The struggling Fitzroy merged with Brisbane to form the Brisbane Lions in 1996 and Schwarz says Melbourne, who suffered an embarrassing 10-goal loss to Gold Coast on Sunday at the MCG, are rotting away.
Schwarz said on Monday he could see no evidence that coach Mark Neeld's message was getting through to his players.
"It's one of the saddest times for Melbourne supporters and the club as a whole," Schwarz told SEN Radio.
"As a Melbourne member and as a Melbourne person who loves their club dearly, we're watching the club decay before our very eyes.
"It's in freefall. Whether it's on-field or off-field, you cannot see any light at the end of the tunnel."
Schwarz told Fox Footy last month he didn't expect second-year coach Neeld to hold his job for a third season.
"About Mark Neeld, I can't see that changing. I haven't seen the players' attitude change," Schwarz added on Monday.
"They just don't seem to be responding to whatever messages they're being given.
"I never wanted to ever say this because you don't like to be derogatory towards an ex-club. But Fitzroy were on their knees and eventually they were no longer in existence.
"Melbourne is a bee's whisker from being in the Fitzroy position."
Schwarz said he felt three or four years ago Melbourne were in front of Richmond in terms of rebuilding their side.
"Now the gap is probably six or seven years. How that happens and how it got to that stage, I have no idea how," he said.
Schwarz is urging former Essendon chief Peter Jackson to make big and immediate changes in his new role as the Demons' interim boss.
"For far too long the club has agreed to second-rate appointments and to second-rate decisions," Schwarz said.
"We now need someone to go in there and not worry about jobs and worry about their mates.
"Peter Jackson will come in with the machete and he will start chopping. It needs to be done.
"You cannot continue down the same path.
"You might hurt some feelings along the way but guess what? The club is better than feelings.
"You've got to get that base right and at the moment the base is rotting and it's dying.
"These problems run deeper than the players who are running out on the field. These problems run deeper than Mark Neeld's appointment."
