Bailout 7: Cheering on the Road to Destruction

When we think about the economic situation we find ourselves in, it is amazing that so few people had noticed that it was coming. Certainly there were people concerned about sub-prime mortgages, and now and then someone would suggest there was a "housing bubble." People debated whether the stock market was on a long downward trend or just a temporary decline. Many predicted a rosy future as economic skittishness passed on by and people got back to spending more money than they have.

A viral video showed up this week with clips of business news programs in which various analysts discussed the direction of the economy in 2006 and 2007. The theme of these clips was a certain analyst named Peter Schiff who was predicting a severe recession because of the inflated prices of homes and stocks. He said a long and serious recession was about to come. He said to stay away from financial stocks because these companies were not making any money. He said that people would see their assets dissolving as "paper wealth" went back up into thin air. They would respond by stopping their spending and borrowing and starting to save money to make up for the lost paper wealth they thought they had in their overpriced homes. He said it would not be merely a subprime mortgage problem, but most of the housing market would crash, people would default in record numbers, unemployment would soar, and credit would dry up.

All the while, these clips show business reporters recommending people buy stock in Merrill Lynch ("an astonishingly well-run company"), Washington Mutual, Goldman Sachs, and even Bear Stearns. They continually laughed at Peter Schiff's claims that these companies were terrible investments which would soon crash because they have no real earnings.

Well, we don't know if he got everything right about what was coming, but one thing is clear. There were people who could see this crising coming, and there were people wearing rosy tinted glasses who insisted that every day things would gett better and better. Much like the dot.com bubble and crash, they were operating in what seems now to be a kind of hysteria, mutually reinforcing one another's willful ignorance. They were not reporters, but promoters of borrowing and spending, without concern for saving money. It was very poor wishful thinking, and perhaps even for some, a kind of dissembling.