How did everyone fail to recognize an $8 trillion housing bubble? Peter Thiel weighs in on what happened, and why he sees the next 20 years as crucial.
Question: How did hedge fund analysts fail to recognize an $8 trillion housing bubble? (Dean Baker, Beat the Press)
Peter Thiel: There were many people who failed to understand the housing bubble. I think that there were many different reasons because we were trying to analyze the psychology of it. The one that I find fascinating is why, how it was possible to have a housing bubble only five years after we had a tech bubble. One would have thought that you could not have had the same kind of massive financial delusion happen within five or six years. And normally, you require all the people who lived through one of these things to die before you can have this happen again and one would have thought nothing would happen for 50 or 60 years. So, I think the fascinating question in my mind is why this happened. I'm tempted to give sociological answers along the lines that the baby-boomers were America's dumbest generation ever, but I don't really know – I don't have a good answer on why.
Question: To what extent do you think the financial crisis was induced by monetary policy? (Will Wilkinson, The Fly Bottle)
Peter Thiel: The financial crisis was induced by monetary policy, at least to the extent the people believed in the myth that central bankers had figured everything out, that things were efficient, that in effect there was put underneath the markets where things would get bailed out where things could never go down. And if you believe that things could never go down, then they will tend to go up and up and up and up and then they will crash very badly. So, I think that we would have been much better served had we been less complacent and we would have fallen less far if we had been watching out a little bit for the down side and not assuming that there were financial policymakers who were doing the job for us.
Question: The jobless rate just dropped to 10 percent. Do you see us reaching the end of the tunnel any time soon?
Peter Thiel: There have been many people ask many questions about whether the recession will end with the 'U' or 'L' or a 'V' shaped recovery and sort of a lot about the tactical questions, you know, how high is the employment rate going to go, is it ticking down, is things turning a corner. I tend to think the really important questions are not about the next six months, but are about the next 20 years. The next six months is driven by the financial system liquidity, what central banks do, what they don't do. The next 20 years are driven by science, technology, a set of questions that are very different from the ones people are focused on.
Recorded on December 7, 2009