"Nothing like this has ever happened before," said Peter Bernstein to Barron's. "There have been credit crunches and housing crises and dollar crises, but having all the chickens coming home to roost at the same time and interacting with one another is unique. We have historical perspective on the parts, but not the whole, and that makes things both interesting and scary..."
Goldman fell off a cliff Wednesday. The stock sold for $240 last November. Now, you can buy all you want for just $120.
So far this year, the Dow is down 16%. That makes it one of the world's best performing markets! English stocks are down 22%. In Paris, the Bourse is off 27%. Indian stocks are down 33%. But Chinese stocks have lost twice as much - 67%.
Getting back to our "collision of scams," as Peter Bernstein puts it, there are a lot of feathered scams...and they're all coming home to roost at the same time. There's bound to be trouble in the coop.
In from the front yard comes the scam of ever-rising house prices. And it collides head on with the scam of the consumer finance coming from the henhouse roof (that people could borrow from their houses in order to increase spending)...
...that runs into the whole humbug of the consumer economy (that people can get richer by spending money they don't have)...
...that smashes into the flimflam of subprime mortgage lending...
...which bumps into the scam of the financial industry's business model (the masters of the universe claimed to be adding value by "allocating capital efficiently; what they were really doing was merely loading people up with debt)...
...which crashes into the big birds of Wall Street (now going broke)...
...which runs into the fraud of government bailouts (that the feds can put in money that comes out of thin air; in fact, any resources the put in to prop up failing institutions has to be taken from healthy ones...)...
...which creates one heck of a mess when it slams into the dollar and the counterfeit global monetary system since 1971 (in which the supply of paper money is unlimited...and the full faith and credit of the US government is thought to be infinite!)
Bill Bonner
for The Daily Reckoning Australia
P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.
Related Articles:
- Maybe the “Cartoon” House Period is Over
- In Europe, Banks Borrow Money and Lend it Back to the Government
- Economic Crisis Discussions in the House of Lords
- Consumer Prices are Rising at About 10% Per Year
- Phony Choices from a Bogus Profession
About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Comment by Mireille on 20 September 2008:
Here here!
Comment by Nick on 21 September 2008:
The scam of accelerating real estate profits is still alive and well in Dubai and Abu Dhabi. The big question is for how much longer? Real Estate investors in the UAE believe they are insulated from the chaos in global financial markets because of strong capital inflows into the real estate sector, especially from wealthy Middle Eastern and Russian investors. As a consequence, the capital gains are still very strong even though the vast majority of these investments involve property that has not been built yet. In fact, construction of many of the properties has not even started and yet they have been flipped many times already, each time at a significant profit.
Comment by Andy on 22 September 2008:
I may be a little dumb, but-
Is there a chance that these failed institutions will forget who the debtors on thier books are? I mean, if all the employees go, and the furniture is sold up, and the CEO makes off with the rest of it, who is there to make sure the data files dont just leave the building or accidentally get wiped out?
Comment by John on 23 September 2008:
Andy,
That's a very unlikely scenario. When companies file bankruptcy, they are required to liquidate their assets and pay off their creditors, and then the remainder goes to the shareholders. The outstanding loans that they have with their debots are an asset on their books, so they are legally required to take these assets and sell them or auction them. This will, in turn, simply transfer the liability that people have with the institution that is going bankrupt to another institution that purchases the assets (probably at a discount, but it doesn't change how much the people owe). Hope that clears it up!
Comment by Charles Norville on 12 November 2008:
The stock market reminds me of a day at the races where people win and loose just for the thrill of winning a fortune - housing as an example should be out of the bull market thing and be fully industrialised ie factories making prefab houses and exporting the surplus. Aus has no excuse neither do most countries because materials for prefab can be fashioned to suit the availability of material types in any country. Actually commercial pefab is the only way to go residential is easier. It is pathetic to pander to the cost of brick and mortar as being functionally economical.
Comment by Oliver on 10 November 2010:
I agree for the most part however all that being said when there is demand for housing which there is and a lack of supply which we know there, is its safe to assume that over time prices will go up as they always have.
Comment by Biker on 10 November 2010:
Since his piece was written almost exactly two years ago, Chuck has registered a company and built several thousand prefabricated homes in two states. When no-one picked up on his excellent suggestion, he decided to position his assets right under his nose and do it himself. "I'm putting my money where my mouth is... " he noted, after the completion of his first prefabricated cardboard house. Because his motives were entirely altruistic, his construction company operates as a non-profit organisation.
Charles has been nominated as a Local Hero by the Voluntarily Homeless Association of Victoria.
And, yes, you're correct, Oliver. "...it's safe to assume that over time prices will go up as they always have... " One couldn't ask for more.