At this writing, the Treasury and Fed just convinced Congress to grant a $700 billion capital

infusion to prevent a run on the investment banks. As a member of the Appraisal Institute,

touted the most prestigious appraisal organization in the world, and with 50 years of experience

valuing all categories of property … I should have known the extent of the real estate component

of this problem. But except for some key personal insights, I did not become aware, even after

attending seminars on this subject, of the incredible magnitude of this financial crisis. Even as a

commodity trader for 30 years, I’m ashamed that I and most of us did not have a clue either.

We didn’t know that a Titanic ghost ship 10 times the size of our exchange markets was running

alongside - in the dark! What iceberg?

John Hill and George Pruitt, of Future’s Truth Magazine, suggested I research this subject and

report back. I accepted … concerned about my own future, as well as helping other commodity

traders. So, I spent the last six weeks trying to make sense of what sounded like non-sensical

problems in the mortgage and investment banking industry. What I discovered is that, on one

hand the problems have become extremely complex, but on the other hand remain …

unbelievably simple. To my amazement, we appear to be in surprisingly good shape in regards

to the down cycle in residential real estate. We could afford to pay off every institutional home

mortgage if given a few years. Though such is many times the $700 billion now requested to

salvage the banks, it’s several times less than what our country makes as a whole - $15 trillion

per year.

But, while we’ve been busy trading markets that continuously display prices and our financial

positions, the investment banks trekked far beyond their simple lending beginning, like the

movie “It’s a Wonderful World” loaning on houses and Joe the Plumber businesses - to a

celestial array of pyramiding schemes in the search for profits without limits and no oversight.

Evolving from 20% risky business 30 years ago, these aggressive banks increased to 80% jungle

warfare gaming of unknown magnitude.

In a no-holds-barred predator environment, bank traders preyed on investors, pension funds,

hedge funds, and other countries around the world. This feeding frenzy was brought on by

excessive profits extracted by the seller banks. This brought on ruinous competition and in the

scramble to outdo one another, everything was gambled on in the name of investment from

interest rates and currencies to bonds, equities and mortgages, even weather. The stakes were

also excessively large, but unbelievably no market prices or party positions were reliably

reported - just ledgerdemained figures presented to fleece buyers. By skirting the exchanges,

bank traders became an overly aggressive lot - lying and stealing, even from themselves. Both

sides of the equations both won and lost figures of unimaginable amounts … often not having a

clue where they stood financially, while employing the most scientific and complex

mathematical formulas ever augured.

This mishmash of tangled webs ensnared our entire world banking system. Many citizens have

been calling for retribution, but most of the retrievable cash is gone. Not just the zeros (so easily

erased off the world’s balance sheets), the rapacious traders exacted their horrendous due at the

inception of every deal … a giant ponzi scheme eclipsing every multi-level game ever

conceived. Coupled with the desire of almost every player in these games to keep the

transactions off the books to avoid taxes and various laws of many countries ensnared, it’s been

like a giant commodity exchange allowing selling parties to quote fictitious prices with no one

announcing true acquisitions or positions. They circumvented the futures, options, and security

exchanges that were set up to prevent this … and yet now we’re expected to bail them out!

My assignment was to simply find out what went wrong with mortgages and the real estate

market. After I pulled myself up off the floor, I found that foreclosures were only the latest in a

whole mountain of problems. Mortgages were simply the latest play in the derivatives theatre.

After the Nasdaq crash March of 2000 and 9-11, housing looked like it could pick up the

economy. World interest rates and the Fed accommodated. Soon values took off for the moon

and bank traders came running. Simple house mortgages were leveraged into securitized debt

instruments of every kind and variety. Derivatives had been used for almost 30 years, but never

to this degree. The shadow banking “shearer and sheep” games, that had become obscenely

profitable, began turning ordinary house mortgages into traunches (multi-million dollar bundles

of loans) which flooded the world.

Investment banks found it easy to convince pension fund managers globally that in no way could

they lose on these mortgages. Every one knows that very few people ever default on their home

loan. These loans were risk free - AAA. U.S. pension funds, then the Europeans and finally

the Asians were sucked into accepting multi-leveled math-modeled mortgage-backed securities,

credit default swaps and multitudes of other financial instruments that transferred credit risk

from the banks to those who actually financed the housing mortgages to begin with! It was

Nirvana to the investment banks (which by this time included just about every large bank in the

world) … being able to regain the very money they lent the buyer - yet passing them the risk, and

still taking obscene profits up front and in high interest fees. No, not just obscene profits, the

traders absconded with most of the money brought to the deal. Bank traders by this point had

become so, so successful.

Now, depending on whose opinion one accepts, this leveraged disaster we’re caught in could

amount to something near $154 trillion in the U.S. alone … and over $500 trillion world wide

(so bad it looks like a typographical error). This is nearly 10 times the world’s $55 trillion GDP.

Those who lost out in this game of musical chairs would like to be compensated. But, it’s not

possible. It would take the world’s entire output for 10 years at no interest and without eating or

sleeping - just chained to our jobs night and day. Plus most of the recoverable profits are gone.

Paulsen and others, even Greenspan loved derivatives (though he once said if we understood

what he said - we got it wrong) contend the U.S. taxpayer will make a profit in the long run.

Sure, like they made well known that the $250,000 FDIC insurance runs out December 31,

2009… Still, were told, we have to save certain banks to keep our economy alive… these same

people said the world was fine just a few months ago. Aren’t we just rolling cars in front of train

wreck in the making??

But the credit and real estate market disasters may not be our only problems. Other calamities

may be in the making. Though we survived “J” curve tsunami bubbles before - like the Nasdaq

crash of March 2000, the rural real estate crash of the 1980’s, Japanese Nikkei “cliff dive”… and

further back, the 1929 Depression … the looming stock market and economic collapses could

present us with the mother of all perfect storms. Experts question whether throwing money at

the current banking dilemma is like throwing coal on a fire - slows it, but then it resumes …

Commodity traders know that trends run their course despite all efforts otherwise. So, maybe

we’re using our ‘powder’ too soon?

We still have to worry about the world’s perception of the dollar’s strength, lest they tire of our

ability to print our way out of debt (being the world’s trade currency) … and thank you China

and others for building us mansions while you clawed your way out of poverty. Hey, at least

we pay (well service) our debt. But if we shoot all our bullets now - what will we have when the

real wolves show up. Oh, and don’t forget that our production could easily fall from $15 trillion

per year to where these burdens would become unimaginable.

The current real estate down turn stems from the meteoric rise of the residential market from

2000 to 2006. What was supposed to be a down cycle following the 1990’s up cycle (real estate

cycles are an average of 9.3 years both ways) may have been this final blow-off peak. Faced

with the Nasdaq crash from its J curve tsunami peak in March of 2000, 9/11, and an economic

downturn - it appears the Fed was only too happy to help the explosion in the housing market.

And yes I, along with all other appraisers who wanted to eat, had to support this ultimate tsunami

with flowing reports bereft of the big picture view. With all the attendant construction and

development - the value of residential housing leaped from $11 trillion in 2000 to $22 trillion in

2006. Optimism and greed went berserk. Hey … don’t look away; you were part of this too.

Fannie and Freddie, the main financiers pulled out all the stops to increase profits for their

management and stock holders using fuzzy accounting procedures, lobbying Congress, and

greatly increased risk taking. Coupled with every sort of banking scheme, this great elevator

full of balance sheet zeros from every corner of the planet reached the weight capacity of the

cables and they began to fail. Human greed is necessary to the free enterprise system and it

brought us material goods and wealth the planet has never seen before. However, human greed

knows no bounds and stretches as far as it can go. Then the “rubber band” breaks and springs

back. Nothing rises forever. Now $11 trillion, or maybe much more, will need to be erased by

probability in balancing its books. Yet, the government refuses to admit this. But commodity

traders can. We cut our teeth on the pig cycle graph of supply/demand.

The problem would not have been so great - except that we monetized the balloon in house

prices from 2000 to 2006 by way of the mortgage market. This caused lenders to be drawn into

the payback. And during the meantime, lenders weren’t just holding these mortgages; they were

busy leveraging their payback. That’s just good old-fashioned capitalistic ingenuity… but

again to the extremes? Could anyone manage this juggernaut of off-sheet asset growth,

multiplication of underlying capital UP TO 45 FOLD (Merrill Lynch)… debt begetting debt…

shadow banking… all sorts of Collateralized Debt Obligations... Structured Investment

Vehicles… hedge funds - on and on. It appears there were plenty of officials in Washington

ignoring their duty for profit as well.

Estimates of an unbelievable $500 trillion in derivatives is now unwinding - a mad game of

musical chairs could now be the lynch-pin of a perfect storm... an unending deluge coming from

concurrent imploding bubbles. We commodity traders know about Dewey’s cycles which

explained the Great Depression (the U.S. paid for after this debacle but ignored when the upcycle

kicked in) Wheeler’s war cycles (which we follow in spite of all efforts otherwise) and

Kondratieff’s 55 year economic cycle (for which he died in a Russian Gulag)… are long

overdue. Still, many don’t believe in cycles because Probability’s bell curve disperses these

cycles - keeping them from being perfectly predictable. Still, they show up, usually when

we’ve made other plans. Though we are slaved to them, we consider ourselves immune to the

movements of the universe - until it’s too late. We love to ride up in the balloon, but seem

shocked when the bubble implodes.

There are several reasons why we do not understand what causes bubbles to form. First, price is

not value ... It is only one point of value. Real value is a whole range of prices - both over time

and at the same time. Appraisers typically don’t mention this fact and simply report the last

price as value. Secondly, though we know prices change over time, we are rarely asked to

predict future value - a very critical consideration to the payback. The lending industry is locked

into single present value - assuming the future will remain static.

We appraisers have developed very few forecasting technicians. Commodity markets abound

with them. Though the bell curve spreads performance - at least commodity traders know prices

vary cyclically, and most importantly - say so! And while we are often disappointed in a

forecast - we are not dumbfounded.

Another reason that house prices cycle over time is that everything, including ourselves, is

composed of sub-atomic particles. But they are only up and down cycles of energy …

displaying points only like prices. We inherited the propensity. So why are home owners so

shocked - both psychologically and economically? It’s because mortgages are not tied to

changes in the economic cycles. They are usually fixed over long periods of time…15…20…30

years with no allowance for problems … Borrowers from 2000 to 2006 expected the

government to continue bailing everyone out with inflation and counted on higher resale from

rising home prices to be an outlet if mortgages became burdensome. Few worried about taking

on a loan (me too) several loans… no problem… until the bubble popped.

We appraisers are generally not commodity traders. We were told by our industry, as well as

lenders, that current price was a dependable basis for mortgage loans. Nothing could be further

from the truth- as was pointed out in both the 1980’s as well as the Great Depression. Those

who warned otherwise couldn’t get any business. We can’t blame appraisers any more than

investment bank traders. We worked as best we could within the system. House prices aren’t

exchange listed or borrowings balanced with lending either. It’s assumed the free enterprise

system will balance itself and take care of excesses… except we don’t want the corrections.

Well, no one ever did - but they came anyway… with the territory.

If only the public understood the much larger range of reason, we could at least explain many

perplexing problems in addition to where we are financially. There are usually many

contributing factors creating a problem- not just the most obvious one we blame. Of course there

are single “bullets” which can pierce a vital organ, but generally… many other causes are

involved. Cutting out the supposed bad part, like cancer, is great for headlines, but doesn’t really

explain the cause. Please allow me to use this probabilistic range of explanation as to why

results vary- so we can get to the essence of things rather than spitting out the watermelon

because of the seeds.

Those who did not mortgage their homes (an estimated 34% according to NAR) did not multiply

the numbers payback problem. Those that did - agreed to pay compounding interest rates which

easily double or triple the total payback. Lender banks counted on and played games with both

the rates and paybacks. But being lent long and borrowed short, their pyramidal cash flow game

- when turned over… became an anvil creating the current money shortage.

I have a client who is in the thick of things, but so far won’t say a word. On the other hand, an

expert on credit derivatives who designed exotic instruments himself, Satyajit Das has stepped

forth with numerous publications from which I gleaned most of my knowledge about the subject.

Das is warning everyone, including his mutual fund clients that the jig is up. He blames

regulators who looked aside as U.S. banks designed ways to shift trillions of dollars credit risk

off their balance sheets into the hands of unsuspecting foreign investors, hedge and pension fund

managers on high-yield debt instruments they trusted us about and financial engineers who built

mountains of securitized debt based on flawed math models. He confirms that defaulting

homeowners are only the latest blame. The majority of the range of reason belongs to the

previous inventions which ultimately allowed hedge funds to have high-yield debt for

acquisition. Looks like a multi-level scheme to me - and most of us, whether we realized it or

not, gained or suffered as a result.

Das confirmed estimates that $1 now supports as much as $30 of “blue sky” loans. The upward

spiraling of a nearly infinite variety of these ballooned derivatives totaled $485 trillion earlier

this year according to Das. Now this figure, according to the Bank of International Settlements

in Basel Switzerland is $516 trillion - or $540 trillion according to Warren Buffett. This pile

stands 10 times taller than the world’s productive output of $55 trillion. What began as a major

problem appears now to be a hopeless quagmire.

I should have been more suspicious when lenders from Fannie and Freddie, on down to our local

banks, accelerated their criticism of appraisals… things that had little to do with value. They

claimed the tranches (bundles of loans) that were assembled and sold - changed millions of

dollars just based on how reviewers perceived the written reports. There seemed to be no

concern about how ballooned the market was or how crummy the house. We just said “go

figure” - which we should have.

How the investment banks managed to bundle up these grenades they called tranches and paint

them gold so they could be sold Triple A rated from S&P and Moody’s is yet to be unraveled.

But they needed to in order to sell them to pension funds and other conservative entities. These

MBS’s (mortgaged backed securities) were then traded for other debt, like baseball cards, for

more debt in a giant Ponzi scheme. At each level the traders were taking most of the profit up

front. There was no concern about logic, laws, or lies. Even appraisers were caught up in this

feeding frenzy. Lenders were dragging bodies off the street for home loans. Castles were being

built everywhere for people who were living in bungalows just months before. Even a

handsome horse could obtain a loan for a new barn.

Then, one day the “termite mound” reached its top where not one more deposit of defecation,

spit and mud could be piled any higher. When even borrowers without jobs or even wanting to

get one could buy homes with no down ---- there was simply no one left to push the cart up the

hill… and down it came. Those triple A ratings began to fall - forcing the pension funds and

others (who could only hold triple A paper) to sell their positions. Now the tables were turned -

supply outstripped demand … and the rest is history. Wall Street now wants us to bail those who

didn’t get out in time plus the collateral damage; those left with empty sacks. How can we? We

aren’t at the bottom yet… and the well could be dry by then.

My original assignment was to determine how much mortgage money might come off the

ledgers. I did this as follows: The U.S. Census Bureau indicated there were 126,311,823

dwelling units in 2006. To find out how many were homes vs. apartments, etc. I used the Census

Bureau’s 2000 breakdown as follows:

Single Family Residences’ 60.3% = 76,166,000 units

Attached SFR’s 5.6% = 7,073,000 units

Multi Family 24.4% = 33,346,000 units

Manufactured Housing 7.5% = 9,473,000 units

Other 0.2% = 26,000 units

TOTAL 126,311,823 units

Next to determine how much mortgage money we’re talking about, I contacted NAR, National

Association of Realtors, Zillow, and OFHEO, Office of Federal Housing Enterprise Oversight.

Estimates of the average home price in 2000 were correlated at $120,000 and at the peak in

2006, $235,000. This indicated an inflated/growth rate of $115,000 per home, nearly double

the price over this period. S&P Case-Schiller Home Price Indices also indicated a price rise in

the major cities from 100 to 200 over the same period. This doubling supports the numbers

concluded.

Next I used the $115,000 price increase to multiply by the number of homes. I estimated the

other unit prices from figures from our files multiplied by a factor 1.424 which is the difference

between our market and the national average. These figures were then multiplied by the number

of units as follows:

$/UNIT TOTAL $ / Trillions

Single Family Residences’ 60.3% = 76,166,000 x 115,000 = 8.759

Attached SFR’s 5.6% = 7,073,000 x 90,000 = 637

Multi Family 24.4% = 33,346,000 x 40,000 = 1.334

Manufactured Housing 7.5% = 9,473,000 x 70,000 = 663

Other 0.2% = 26,000 x 50,000 = 13

TOTALS 126,311,823 units = 11.442

This figure correlates closely with TFS Derivatives, Zillow, and OFHEO that current housing is

worth $22 trillion, and that half of this figure is close to the $11.442 trillion above.

The next figure we need is the amount of price that was mortgaged. An almost impossible task

was helped out by NAR which indicates approximately 74% of existing homes were mortgaged.

This fits with our sampling. The other major factor needed is the average loan amount

estimated at about 85%. This is balanced by the unsold developed lots estimated at 15%.

Multiplying the blue sky/inflation figure of 11.442 trillion by the 74% mortgaged - arrives at the

playground for the lenders of… $8.5 trillion.

Now, the hard part. Not the multiplication of MBSs leveraged to the “moon” (which probably

makes the rest of this moot) but the true underlying debt which normal banks like “Jimmie

Stewart’s” held. There are estimates currently of $1.2 trillion in arrears. Eventual estimates

range on up to 25%, or $2.1 trillion. Who knows, because it’s the borrowers that will ultimately

decide and there is no clearing house to provide us with this kind of information.

Or we could have an “Ollie Ollie Oxen Free” like the ancient Jewish Jubilees (they recognized

economic cycles of 7x7+1 =50 years)---- wherein all debt was forgiven. Even at that, with the

$15 trillion we make a year --- we could probably survive paying off everyone’s mortgage of

$8.5 trillion, if done over time and our GNP stays up… but levered by the banks up to a factor of

30 would indicate a credit derivative total near $255 trillion!!!

Back to the base mortgages, the greatest default rate could be somewhere around 50% worst case

(hopefully, but no guarantees). This spells out a hit of $4.25 trillion. James Lockhart, Director

of newly formed FHFA, thinks there is $5.3 trillion in MBS’s. This could soften the blow, but

not if we have to deal with the leveraged debt pyramid. Over 5 years we could pay for all the

housing default itself at $850 billion per year, just slightly more than the current bailout (but for

5 years). However, this doesn’t address the whole housing pyramid - or a world of other product

derivatives.

Before this all happened I thought we were in bad shape because of my government work

experience (where employees miss the opportunity of financial failure whether they’ve done a

good job, bad job or no job at all) - but things weren’t really that bad. I just hadn’t looked at the

big picture until now. If you’re in the same boat, look at these figures: our government is

spending about 3 trillion per year; including about 1 trillion on present and past military; 0.5

trillion on interest of the national debt of about 10 trillion. Even the 700 billion for the bailout

doesn’t sound so bad since we’re making (GDP) $15 trillion per year. And, we have quite a few

assets: $22 trillion in housing; industry $16 trillion; business stocks and bonds $25 trillion. The

world has more than $175 trillion in real estate, stocks, bonds, and $55 trillion in production

(GDP). We appeared ok - before all this….

What about my “close encounter” with Fannie? In 2004 Fannie tried to terminate my appraisal

license. They requested the Dept of Licensing in the State of Washington to take disciplinary

action because they took a bath on a house I appraised. It sold for $70,000 several years after I

first appraised it for about $135,000. Bewildered because the market was still strong, I visited

the house, but no one was home... only sheets over the windows. I left my card and received a

call a few days later from the couple who were buying it. They said the house had been trashed

by the previous owners when they “fell off the wagon” and began making crack… chemical

spills in the basement; swimming pool used as a garbage dump; patches of grass that looked like

UFO landings. No loan payments made. Still their bad loan was passed around like a hot potato,

apparently in a bundled loan package (tranche). Bargain seekers couldn’t locate anyone to buy

the house from.

No realtor or appraiser was ever hired to see what was going on. Even the title company could

not locate the ownership of the loan, though numerous interested purchasers chased the

opportunity. The couple, who never gave up, followed the trail for a year and a half before

mortgage ownership could be located. The couple said the strangest reaction was received from

the last loan holder. First, they didn’t even know they owned the loan because it was buried so

deep in a sack of mortgages. Second, the couple made a low-ball offer and the lender agreed

instantly with no counter though the couple was ready to pay an additional $15,000. On learning

this, the State agreed to drop the case against me - but only after saying they were doing me a

favor.

Yesterday the Dow dropped 777 points, and to make a point about our lack of value

understanding, CNBC declared $1.2 trillion dollars were lost from the nation’s wealth. Nothing

could be further from the truth. After half a century of appraising, I’ve come to realize most of

us don’t understand price or the marketplace it plays in. Price, as most commodity traders

know, is only the latest indication of market supply and demand. For example, when a house

sells for $200,000, it doesn’t really mean that that house is worth $200,000. This figure is only

the traded figure at that moment based on a number of fluctuating factors. Current price is not

the whole value of anything... though we say it is for convenience.

Value is also a range of prices which looks like a normal distribution curve. Prices pop up at

various points depending on the circumstances surrounding the sale. Essentially, price can be

any figure within its bell curve range of value. We err in thinking that an appraisal sets value ---

just because it says it does. Again, it’s a major misunderstanding promulgated by everyone in

the business. If our house is said to be worth $200,000… it only applies to some price within its

bell range at that moment. We think of the sales level in the market as value but it is only the

price extension of what similar items, like stocks, and commodities are selling for - at that

moment. The next moment - changed circumstances - changed prices.

When there are more buyers than sellers, the price tends to rise, of course. But when there are

more sellers, many more sellers - the price can drop significantly. In fact, according to Law of

Diminishing Economic Returns, if all the $200,000 houses in the market were up for sale at one

time, the price would head towards zero. This why it’s ridiculous to state that any indexed price

level - is that value. For instance, a Dow level of 12,000 only means that a few paid at that

level. Most of the other buyers paid different prices - in fact, most lower, but accordingly many

higher as well. Some still have stock purchased when the Dow was at 1,200. That’s why it’s

dangerous for any mortgage purchaser to acquire debt thinking they have value protection over

term, without understanding that term. Again, there’s no perfect prognostication - only best

estimates. But at least the enlightened mortgage holder won’t jump off a bridge when they find

their future projection wrong. Futures traders expect their projections to vary and shoot

themselves instead.

If you are a trader, tell one your stock holding and “bank deposit” friends that they aren’t

investing - just gambling like you - but with one arm tied behind their back. The price/value of

everything on earth changes up and down. Even what appears as sideways movements are still

small up and down cycles. When you only buy - you are handicapping yourself. I hear that the

radio and TV networks won’t allow commentators to talk about shorting the stock market. So, a

major misconception must exist in the public. This is germane to the current credit crunch

because it’s why so many buyers of the latest derivatives are so shocked about the normal, but

very large DOWN cycles that occur to match the upside.

You should feel free to short the stock market, or any other market with out feeling un-

American!!! Feel free to mortgage anything and diversify the proceeds for a rainy day. It’s all

gambling and advantage seeking - and it’s definitely snowing right now. We’ve been to this

barbeque before. It’s where character gets broken or molded. It happens to investment banks

too much of the time.

The 1980’s put many, like me, on notice that down cycles can be devastating and brought on by

a number of reasons, few of which can be fixed by man. Rural lands of all types, timberland,

grazing, mining, oil drilling, agricultural and all the small communities associated therewith took

a massive hit of approximately 62% in value from which only a few contract buyers survived.

Unfortunately, those, like me, who purchased at the top of the market in 1979-80, were trashed

during the 1980’s. Others like a developer in Spokane and a farmer in Hermiston that I’ve done

considerable appraisal work for - became so indebted that they never did escape the compound

interest “hammer”.

In the early 1980’s I lost $400,000 on a ranch I speculated on. These were hard earned dollars,

not just zeros off some balance sheet. I thought the ranch would bring me a million dollars

ultimately. But the down cycle drained me financially, and mentally as well. I came to

understand why some jump. It’s nothing to take personal, but took me 2 years to convince

myself and get my animal spirits back.

After nine years of the down cycle of the 1980’s, the market turned around in 1990, right on cue.

Again, the government took credit as they did after the economy turned up in the latter 1930’s.

After the cycle turned up in the early 1990’s - it was supposed to culminate in the year 2000.

But at that time, the crash of the Nasdaq in March of 2000, 9/11, plus recessionary tendencies,

caused the world and thus the “following” Fed to reduce interest rates. And reduce they did!

What ensued was the biggest real estate bubble the planet had ever experienced. And the Fed

had no clue? That’s really scary…

During this tsunami of 2000 to 2006, those who treated their home as a bank, and there were tens

of millions, spent heartily their fictitious equity - thinking nothing about the payback. Why

haven’t we taught our citizenry about cycle market action, so they won’t be totally upended

during disastrous changes when they occur? Oh, we haven’t even done that for our leaders. It

appears that neither academic nor government sectors understand or appreciate the problems of

free enterprise business. How the public could be expected to fix what our government can’t…

is a sign we could be in serious trouble. Just wait till the panic hits everybody’s paycheck.

The government programs in the early 1990’s only locked the barn doors emptied in the 1980’s.

They never saw a horse, only dealt with an already smashed market. Initially, they didn’t even

try to keep the insolvent S&L’s afloat because S&L’s didn’t fit into the Feds safety net for banks.

Banks were given free reign… any business can survive when it’s given free money.

As an appraiser throughout the 2000-2006 bubble, I was as most other appraisers, impotent in

applying any brakes to the runaway train. Those who fretted about buying a home at many times

its inflated price perceived they had nothing to worry about since other purchasers simply sold

their purported mistakes for a profit. But at the peak, after everyone had stepped into the

elevator car, the perceptions began to change and crash they did. Million dollar houses in

Florida began selling for $600,000 and appraisers in California, Arizona and other hot spots in

the country were talking about the reversal in fortunes. I attended a “Meet the Lenders” seminar

Las Vegas and received further gut wrenching news when the leading lenders were discussing

the carving of mortgages and how grammar in our appraisals could affect the value of these

MSB’s by millions of dollars.

What the world doesn’t understand about appraising is that we are simply reporting the current

market activity, not an evaluation of the overall history of the market. We aren’t asked for, nor

give a solid basis of value (for which none exists). Nor do we guarantee in anyway way the

price, we call value will be good for more than that moment in time. Now of course, that’s all

out the window except for the blame game. And society is fixed on last reasoning analysis.

When anything goes wrong, the public through the media, looks for the last single reason to

blame - be it person or event. But, this is only valid in a very few cases. The majority of events

occur as a result of a long chain of reasons, often that cannot be perfectly predicted or changed.

We are now criticizing each others involvement - like counting needles on a burning pine tree.

I would like to be able to offer a perfect solution to the world’s liquidity problem. But I have

too much respect for probability’s demand to balance. Its solution is to wipe fictitious zeros off

the chalk board by any and all means possible. In the Great Depression, experts claim the U.S.

Government did not make an early attempt to avert the various disasters. This time it looks like

we’re going to try, but the pyramided numbers appear too overwhelming? I, like many others,

have not given up on this endeavor. However, but I’ve become much more fearful of trying to

defeat cyclical trends, until they announce their conclusion.

What’s nagging at me still is - did I finish my assignment? I keep hearing about gold derivatives

and gold bullion banks. And how safe is our money??? I’m making that my next assignment.

These are different times than Jimmy Stewart’s movie and yet leverage and confidence are still

the keys. Banks which are normally leveraged 10 to 12 times are now leveraged up to 45 times

and nobody really knows at that. When I bought that ranch (on contract) I didn’t realize until I

backed out that I had inadvertently created over $2 million dollars of the same credit money, and

I was just one person. The seller bought property on contract too... and the next seller did the

same thing… on and on. I believe in the greatest freedom possible, but there still needs to be a

scoreboard somewhere.

I hope we don’t make a witch hunt for problem banks and their rapacious traders. Ironically,

they are the backbone of our free enterprise success which is basically a jungle. The big

predators produce the most because of their voracity. Best if we keep them chained into

competing productively, not robbing the banks. I’m sure they helped spread capital to

industrial markets. But, like a football game wherein powerful men pitted against each other

make wonderful by-products, rules are required now that weapons of mass destruction are

available. Otherwise, football would be nuclear warfare. Also, we need to be able to watch the

game- lest we allow announcers from giving us different action that would put dollars in their

pockets (the whole derivatives industry did that). Instant replay also keeps the refs honest and

accurate, well as good as can be. Yes, football is a wonderful example of free enterprise.

Greed should also be appreciated. We all have it. Without it where would be the competitive

quest which has made our world unbelievably wealthy. Otherwise, we may not have made it

past the lions. And government as referees works fine, but trying to make productive coaches

out of people not tied to their success - won’t cut serious competition. Nor can we pull

spectators out of the stands as referees, unless they are well experienced. Where are the Teddy

Roosevelt’s when you need them?

ruddcommodities@hotmail.com