The Financial Crisis Nearly Took the Whole System Down

I’ve never been a believer in the economic recovery that we’re supposedly in. I think that the powers-that-be are pulling out all the stops to try to hold it together. I go back to the NASDAQ break which I think should have caused a huge cascade of stock values to stay low for quite a while. And then of course the powers-that-be used whatever methods were available to them to try to stimulate things. Back in those days, it was “cash-for-clunkers,” the new homebuyer tax credits and of course the whole zero-interest-rate thing. Then we had TARP and TALF in ’07 and ‘08.

We had conservatorships of Fannie and Freddie, and AIG, which I’m sure nobody really understands. It’s all “try to keep it together.” I think we learned in ’07 and ’08, when Lehman went down, that the powers-that-be can’t allow a liquidation where a financial organization has to sell something, which unfortunately is what happened to Lehman and nearly took the whole system down.

So subsequent to that, we’ve never had a liquidation. Even, for example, in the Cypriot bank crisis, the Cypriot banks never had to sell anything because they just took from the depositors. It looks like the Greek situation that we have today; the Greek banks don’t have to sell anything because the ECB just comes in and supplies the Emergency Lending Authority. I think if you allowed the market to function as it should function, where values are determined by the market, we would see this sort of domino effect where the Greek banks would have to sell their loans off and then the Greek stock market would collapse, the bond market would collapse and then people [in countries] around them would start thinking, “Well, that could happen to me.”

- Source, Eric Sprott via