As I have noted elsewhere (and many other elsewheres too), I started blowing the whistle on the real estate bubble in December 2005. The market was too hot, there was obvious fraud, mortgage rates were going up, etc. I didn't know when the bubble would pop because I had not yet identified the forces driving it, but I figured it had to be soon, say in the next year or so. Frankly it should have, and I guess I'll relate that tale whilst I am at it.
Thanksgiving 2006 Wells Fargo and JP Morgan Chase froze a pile of business lines of credit and converted them to straight loans with 60-month amortizations. When I contacted Chase, not one but two EVP/AGCs informed me Chase had done this pursuant to a clause in the LOC agreement that had been fully disclosed. While the clause did exist, the allegation it had been in any way disclosed was patently false. I then knew something strange was going on, but I did not yet know what. It took me awhile to dig up the puzzle pieces and fit them together. What was happening was that the levels of fraud in the mortgage market had become so obvious it was no longer politically feasible to continue ignoring them, and so the regulators had been awakened from their previously mandated slumbers and were now on the move. Wells, Chase, Goldman Sachs, and all the other players needed to spread some chicken feed to keep the regulators distracted while they got on with the business of lining up a nice collection of marks (AIG, Bear Stearns, Lehman Bros., pension funds, and mortal schmucks who believed the rating agencies were playing a straight game) to take the garbage off their books. The regulators pounced on the chicken feed in Spring 2007, which gave the players enough time to keep playing. And then in 2008 everything conveniently hit the fan. Wells got a seat at the big-boy table via taking over Wachovia, Chase got a new lease on life via its sandbag takeover of Washington Mutual and its sweetheart takeover of Bear (I imagine Barclays wishes it had gotten a deal like that for Lehman,), those with cash (And in spite of, or more likely because of, all the illiquidity, certain players had piles of cash.) snapped up piles of assets on the cheap (Because after all the purpose of bubbles is to pop them to allow further asset concentration in the hands of Those Who Matter.), and we hit the reset button for the next bubble. So the evidence indicates the bubble pop was delayed by over a year to protect certain players that had created the bubble in the first place.
Anyway. In the middle of all this, August 2006 to be precise, Peter Schiff concluded the real estate party was over and things were heading down. In December he noted the market had peaked the prior December (Now when was it again that I called my shot?) and would crash in 2007. It's apparent he was just looking at market fundamentals (as was I) and thought the market would behave according to those fundamentals (as did I), having no real knowledge of the market manipulation going on that would stall the inevitable for over a year (knowledge I did not have either). But unlike me, Schiff became a major talking head and got lots of influence and money. But I'm not bitter. At least not much. Because I can point to Schiff as an example of how even a broken clock is right twice a day.
Because since then he has a record of being spectacularly wrong. He thinks Medicare should be slashed, demonstrating a fundamental ignorance of how Medicare works, how it could work if expanded, and how it would be better than our current system of no one seeking medical care and when they do they have to file bankruptcy. He thinks we should replace the current income tax system with either a sales tax (which would be regressive and hit hardest those least able to afford it) or a flat tax (which would be little better). And in a doozy of pretzel logic, the US went from being a creditor nation to a debtor nation in the 1970s because people stopped saving. Yes, that must be it. Let's ignore the October 1973 OPEC embargo that ended the US's energy price advantage that had kept its products competitive around the world. Let's ignore the resulting recession that destroyed millions of jobs. Let's ignore that most people had no options allowing them to adapt to this new normal because our entire society was based on urban sprawl and the automobile. Let's ignore that productivity kept increasing, but instead of any of that gain going to wages, it was all syphoned off to pad corporate profits. Let's ignore that in spite of the recession, expenses were still going up even though wages weren't. Let's ignore that families had to get second, third, and fourth incomes to try and make ends meet. Let's ignore that that didn't work any better then than it does now. And let's ignore that people stopped saving simply because there was nothing left over to save. Schiff's positions are designed to keep moving public and private money from all of us to the 1%. He ought to change his name from "Schiff" to "Shill".
But he must be getting desperate, because with his latest move, he has outdone himself. He has teamed up with none other than Jim Rickards. I've noted the credibility, or lack of same, of Rickards's "financial advice" elsewhere. Now they've partnered up and doubled down. And what they're selling is no better than ever. As I've said more times than I care to count, just because you've seen somebody on TV or YouTube doesn't mean you should listen to them.
Labels: 1%, bankruptcy, Bear Stearns, decline, fraud, Goldman Sachs, JP Morgan Chase, Lehman Brothers, Wachovia, Washington Mutual, Wells Fargo
