Shostak Does It Again

Frank Shostak is a scholar and gentleman who does yeoman work explaining the Austrian Business Cycle Theory (ABCT) to the real world.  Here is his current offering, well worth a read.

And here is my comment on his essay:


A couple of tweaks to this argument:

The ABCT-wise house builder sees what is happening, and understands it is a false economy, but it is tradable.  So eyes wide open, in he goes, with a view to bailing out before the bailouts happen.  It is a timed trade, but as Kennedy said, only a fool waits for the top.  Another way to manage this is with a incorporation of LLC, and simply bankrupt the firm that had been the conduit for all profits in the house building.

The other aspect is a bit more subtle.  ABCT refers to credit boom/bust, but that does not happen in a vacuum.  Regulations, building codes, loan to value and other attendant factors in a boom decide the design of what will be built.  In order to stay in business, one whose passion and joy is house building finds he has to build the same junk as everyone else, for the customers to get the financing like everyone else, in order to pursue his calling.

Of the two the latter is the common scenario, and it applies not just to house building, but any field from clothes to food to animal breeding business.

It is not a matter of falling prey to ABCT, it is a matter of coming to play soccer and finding it is raining.  Well, buck up and play ball.

In USA Presto refused to play ball, and were prosecuted for financial crimes.  Knowing a bust was coming, they held on to cash to buy up busted companies.  In USA, acting on what you know is a crime.

http://www.fool.com/investing/general/2004/05/12/presto-stays-its-course.aspx

In USA Beal Bank refused to play ball, and were prosecuted for financial crimes.  Knowing a bust was coming, they held on to cash to buy up busted companies.  In USA, acting on what you know is a crime.

http://www.forbes.com/2009/04/03/banking-andy-beal-business-wall-street-beal.html

In USA, if a businessman does not play at risk in the ABCT, he very well may go to prison.

Bookmark this post --- Email this post