According to this comment over at Calculated Risk, they were charging $17,500 just for the permits to build a house out in an unnamed small city in California. If a new home sold for $200,000 the permit costs would still make up almost 10% of the cost. And that does not count the cost of the labor necessary to obtain those permits (I don’t mean building to code, I mean filling out all the paperwork). Nor does this count all the other tax’s that the builders pay, including a capital gains tax if applicable.

It must be admitted that most new houses in California sell for far more then $200,000. In fact, I would be surprised to hear of new house in California that did not sell for at least $400,000. So permit costs are a far smaller as percentage of total cost then the above example makes it seem.

But the fact that the government puts up such high barriers to entry means that you will never see a builder make a cheap house.

I have my share of disagreements with Martin Hutchinson. For one thing, I don’t share his fondness for the gold standard. But I do share his convection that the recent fed action was fundamentally unjust.

The Fed cut made me furious, but this made me smile. So did this.

h/t Yves Smith

Felix Salmon thinks that the fact that Goldman Sachs is bailing out one of their own hedge funds to the tune of 3 billion dollars (admittedly, only about 2 billion of that was their own money) is a sign that smart money smells an opportunity. Is he right?

I will grant you that Goldman Sachs fits the definition of smart money. But I have to wonder if it is wise to take their pronouncement that “We are investing not because we have to, but because we want to” at face value. As this article in the Economist points out…

This makes sense. After all, prime brokers provide the finance that allows hedge funds to gear up their returns and lend them the stocks so they can sell individual shares short (ie, gamble that their prices will fall). And monitoring is made all the easier because three investment banks—Goldman Sachs, Morgan Stanley and Bear Stearns—dominate prime brokerage. The trio act as brokers for about 60% of hedge-fund assets.

But this is where the paradox appears. Hedge funds are supposed to be dispersing risk. But if their chief financiers are just three Wall Street banks, is this dispersion more apparent than real? Could banks have shown risk out of the front door by selling loans, only to let it return through the back door of prime broking? Take credit insurance. Banks that own corporate bonds may use the swaps market to hedge against a company defaulting. But if the other side of the swap is taken by a hedge fund whose finances are dependent on loans from that same bank, has risk really been transferred?

Maybe I am being too cynical, but it seems to me that Goldman Sachs has every incentive to make sure this system keeps working. Goldman could easily survive the fallout if its alpha fund went down. But could they survive the fallout of all the quant funds going down? At the rate losses were occurring (Alpha fund was down 13 percent in one week) they might have figured that they had to do whatever it took to stop the rot.