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"...At last! A singular name for the
financial/banking/credit/mortgage crisis/meltdown/depression/deflation..."
SO SUDDENLY EVERYONE'S NOTICED what a handful of nutty doomsters said about the
financial crisis, long before it broke.
The end of the bubble was inevitable. Only the timing was ever in
doubt.
From the Wall Street Journal's 2009 guide to the crisis starting two years ago...to new BBC drama, set "when the bubble was yet to
burst"...it doesn't matter. Whatever you want to call this on-going
crisis (and the Great Depression didn't
get its name until perhaps 1934), it was plain to see ahead of Bear Stearns'
collapse and the Lehman's failure.
Those who missed it all nod in agreement today. And here at BullionVault, we flatter
ourselves that, once or twice, we somehow managed to spy it looming before us
as well.
"One day there will be an uncontained financial accident. Within
hours credit facilities will be withdrawn, and there will be forced
derivative position liquidations at organizations around the world. Modern
derivatives will be the brokers’ loans of 1929, resulting in margin
calls, liquidations, the evaporation of confidence, spectacular losses, a
credit squeeze and financial chaos. The liquidations of assorted off-balance
sheet positions will cause the realization of big losses in many highly
geared positions. This will in turn cause dramatic re-ratings of the
creditworthiness of many borrowers..."
– Dead Cats & Live Rabbits, summer 2004
"Nothing will stop the markets rediscovering risk in 2007, we
guess...And the search for yield, when it blows up, will become a scramble
for settlement, a rush into anything offering simple ownership over
complexity, real value instead of gearing. If that sounds a little like gold
to you, you might be advised to pick up some more at today's fire-sale
prices..."
– Quantum Finance & the Scramble
for Gold, 22 December 2006
"Once everyone gets back from vacation and starts to focus on
what's really going on, we may be in for a torrid few months in the financial
markets. I believe the current lull in gold prices could offer a good
opportunity to defend yourself before the real trouble begins..."
– Email to BullionVault users, 25 August 2007
Of course, "Like most predictions these particularly wild ones
[were] almost certainly wrong" as BullionVault director Paul Tustain wrote some five years ago.
Because even as we dared hazard them, these stabs at what the coming crisis
would look like remained mere guesswork. Albeit guesswork built on the
history of how all bubbles end, with the inevitable hilarious consequences
for over-geared debtors and speculators.
Regardless of our attempts to judge what's now been upon us for almost
24 months, however, investors and savers – let alone central banks and
their financial watchdogs – really should have paid closer attention to
what respected, sober economists were also saying way back when.
"As far back as 2003," reports Germany's weekly Spiegel, William White – then chief economist at the
Bank for International Settlements (BIS) in Basel, Switzerland –
"implored central bankers to rethink their strategies, noting that
instability in the financial markets had triggered inflation and become the
new 'villain' in the global economy."
Come 2005, even the bubble-blowers themselves could see what was
coming. The Mortgage Insurance Companies of America (MICA), a trade body for
US mortgage providers, wrote to the Fed on 23 September that year to say it was "very
concerned". (The FDIC also received the letter, but seems to have filed
it under "mosrgagce" rather than "mortgage".)
At the same time, veteran banking analyst Richard Bove at Punk, Ziegel
& Co. in New York sent clients a report that deemed the inevitable blow
up so inevitable, it was titled "This Powder Keg Is Going to Blow". In it, Bove stated that America's
"nuclear mortgages" had no secondary market once they'd been dumped
– like so much Investment Landfill – into institutional and banking portfolios.
"One hopes it will not require a disorderly unwinding of current
excesses to prove convincingly that we have indeed been on a dangerous
path," said White of the BIS in 2006. But too late! The dangerous path
had led right to the top of the cliff, only to crumble away behind us. That's
what made it so dangerous – the fact it would inevitably lead to an
inevitable plunge.
Economists, policy-makers, newspaper editors and TV critics who didn't
even know there was trouble two years ago are now queuing up to agree. So in
lieu of a better name, how about precisely that – the Great Inevitable.
It couldn't be avoided. Not with cheap money, PhD finance and
government-mandated cuts in lending standards all stoking the furnace that
kept credit growth boiling.
Only the first of those three is still at work today, so the next
crisis may well look different at first. The other two are on sabbatical
only, however, rather than permanent leave. The outcome when they return is
sure to be ugly once more.
Adrian
Ash
Head
of Research
Bullionvault.com
Also
by Adrian Ash
City correspondent for The Daily Reckoning in London, Adrian Ash is
head of research at BullionVault.com – giving you direct access to investment
gold, vaulted in Zurich, on $3 spreads and 0.8% dealing fees.
Please Note: This article is to inform your thinking, not lead
it. Only you can decide the best place for your money, and any decision you
make will put your money at risk. Information or data included here may have
already been overtaken by events – and must be verified elsewhere
– should you choose to act on it.
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