Everybody knows that the 2008 financial crisis was caused by “deregulation” and “greed,” right?
Except that it wasn’t.
A film titled The Bubble offers a non-partisan, critical examination of the policies and events that led to the biggest crash since World War II. Produced by Jimmy Morrison and co-written by Tom Woods, the film features a who’s-who of economic and financial experts including Jim Rogers, Jim Grant, Marc Farber, Doug Casey, Gene Epstein, David Stockman, Robert Murphy and Peter Schiff.
After the New York premiere of the film, Fox Business’ Liz Claman moderated a discussion with Gene Epstein, Jim Grant, Peter Schiff, David Tice, and Tom Woods. They talk about how they knew the crisis was coming and how it applies to today.
A number of people predicted the 2008 meltdown. Morrison said he realized it was important to ask these people what they saw that others didn’t. Claman said the film was “the best encapsulation of what happened, why it happened, but more importantly, who saw it coming and who did not.”
Claman and Peter went to high school together. She describes how they got together in 2005 and Peter spent an hour explaining to her why the financial system was going to completely implode. How did Peter know?
Peter described his interaction with people in the mortgage industry in the early 00’s and explained how the seeds of the crisis were planted then. It was rooted in Greenspan’s policies after the stock market bubble popped in 2000. Peter said had he not dropped interest rates to 1%, that correction would have been a lot bigger.
I could see where it was going. I could see what was happening in the housing market, and I knew that it was distorting the economy in ways that were much greater than the dot-com bubble did, because I knew we were building an entire economy based on home equity and home equity extractions, and people were spending money they didn’t have and buying stuff they couldn’t afford. So, this whole thing was a big bubble, and I could see the way it was being financed. And you know it’s only a matter of time before the whole thing implodes.”
Woods noted that in putting the script together, he thought it was imperative to highlight the mainstream reaction to Peter’s prediction.
We had to have Peter being not just criticized, but literally laughed at. Becuase at that moment, Peter couldn’t realize how awesome that moment is with the future, because these SOBs laughed at you and you were so right. And then almost nobody apologized to you later. I mean, it tells you something about these people.”
This isn’t just a jaunt through the past. What happened during the runup to 2008 has relevance today. The central banks are engaging in the same policies. As Claman put it, “We’ve rebuilt an entire system instead of fixing the cracked foundation.”
Peter explained how the policies that led to the housing bubble are being repeated today. The housing bubble was blown up by Alan Greenspan lowering rates to 1% and leaving them there for a couple of years and then slowing raising them back up.
Now, think about what’s in store for us. Because after that bubble popped, instead of learning their lessons after having blown two bubbles, first in the stock market and then in the real estate market, instead of admitting that they lit the fires that they’re trying to put out, the Federal Reserve didn’t lower rates to 1%, they lowered them to zero. And they left them there for six, seven years. And then they took three more years to get back to two, and they’re already going back down. So, if we created such a big bubble with 1% for a couple of years that resulted in the ’08 financial crisis, what is going to result from this?”