November 14, 2008

The fundamentalists are strong

This video is making the rounds, featuring financial analyst Peter Schiff getting mocked and derided by a variety of Fox News "journalists" and commentators over the last couple of years.

Appropriately, it's a footnote to the Wikipedia entry on Arthur Laffer, a prolific writer and long time Reaganite trickle down supply-sider. In the clip, it is he who gets the Laffing started.

Intelligent design fluffer Ben Stein recommends his stock picks, including Merrill Lynch, which he describes as "an astonishingly well run company" and a great bargain. He predicts stocks to be "a heck of a lot higher a year from now" in August 2007, when Merrill Lynch was trading for 56 dollars per share. MER closed yesterday at less than 14 bucks. Subprime mortgages? Merely a blip, says Stein.

Another Fox business prophet foresees the DJIA at 16,000 points. It's about half that this morning. Laugh, Cavuto, laugh.


John Médaille said...

Actually, subprime mortgages were--and still are--a mere blip. The subprime market is only $1.4T in loans outstanding. Even if as much as 50% of them failed, and the banks only recovered 50% of the value of the homes, the loss would still only be $350B. A big number, but still a "blip" in a $14T economy.

It was not the subprime loans that caused the problem, but the enormous number of speculative bets that were placed on subprime and other loans. CDS's CDO's, etc. Stein and most other observers missed this, because they are staunch believers in a self-regulating market, and this market has as regulation-free as possible.

Nor was Schiff right either. He was advising his clients to buy gold because, as a Austrian, he (one) believes in gold as a kind of economic fetish, and (two) he thought this would be an inflationary crises. But the bigger danger is deflation. And deflation will take down gold, as well as everything else. Many recessions are inflationary; full-blown depressions are deflationary.

illusory tenant said...

Thanks for the comments. My father was a big fan of Hillaire Belloc.