review but a few.

Of course one key piece of information included on a résumé is college degree. As firms use technology to screen applicants and select employees, how long will it be before having a degree doesn’t really matter?

The Las Vegas Sun wonders, “Your next landlord in Las Vegas could be a hedge fund.” Hedge funds have been contacting real estate brokers in Sin City to discuss buying up single-family residential properties to use as rental properties. The idea is that hedge funds can buy relatively new homogenous tract houses for $100,000 a piece, spruce ‘em up for $10,000 to $25,000, rent them out for $1,200 a month, and bang out an 8% to 12% return. Sounds easy. After all, forget the “ownership society” we now have a “rentership society” says Oliver Change at Morgan Stanley. J. Patrick Coolican writes,

between 2005 and 2011, the number of families in Florida, Arizona and Nevada renting a single-family home has increased 67 percent, according to Dennis McGill of the firm Zelman & Associates. Meanwhile, the homeownership rate here continues to plummet toward 50 percent.

In the best of times collecting rent is a little more labor intensive than clipping bond coupons or collecting stock dividends. With the official rate of unemployment in Las Vegas being 12.7%, collecting rent will require a “personal touch.”

Despite the housing market being in a funk since 2007, it’s possible the hedge funds are still a little early. Hubble Smith reported for the Las Vegas Review Journal from last weeks Crystal Ball seminar that SalesTraq’s Larry Murphy told those attended that he thought home prices would decrease another 10% in 2012. Two-thirds of the homes in LV are underwater and it’s Murphy’s view,

“Pretty certainly, I can tell you we’re going to have another 100,000 foreclosures (over the next five years) because about one-fourth of our housing stock is still in default.”

“It’s just another distressed asset,” says Robert Lang, director of Brookings Mountain West and a real estate expert tells the Sun. Housing in Vegas is distressed for sure. But is that housing market undervalued?

From today’s Wall Street Journal,

A half dozen FBI agents in dark coats met a little after 5:30 a.m. at a Starbucks coffee shop across from Mr. Chiasson’s apartment building. They talked quietly near a wall of windows. “There is a service exit,” one agent said of Mr. Chiasson’s building. Minutes later, they walked silently out of the shop.

About a block away, the agents put on bullet-proof vests and, just before 6 a.m., walked swiftly back down the street to the glass double doors of Mr. Chiasson’s building. They entered and talked with a security guard before entering an elevator, turning back to face the lobby and heading upstairs. A few minutes later, the agents left the building, and drove off.

Emphasis added.

Who is Mr. Chiasson that the agents put on their armor to go arrest? A hedge fund manager.

Chiasson wasn’t home when the agents stormed his building. Wearing slacks and a white dress shirt the dangerous suspect turned himself in later in the day.

In his “Business World” column for the Wall Street Journal Holman Jenkins highlights the book Engineering the Financial Crisis by Jeffrey Friedman and ex-Mises Fellow Wladimir Kraus. Jenkins writes,

Their work is refreshing for many reasons: It does not assume the housing bubble is the whole story. It allows that honest ignorance (especially about the interaction of complex regulations) might explain the behavior of bankers and regulators. It asks especially interesting questions about the triple-A mortgage derivatives at the heart of the financial meltdown.

The Basel banking regulations provided the incentive for bankers to load up on mortgage securities, which up to that point history had shown were very safe. Thus, the capital that regulators required to be held against these assets was tiny. Bankers acted logically by investing in what they thought (and importantly what regulators told them) were safe assets that they could grow their businesses with the least amount of capital required.

Messrs. Friedman and Kraus find no evidence for the popular theory that bankers acted recklessly because of Too Big to Fail incentives or because compensation packages induced them to be careless about long-run returns.

Jenkins even gets it right at the end, writing, “One solution is giving back to bank creditors the job of policing bank risk-taking. Roll back deposit insurance, for instance.”

Mike in the Finance Department is teaching a course on the financial crisis at Suffolk this spring. Study materials include lots of Rothbard and articles from mises.org.

The syllabus is here:

http://mises.org/pdf/blog/FIN_H435_Syllabus _20120116.pdf

More and more underwater borrowers are deciding it’s time to walk from their mortgage. “Guilt and morality are one side, and objective financial analysis are on the other side,” 68-year old David Martin told msnbc. “They’re coming to two opposite conclusions. I wonder how many other people are struggling with the same question.”

Three out of 10 foreclosures in 2010 were of the strategic variety, an increase from 22% in 2009. The Mortgage Bankers Association believes strategic defaults are spreading like a virus. In a study entitled “Strategic Default in the Context of a Social Network: An Epidemiological Approach,” conducted by Michael J. Seiler of Old Dominion University, Andrew J. Collins of the Virginia Modeling, Analysis and Simulation Center and Nina H. Fefferman of Rutgers University and sponsored by MBA’s Research Institute for Housing America (RIHA) the authors found “One default does little to negatively impact the price of surrounding homes. However, as more and more mortgages in the neighborhood go into default, the negative impact is felt at an increasing rate. Much the same way as a disease spreads throughout a population, so, too, do decisions to ‘strategically’ default.”

Despite some experts projecting that the worst is over for housing, the immense shadow inventory of homes is casting a …well…shadow over the housing market. These estimates of the number of homes in foreclosure or likely to be in foreclosure are all over the map from Corelogic’s 1.6 million to 10.3 million estimated by Laurie Goodman of Amherst Securities.

Michael Olenick pegs the number at 9.8 million with the exposure being $1 trillion. He writes,

It is unclear where the money from these write-offs will come from, or whether they losses have been adequately budgeted. Obvious sources are Fannie Mae, Freddie Mac, European and US banks, none of which have reported anywhere near this level of reserves. We know that the Federal Reserve has been buying up MBS and related instruments in bulk; maybe the central bank plans to print more money to cover the losses and enable the foreclosures. Printing this much money, for this purpose, in this political environment, in secret, seems unlikely.

The Fed can keep printing, but it won’t keep homeowners from walking away.

What makes democracy work so well? Ignorance. The majority of voters don’t know anything about the issues and of course have no idea what candidates will do once in office. Ecologist Iain Couzin at Princeton figures this makes democracy work great. Jonah Lehrer writes for the Wall Street Journal,

Why are democracies so vibrant even when composed of uninformed citizens? According to a new study led by the ecologist Iain Couzin at Princeton, this collective ignorance is an essential feature of democratic governments, not a bug. His research suggests that voters with weak political preferences help to prevent clusters of extremists from dominating the political process. Their apathy keeps us safe.

Like schooling fishing and flocking birds, people in democracy just go with the flow. And, it all works out fine, right?

This year’s Republican primary race has turned politics into a continuous 24-hour carnival for political junkies to gawk at and speculate about. The weekly debates, packed field, plus the poll surges and collapses by virtually every candidate, has been a boon to MSNBC, CNN, and FOX.

However in the end, as the saying goes, “no matter who wins, the government gets elected.” This political primarypalooza is just a 7 days a week infomercial for democracy and the state. The coverage from Iowa last evening was continually laced with high minded “the people get to choose” pronouncements from both the TV talking heads and the candidates.

Choosing is the problem. F.A. Hayek famously argued in The Road to Serfdom, that in politics, the worst get on top, and outlined three reasons this is so. First, Hayek makes the point that people of higher intelligence have different tastes and views. So, as Hayek writes, “we have to descend to the regions of lower moral and intellectual standards where the more primitive instincts prevail,” to have uniformity of opinion.

Second, those on top must “gain the support of the docile and gullible,” who are ready to accept whatever values and ideology is drummed into them. Totalitarians depend upon those who are guided by their passions and emotions rather than by critical thinking.

Finally, leaders don’t promote a positive agenda, but a negative one of hating an enemy and envy of the wealthy. To appeal to the masses, leaders preach an “us” against “them” program.

“Advancement within a totalitarian group or party depends largely on a willingness to do immoral things,” Hayek explains. “The principle that the end justifies the means, which in individualist ethics is regarded as the denial of all morals, in collectivist ethics becomes necessarily the supreme rule.”

According to law enforcement examiner Jim Kouri, politicians share a number of traits with serial killers. People with a talent for mixing charm, manipulation, intimidation, and occasionally violence to control others, to satisfy their own selfish needs are psychopathic.

Not all psychopaths are serial killers, but according to Kouri, serial killers display numerous psychopathic traits. Kouri writes,

What doesn’t go unnoticed is the fact that some of the character traits exhibited by serial killers or criminals may be observed in many within the political arena. While not exhibiting physical violence, many political leaders display varying degrees of anger, feigned outrage and other behaviors. They also lack what most consider a “shame” mechanism. Quite simply, most serial killers and many professional politicians must mimic what they believe, are appropriate responses to situations they face such as sadness, empathy, sympathy, and other human responses to outside stimuli.

On the same theme, H.L. Mencken wrote of politicians in Notes on Democracy,

His business is never what it pretends to be. Ostensibly he is an altruist devoted whole-heartedly to the service of his fellow-men, and so abjectly public-spirited that his private interest is nothing to him. Actually he is a sturdy rogue whose principal, and often sole aim in life is to butter his parsnips. His technical equipment consists simply of an armamentarium of deceits. It is his business to get and hold his job at all costs. If he can hold it by lying he will hold it by lying; if lying peters out he will try to hold it by embracing new truths.

So now it’s on to New Hampshire where the motto is “Live Free or Die.” But Mencken wrote that the Democratic man “is quite unable to think of himself as a free individual; he must belong to a group, or shake with fear and loneliness–and the group, of course, must have its leaders.”