The Dutch Tulip Market and The Last Fool Theory

Market crashes, whether it's real estate, commodities, currency or whatever, always look the same graphically-exactly like the 17th century Dutch Tulip market crash. They are always caused by the same delusions too. They are always financed by bankers lending imaginary fiat currency to speculators who always pretend that, despite the laws of economic gravity, this time this 'investment' can only go up. And it does until...until it doesn't, then it plummets.

Of course when it inevitably plummets the last poor fool holding whatever sparkly-shiny thing it is this time loses everything. In the meantime the banks that financed the delusion made a huge 'profit' on each new transaction as the price kept ratcheting up. The banks take those ill-gotten short-term gains of imaginary money and give it to their shareholders.as dividends. When the last fool into the speculative carnival can't sell the formerly shiny asset he/she can't pay the bank and the bank goes broke [poor bank].

Now comes the real magic of capitalism and banking. Because of the legal structure of corporations and the limited liability of their shareholders the banks can't go get back after all the 'profit' they previously paid as dividends the way that the income tax folks can go after your savings and other assets from past successful wage earning and saving years [ain't lawyers great]. Instead the banks can go, or threaten to go, bankrupt and demand a bailout from the government whose only source of revenue is the taxpayer. So the speculators and bankers get the loot and the rest of us get the boot.

Spain's banks are in their current fix is much like Florida's or Nevada's were after the big Wall Street banks inflated U.S. housing values by underwriting irresponsible mortgages through networks of unscrupulous mortgage brokers. Foreigners invested in Spanish bank securities, and the latter financed a hotel and housing boom. In the wake of the 2008 speculator driven financial crisis, loans defaulted and Spanish banks were stuck with non-performing real estate loans.

The same scenario is taking place everywhere there are speculators and banksters including in my home town and yours. Here in southwestern BC, especially Vancouver, Victoria and Kelowna, the real estate developers, speculators and their banker buddies are still riding the upside of the curve. But as you'll notice the tulip market curve always starts to flatten before it starts to plummet. Real estate prices here, like almost all of the overblown commodity market's prices worldwide, have noticeably flattened recently. Wonder who the last fool into BC's overblown real estate markets will be?