Is the Biden Economic Plan on the Right Track?

It promises to improve economic well-being relative to current economic policy for average and particularly less well-off citizens now and in the future, and to do the same for citizens of other countries including all immigrants. Can it deliver?

The Mock Democratic Platform was released in February, the Biden-Sanders Unity Task Force a few weeks ago, and the draft 2020 Platform a few days ago. The economic plan is the most ambitious progressive anti-capitalist agenda at least since FDR’s New Deal and arguably in American history. It consistently proposes numerous government carrots and sticks to achieve its economic objectives, doubling down on the New Deal and Great Society methods.

Causes and Consequences of Reducing Capital and Labor Productivity

Potential national wealth is limited only by the amount of capital (national savings) and the incentive to maximize the productivity of capital (e.g., with new technology) and labor (through appropriate education and training). Politics often distorts individual incentives for the worse.

Politically Re-directed Investment

The US national savings rate hovered around 3% after turning negative in 2007-2009 and again now. The Biden economic plan for politically re-directing resources to, e.g., conservation, clean energy, transportation, manufacturing, infrastructure, affordable housing, etc. by subsidizing public and taxing private investment more has some merit. However, it may have problematic economic returns and the total cost is many multiples of total national savings.

Education and School Choice

Biden would limit the competition with public schools by restricting higher performing charter schools. Higher education would be made either affordable or free with reduced entrance requirements to compensate for a poor primary education, but higher education only contributes to individual and national wealth to the extent it improves productivity, e.g., with more STEM graduates.

Labor Market Intervention

By traditional measures, the country was fully employed prior to the Covid-19 epidemic, but the Biden plan calls for the “creation” of multiple millions of new high paying jobs, both in the nominally still private sector and the public sector. Pay would be raised by eliminating the right to work without being forced to join a union, something private sector unions have demanded since the passage of the Taft Hartley Act of 1947. But Biden plans to go beyond that, forcing all states to unionize public employees as well. For those that fall out of this broad union net, the federal minimum wage would start at $15/hour, superseding state laws. These are the tools that progressives historically used to keep blacks, other minorities and recent immigrants out of the labor force, and is is difficult to see how they would do otherwise this time around.

Trade Protection

As these politically inflated domestic labor costs will again be uncompetitive internationally the Biden plan opposes any trade deals, calling for manufactured goods to be sourced and stamped “made in America.” Consumer prices would have to rise commensurate with labor costs.


Borders would be relatively open and immigrants incentivized to come both by the decline in export-related jobs and the benefits of the U.S. social welfare state. But they would be excluded from the formal job market by the union and minimum wage requirements once inside the U.S. border.

Taxation, Debt and Money Printing: The Limits of Expropriation

All senior mob leaders know two things well: 1. There is only so much extortion money to go around (gangster killings are usually over excessive greed), and 2, There are limits to how much you can extort without killing a business. At their peak in the 1980s the New York Mafia “owned” the labor unions that extorted from business, enabled by a symbiotic relationship of both with the Democratic Party. Sooner or later taxpayers and consumers always pay.

Debt and Taxes

State and local governments are in dire straits and blue states are technically insolvent, demanding a bailout. Federal funding has morphed the states into Soviet era oblasts with the federal government the funding source of first resort.

Current federal debt is $27 trillion, exceeding that of WW II as a percent of the economy, with over $200 trillion in additional contingent liabilities.. The current federal deficit for this fiscal year is over $3 trillion, to which the Democrat-proposed Heroes Act would add an additional $3 trillion. Candidate Biden has offered tiny constituent groups, e.g., caregivers, almost $1 trillion, large constituent groups such as the environmentalists’ Green New Deal could cost upwards of $100 trillion, with lots of constituent promises falling in between.

The Biden plan calls for reversing the Trump corporate tax cut that stimulated investment and exports. Taxing the “rich” will raise some revenue in the short run but reduce investment and growth in the longer run. Middle class taxes will follow, although he is committed to restoring the (blue) state and local income tax deduction for the relatively wealthy.

The Federal Reserve and Modern Monetary Theory

Having gone past the limit, a gangster may turn to counterfeiting as a last resort. The Federal Reserve is already “printing” enough money to be the primary buyer of Treasury debt and at the current pace would own it all in two years. Under the Modern Monetary Theory espoused by the Sanders campaign and now implicitly incorporated into the Biden economic plan, debts and deficits don’t matter so long as the Fed can print money to purchase them. The Biden plan adds “racial equity” to the Fed’s full employment and price stability goals to reduce differences in wages and unemployment.

Biden’s Plan is an Extortion Racket on the Left-Behind Track

Across time and space the evidence supports competitive market capitalism as the source of virtually all human economic progress. The Biden economic plan is essentially an extortion racket that fails to recognize its inherent limits, doubling down on the bad policies of the current Administration while eliminating the good, apparently because the Party’s octogenarian leaders either never learned the limits or have lost control to the young radical left. This plan so far exceeds the limits that even partial success could easily lead to hyper-inflation.

There is a sense that America can always turns things around if it gets derailed but the progressive perspective dominates America’s intellectual elite and media. Argentina was once on the capitalist fast track parallel to the U.S., but progressive President Juan Peron switched tracks in 1946, and Argentina has been left behind ever since.

Kevin Villani


Kevin Villani was chief economist at Freddie Mac from 1982 to 1985. He has held senior government positions, has been affiliated with nine universities, and served as CFO and director of several companies. He recently published Occupy Pennsylvania Avenue on how politicians and bureaucrats with no skin in the game caused the sub-prime lending bubble and systemic financial system failure.

How Much Do Black Lives Matter?

Ask Mr. Jones

Mr. Jones – the title of a movie released last year now playing on Amazon Prime – discovers that the New York Times’ Moscow Bureau and its Pulitzer writer Walter Duranty is covering up Stalin’s starvation of 4 million Ukrainians (16 million relative to today’s global population) to protect the gloss of socialism, later explaining “You can’t make an omelet without breaking eggs”. All the other journalists except Jones apparently go along for the same reason. The death toll of socialist ideology would reach 100 million (300 today) during the next several decades in the pursuit of Utopia. There were no omelets.

Only a few thousand (almost all black) deaths have as yet resulted from prior Black Lives Matter (BLM) Movement protests, but this is only the beginning. The question is, what is their leaders’ version of Utopia and how many lives are they willing to sacrifice to achieve it?

Socialism, Fascism and Crony Capitalism are Sisters

Over the past several centuries two systems of political economy, socialism and capitalism, have competed. The distinguishing characteristic of all socialist variants is the authoritarian hand of politicians, whether or not “elected.” The distinguishing characteristic of capitalism is the invisible hand guiding the competitive market. Neither system promises “equal” outcomes: capitalism “fair” outcomes based on individual merit without eyesight to discriminate by color or sex, socialism in theory based on need as determined by politicians and bureaucrats.

Jonah Goldberg in Liberal Fascism (2008) argues that fascism is a sister to Soviet socialism. What the U.S. has called “crony capitalism” has different features than the fascism of Hitler and Mussolini, but includes authoritarian control over business and markets. Similarly, the welfare state democratic socialism has different features than Soviet socialism, but shares state control over income. The Progressive Movement in the U.S. has historically used the authoritarian political hand to benefit not just the rent-seeking cronies at the top (politicians, the intellectual elite, etc.) but also the working and under-class. The competitive market system that remained somewhat out of the state’s reach produced most of the income and wealth that funded this progressive largesse.

What is Racial and Social Justice?

Political power – in the hands of the Democratic Party – was indisputably the source of racist oppression from its founding through the Great Society. The black/white wage gap has remained unchanged since for those employed. What has changed is black participation in the labor force. The old generation of eminent Black economists Tom Sowell (90), Walter Williams (84) and Shelby Steele (74) have, in hundreds of books and thousands of articles, many addressing the issue of race in America, argued that the Great Society has been the source of income and wealth disparities by creating dependence on the welfare state, massive penalties for marriage (raising the percent of live births outside of wedlock from 10% to over 70%) and work (a marginal tax rate over 100% on earned income), restrictive policies such as minimum wage, and opposition to charter schools.

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Charlottesville Revisited – The Next American Rebellion Won’t Be a Black Swan

The 2020 Presidential election is being tee’d up to foment racial animosity between Biden’s Blacks and Trump’s Deplorables.

The2020 Democratic presidential candidate Joe Biden is far ahead of the incumbent Donald Trump in the polls, but two thirds of his supporters cite fear of Trump being re-elected, mostly due to perceptions of racism, rather than support for the candidate or his Party’s Platform. Biden’s core supporters are angry black protestors, Trump’s core are largely angry white “deplorables.

The Charlottesville Premise

Bucolic Charlottesville is rich in political symbolism as home to the University of Virginia founded by Thomas Jefferson, author of the Declaration of Independence and founder of the Democratic Republican Party. Virginia was the Capital of the South during the great Civil War, Charlottesville the site of the statue of the Confederate military leader Robert E. Lee. In 2017 riots broke out there between black groups led largely by the Black Lives Matter (BLM) movement leading protests of this and other statues. After strongly condemning the historically racist groups that a Charlottesville resident had invited to oppose the destruction, President Trump said that there were “good people” on both sides of the monument issue, then insisted that the racial hatred must stop.

Some conservatives would go along with tearing down Confederate statues. But predictably, the Founding Fathers were targeted next. Statues of George Washington have already been destroyed and the Washington Monument is on the chopping block. In New York, where the current governor and Democratic presidential hopeful Andrew Cuomo renamed the Tappan zee Bridge after himself (technically, his father), political leaders have voted to remove Thomas Jefferson’s statue, the Jefferson Memorial sure to follow. Even Lincoln isn’t safe.

The Charlottesville premise is that America was born to slavery and American racist oppression never ended, causing the current income and wealth gap with whites, and that the statues are symbols of this inborn oppression, The Democratic Party Platform to be finalized in August promises to eliminate racial income and wealth differences by doubling down on traditional socialist redistribution. The young party leaders correctly argue that this will require “fundamental change,” a political Jacobin revolution converting America from a failed meritocratic Republic to a “peoples’ democracy.”

I’ve argued elsewhere that the economic and social costs of this agenda pose an existential threat to America. However unrealistic, “moral imperatives” trump constitutional, institutional and resource constraints. Nations don’t choose suicide, they just stumble into it one step at a time.

Governor Cuomo responded to Trump’s 2016 campaign theme to Make America Great Again (MAGA) that “America was never that great” based on its racial history. The liberal main stream media labeled Trump, the Republican Party and anyone who might disagree with their Charlottesville premise – hence their platform – as racist. When the Democrats decided to shift attention from their platform by choosing as an interim “centrist” leader the soon to be 78 year old Joe Biden, it wasn’t surprising that when announcing his candidacy he chose to make Trump’s racism his central campaign issue by replaying a truncated clip of Trump’s Charlottesville “good people” quote.

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From the Cosmos to Strings: Parallels of Economics to Physics

The first macroeconomic model of the U.S. economy consisted of 20 boxes of punched cards at 2000 cards per box that I would wheel on a dolly stacked five feet high to the main frame computer center where it took about three days to get results back.

Mathematics is the language of physics. Graduating with a BS in mathematics in the 1960’s, I faced a choice between my two minors, physics or economics. Some famous physicists had already declared that the quest for a unified mathematical explanation of the cosmos and its smallest building blocks was at hand. In economics, the attempt to build a mathematical macro model of the U.S. economy and fully integrate it with the micro economic mathematical models of human behavior represented a new frontier. I chose economics.

In retrospect, physicists are still searching for a Grand Unified Theory (GUT) of the universe. In economics, mathematics and statistics have widened the disagreement about how the economy works and the proper role of government in economic management.

God and Physics: from Aristotle to Hawking

Aristotle (382-324 BC) described the cosmos of round bodies in motion circling around the earth. It took almost two millennia until the sun-centric Copernican model was popularized by Galileo, who was imprisoned by the Pope, the political enforcer of orthodoxy at the time, in 1633 for heresy, forcing him to recant. But only a half century later, Newton described the mechanics of the universe and sun-centric solar system in Principia Mathematica (1687), which remains the cornerstone of basic physics.

In Newtonian physics, motion and speed are calculated relative to what you are moving away from. Maxwell’s discovery in the mid-1800’s that the speed of light was “absolute” required an explanation that stumped many physicists until the young patent office clerk Albert Einstein, unaware of these efforts, provided the novel Special Theory of Relativity (1905) that if light speed was constant space and time must be relative.

His mathematical model proved over time to provide a more precise description of the movement of heavenly bodies, but the implication of his equations that the universe was expanding violated his belief in a master plan of a “creator,” so he inserted a mathematical cosmological constant (what economic model builders would subsequently call a “dummy variable”) to stagnate it. But other physicists confirmed his original model, which in reverse required a mathematical ”singularity” – a beginning of time with a “big bang” from an infinitely small spec. The Catholic Church approved this model in 1952 as consistent with its orthodox views of a creator.

In 1970 Stephen Hawking proved that the big bang theory was the only one consistent with the existing models of the universe, but he later challenged those models. First, the violent path of destruction and creation over billions of years subsequent to the big bang that ultimately produced the building blocks of life was a “million to one shot”- is ours just one of millions of universes? Second, macro models of the universe broke down at the mathematical singularity, which remains inconsistent with micro models of the very small – in my youth molecules then atoms made up of protons, neutrons and electrons, now subatomic “quarks” and more recently sub-quark vibrating strings.

The scientific method is a slog: to understand the universe, the models must not only be tested empirically but compared to all the potential alternative explanations. Pre-conceived orthodox ideology has at times set the investigation back centuries.

The Progressive Orthodoxy of Mathematical Models in Economics

Macro economics, the desire to understand and control the workings of the economy at large, developed in response to the Great Depression. The roots of the mathematical approach to economic management trace to the founding of the Econometrics Society in 1930. John Maynard Keynes published his General Theory of Employment, Interest and Money in 1935, the title invoking the universality and finality of Einstein’s General Theory of Relativity published two decades prior.

Paul Samuelson’s Foundations of Economic Analysis (1947) provided a mathematical model of micro economic consumer and business behavior. I was a regular reader of Samuelson’s Newsweek columns in high school and used his undergraduate economics text at UMass, where I worked on the first macro economic model of the U.S. economy developed at the University of Pennsylvania by Samuelson’s first PhD student Lawrence Klein.

As a student of former Federal Reserve Board economist Pat Hendershott, I worked on the first Flow of Funds model of the U.S. financial sector. The main frame computer at Purdue University would run the punch cards of a professor’s research overnight, a big improvement. Such macro economic models are “Keynesian” central government centric by design: fiscal and monetary policies are modeled to control the economy, mitigating recessions and unemployment.

But other models haven’t been ruled out. In The Forgotten Depression (2014) James Grant argues that the Depression of 1921 – there was no official designating body at the time – following the end of the Great War cured itself in 18 months due to official benign neglect. In Grant’s view (and many others, including economists living through it) what made the subsequent Depression “Great” was massive political intervention that prevented the required adjustments.

While the merits and long term effectiveness of “small scale” and “counter-cyclical” measures remain debatable, the merits of the socialist centrally planned economies are not: hundreds of millions died and the remainder suffered economic stagnation while the capitalist world prospered. Only self described democratic socialist Bernie Sanders openly touts the performance of the centrally planned economies, but there isn’t much difference in the government centric policy approach of progressive politicians.

This macro narrative is generally consistent with anti-capitalist progressive ideology of business, workers and consumers dating back to Marx that is accepted by the majority of more recent college graduates. Economic statistical research across a wide spectrum from discrimination and labor exploitation to income inequality and market failure is offered in support, albeit inconsistent with a competitive market system. The competitiveness of the U.S. economy implies that correlation is too often assumed to imply causation without rigorously considering alternative explanations.

Creative Destruction Produces Economic Expansion

Humans owe their very existence to the massive creative destruction of the Cosmos (whether or not by the grace of God) for we are all made from the dust of exploding stars. In the economic sphere, virtually all human economic progress is attributable to capitalist competition and creative destruction, favoring the adaptive over the sluggish. Mathematical models haven’t adequately described entrepreneurial innovation. Progressive intervention to mitigate downside risk of creative destruction, broadly or to specific political constituencies, is highly correlated with stagnation.

Historically, even natural disasters including pandemics such as the corona virus (I assume it was “natural”) have provided opportunities for creative destruction. Consider, for example, the requirement that university students study online during the pandemic. While traditional colleges aren’t yet offering rebates, we know from experience that without the room, board and administrative costs and with increased productivity of fewer professors, online degrees can be provided for as little as one tenth the cost of the traditional approach.

Progressive proposals for taxpayers to foot the entire bill for the high cost model may be called democratic socialism but are indistinguishable from democratic crony capitalism for the political elite.

Kevin Villani

Kevin Villani was chief economist at Freddie Mac from 1982 to 1985. He has held senior government positions, has been affiliated with nine universities, and served as CFO and director of several companies. He recently published Occupy Pennsylvania Avenue on how politicians and bureaucrats with no skin in the game caused the sub-prime lending bubble and systemic financial system failure.

Democratic Presidential Candidates Debate the Origins of the 2008 Financial Crisis and Systemic Failure

Are greedy racist “Wall Street” bank lenders responsible, or progressive politicians?

The housing finance systems of some developed countries have failed, but only the U.S. federally dominated system failed systemically twice in two decades, the second time in 2008 with global repercussions. Then Republican Mayor of New York now 2020 Democratic presidential candidate Michael Bloomberg blamed politicians for pushing lenders to make loans to “poor people” in low income neighborhoods that they couldn’t afford. 2020 progressive Democratic presidential candidate Warren, apparently reflecting the views of the Party, responded to Bloomberg: “That crisis would not have been averted if the banks had been able to be bigger racists.” 

The Dodd-Frank Wall Street Reform and Consumer Protection Act passed in 2010 creating Warren’s proposed Consumer Financial Protection Bureau and the Financial Stability Oversight Council (FSOC) to Monitor and Mitigate Systemic Risk made up of the various financial regulators reflects the Warren/Democratic narrative. This narrative is the foundation of not just housing and financial sector policy proposals, but the entire progressive agenda.

I’m from the federal government and I’m here to help you.

That’s the punch line to the joke about the three biggest lies Pres Martin used to tell about a half century ago as past Chairman of the Federal Home Loan Bank Board (FHLBB) (hence Freddie Mac’s first Chairman) and Vice Chairman of the Federal Reserve System.

The first wave of “help” came after the repeated waves of bank failures with the creation of the Federal Reserve System in 1913. The second wave came during the Great Depression with deposit insurance and associated regulation of the banking and savings and loan industries. This was followed by the creation of FHA mortgage insurance: to stimulate FHA demand, Fannie Mae was created make a market for which there were few buyers or sellers. By the late 60’s, rather than end a failed experiment Fannie Mae was “privatized” and the public monopoly was subsequently expanded to a tri-poly with the addition of Freddie Mac and Ginnie Mae, all funding fixed rate mortgages (FRMs) first introduced by FHA. As Milton Friedman famously said, “there is nothing so permanent as a temporary government program.”

It didn’t help potential borrowers much. The resulting federally dominated U.S. Housing Finance System had been touted as the best in the world, a model to emulate for developed, developing and transitioning economies alike during the three decades prior to the 2004-2007 sub-prime mortgage lending debacle and globally systemic financial crisis of 2008. But the benefits are hard to identify: the U.S. homeownership rate is about the same as in the mid 1960’s under the prior savings and loan system in spite of a 50% increase in female labor force participation, a historically low real interest rate and a dramatic shift from detached single family to condo apartments.

Civil rights legislation culminating in the Fair Housing Act of 1968 made racial discrimination in home sales a federal crime. The black homeownership rate which rose more than that for whites during the 2004-2007 sub-prime lending spree has returned to about where it was during the 1960’s.

Market Discipline versus Public Regulation

It didn’t help existing lenders much either. In the 1970’s federally sponsored agencies competed directly with federally chartered savings and loans whose investments were limited by regulators hamstrung by politicians to FRMs, forcing them to borrow short and lend long with callable insured deposits. Systemic failure was assured when interest rates rose as they did in the late 1970’s, with failures strung out over the 1980’s as regulators seized but often didn’t close zombie institutions, often run by academics.

Systemic risk, the simultaneous failure of many or all firms (and households) in an industry or across industries, primarily afflicts mixed progressive financial systems, i.e., those with privately owned but publicly regulated financial institutions. Firms in an un-or-less regulated market economy may be fragile but “Wall Street” traders mitigate systemic risk by betting against weak firms and industries, either forcing corrective action or failure– hence the derogatory political reference to “speculators.” At the other extreme, state owned financial firms generally fail financially but face only a political bankruptcy constraint.

Two types of progressive policies created systemic risk. First those intended to mitigate the failure of individual firms with public insurance and prudential regulation, making failure less frequent but more systemic. Regulators prevent commercial bank failures purportedly to protect public confidence in the payments mechanism. Second are those policies intended to universally favor borrowers and/or creditors – like requiring mortgages to have a fixed rate – making systemic failure more likely and more costly.

Underwriting Mortgage Credit Risk: Discrimination and “Disparate Impact”

With the exception of the Great Depression and 2008 financial crisis, home mortgage credit losses had been “Gaussian (normally distributed),” that is, they followed a predictable pattern that allowed them to be insured according to the law of large numbers, for all practical purposes eliminating uncertainty, hence risk.

Loan data during the sub-prime lending debacle unambiguously supports Bloomberg as minority lending skyrocketed. Progressives imputed racist motives to excessive minority lending, arguing that “predatory” lenders “tricked” minorities into accepting loans they couldn’t afford so they could later foreclose. There is some truth to the first part, as banks solicited minority borrowers with loans they had to know were risky. But they had little incentive to foreclose, as that always resulted in a deep loss. What did motivate lenders?

Homeownership was no more affordable for black households during the 2004-2007 sub-prime lending bubble than it was in the 1960’s for a variety of reasons. But current Democratic presidential candidate Deval Patrick argued in 1994 as Deputy Attorney General of the Department of Justice that any final lending distribution that contained racial disparities—disparate impact—relative to population was a violation of federal law unless the lender could prove otherwise. Such “proof” of non-discrimination would be difficult to produce at best, since the disparity itself was considered proof of racial prejudice, and the cost of a legal defense is generally crippling. This was called “confiscation by consent decree” at the time and later “extortion by consent decree” for which Gaussian credit risk models didn’t apply.

Avoiding Black Swans

Former trader –now internationally recognized risk expert – Nicholas Nassim Taleb describes in his 2007 book The Black Swan “how high impact but rare events dominate history, how we retrospectively give ourselves the illusion of understanding them thanks to narratives, how they are impossible to estimate scientifically, how this makes some areas – but not others – totally unpredictable and unforecastable, how confirmatory methods of knowledge don’t work, and how thanks to Black Swan-blind “faux experts” we are prone to building systems increasingly fragile to extreme events.”

Was the 2008 systemic failure an unpredictable Black Swan event? Politicians and their regulators who push the “Wall Street greed” narrative argued that nobody could have foreseen it, but Taleb exempts only economist Nouriel Roubini Crisis Economics (2010) from that delusion, who (pg. 16) concludes “it was probable. It was even predictable…” based on the failure of prudential regulation. But how did that fail? Systemic failure had long been predicted (by me and others, including the Federal Reserve) based on the progressive policies that attributed illegal racial discrimination motives to traditional income and appraisal underwriting.

No Skin in the Game

The sub-prime lending bubble of 1995 through 1998 financed with opaque securities issued by independent finance companies that following SEC rules reported phantom profits burst with no systemic consequences. By 2000 many of these former sub-prime lenders and securitization practices had migrated to the federally insured commercial banks in part to finance Community Reinvestment Act (CRA) lending commitments. These increased 500 fold after the deregulation of interstate Banking in 1994 when discretionary regulatory permission for M&A activity was held hostage to a favorable public CRA Report. Pushed by regulators and pulled by the big potential M&A payoff, borrower down payment requirements were virtually eliminated and bank “regulatory arbitrage” minimized capital requirements, virtually eliminating any Skin in the Game (Taleb, 2018). This asymmetric “trade” was irresistible.

The Perfect Storm

The Big Short by Michael Lewis presents the progressive narrative of “greedy” speculators who were shorting the housing market but doesn’t explain why they failed to prevent the bubble from inflating to systemic proportions by bankrupting lenders. The reason is that the cheap Federal Reserve credit continued to be channeled to the housing bubble by Fannie and Freddie. Historically conservative, they were now led by politically anointed CEO’s who, facing no bankruptcy constraint, willingly followed the path to perdition. This path was paved by HUD’s “Mission Regulator” who not only ratcheted up the lending goals well beyond prudent limits but in 2005 imposed a new goal that they maintain a 50% market share with these private lenders. Propped up by the federal government, all the big players were going for broke simultaneously.

This was guaranteed to fail. Financial institutions reported several trillion dollars (pgs. 157-158) of home mortgage credit losses after the bubble burst and 10 million homeowners lost their homes over the next six years in spite of massive government efforts to avoid or delay foreclosure. Like the lending bubble, the foreclosure bubble was much bigger for minorities. Yet The Financial Crisis Inquiry Commission Democrat Majority Report (2010) spun the narrative that the systemic “risk” was due mainly to traditional liquidity concerns.

I’m from the federal government and I’m here to blame you.

That’s no joke. During the Obama Administration Patrick, then Governor of Massachusetts led the multi-state suit against lenders alleging discrimination in foreclosures based on disparate impact. At the same time, current DNC Chairman Tom Perez was pursuing “disparate impact” cases against lenders under the Fair Housing Act as Attorney General Eric Holder’s Deputy.

In a 2009 Financial Times editorial Taleb proposed ten principles to avoid a repeat of 2008:

What is fragile should break early, while it’s still small.

No socialization of losses and privatization of gains.

People who were driving a school bus blindfolded (and crashed it) should never be given a new bus.

Don’t let somebody making an incentive bonus manage a nuclear plant – or your financial risks.

Compensate complexity with simplicity.

Do not give children dynamite sticks, even if they come with a warning label.

Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence.”

Do not give an addict more drugs if he has withdrawal pains.

Citizens should not depend on financial assets as a repository of value, and should not rely on fallible “expert” advice for their retirement.

Make an omelet with the broken eggs.

All good advice, all ignored by politicians and regulators who created the Rube Goldberg dystopia they rail against.


Kevin Villani

Kevin Villani was Chief Economist at Freddie Mac from 1982 to 1985 and HUD from 1979-1982. He has been affiliated with nine universities, and served as CFO and director of several companies. He recently published Occupy Pennsylvania Avenue on the political origins of the sub-prime lending bubble and aftermath.