WEBVTT NOTE Booms and Busts 1 00:00:00.000 --> 00:00:06.000 You know, I heard somebody laughing out there already. 2 00:00:06.000 --> 00:00:10.160 So I guess somebody out there knows why I've been selected. 3 00:00:10.160 --> 00:00:14.240 To talk about Boehm's and Bush, you might be wondering. 4 00:00:14.240 --> 00:00:20.640 And the first part of the story is that I had the very, very good fortune 5 00:00:20.640 --> 00:00:26.540 of pursuing a master's in economics at University of Nevada, Las Vegas. 6 00:00:26.540 --> 00:00:34.660 Imagine my surprise a couple years into the process, when I meet a guy named Murray Rothbard, 7 00:00:34.660 --> 00:00:43.480 and I ended up writing a thesis under Murray, and that thesis was on the very subjects of 8 00:00:43.480 --> 00:00:51.800 booms and busts, talked about tulip mania, I wrote about the Mississippi bubble and the 9 00:00:51.800 --> 00:00:52.800 The South Sea Bubble 10 00:00:52.800 --> 00:01:03.800 I really thought that academic experience would probably be the end of my boom and bust work. 11 00:01:03.800 --> 00:01:14.800 Well, it didn't work out that way. I was actually a banker in Las Vegas, and more specifically, I was a real estate lender in Las Vegas. 12 00:01:14.800 --> 00:01:39.800 So, you're looking at someone who may not have the academic credentials of some of the previous speakers, but I was on ground zero of creating, help creating, the biggest boom, and unfortunately, for my net worth, biggest bust probably in history. 13 00:01:39.800 --> 00:01:49.800 Now, we should clarify, first of all, that when I was doing my work on booms and busts, 14 00:01:49.800 --> 00:01:55.800 that there are schools of economic thought that don't think there is such a thing. 15 00:01:55.800 --> 00:01:59.800 Now, that seems incredible. I think everybody in this room knows there's booms and busts. 16 00:01:59.800 --> 00:02:03.800 In fact, I would say there's a fair number of you that are sitting around wondering 17 00:02:03.800 --> 00:02:07.800 when we're going to get this boom in the price of gold, for crying out loud. 18 00:02:07.800 --> 00:02:18.400 out loud. I know I am. Just give me one more boom. It was kind of that bumper sticker that 19 00:02:18.400 --> 00:02:25.520 was going around Texas in the 1990s. Lord, just give me one more boom. We've learned 20 00:02:25.520 --> 00:02:32.320 our lesson. I'm not sure we ever have. But if you look at, there's a couple of rational 21 00:02:32.320 --> 00:02:51.320 Expectations, economists named Flood and Hodrick, and they actually came to the conclusion that the current imperial test for bubbles do not successfully establish the case that bubbles exist in asset prices. 22 00:02:51.320 --> 00:02:58.320 So these guys actually ground the numbers and they determine that there is no such thing as a boom and bust. 23 00:02:58.320 --> 00:03:02.320 Well, I'm here to tell you that there is. 24 00:03:02.320 --> 00:03:06.320 Of course, we've talked about the Keynesians a little bit earlier today. 25 00:03:06.320 --> 00:03:13.320 Of course, we don't like to, you know, quote Keynes, but he's darn handy every once in a while. 26 00:03:13.320 --> 00:03:20.320 And he actually said that there's an instability due to the characteristic of human nature 27 00:03:20.320 --> 00:03:30.920 that a large proportion of our positive activities depend on the spontaneous optimism rather than on mathematical expectation. 28 00:03:30.920 --> 00:03:46.220 Whether moral or hedonistic or economic, more probably of our decisions to do something positive can only be taken as the results of animal spirits. 29 00:03:46.220 --> 00:04:05.820 So we've got two schools of thought, the rational expectation guys that say there can't be anything, you know, resembling an asset bubble because we all have the available information to tell us that we would never bid the price of an asset up to where it was, say, illogical. 30 00:04:05.820 --> 00:04:13.220 And then we have Keynes who said we've got these animal spirits running through us constantly. 31 00:04:13.220 --> 00:04:26.220 And of course, you know, we know that Keynes, because of these animal spirits, thought that we needed, of course, more government to control our animal spirits. 32 00:04:26.220 --> 00:04:42.220 Of course, I think the Austrians have proven through the work of von Mises and Hayek that it is really Keynesian economics and not the animal spirits 33 00:04:42.220 --> 00:04:47.220 that Create the Boom and the Bust Cycle. 34 00:04:47.220 --> 00:04:57.720 The key point of the Austrian trade theory is that an increase in the supply of money engenders an economic boom, 35 00:04:57.720 --> 00:05:05.320 and, of course, that's followed by a correction of the malinvestment or the bust. 36 00:05:05.320 --> 00:05:09.020 And this has all been pretty well documented. 37 00:05:09.020 --> 00:05:27.020 And we've seen this play out over and over again, and by the way, if there's anyone in here that wants to buy Lehman Brothers, you know, I've got the number for you to call, but, you know, Mises was incredibly prophetic about all of this. 38 00:05:27.020 --> 00:05:34.020 He wrote in a book that David Gordon didn't mention, but it was one of my favorite books when I was working on my thesis. 39 00:05:34.020 --> 00:05:48.020 This is called On the Manipulation of Money and Credit, and he said the moderated interest rate is intended to stimulate production and not to cause a stock market boom. 40 00:05:48.020 --> 00:05:56.020 However, stock prices increase first of all. At the outside, commodity prices are not caught up in the boom. 41 00:05:56.020 --> 00:06:13.020 They are stock exchange booms and stock exchange profits. But then the producer becomes dissatisfied. He envies the speculator and he envies the speculator's easy profit. 42 00:06:13.020 --> 00:06:22.020 Those in power are not willing to accept this situation. They believe that the production is being deprived of money, which is flowing into the stock market. 43 00:06:22.020 --> 00:06:33.020 and that's precisely the market boom that has created the serious threat for the crisis that lies within. 44 00:06:33.020 --> 00:06:44.020 So what we have when we have an increase in the supply of money that is engendered by the central banking system 45 00:06:44.020 --> 00:06:47.020 that so many of our morning speakers have talked about, 46 00:06:47.020 --> 00:07:00.020 What happens is a series of things that Murray Rothbard has outlined in a great little book that I think we're probably already sold out of. 47 00:07:00.020 --> 00:07:02.020 What has government done to our money? 48 00:07:02.020 --> 00:07:11.020 But I wanted to kind of use some points that Murray makes about inflation and the increase of supply of money 49 00:07:11.020 --> 00:07:20.020 to kind of illustrate what happens in a boom and put it on kind of a personal level. 50 00:07:20.020 --> 00:07:28.020 The first thing that Murray said was inflation, you know, inflation being the increase in the money supply, 51 00:07:28.020 --> 00:07:31.020 confers no general social benefit. 52 00:07:31.020 --> 00:07:37.020 It just redistributes wealth in favor of the first comers at the expense of the last. 53 00:07:37.020 --> 00:07:49.020 When we look at M2 money supply, and of course I just want to use M2 because they quit tracking M3 because it was just so darn expensive. 54 00:07:49.020 --> 00:08:02.020 It cost them a hundred grand a year to actually tabulate M3, and the austerity program at the federal government just had to get rid of this idea of tracking M3. 55 00:08:02.020 --> 00:08:31.020 In 2001, the M2 totaled $5 trillion, and that's a lot of money. By today, the M2 is now $7.8 trillion, an increase of $2.8 trillion just since 2001. 56 00:08:31.020 --> 00:08:47.180 Now maybe that doesn't sound like a lot, except that that $2.8 trillion increase is the amount of the total M2 money supply in 1987. 57 00:08:47.180 --> 00:08:57.680 So since 2001, seven years ago, we've increased the M2 money supply, Federal Reserve has increased the M2 money supply, 58 00:08:57.680 --> 00:09:08.680 by the amount that the entire M2M money supply had been created up to 1987, which was only 20 years ago. 59 00:09:08.680 --> 00:09:23.080 Of course, this increase in money was what Bill Fleckenstein called Operation Enduring Bubble. 60 00:09:23.080 --> 00:09:31.080 If we had one bubble pop, you know, Greenspan was making more bubbles than Lawrence Welk, I think. 61 00:09:31.080 --> 00:09:36.080 Thank you. It's the benefits of having an older audience, I suppose. 62 00:09:36.080 --> 00:09:46.080 But, you know, this money doesn't, the point Murray makes and all the Austrians with von Mises and certainly our speakers today 63 00:09:46.080 --> 00:09:54.080 Money doesn't produce prosperity. Otherwise, Zimbabwe would be the most prosperous country on earth. 64 00:09:54.080 --> 00:10:02.080 It used to be one of the most prosperous, but now they're actually printing themselves into complete disaster. 65 00:10:02.080 --> 00:10:10.080 But money doesn't produce poverty. In fact, Mises said in Human Action, the boom produces impoverishment. 66 00:10:10.080 --> 00:10:14.080 But still, more disastrous are the moral ravages. 67 00:10:14.080 --> 00:10:30.080 It makes people despondent and dispirited. The more optimistic they were under the illusionary prosperity of the boom, the greater is their despair and their feeling of frustration. 68 00:10:30.080 --> 00:10:43.080 The individual is always ready to ascribe his good luck to his own efficiency and to take it as a well-deserved reward for his talent, application and probity. 69 00:10:43.080 --> 00:10:53.080 But reverses a fortune he always charges to other people and most of all to the absurdity of social and political institutions. 70 00:10:53.080 --> 00:11:03.080 He does not blame the authorities for having fostered the boom. He reviles them for the inevitable collapse. 71 00:11:03.080 --> 00:11:08.080 A very prophetic statement from Mises. 72 00:11:08.080 --> 00:11:14.680 And, of course, where did all this money go after, you know, when it started being created in 2001? 73 00:11:14.680 --> 00:11:18.880 Well, we know all the stories. All went into housing. 74 00:11:18.880 --> 00:11:25.280 I heard Dennis Gartman this week at a conference in Las Vegas, and he talked about, you know, 75 00:11:25.280 --> 00:11:32.180 these dumb waiters who would buy, they took Alan Greenspan's advice. 76 00:11:32.180 --> 00:12:02.180 They bought a house on an adjustable rate loan, probably a pay option arm, and then they were able to buy another house because real estate always goes up, and so then they bought two homes, and then they bought four homes, and then they bought eight homes, and we know of situations where there was a gentleman who had been a firefighter in Chicago, and of course if you're 77 00:12:02.180 --> 00:12:10.180 A fireman in Chicago, your useful years evidently run out at about 50 years old. 78 00:12:10.180 --> 00:12:14.180 So he retired on a pension, and he came to Las Vegas. 79 00:12:14.180 --> 00:12:15.180 He got a little bored. 80 00:12:15.180 --> 00:12:19.180 After all, he's only 50 years old, so he decided he ought to get into the real estate business. 81 00:12:19.180 --> 00:12:21.180 So a realtor got ahold of him. 82 00:12:21.180 --> 00:12:22.180 He bought a home. 83 00:12:22.180 --> 00:12:24.180 And he says, well, how much do I have to put down? 84 00:12:24.180 --> 00:12:27.180 The realtor said, you don't have to put anything down. 85 00:12:27.180 --> 00:12:28.180 So he says, that's great. 86 00:12:28.180 --> 00:12:38.180 You can get an option arm, you make the minimum payment, get a renter in there and that will cover and of course real estate goes up every year so you'll be a rich man in a few years. 87 00:12:38.180 --> 00:12:55.180 So he didn't buy one home, he didn't buy two homes, he ended up at 16. He hadn't put any money down and he was collecting plenty of rent to pay the initial teaser rates on these arm loans. 88 00:12:55.180 --> 00:13:10.180 When they began to set a year ago last December, he couldn't make any of the payments, and at that point he was seeking out the Council of Bankruptcy Attorneys. 89 00:13:10.180 --> 00:13:24.180 So there are stories all over town. We know people who were banquet captains at major hotels in Las Vegas who had money down on five high-rise condos. 90 00:13:24.180 --> 00:13:33.180 The biggest cottage business in Las Vegas for a while was getting yourself on the list to buy a new home in Las Vegas. 91 00:13:33.180 --> 00:13:36.180 They didn't try to sell you homes. They would have lotteries. 92 00:13:36.180 --> 00:13:43.180 And if you were lucky enough to get on the list before the homes were built, then before the home was delivered, 93 00:13:43.180 --> 00:13:45.180 you could actually sell your home. 94 00:13:45.180 --> 00:13:56.180 And if you were lucky enough to get on the list before the homes were built, then before the home was delivered, you could actually sell your position to someone else. 95 00:13:56.180 --> 00:14:02.180 And so that became an actual business. 96 00:14:02.180 --> 00:14:11.180 And the second point that Murray makes about this inflation, of course, is that inflation distorts business calculation. 97 00:14:11.180 --> 00:14:26.180 When you have these kind of booms going on, it's not just centered in one thing. It's centered in, there's offshoots. I mean, if there's a lot of homes being built, then that means home builders need to hire more people. 98 00:14:26.180 --> 00:14:36.180 And that means title companies need to hire more people. And of course, that's what drove Las Vegas to expand, in my view. 99 00:14:36.180 --> 00:14:57.180 And in my view, if everyone around the country had all this new wealth that had been created by not by their doing, just the mere fact that they were smart enough to buy a home, they could take that money out and go to Vegas and party every weekend with Britney Spears and Justin Timberlake and fund people like that. 100 00:14:57.180 --> 00:15:10.680 So Vegas, in another classic malinvestment, went ahead and expanded 38,000 new hotel rooms, 101 00:15:10.680 --> 00:15:15.980 almost 5 million square feet of new convention space. 102 00:15:15.980 --> 00:15:25.180 And why not? The gaming win in Clark County, which is Las Vegas, 7.6 billion in 2001. 103 00:15:25.180 --> 00:15:36.180 But by last year, it was 10.9 billion. And during that time, 200,000 new jobs had been created, and 4 million more visitors had come. 104 00:15:36.180 --> 00:15:50.180 We had 39 million visitors. Certainly, this beat would go on. But it was all on the back of this illusionary wealth that was created by this increase in the money supply. 105 00:15:50.180 --> 00:15:57.180 Unfortunately, as you read the papers, things have changed in Las Vegas. 106 00:15:57.180 --> 00:16:03.180 Gaming win in the visitor count is down for the last nine months in a row. 107 00:16:03.180 --> 00:16:07.180 And in fact, gaming win was down 13% in July. 108 00:16:07.180 --> 00:16:15.180 The Echelon project, which was a Boyd gaming project, is stopped. 109 00:16:15.180 --> 00:16:17.180 Of course, people said that would never stop. 110 00:16:17.180 --> 00:16:21.180 They've got the steel in the air. There's no way. They've got to complete it. 111 00:16:21.180 --> 00:16:24.880 Well, no, they don't. They're going to put that on hold. 112 00:16:24.880 --> 00:16:31.580 The steel will be left to rust out there in the elements. 113 00:16:31.580 --> 00:16:35.280 A project called the Plaza has been stopped. 114 00:16:35.280 --> 00:16:41.180 The Plaza that was being developed by the allied group out of Israel, 115 00:16:41.180 --> 00:16:50.180 They paid over $30 million an acre for their land, and now that project has stopped. 116 00:16:50.180 --> 00:16:54.180 City Center, possibly a project you've heard about. 117 00:16:54.180 --> 00:17:03.180 Largest private project in the country built by MGM Grand in combination with Dubai World. 118 00:17:03.180 --> 00:17:06.180 And, of course, Dubai World has all the money in the world. 119 00:17:06.180 --> 00:17:09.180 There's no way they're not going to finish that, right? 120 00:17:09.180 --> 00:17:23.180 Well, what we hear on the street is now that budget may be $13 billion rather than the $6 billion it started at and the guys in Dubai are saying no more. 121 00:17:23.180 --> 00:17:35.180 You need to find the money somewhere else. So it's possible that Cine Center may not get completed or get completed as it was contemplated. 122 00:17:35.180 --> 00:17:41.660 So these are the kind of distortions that come from this kind of inflation and these kind of booms. 123 00:17:41.660 --> 00:17:54.220 The other, the other illusions that are created is that the free market typically penalizes inefficient producers. 124 00:17:54.220 --> 00:17:57.740 They, you know, they reward people that are efficient. 125 00:17:57.740 --> 00:18:01.100 They reward people that are that are prudent. 126 00:18:01.100 --> 00:18:04.980 But of course, that doesn't happen when when you have booms. 127 00:18:04.980 --> 00:18:16.580 In fact, I had a number of borrowers and at least one banker that I can think of that, you know, they decided they could get into any business they wanted to. 128 00:18:16.580 --> 00:18:24.780 They were so smart and making so much money either at banking or real estate that they could get into any sort of project. 129 00:18:24.780 --> 00:18:33.480 In fact, you know, there's one banker who thought that he should get in the G-string business. 130 00:18:33.480 --> 00:18:40.440 What he knew about G-strings probably amounted to having put a few dollar bills in them, 131 00:18:40.440 --> 00:18:52.240 but thought that since he'd made little money in banking, he was obviously smart enough to get into retail. 132 00:18:52.240 --> 00:18:56.120 So that's another effect of these booms. 133 00:18:56.120 --> 00:18:59.320 Of course, the quality of work goes down. 134 00:18:59.320 --> 00:19:12.320 Quality houses in Vegas during this boom were terrible and tremendous problems with houses and defects. 135 00:19:12.320 --> 00:19:24.320 But what happens is people become enamored with these get-rich schemes, and that's certainly happened in Vegas like no other. 136 00:19:24.320 --> 00:19:32.000 Where all of a sudden bartenders and waitresses got their real estate license. 137 00:19:32.000 --> 00:19:38.840 At one time we had one realtor for every hundred people in Las Vegas. 138 00:19:38.840 --> 00:19:45.960 Now that is surely an oversupply and believe me that supply has been reduced, but everyone 139 00:19:45.960 --> 00:19:46.960 was going to get in the business. 140 00:19:46.960 --> 00:19:51.200 They were either going to sell real estate, they were going to make mortgage loans or 141 00:19:51.200 --> 00:19:54.560 Before they're going to get in the business of flipping houses. 142 00:19:54.560 --> 00:20:00.820 I have a number of borrowers that, of course, they were home builders. 143 00:20:00.820 --> 00:20:06.080 They had started from really pretty humble beginnings. 144 00:20:06.080 --> 00:20:12.520 And in one case, I remember one of my borrowers, he used to live in one of his model homes. 145 00:20:12.520 --> 00:20:15.400 I mean, what could be more prudent than that? 146 00:20:15.400 --> 00:20:18.800 He would go there and sleep at night, and then when he'd wake up in the morning, he'd 147 00:20:18.800 --> 00:20:48.800 He'd make the bed and everything and then they'd show that house to customers all day long and so he started from very humble beginnings and of course I remember he met a girlfriend that way because there was a woman who was a school teacher and she couldn't get to the model homes during the day so at night she was traipsing around you know looking in the windows and so he caught her and she was an attractive young 148 00:20:48.800 --> 00:21:03.800 And, of course, by the time we met her, she was no longer a school teacher. She was the girlfriend of a developer and, of course, a real estate salesman for the developer. 149 00:21:03.800 --> 00:21:16.800 But I can remember the conversation over dinner where we proposed the proposition that maybe houses don't always go up in value. 150 00:21:16.800 --> 00:21:22.800 and she was quite indignant about it. I mean based on her six months in the 151 00:21:22.800 --> 00:21:27.800 business she had determined that there was no way that real estate could ever 152 00:21:27.800 --> 00:21:34.840 go down in value. Unfortunately I don't think she's no longer the girlfriend, no 153 00:21:34.840 --> 00:21:39.480 longer a real estate salesman, so I'm hoping that she was able to get her 154 00:21:39.480 --> 00:22:09.480 for a school teaching job back, but you know theividher thing that happens is during these booms, during these inflations, that thrift is penalized actually, you know the people that save their money are, are, are, they don't benefit as the central bank pushes down rates, banks offer very low, very low rates, it's the rates that are 155 00:22:09.480 --> 00:22:14.080 very much below that natural rate of interest that the Austrians referred to. 156 00:22:14.080 --> 00:22:20.280 And so people are left to take on more risk than they normally would. 157 00:22:20.280 --> 00:22:27.680 In fact, a lot of retirees and people who had saved the money in Las Vegas and in Phoenix 158 00:22:27.680 --> 00:22:35.280 were forced to, they weren't forced to, but they made the decision to take their money out of banks 159 00:22:35.280 --> 00:23:05.280 and invest it with what was quote, hard money lenders. Now one hard money like this crowd might think hard money with gold or silver. Hard money lenders are private money lenders who would, people would pool their money with these lenders and these lenders would fund real estate projects. Similar to banks, but again these are people that had actually saved their money so they demanded a higher interest rate than what 160 00:23:05.280 --> 00:23:19.280 So there were all kinds of people in Vegas and all kinds of people in Phoenix that put their money with these hard money lenders, getting 10% and 12%, in some cases 18%. 161 00:23:19.280 --> 00:23:32.280 And of course those were great returns when they were being paid. Unfortunately, these hard money loans in the last year or two are hard money for a reason. 162 00:23:32.280 --> 00:24:02.280 Reason. That's somebody from WaMU wondering if we have a buyer here. No, people were, you know, they were collecting all this great interest, but hard money loans are now, they're called hard money because they're hard to collect. But, you know, people live the high life, and there's a gentleman by the name of Scott Coles, perhaps you read about him, 163 00:24:02.280 --> 00:24:18.280 He was a hard money lender in Phoenix and a relatively young guy, but with 3,000 investors, he was able to raise nearly a billion dollars to fund Phoenix real estate projects. 164 00:24:18.280 --> 00:24:27.280 And he gave money to charity, he had seven houses, he had many of the members of the Phoenix Suns investing with him. 165 00:24:27.280 --> 00:24:42.280 I mean, this guy was a pillar of the community, all of a sudden, that market downturn turned very nasty, and he was unable to collect on those loans. 166 00:24:42.280 --> 00:24:49.280 It became increasingly difficult to raise the money to finish the projects that he had started funding. 167 00:24:49.280 --> 00:25:00.280 And it was interesting, one of his investors, a woman named Barbara Porter, was quoted as saying, she was a 62-year-old retiree. 168 00:25:00.280 --> 00:25:06.280 She had all her money with Scott Coles. The company was called Mortgage is Limited. 169 00:25:06.280 --> 00:25:13.280 And she said, I think the problem is greed. We're all greedy. That's why we put our money there. 170 00:25:13.280 --> 00:25:18.280 That's why I put my money there, because he paid 10% instead of 4%. 171 00:25:18.280 --> 00:25:22.280 Everybody in town got caught up with the stupid appraising and spending. 172 00:25:22.280 --> 00:25:25.280 Now everyone is upside down. 173 00:25:25.280 --> 00:25:36.280 Well, not only is she upside down financially, Scott Coles is six feet under because he committed suicide. 174 00:25:36.280 --> 00:25:41.280 He got so much pressure from his investors. 175 00:25:41.280 --> 00:25:51.280 Inflation lowers the general standard of living, even though people have this illusion that you're living well. 176 00:25:51.280 --> 00:25:56.280 But during these booms, people have to work harder, to work longer. 177 00:25:56.280 --> 00:26:05.280 Everybody has, you know, two in-gum households to keep up. 178 00:26:05.280 --> 00:26:11.280 and, of course, you're trying to keep up with the Joneses and anybody else out there. 179 00:26:11.280 --> 00:26:25.280 So it's really just the illusion of prosperity that's created by all this money and not true prosperity. 180 00:26:25.280 --> 00:26:28.280 Of course, this money always ends up with a cluster of errors. 181 00:26:28.280 --> 00:26:30.280 It's been mentioned earlier. 182 00:26:30.280 --> 00:26:38.980 This is a phrase the Austrians use, certainly Murray used to talk about a cluster of errors that you really don't have in any other business. 183 00:26:38.980 --> 00:26:47.480 Joseph Salerno makes this point very well that there's no other type of business where everybody kind of goes broke at once, the way the banks do. 184 00:26:47.480 --> 00:26:55.380 And they're so intermingled because of this fractionalized banking system that we have. 185 00:26:55.380 --> 00:27:02.180 Of course, if you talk to the former chairman of the Fed, Alan Greenspan, he's making a 186 00:27:02.180 --> 00:27:07.500 pretty dandy living on the lecture circuit, denying that there ever was a bubble, and 187 00:27:07.500 --> 00:27:12.060 if there was a bubble, he didn't have anything to do with it. 188 00:27:12.060 --> 00:27:21.140 Maybe other people don't quite have that luxury, but Alan is not taking any responsibility. 189 00:27:21.140 --> 00:27:29.140 He's handed the reins to Ben Bernanke and, of course, another gentleman by the name of Tim Gaytner. 190 00:27:29.140 --> 00:27:33.140 He's the chairman of the New York Fed. 191 00:27:33.140 --> 00:27:43.140 And when you start looking at many of these bailouts and these shotgun weddings that you're seeing on Wall Street around the country, 192 00:27:43.140 --> 00:27:47.140 Tim Gaytner is a guy that's front and center with this. 193 00:27:47.140 --> 00:27:58.540 Many friends on Wall Street and is the guy that I think is engineering a lot of these bailouts. 194 00:27:58.540 --> 00:28:08.100 But of course, what we have now, we've got these malinvestments being liquidated, and 195 00:28:08.100 --> 00:28:15.740 there's probably no place like that than, say, Las Vegas, and there's probably no industry 196 00:28:15.740 --> 00:28:19.340 that exemplifies that, like banking. 197 00:28:19.340 --> 00:28:28.440 We were talking earlier at the table about a conference that we had back in 2006, 198 00:28:28.440 --> 00:28:32.540 and actually spoke at that conference, and I pulled up those notes, 199 00:28:32.540 --> 00:28:38.940 and I had these notes about how well the Las Vegas community banks were doing. 200 00:28:38.940 --> 00:28:42.940 Nevada, there was a bank, I'll leave the names out of this, 201 00:28:42.940 --> 00:28:50.580 But one bank, they had sold out, they made, the investors had made eight times their money in less than a decade. 202 00:28:50.580 --> 00:28:54.020 One bank made seven times their money in a decade. 203 00:28:54.020 --> 00:28:57.500 One bank made 30 times their money in a decade. 204 00:28:57.500 --> 00:29:02.140 And then I made reference to a bank I was very familiar with at the time. 205 00:29:02.140 --> 00:29:10.940 The original investors had made 20 times their money in less than a decade. 206 00:29:10.940 --> 00:29:19.740 Unfortunately, that particular bank was seized by the FDIC last Friday afternoon. 207 00:29:19.740 --> 00:29:32.440 So it was just two short years ago that these banks were making hay, making real estate loans to developers and doing quite well with it. 208 00:29:32.440 --> 00:29:42.760 but when asset values plunge, the party is eventually over and we're seeing that kind of liquidation. 209 00:29:42.760 --> 00:29:48.940 At the time, there were 17 banks in Nevada under organization. Everybody wanted to get in on this business. 210 00:29:48.940 --> 00:29:55.100 There were 50 banks in California in organization. Everybody wanted to do their own start-up bank. 211 00:29:55.100 --> 00:30:05.600 And in fact, there was a website that I saw advertised in the business journal in Phoenix. 212 00:30:05.600 --> 00:30:15.200 Own the local bank, it said. Just go to www.startabank.com. 213 00:30:15.200 --> 00:30:21.500 May not be working out for people quite that well. 214 00:30:21.500 --> 00:30:31.800 I'm going to leave you with a quote from, again, Ludwig von Mises from a book on the manipulation of money and credit, and it really kind of says it all. 215 00:30:31.800 --> 00:30:41.800 If the crisis were ruthlessly permitted to run its course, bringing about the destruction of enterprises which were unable to meet their obligations, 216 00:30:41.800 --> 00:30:52.400 Then all entrepreneurs, not only banks, but also other businessmen, would exhibit more caution in granting and using credit in the future. 217 00:30:52.400 --> 00:30:58.560 Instead, public opinion approves of giving assistance in the crisis. 218 00:30:58.560 --> 00:31:08.240 Then, no sooner is the worst over than the banks are spurred on to new expansion of circulation credit. 219 00:31:08.240 --> 00:31:23.360 So, unfortunately, as Mises wrote, this credit crisis we have now will probably not involve the complete liquidation of the financial system that we have today. 220 00:31:23.360 --> 00:31:29.480 But I think it's rooms filled like this with people like you. 221 00:31:29.480 --> 00:31:52.480 It's the Mises outreach to not only homeschoolers but educating a new generation of instructors on sound money, sound economics that eventually these businesses and these banks will fail and then that will be our day. 222 00:31:52.480 --> 00:31:57.480 And I'm glad to see that you have joined us in that fight.