A Crisis Was Ordered Long Ago
George Ford Smith

“The Financial Crisis was a failure of government, not capitalism.”—Peter Schiff, March 2025

“Wall Street got drunk,” President Bush said in 2008, to which Peter Schiff replied, “They did. And the Fed provided the liquor!”

Schiff—who credits his understanding of markets and Austrian economics to his father’s teachings growing up—is renowned for his prediction of the Financial Crisis of 2008, years before the housing market nosedived. His position earned him the scorn and ridicule of almost every other commentator, as seen in this collection of videos, but he never blinked. The market was in trouble, not because of a lack of regulations, but because the government and the Fed were on a fiat money high.

In 2009, Congress formed the Financial Crisis Inquiry Commission (FCIC) to find out why the economy broke. In its final report, the commission stated that, “In the course of its research and investigation, the Commission reviewed millions of pages of documents, interviewed more than 700 witnesses, and held 19 days of public hearings in New York, Washington, D.C., and communities across the country.” Among those called to testify were “Helicopter Ben” Bernanke—then chairman of the Fed—and Fedspeak founder, Alan Greenspan (a former Fed chairman). And even though he asked to testify, troublemaker Peter Schiff was not called.

The FCIC summarized its conclusions this way:

While the vulnerabilities that created the potential for crisis were years in the making, it was the collapse of the housing bubble—fueled by low interest rates, easy and available credit, scant regulation, and toxic mortgages—that was the spark that ignited a string of events, which led to a full-blown crisis in the fall of 2008. . .

Further on the report tells us,

…the financial industry itself played a key role in weakening regulatory constraints on institutions, markets, and products. It did not surprise the Commission that an industry of such wealth and power would exert pressure on policy makers and regulators. . . . What troubled us was the extent to which the nation was deprived of the necessary strength and independence of the oversight necessary to safeguard financial stability. (emphasis added)

Interventionism failed again. Should we be surprised that lavish campaign donations led to outcomes that favored the donors, not the public? Did everyone forget that easy credit created incentives for scams such as “Too Big To Fail” and “teaser” rate mortgages, or convoluted financial products that were vulnerable to real-world exposure, such as bundling sub-prime mortgages into mortgage-backed securities followed by their creative offspring—collateralized debt obligations and credit-default swaps? “While the business cycle cannot be repealed,” the FCIC concluded, “a crisis of this magnitude need not have occurred.”

With profits privatized and risks socialized, and with “thin air” money on tap 24/7 at the Fed, what’s to stop runaway crises such as 2008? We had and still have an economy of the elite, for the elite. Elite bankers have promoted fractional reserve banking since ancient Greece, if not earlier, though the Greeks at least considered it fraud, while bankers and other elitesproudly created the US central bank with monopoly control of the monetary unit to insulate themselves from the fraudulent hazards of the system. Even the once-free-market Alan Greenspan considered fractional reserve banking a normal and acceptable banking practice. See his 1966 essay, “Gold and Economic Freedom.”

Intervention is Always the Solution

Peter Schiff’s analysis of the market closely resembles Mises’s analysis of the Great Depression. The 1929 Crash and subsequent depression have been grossly misunderstood by most economists, which is why they were blindsided by the Financial Crisis. FDR’s New Dealers—with their interventionist binge—claimed to be saving capitalism while accomplishing the opposite. After outlawing gold—the sound money on which capitalism depends—inflation became the order of the day. Gold could no longer protect people from government, but quite the contrary, they embraced government solutions enough to get FDR elected four times. In Causes of the Economic Crisis, Mises amplifies this idea:

The severe convulsions of the economy are the inevitable result of policies which hamper market activity, the regulator of capitalistic production. If everything possible is done to prevent the market from fulfilling its function of bringing supply and demand into balance, it should come as no surprise that a serious disproportionality between supply and demand persists, that commodities remain unsold, factories stand idle, many millions are unemployed, destitution and misery are growing and that finally, in the wake of all these, destructive radicalism is rampant in politics.

And, if I may add, war becomes more appealing, especially with the Depression’s persistent unemployment.

The panics of the 19th century, as well as the big one in 1907, were not mysteries of the market but the predictable result of credit expansion by fractional reserve banks. Exacerbating the problem was the artificial restriction on branch banking, which prevented banks from supporting one another in times of stress. The argument for a central bank would have lost its appeal if banks had honored the property rights of its clients: full-reserve banking for demand deposits, and contractual arrangements for time deposits. 

Meanwhile, Schiff again warns the public that the Trump administration is playing with fire:

In the end, [Treasury Secretary Scott] Bessent’s right about the diagnosis, but wrong about the fix [that the economy needs a detox]. The economy’s hooked, weak, and desperate, and the Trump team’s plan is just a milder dose of the same poison [tariffs for revenue and low interest rates]. True recovery means cold turkey—higher rates, real austerity, and a rebuilt industrial base.

Until then, we’re just delaying the crash, ensuring more pain when the day finally comes.

The trouble is most people will avoid pain until they can’t. And they are already blaming capitalism for what is to come. As Mises wrote,

As a rule, capitalism is blamed for the undesired effects of a policy directed at its elimination. The man who sips his morning coffee does not say, “Capitalism has brought this beverage to my breakfast table.” But when he reads in the papers that the government of Brazil has ordered part of the coffee crop destroyed, he does not say, “That is government for you”; he exclaims, “That is capitalism for you.”

 

 

 

George Ford Smith is a former mainframe and PC programmer and technology instructor, the author of eight books including a novel about a renegade Fed chairman (Flight of the Barbarous Relic) and a nonfiction book on how money became an instrument of theft (The Jolly Roger Dollar). He welcomes speaking engagements and can be reached at [email protected]. 

 

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