2008 crash deja vu: We’ll relive it, and soon

Commentary: New bubble is hotter, bigger than the last one

SAN LUIS OBISPO, Calif. (MarketWatch) — Warning, the stars are aligning, again. Much faster. We’re repeating the run-up to the 2008 meltdown, leading up to the next election.

Yes, another crash is coming, unavoidable, just like 2008. Not because our totally dysfunctional government is collapsing into anarchy, thanks to the 261,000 Super-Rich Lobbyists. Not just because our monetary system is run by the Bernanke Printing Press Company. And not just because a soulless conspiracy of Wall Street CEOs cares nothing for democracy and the public interest, only for their stockholders and their year-end bonuses.

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Another crash is coming soon because we’re back playing the same speculative games as we did for years prior to the 2008 crash. When we collapse, it will be because America’s leaders never learn the lessons of history. Never. In a BusinessWeek editorial, Peter Coy and Rouben Farzad described the bubbles:

“It’s as if 2008 never happened. Once again the worlds investors are pumping up bubbles that will probably explode in their faces. After the popping of a real estate bubble led to the first global recession since the 1930s, world markets are frothing like shaken Champagne. Pundits claim to have spotted price increases that are unsupported by economic fundamentals in assets ranging from U.S. farmland to Israeli biotech to Australian housing to Chinese cemetery sites. Commodities have soared. Global junk-bond issuance hit a record in the first three months of the year … this is the granddaddy of them all, an almost-encompassing bubble right at the heart of monetary systems.”

Yes, the “granddaddy of all bubbles” will explode right in Fed Chairman Ben Bernanke’s face, a bubble that will then sink like a stiletto deep into the “heart of the monetary systems” across the world, proving something Nassim Taleb said about Bernanke when Obama reappointed him in 2009, “he doesn’t even know he doesn’t understand how things work,” and that his methods make “homeopath and alternative healers look empirical and scientific.” Market Crash: Will it happen by Christmas?

Warning, same prediction also made 18 months before the 2008 crash

Now here’s the fascinating part of that prediction. Today’s new bubble-blowing resembles the four-year run-up to the 2008 crash, even replicates the pre-election timing. Why? First, because Jeremy Grantham, GMO chief, money managers of $100 billion, made virtually the same warning as the Coy-Farzad team 18 months before the 2008 meltdown.

Listen very closely and compare how what Grantham said in July 2007, 18 months before a clueless Henry Paulson and Ben Bernanke stood by and did nothing before the crash in the fall of 2008. Listen, the similarity is so eerie you’d think the two predictions were written by the same guys four years apart, though they weren’t.

Coincidence? Perhaps, but the real problem is that during the 18-month run-up from July 2007 to the 2008 crash, our leaders, Paulson and Bernanke, were misleading everyone: Paulson, “best economy seen in my professional life.” Bernanke, “the subprime loan crisis is contained.” And earlier Greenspan, a myopic Reaganomics-Ayn Rand clone who later recanted, said the problems were just some “regional froth.”

Now listen and compare Jeremy Grantham’s July 2007 prediction with BusinessWeek’s warning: “The First Truly Global Bubble: From Indian antiquities to modern Chinese art; from land in Panama to Mayfair; from forestry, infrastructure, and the junkiest bonds to mundane blue chips; it’s bubble time. … Everyone, everywhere is reinforcing one another. … The bursting of the bubble will be across all countries and all assets … no similar global event has occurred before.” It came true 18 months later. Meanwhile Paulson and Bernanke kept publicly dismissing warnings they didn’t like.

Warning, America’s leaders will deny the next crash, won’t be prepared

Later in 2009 Grantham also began warning that we had “learned nothing” and were “condemning ourselves to another serious financial crisis in the not too-distant future.” Get it? America’s leaders in Washington, Wall Street and Corporate America are so predictably irrational, so doomed to repeat history, they cannot hear, see or comprehend the warnings of men like Grantham, who manages $100 billion, a guy who can’t afford to ignore the lessons of history. He’s also understands why humans deny warnings, why we inevitably make stupid mistakes over and over.

Yes, Grantham was already pointing out how we “learned nothing” from 2008, how we were destined to repeat the same, even bigger, mistakes. Pointing to a key chart, Grantham’s “favorite example of a last hurrah after the first leg of the 1929 crash,” he saw obvious similarities between 1929-30 and today, warning that we’re in for a long, long period of recovery, like the 1930s Great Depression: “After the sharp decline in the fall of 1929, the S&P 500 rallied 46% from its low in November to the rally high of April 12, 1930, then, of course, fell by over 80%.”

Then last year Grantham updated his warnings, drawing an analogy to the biblical warnings of Joseph: “The idea behind seven lean years is that it is unrealistic to expect to overcome the several problems facing most developed countries, including the U.S., in fewer than several years.” So here we are, closing in the elections of 2012, with 18 months to go. The countdown clock’s ticking louder, while Newt, Paul Ryan and The Donald are sucking the air out of the media cycle, making certain that once again we’ll miss the coming perfect storm in the financial markets … just as Paulson, Bernanke and so many others did in 2008.

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