Forecasting the Crash
Sep 19th, 2008 | By Lord William Rees-Mogg | Category: Stock Market InvestingOver the past few days we’ve seen some pretty scary stuff. The prevailing emotion in the markets seems to be uncertainty and fear. Stocks have gone down, the dollar has followed. We’ve also seen oil tick up with gold shooting like a rocket. Who could have seen any of this coming?
In 1987, which is now more than twenty years ago, I published a book with James Dale Davidson. Some people still remember it for its title, Blood in the Streets, taken from a remark of Nathan Rothschild in 1815, at the time of Napoleon’s hundred-day gamble that ended in his defeat at Waterloo. “The time to buy,” said Rothschild, “is when blood is running in the streets.” The book arose out of our commentary in Strategic Investment.
The book attracted a good deal of attention at the time because it forecast the 1987 crash, which is still the largest fall in one day’s trading on Wall Street. I was in New York when the 1987 crash occurred. I remember an Australian broker observing that he had fought in a foxhole in Vietnam and that he found the 1987 crash more frightening.
Certainly we are experiencing a time of panic now, but there have been panics before. Some of them, like 1987, have had a benign outcome, with a recovery in the months following the panic. James Davidson and I did not forecast the post-1987 recovery; we expected a recession. The recession of the early 1990s duly came, but it was only a recession, not a crash. Even the ending of the dotcom bubble in 2000 did not produce a crash and certainly did not produce a depression.
The collapse of the U.S. housing and mortgage bubble has proved much more worrying and has already destroyed the independence of Bear Stearns, Merrill Lynch (NYSE:MER), A.I.G. (NYSE:AIG), Lehman Bros (NYSE:LEH), Fannie Mae (NYSE:FNM), Freddie Mac (NYSE:FRE), and, in London, Northern Rock and HBOS, with various levels of loss for the shareholders.
When we were writing Blood in the Streets, we did foresee the significance of the housing market. There is a section, in the book titled The Coming Real Estate Crash. Indeed we were able to identify in 1987 several of the weaknesses of the world’s political economy. It is not much help forecasting a crash twenty years ahead of its happening, but there are elements in the analysis we then made which turned out to be valid when the crash occurred. The 2008 crash comes as a natural consequence of long-term systemic failures.
Blood in the Streets was written fourteen years before 9/11. We did specifically refer to the threat to the twin towers in a subsequent book, The Sovereign Citizen. There is also a paragraph in Blood in the Streets in which I think we can take some legitimate pride:
“No V-day over terrorism. Disorder today is far more threatening because of the collapsing scale. As the margins of American power recede at the periphery, the raw power of these groups rises. So does their ability to disrupt arrangements they do not like. They cannot be stopped, as World War II was stopped, by forcing the surrender of a large-scale network of command. There is no single chain of command that has the authority to stop terrorism. Nor can anyone negotiate a compromise to meet demands of many of the small groups now wielding military force.”
We did foresee the significance of real estate and terrorism as factors that might undermine the stability of global finance. We also expressed concern about the reliability of the interbank market. “The danger of rapid deflation is more acute than it was in 1929. Why? Look no further than the geometric growth of the $700 billion interbank lending market. Each day U.S. banks are involved in interlocking transactions that total as much as $700 billion. This is the banking equivalent of having hundreds of trapeze artists swinging through the air — to what everyone hopes will be a safe landing. If even one bank failed to make good on its commitments, the whole criss-crossing show could come tumbling to the ground. This means that a liquidity crisis and a loss of confidence could contract credit almost instantly — on a far wider reach than in the past.” That is a fair description of what has been happening in the last thirteen months.
We correctly foresaw the bail-out of weakened banks, and the losses for their shareholders. “Remember that a bail-out of the banking system, which the authorities will surely attempt in the event of a debt collapse, does not necessarily mean a bail-out of bank holding companies or shareholders. Depending upon the political climate and administration at the time the music stops, there might even be a de facto nationalisation of major American banks — an outcome less far-fetched than it might seem. In a time of crisis, the government may be the only entity large enough to save the vulnerable banks.” Only the Federal Government was big enough to rescue A.I.G.
The U.S. real estate market, terrorism, debt, interbank lending and nationalisation of U.S. banks have all figured in the development of the present crisis. We did not get every issue right, but we did identify in 1987 the underlying insecurity of the global financial system. What we failed to foresee was the timing of the crisis. We saw its vulnerability, and pointed accurately to its weaknesses, but we did not see that so unstable a system could survive for twenty years of rapid economic and technological change. Will the Central Banks now be able to restore confidence after the events of last week? It will be some months, perhaps years, before we know the answer to that question.
Regards,
Lord William Rees-Mogg
Source: Forecasting the Crash
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Lord William Rees-Mogg is the former editor of The Times and is a member of the British House of Lords. He has been credited with accurately forecasting glasnost, the fall of the Berlin Wall and the 1987 market crash. His often controversial insights can be found in the UK edition of Capital & Crisis and Strategic Investment in the US.
Lord William,
NO. The Central Banks are NOT able to restore confidence, of course, as they are (virtually) all part of one Global Central Banking System – responsible for this mess, in the first place. So, people, actually, need to LOSE confidence in them, not gain more of it in them! THAT was the initial mistake. Central Bankers are operating, according to their own narrow agendae in serving globalist corporatism.
The price of gold has been artificially kept low, and will rise, now, along with the other major global commodities, including oil and silver. The name of the game now, is SECESSION: for smaller regional entitites: states and provinces to wrench away power from the corporate fascist machinery power mongers to handle their own mini macroeconomies, in order to protect their freedoms, rights, dignity and economies, which would, otherwise, be destroyed if still left under the flagrant detrimental policy-makers of these global monetary authorities. Such have a definite purpose of bringing the middle class to their knees, so they will consent virtually unanimously to accept socialism in lieu of the democracy we enjoy in our advanced captialist economies. They want for the rich to get richer, and the poor to get poorer, and even, now, to force the bourgeousie down to a welfare class, as we are seeing, they are purposely doing throughout America! Just look at 'natural' disasters, which are anything but natural,as the U.S. had full weather modification since 1962. Look at the rise in martial law training America-wide; look at the communist/fascist tide, where all the necessary elements are being implemented to crush democracy and replace it with communism, backed by martial law (fascism). The Fed, Bankers, Mortgage Companies and Realtors all ADVOCATED people buying homes in America with no money down, not having the necessary income to pay for their mortgages, to then turn to home equity loans (and with all the refinancing of peoples' homes once, twice, thrice, the bubble was getting bigger and bigger and was bound to go bust)! Same thing with the banks and credit card companies, with all the offers, at high interest, but none of them bothered to educate consumers what that would take to repay. It was and still is all a stealth plan to indebt all American consumers and citizens, so they can blame it on the people, then bring them to their knees, having them CRAVE for the COMMUNISM they have been seeking to bring about the past 100 years to America! http://www.youtube.com/watch?v=QKfBnXFSKHk
So, YES. This was all predictable. Especially, when you see what Greenspan was writing about and deeply understood before he became Fed Chairman, concerning money, gold, and the economy; and then his about-face on his own poignant understanding when he sold his soul to become the Fed's Maestro, it is blatantly clear he did not have the people in mind. He went, lock, stock and barrel against ALL HIS OWN WISE COUNSEL – something he understood to the core. Which means, he was both chosen and commissioned to do JUST THE OPPOSITE to bring about JUST WHAT HAPPENED….
I refer you to my article on this and will look forward to your response: http://www.members.agoracosmopolitan.com/member/9...
Sincerely & Charismatically Yours,
Angelina Lazar
Defender of Human Rights & Peacemaker
Economist & Oxford Global Trade Expert
Precious Commodities & FOREX Trader
Special Emissary: Gold Bullion & Currencies
Read your article. Very interesting observation you make:
"Voila! This is why America is experiencing all this capital flight, the expatriation of its wealthiest and most brilliant citizens, coupled with a withdrawal and diversification of foreign direct investment (FDI) to a startling degree – none of which is mentioned in the mainstream media, and of which people, are, therefore, unaware of…"
I left the U.S. three years ago, and I can't tell you how many friends and associates are now considering moving as well. This was touched on in an article on this site, the concept of an "American Brain Drain" that is not covered in any major media:
Exodus of Americans Will Lead to Costly Brain Dra…