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Peter Schiff on the bailout

I remember reading one of Gary North's older articles where he was discussing shortages. Mr. North wrote that whenever you hear of a shortage, the first question that should come to mind is: "At what price?"

Well, Peter Schiff uses the same line of thinking when discussing the $700 billion bailout...with the shortage in this case being buyers of mortgage bonds.

Mr. Schiff writes:

"We are being told loudly and repeatedly that the gargantuan mortgage bail-out package is necessary because illiquid mortgage-backed securities are clogging our financial arteries, threatening the economic equivalent of cardiac arrest. The idea of the plan is to transfer these supposedly valuable, but currently unmarketable, assets to the government so that private institutions can freely lend once more. The monumental flaw in this argument is that the mortgage backed securities are in fact highly liquid, just not at the prices the owners would like to receive.

Mortgage bonds are just like houses. They won’t sell if the owners stubbornly refuse to drop the price. However, they can find buyers if they acknowledge reality, and lower their expectations accordingly.

The government tells us that if these assets are held to maturity their full value will eventually be realized, and that it is only because of a lack of current liquidity that their value is not reflected in the market. However, as many private transactions have shown us in recent months, these assets will find buyers at the right price. These are not overly exotic assets but relatively straight forward mortgage obligations. The inability to find buyers is not a function of liquidity but simply of price. The government is seeking to 'create liquidity' by overpaying."

Don't miss Lew Rockwell's podcast with Peter Schiff.

It's a powerful 12 min.

Posted Oct 06 2008, 01:42 PM by ChrisR
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Damian wrote re: Peter Schiff on the bailout
on Mon, Oct 6 2008 2:50 PM

What a great analysis...I love Peter of very few rational commentators on fox news

jtucker wrote re: Peter Schiff on the bailout
on Mon, Oct 6 2008 3:38 PM

Yes, this is very clear. Thank you

Preston Poulter wrote re: Peter Schiff on the bailout
on Mon, Oct 6 2008 7:49 PM

Schiff recently debated Stephen Leeb on CNBC. You can find it on youtube, but Peter does such a great job in being spot on in his analysis. You can find the Youtube link, and my commentary on it on my blog.

Trading System Development wrote re: Peter Schiff on the bailout
on Tue, Oct 7 2008 1:26 AM

I know many simply do not agree with me, but I can only come up with one reason that there is so much lying and meddling with the free markets and that is hidden agendas. How else can one explain the sheer insult to the intelligence levels of many smart econimists and investors who are not on the payroll of those who need power for their own personal gain.