Money Goes Where It Is Treated Best
Money goes where it is treated best
I am currently reading Why Nations Fail: The Origins of Power, Prosperity, and Poverty, a book by two economists Daron Acemoglu and James A. Robinson.
The authors, referencing many years of research and a vast number of examples, explain why some countries succeed and others fail – and even when the same countries succeed at certain points in history and fail at others.
It starts with a description of Nogales, Arizona and Nogales, Sonara. Nogales was a town that was cut in half by the Mexican/American border. There is a startling difference in living standards on either side of the wall, even though they had the same start on the same land with the same people and culture.
Wiki reviews Why Nations Fail:
“Countries that have managed to achieve a high level of well-being have demonstrated stable high rates of economic growth for a long time: this state of the economy is called sustainable development. It is accompanied by a constant change and improvement of technologies — a process called scientific and technological progress. In search of the reasons why in some countries we observe this phenomenon, while others seem to have frozen in time, the authors come to the conclusion that for scientific and technological progress it is necessary to protect the property rights of wide strata of society and the ability to receive income from their enterprises and innovations (including from patents for inventions).”
Property Rights
It’s not hard to understand that property rights are the foundation of civilization. Being an owner and having some skin in the game is something every two-year-old can comprehend. Owners invest in the future and build their holdings. Renters have parties and rip out the walls.
Which brings us to Kevin O’leary who you might know from the Shark Tank TV show. I actually interviewed Mr. O’leary a few years ago and found him to be smart, well spoken and charismatic.
O’Leary did an interview the other week saying that he wouldn’t buy another building in New York, nor would he invest there. He went on to say that other entrepreneurs he knew would no longer invest in NYC.
His point was that it is a builder’s job to hold a spotlight on a building and say this is valuable. For example he might say that the building is worth $400 million. It is the bank’s job to do due diligence and come back saying that the building is only worth $300 million and adjust their loan accordingly.
It’s called haggling, and it is how price discovery happens.
Lawfare
Recently Donald Trump was found guilty of misrepresenting the value of his building. The court said that he was guilty of fraud and must pay a $350 million fine and be banned from doing business in New York. It’s a ludicrous judgment. The value of an asset is worth what someone will pay for it which must be haggled over.
In essence, the court decided that the normal way of doing business was fraud. People scoff and laugh at Trump, and that’s fine – but this is much bigger than this year’s idiot politicians. It is about the foundation of civilization.
I remember as a boy I heard about the idea of a 30-year loan. I thought it was preposterous. After all, I might not even be alive in 30 years. The house could burn down. The bank might go belly up. But that type of loan happens all the time, and then they are bundled and traded and all the rest of it. It only works because all parties believe that they are protected by hundreds of years of case law – property law.
It’s not just me or O’Leary pointing out the dangers here. Real estate mogul Grant Cardone of Cardone Capital is bailing on New York. He has said, “We invest for 14,000 investors at Cardone Capital that depend on cash flow. And if I can’t predict the cash flow because of some ruling, or because of the migrants, or because I can’t evict people, New York City just keeps doing every single thing they can to sell real estate in Florida, not sell real estate in New York.”
Systems of governments only last for so long. When the trust is gone it is almost impossible to reestablish. Bit by bit our leaders are chipping away at the foundation that supports the entire edifice.
All the best,
Christian DeHaemer
hammer@protradertoday.com
Pro Trader Today