Subprime Mortgages were NOT the Cause of the Last Crash. It was the Race to Zero.
At the old Merrill Lynch, Win Smith and Stan O’Neal had a bit of a difference of opinions on business practices. Today we have a variety of opinions on social media, data gathering, bot advertising clicks and calls, and of course free music. All the points of view have nuggets of truth imbedded in very confusing noise and ambiguity and legalese. If Merrill Lynch stayed away from subprime mortgages, would other firms have just purchased even more? If our governments did not allow copyright infringements and bot ads, would the booming tech business just go to the next country? Rather than pointing fingers in circles right back at ourselves and others, the signal is clear amidst the noise, it’s not easy to hear but it’s clear once you hear it. There is some synthesized truth from all the different sides of the arguments.
As online brokerage companies raced towards trading commissions of closer to zero before the last crash, big firms had to find alternative, less than ideal profitable mechanisms. Subprime mortgages were the effect not the cause. The cause was the race to zero, an ambiguous, not wrong, race to zero. But a race to zero none-the-less. More of close to zero could be better than less of more than zero. But then that word Quality pops up again, the bigger picture, the long term, the next generation, oouuu, time, it starts to get grey, the more you drift from Quality, it just seems to get fuzzier. Maybe that reason is the signal amidst the noise.
If one part of the business keeps getting closer to zero and we have to report higher earnings the next quarter, hmmm, maybe we need to make some less bad choices, less than prime choices, less than ideal, suboptimal choices, subprime choices somewhere else. This would be the effect. An effect that effectively becomes infective or infectious maybe…like just 1
Pringle perhaps, just 1, just 1 this quarter, maybe 2 next quarter to sustain the need to meet, to meet their, I mean my, I mean the expectations.
If major investment firms are good with 0 and 0 and 0, the less than prime compromise, or expectation may be an accentuated, slightly higher reliance or maybe dependence on the perpetual, rapid growth of technology growth stocks that are ironically in their own race to 0. This common 0 thread is very interdependent and maybe you could say seemingly seamless. 0 costs for internet searches, zero costs for stock trades, zero costs for music, zero costs for mutual funds. Dependence on bots and bots of bot advertisement clicks, and a dependence on the appreciation in value of stocks that are dependent on bots and bots of bot advertisement clicks.
Such a world wide web of connectivity and yet so confusing. I would say the best thing to do is ask your bot if a race to zero is a positive economic indicator or a concern that needs some alternative investment strategies, not ask your bot, I mean ask your robot, no sorry, not your robot, your robo-advisor, or maybe it would be better to ask someone that has a title of financial advisor, they’re all great, any one will do, ehhhh, maybe it would be best to ask a web tools master instead, this way you can see what their calculator says to do. If those sound like less than prime choices, you could also seek out a Quality signal.
Quality is the signal. Seek Quality, not really that confusing when you tune out the noise.
In Marine Corps boot camp, when the Drill Instructor yells “zerooo”, all the recruits have to yell back in unison “Freeze recruit! Freeze!” and they of course need to freeze. That may be extreme. As Vanilla Ice would say, “Stop, Collaborate and Listen” to the sound…of zero.