Why the Meltdown Should Have Surprised No One - Peter Schiff - Mises Institute

Why the Meltdown Should Have Surprised No One - Peter Schiff - Mises Institute: "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 the entire country of New Zealand; every stock they had, all the real estate.

I'd say, 'What would you rather own, this entire country?' The dividend yield on the New Zealand stock market was over a billion dollars a year. That was the dividend yield. Yet Yahoo was trading for more than twice the value of that whole stock market.

I said, "What would you rather own, this company that just got started a couple years ago, or this whole country? And you could take all the dividends." No. No one cared; they wanted Yahoo. But it was just all nonsense, but nobody saw it.

Of course, after the Internet bubble burst, everybody was talking about how crazy it was."

"President Bush, in one of his speeches, said that Wall Street got drunk. And he was right, they were drunk. So was Main Street. The whole country was drunk. But what he doesn't point out is, where'd they get the alcohol? Why were they drunk?

Obviously, Greenspan poured the alcohol, the Fed got everybody drunk, and the government helped out with their moral hazards, and the tax codes, and all the incentives and disincentives they put in — all the various ways that they interfered with the free market and removed the necessary balances that would have existed, that would have kept all this from happening.

We've always had greedy people. Everybody's been greedy, not just Wall Street. But all of a sudden everybody was greedy all at the same time? Can't they understand there's a trigger for this, there's a reason that everybody acted this way?

Normally, when people are greedy, they're also fearful of loss, and people's fear of loss overcomes their greed and checks their behavior. But what the government did, repeatedly, was try to remove the fear — they tried to make speculating as riskless as possible."

"People do a lot of research before they buy a plasma TV, but nobody does any research before they put their money in the bank. No one cares. Who could care? Because the government has created a moral hazard by guaranteeing the accounts.

If the government didn't guarantee bank accounts, then banks would not be doing foolish things with our deposits. Because people would care, because people could know, gee, if you make loans and they don't get paid back, I'm going to lose my money.

So banks would not just compete on how much interest they'd pay, but they would compete on how safe their balance sheets are."

"If somehow we can all have like a little machine that we could just push little buttons and whatever we wanted would magically appear, right, nobody would have to work. And the government, of course, would try to outlaw those gadgets, because it would create a lot of unemployment. But who would care? We wouldn't need employment, we would have everything we want.

So, we work because we want stuff, not because we want to work. So just to preserve jobs doesn't make any sense if they're not productive, if they're not efficient."

"And when I talk about letting General Motors go bankrupt — and I, of course, I was predicting that they would go bankrupt five or six years ago. I knew they couldn't survive.

But, if we let them go bankrupt, does that mean it's an end to the automobile industry? Does that mean that all those plants in Detroit or in the Detroit area are just going to sit idle? That all those skilled workers are just going to sit there and nobody is going to try to hire them? Of course not.

What would happen if we let General Motors go bankrupt is that some entrepreneurs would step up and buy up the assets at a bankruptcy, and they would no longer be encumbered with big labor union contracts or health care obligations or interest on debt. They would be able to buy the assets without the liabilities and organize them in such a way to make cars profitably.

Now, in order to do that, they would probably have to pay their workers a lot less than the workers are being paid now, but at least they'd be working for companies that made cars profitably. And we'd probably end up with a lot more people working in the automobile industry than we have today.

And, the fact of the matter is, rather than making cars for Americans, we should be making cars to export, because Americans, we don't really need any cars. We have too many cars. We have, what, two or three cars per household at this point."

"So what do we need? We need the government to eliminate the deficit and go to a surplus. We need the government to stop spending money and depleting our savings. We need consumers to stop spending money and rebuild their savings. We need a recession. We need it. We need one badly.

And what the government has to do is fess up and let us know, yes, this is the price we pay for years of indulgence and reckless spending; now comes the sacrifice, now comes the penance, we're going to have to take this recession. And there's nothing the government can do about it.

The only thing the government can do about it is to acknowledge to the American public that the government is a burden on the economy. And in good times, maybe we can tolerate that burden, but in bad times, there's no way."