I’m looking at a 1000% expected return, and wondering why the last few years isn’t instructive to these people on the dangers of using what amounts to political leverage investing to increase their rate of return? It’s bad enough that LTCM blew up in 1998 and nearly took down the financial system back then, the major investment houses that funded LTCM went on to each develop their own in-house LTCM, pretty much all of which blew up simultaneously in 2007-8. They saw it happen, it nearly took down their firms a decade earlier, and yet they waded in again. Makes you wonder what the value of institutional memory is in the face of the profit motive, it seems to be pretty low if someone has a new equation to explain why the last equation didn’t work.

Now people are expecting to get something for very little, using the political process as the market. Again, the risk is discounted and the people pointing out the enormous systemic risk (Tea Party folks, for one example) are disparaged. Disappointing that we’re down to the borrower of last resort and the same strategies are being employed, with the persistent suspension of disbelief in TANSTAFFL and other pretty much inarguable rules of human group behavior. The blowup of the economic system has had some pretty dire implications, blowing up the lender of last resort — that’s a whole order of magnitude more dire.

The only solution I see is to bring the fiscal focus back to the state and local level as much as possible. If the citizens of Tracy, CA can’t afford to have sewer and water repair, police and fire staffing to meet their needs or adequate school facilities then why is their income tax money flowing past those problems straight to Washington? Or even Sacramento for that matter? The obvious answer is that the power to tax is the power to control, and the feds would rather fix some of the local problems that meet an overarching political end than allow the elected officials of Tracy to fix all of the problems and forward the remainder to Washington. Or Sacramento.