Date: 2024-12-21 Page is: DBtxt003.php txt00016298
History / The Financial Crisis of 2008
Does anyone really know what happened!
“I’ve never seen Bill Bonner get that angry” ... In fact, the Fed came in with money that had not existed before and bought bonds.
Peter Burgess
Editor's Note: Today, something a bit different for Diary readers. Recently, Bill attended an invitation-only meeting at our nation’s capital. Dan Denning, Bill’s right-hand man on The Bill Bonner Letter, was also in attendance. The stated purpose: Discuss the coming financial crisis and how America can prepare.
But by the time dinner came around, things had gotten “weird.” So weird, that our editor was as angry as Dan has ever seen him…
Read on below as the two discuss where this crowd of Washington elite went wrong… and what it could mean for the money in your wallet…
“I’ve Never Seen Bill Bonner Get That Angry”
With Bill Bonner and Dan Denning, Bonner & Partners
Dan Denning: Bill… recently, you and I found ourselves in the same place at the same time, at a very unusual gathering in our nation’s capital, about two blocks from the White House.
For our readers, what were we doing there?
Bill Bonner: What were we doing there? I asked myself the same question when we were there.
This is a group that I’ve been connected with for a very long time. They are insiders. They’re movers and shakers. They’re the elite. That was an elite place we were in, and they know how the government works.
They also have something else, which is why I’m a member of that group. They are skeptical about the use of government power, especially in foreign affairs.
So, that’s why I participate… because I find I’m with a group of people who share many of my ideas.
What was interesting about that night was that I found they don’t share many of them…
Dan: Let’s give people some context about what happened. There were two parts to the evening. The first part of the evening was a presentation by a colleague of ours who was diagnosing what had gone on with the global financial system since 2008.
But the conclusion of the group last night, and I believe the conclusion that you stated when we later retired privately to dinner, was that there was almost guaranteed to be another financial crisis and that it would be as bad or worse than the crisis we had in 2008.
And then it got weird.
Bill: Yes, it got weird…
Dan: That’s because there were two sets of solutions. And that made you angry.
Bill: Yes, but let’s backtrack first. The idea on the table was that there was collusion between Wall Street and the regulators that resulted in a huge subsidy from the U.S. to the financial industry.
In fact, the Fed came in with money that had not existed before and bought bonds. The money that they used to buy the bonds then flowed into the financial sector because, who had those bonds? It wasn’t mom-and-pop companies. It wasn’t the guy who worked in the factory on the assembly line. It was big banks that owned those U.S. bonds.
So, the government came in with $4 trillion and bought bonds. That $4 trillion went into, essentially, the capital markets, the asset markets, and it bid up prices so that everybody who had any assets got rich… and they got really rich because the Dow tripled.
The speaker was pointing out how these things were colluded. It wasn’t just by chance. It wasn’t an accident that the people making the decisions to do the bailouts were also the same people who were going to benefit from the bailouts. And, in fact, they did. Dan: Right. That was the conclusion the group came to. But the solution the group provided made you angry. Bill: Well, to me, the crowd’s analysis was just too shallow. These were people in Washington. They had spent their whole lives in Washington, and they could think of no solution other than to do things differently by Washington. Dan, you and I were sitting there thinking, there’s no way. This is not going to work because the elite run these programs and as long as these programs are allowed to run, allowed to grow, allowed to metastasize the way they do, there’s no question that anybody who reforms them is going to be one of the elite… they’re going to do it for the same reason that they do now. So, there’s no hope of actually changing the structure or the outcome by diddling the details. I mean, none of these guys could imagine a solution which was not public policy. Dan: Let me say this, and I’m going say it directly, this is the angriest I’ve ever seen Bill Bonner. I mean, you became the antagonist at the meeting. You leaned forward. You had both hands on the table, like you do now, and I’ve never seen you quite that perturbed at someone’s argument… Bill: I did regret getting that angry because, when you’re angry, you can’t make your point very well. I remember exploding in sarcasm at the guy across from me because he was such a know-it-all. His solution was that we have to regulate better. That was the solution. But just a minute before that, he said that regulators are always captured by the industries they regulate. Well, he’s right about that. They always are. Regulators are always captured by the industries they regulate and then they’re used. They are used to provide a moat, to protect the industry from competition. As Thomas Jefferson said, governments always become corrupt over time. Then, the only thing you can do is limit the size of government. The government that governs least, governs best. Dan: The point that we would’ve made, had we been permitted or had fewer glasses of wine, was the solution is not better public policy. The solution is not better regulation. The solution is not additional legislation. Bill: Well, the idea that the real solution is to have less public policy is not something they could have imagined as possible. But in fact, the problem now, the immediate problem, is that there’s not enough money. The government has made promises. The corporations have made promises that are in the form of debt, and we have more debt now than we’ve ever had before. This debt has to be paid. That’s a promise. The problem with that is they would say, “Oh, well, we’re gonna grow our way out.” But that’s a mathematical impossibility. The debt is growing much faster than output and there’s no plausible reason to think that’s going to change because now, it’s getting worse. We have more and more people retiring. So, in the big picture, it’s real output that makes it possible to honor promises. That comes from real work of the real economy, which is based upon individual citizens like you, me, and everybody else working hard, trying to earn some money. The government intrudes on that… the government is not a wealth producer. It’s a wealth destroyer. The government does not create wealth, it destroys, limits, and eats up wealth. That’s really the heart of the matter. Dan: Just to back that up… this is something I dug up. The Congressional Budget Office [CBO] said that, on the current track, the annual deficits would be $2 trillion a year by 2038. Bill: That’s not going to happen… That $2 trillion deficit is going to come in 2019, 2020, or 2021, when the next crisis arrives. That’s because, when it arrives, the government – the same people who think that there’s only one solution that is more policy, more spending, more programs – is going come up with all kinds of stuff to try to improve the situation… and we’re going to have deficits of $2 trillion almost immediately. Dan: And again, more regulation is not the solution. There’s only one solution… and that’s what you do with your time and your money. Our philosophy is based on individuals with freedom to do whatever they want with their money and look after it… whether it’s their business, their family, or their portfolio. If you’re looking for someone else to protect you, or if you’re looking for someone to vote for who will solve this problem, then you’re kidding yourself. No one is going to solve these problems for you at that level. In fact, “they’re” not your friend. And I think that got lost during the dinner. Bill: Yes, the whole idea got lost. Dan: I think that’s all the time we have for today, Bill. It’s always a pleasure. Bill: Anytime, thanks Dan.