|I'm not sure to apologize for what to some might seem like a bombardment here recently but I felt this too good not to share for its simplicity and clarity. The below is a transcript of a speech so is read in that form. I think it is a good summary for what went wrong and why US policy choices are going to make things worse. I wish it weren't so.
Why the Meltdown Should Have Surprised No One
Mises Daily by Peter Schiff | Posted on 6/12/2009 12:00:00 AM
[Henry Hazlitt Memorial Lecture, Austrian Scholars Conference, March 13, 2009. An MP3 audio version of this lecture is available for download. You can also watch the video. Transcript provided by Jennifer Lewis.]
Introduction by Joseph Salerno
It is my great and distinct pleasure to introduce the Henry Hazlitt Lecturer, Peter Schiff.
Schiff, president of Euro Pacific Capital, is familiar to everyone who has watched financial coverage in the last year. He is famed for being the most vocal financial economist to have perfectly predicted the crash.
He also happens to be a dedicated student of the Austrian school. He is the author of the prophetic Crash Proof and, most recently, The Little Book of Bull Moves in Bear Markets.
Whenever he speaks about finance and economics, he also seeks to teach sound economic theory, writing for publications such as the New York Times and the Washington Post. Today he will speak on the relationship between theory and practice in financial markets. Peter Schiff.
I just looked at the topic for my speech about thirty seconds ago before I walked in the door. But apparently I'm talking about why is it that people didn't see this coming, or should people have known that this meltdown was coming.
I don't know. Is there anyone in this room that was surprised by the economic meltdown? Does anybody think it's over? Anybody? Raise your hand if you think it's over.
And does anybody think that the government solutions are going to work or that they're going to help? Is there anybody? One. All right. So, I guess there's really no reason for me to speak here. I don't know that I'm going to tell anybody anything they don't know. But, if you want to indulge me, I guess I could talk about it a little bit anyway.
But I don't know why so few people seem to understand what was going to happen. I guess when you're living inside a bubble, it's very difficult to actually see what's going on, from your point. But I lived through two of them, because I'm a stockbroker. I lived through the NASDAQ bubble.
And to me, at that point in time, it seemed pretty obvious what was going on, in 1997, '98, '99. It seemed obvious to me that these companies that people were touting couldn't possibly be worth the prices that people were paying. Yet nobody seemed to be able to figure that out back then.
Everybody seemed to be living in this new era, and the Internet had captured everybody's imagination. To me, I couldn't see the difference between the Internet, really, and a catalog or a telephone.
People were saying that everybody's going to buy everything on the Internet. Why? Why aren't people just shopping by telephone? Or why aren't they just buying everything in a Spiegel catalog? It didn't seem that it was any different.
And I knew that the valuations they were putting on a lot of these companies, I knew they'd come out with a company, maybe it'd be Doorknobs.com, or whatever it was.
And you'd say, "Well, gee, even if they sold every doorknob in the world, they couldn't possibly be worth the multiples that they're trading at." And of course they didn't even make any money selling them.
And the whole idea behind so much of the e-commerce was just nonsense. The idea that it was more cost effective to individually FedEx items to people, as opposed to letting them show up and buy them and put them in their cars and leave. There's no way.
There are certain items that lend themselves to online sales, but most items didn't, but it didn't matter. Everybody was going public.
And people were getting rich, but none of the people were getting rich because the businesses were successful. The people were getting rich because suckers were buying their stock.
The guy that started eToys lived in my apartment building in downtown Los Angeles. And I started my company, Euro Pacific Capital, about the same time he started his. He made a lot more money than I did, but he didn't make a profit.
He never made a profit. But he made a lot of money because he found people to buy into his idea. And at one point, eToys was worth more than Toys "R" Us.
I remember when I was trying to get clients, back when I was starting out at Euro Pacific Capital, and I was trying to get people to buy foreign stocks.
And I remember one country I was active in was New Zealand, and I remember trying to convince people who owned shares of stocks, like Yahoo, why they should sell their Yahoo and buy a stock in New Zealand.
I would point out that Yahoo was worth twice