The bail-out bubble will burst…
…because that is what all bubbles do!
At the risk of adding insult to injury (in the wake of Hurricane Sandy), I think the worst is yet to come – and I am not talking about the weather (unprecedented or otherwise).
It is already over a year since I first watched – and then blogged about – the revelatory movie Inside Job. In this movie, Hollywood megastar Matt Damon narrates the story of the 2008 financial meltdown. Since then, I have learnt a great deal from a variety of very knowledgeable bloggers – including Per Kurowski and Patrice Ayme – to whom I remain extremely grateful for their patience in teaching such a minnow in the sphere of economics.
I am afraid I do not really enjoy reading; I think I am a visual learner. I find it much easier to assimilate information from video presentations rather than reading blogs, articles, papers, and books. Thus it is that I find I have learnt more in watching a 45-minute documentary than I have learnt in an entire year of reading the above. Or, perhaps, it may be more accurate to say that the 45-minute video has just pulled it all together.
The video in question is based on the 2009 book Financial Fiasco by historian, Johan Norberg, who is (according to Wikipedia) “devoted to promoting economic globalization and liberal positions [and since 2007] has been a senior fellow at the Cato Institute.” The video, Overdose: The Next Financial Crisis, is – in the words of Norberg himself - “the story of the greatest financial crisis of our time; the one that is on its way.” I first watched the video without knowing who Norberg is and, once I found out, it seemed almost inconceivable that a fellow of the CATO Institute could produce such a devastating critique of his own ideology. For this reason alone, I think it is well worth watching.
With my thanks to the Asia Singapore blog for providing a source of quotations from the video, these are some of the best (in case you missed them and/or are unsure whether to watch it):
“After they did the dot-com bubble and that burst, they re-inflated it with real estate bubble and when that burst, they have created the bubble of all bubbles. It is not only the United States now. This is a global bubble. They are all into it. It is called the bail-out bubble. Hey the economy is going down, recession is setting in, sales don’t look good, exports soft, need more money. How about we call it stimulus package!” (Gerald Celente, Trend Analyst Trends Research Institute)
Low interest rates caused the housing bubble. Cheap loans caused the people to buy more and bigger homes. House prices began to rise 10 percent a year. So many took out a second mortgage to fund consumption… Why do you need a decent income to buy a home if you can get rich by just living in it? The market even coined a term NINA loans. No Income, No Assets. No Problem! You will get a loan anyway… (Norberg)
“There was a huge moral hazard created by the government in the mortgage market. When the government started to guarantee the mortgages, then the lenders stopped worrying about getting their money back, because the government said we guarantee it… The housing bubble that they inflated blew up with all the carnage and all the bankruptcies. And now what is their solution: We’ll just do the same thing we did before… Let’s print money and buy mortgages, let’s buy credit card debts, buy student loans… to get to the same excessive risk taking and gambling on the Wall Street. Let’s try to convince American’s already loaded with huge debt to go and buy new stuff and go into deeper to debt. The banks do not wanna lend them money, let’s make them lend more money. This is economic suicide.” (Peter Schiff, Euro Pacific Capital)
Forewarned is forearmed, as they say, so I would recommend all who are in any doubt to watch the video.