The Big Short's Michael Burry Warns "The Little Guy Will Pay" For The Next Crisis

Tyler Durden's picture

We are sure, just as many of the so-called "smartest men in the room" ignored him last time, so every status-quo-maintaining, asset-gathering, commission-taker will be quick to dissonantly shrug off Michael Burry's (the economic soothsayer from Michael Lewis' book "The Big Short") warnings this time.

As reports, in an email, which readers of the book will recognize as his preferred method of communication, the real-life head of Scion Asset Management answered some of questions about the state of the financial system, his ominous-sounding water trade, and what, if anything, we can feel hopeful about...

The movie portrays all of you as kind of swashbuckling heroes in some ways, but McKay suggested to me that you were very troubled by what happened. Is that the case?

I felt I was watching a plane crash. I actually had that dream again and again. I knew what was happening, but there was nothing I, or anyone else, could do to stop it. The last day of 2007, I couldn’t come home. I was in the office till late at night, I couldn’t calm down. I wrote my wife an email and just said, "I can’t come home; it’s just too upsetting what’s happening, and I didn’t want to come home to my kids like this." As for punishment of those responsible, borrowers were punished for their overindulgences — they lost homes and lives. Let’s not forget that. But the executives at the lenders simply got rich.

Were you surprised no one went to jail?

I am shocked that executives at some of the worst lenders were not punished for what they did. But this is the nature of these things. The ones running the machine did not get punished after the dot-com bubble either — all those VCs and dot-com executives still live in their mansions lining the 280 corridor on the San Francisco peninsula. The little guy will pay for it — the small investor, the borrower. Which is why the little guy needs to be warned to be more diligent and to be more suspicious of society’s sanctioned suits offering free money. It will always be seductive, but that’s the devil that wants your soul.

When I spoke to some of the other real-life characters from The Big Short, I was surprised to hear that they thought that financial reform was pretty effective and that the system was much safer. Michael Lewis disagreed. In your opinion, did the crash result in any positive changes? 

Unfortunately, not many that I can see. The biggest hope I had was that we would enter a new era of personal responsibility. Instead, we doubled down on blaming others, and this is long-term tragic. Too, the crisis, incredibly, made the biggest banks bigger. And it made the Federal Reserve, an unelected body, even more powerful and therefore more relevant. The major reform legislation, Dodd-Frank, was named after two guys bought and sold by special interests, and one of them should be shouldering a good amount of blame for the crisis. Banks were forced, by the government, to save some of the worst lenders in the housing bubble, then the government turned around and pilloried the banks for the crimes of the companies they were forced to acquire. The zero interest-rate policy broke the social contract for generations of hardworking Americans who saved for retirement, only to find their savings are not nearly enough. And the interest the Federal Reserve pays on the excess reserves of lending institutions broke the money multiplier and handcuffed lending to small and midsized enterprises, where the majority of job creation and upward mobility in wages occurs. Government policies and regulations in the postcrisis era have aided the hollowing-out of middle America far more than anything the private sector has done. These changes even expanded the wealth gap by making asset owners richer at the expense of renters. Maybe there are some positive changes in there, but it seems I fail to see beyond the absurdity.

How do you think all of this affected people's perception of the System, in general?

The postcrisis perception, at least in the media, appears to be one of Americans being held down by Wall Street, by big companies in the private sector, and by the wealthy. Capitalism is on trial. I see it a little differently. If a lender offers me free money, I do not have to take it. And if I take it, I better understand all the terms, because there is no such thing as free money. That is just basic personal responsibility and common sense. The enablers for this crisis were varied, and it starts not with the bank but with decisions by individuals to borrow to finance a better life, and that is one very loaded decision. This crisis was such a bona fide 100-year flood that the entire world is still trying to dig out of the mud seven years later. Yet so few took responsibility for having any part in it, and the reason is simple: All these people found others to blame, and to that extent, an unhelpful narrative was created. Whether it’s the one percent or hedge funds or Wall Street, I do not think society is well served by failing to encourage every last American to look within. This crisis truly took a village, and most of the villagers themselves are not without some personal responsibility for the circumstances in which they found themselves. We should be teaching our kids to be better citizens through personal responsibility, not by the example of blame.

Where do we stand now, economically?

Well, we are right back at it: trying to stimulate growth through easy money. It hasn’t worked, but it’s the only tool the Fed’s got. Meanwhile, the Fed’s policies widen the wealth gap, which feeds political extremism, forcing gridlock in Washington. It seems the world is headed toward negative real interest rates on a global scale. This is toxic. Interest rates are used to price risk, and so in the current environment, the risk-pricing mechanism is broken. That is not healthy for an economy. We are building up terrific stresses in the system, and any fault lines there will certainly harm the outlook.

What makes you most nervous about the future?

Debt. The idea that growth will remedy our debts is so addictive for politicians, but the citizens end up paying the price. The public sector has really stepped up as a consumer of debt. The Federal Reserve’s balance sheet is leveraged 77:1. Like I said, the absurdity, it just befuddles me.

The last line of the movie, printed on a placard, is “Michael Burry is focusing all of his trading on one commodity: Water.” It sounds very ominous. Can you describe this position to me?

Fundamentally, I started looking at investments in water about 15 years ago. Fresh, clean water cannot be taken for granted. And it is not — water is political, and litigious. Transporting water is impractical for both political and physical reasons, so buying up water rights did not make a lot of sense to me, unless I was pursuing a greater fool theory of investment — which was not my intention. What became clear to me is that food is the way to invest in water. That is, grow food in water-rich areas and transport it for sale in water-poor areas. This is the method for redistributing water that is least contentious, and ultimately it can be profitable, which will ensure that this redistribution is sustainable. A bottle of wine takes over 400 bottles of water to produce — the water embedded in food is what I found interesting.

What, if anything, makes you hopeful about the future?

Innovation, especially in America, is continuing at a breakneck pace, even in areas facing substantial political or regulatory headwinds. The advances in health care in particular are breathtaking — so many selfless souls are working to advance science, and this is heartening. Long-term, this is good for humans in general. Americans have so much natural entrepreneurial drive. The caveat is that it is technology that should be a tool making lives better in the real world, and in line with the American spirit of getting better and better at something, whether it’s curing cancer or creating a better taxi service. I am less impressed with the market values assigned to technology that enhances distraction. We don’t want Orwell’s world, but we don’t want Huxley’s world either.

*  *  *

His prescient warning from many years ago remains just as crucial (perhaps even more so)...

"In this age of infinite distraction... when the entitled elect themselves, the party accelerates, and the brutal hangover is inevitable."

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InjectTheVenom's picture

the "little guy" gonna get schlonged !!

KesselRunin12Parsecs's picture
KesselRunin12Parsecs (not verified) InjectTheVenom Dec 29, 2015 12:31 PM

by a schlong nose. Those are the kind that really hurt!

Ham-bone's picture

Growth is all about greater flow, not stock.  Said otherwise, growth in consumption and GDP generally happens via population growth, wage growth, and/or credit growth...the greatest being population growth.  So, in that context, the below probably matters (a lot).

In 2008, the US Census Bureau projected strong population gains through 2050 helping to drive growing consumption and US economic growth.  The projected population growth was generally balanced across age segments primarily driven by gains in young Hispanics due to higher birth rates and immigration.  But in 2012, in a story here the Census acknowledged that these were bad assumptions as these trends were not continuing, as had been expected.  In December of 2014, again here, the US Census affirmed and further downgraded it's population projections from 2012.  The Census now anticipates a 32% reduction from it's previous 2008 projections for US population growth from 2015 to 2050 (or about 36 million fewer Americans).

The reductions in population growth across the age segments, and as mentioned above, the 0-24yr/old population growth was slashed by 76% or 24 million fewer youth and 40% fewer 25-44yr/olds.  That this isn't front page news is, I suppose, a sign of the times.  GDP and potential economic growth estimates weren't ratcheted back to match the huge slowdown in young vs. continuing growth among older populations.


What is to come only gets worse.

Troy Ounce's picture

"The advances in health care in particular are breathtaking — so many selfless souls are working to advance science, and this is heartening. Long-term, this is good for humans in general."


Nope. It comes from America and is therefore per definition predatory, cannot be trusted and should be rejected.

Handful of Dust's picture

<< But the executives at the lenders simply got rich. >>


It's very instructive about our culture, gubmint and legal system to see people like Corzine and Mozillo walking around free or living in their McMansions.

Yes We Can. But Lets Not.'s picture

Synopsis: Burry - "DO NOT TAKE THE 'FREE' MONEY"

JRobby's picture

This is a very large component of "starve the beast"

If you need a roof you need to deeply consider the ramifications of buying vs renting right now. There is no reason to believe real estate is going to rise in the future considering shadow inventory and current UN-naturally low rates.

If you need a car you need to deeply consider buying something you can afford instead of an 72 or 84 month new car purchase.


newnormaleconomics's picture

JRobby, good point.

Generally, national real estate prices track the aggregate of the growth rates of labor force/employment and wages, the average of which has decelerated from ~5-6% since the 1960s-80s to 3.1% since 2000 and 2.5% since 2007. 

While few would concede it, US Housing Bubble II occurred in 2012-14 at the same bubbly level and rate above wages and employment as during the 2000s bubble, 1987-88, and the mid- and late 1970s. The deceleration of the rate of price increase is deflating to similar average rates at the onset of the housing busts in 2006-07, 1990, and the 1970s. 

The implication of the housing (Kuznets) cycle is for at least another 20% real price decline in the next 3-5 years, and 30-40% in the bubbliest areas, especially for high-end, buy-up houses this time around. 

Historically, the housing bubble in the 2000s was similar to the one in the 1920s, and this time around the housing, equity, and debt market declines will be global, the first of its kind since the late 19th century. 

Therefore, houses bought with 20% down or less since 2000-06 and 2012 to date will have no little or no equity or be underwater in the next 5 years or longer, requiring yet another round of printing by the Fed to buy MBS for a bailout of Freddie, Fannie, and Ginnie, if not some local/regional banks, notably in the states that boomed during the shale oil bubble and the bubbliest areas on the coasts. 


Leopold B. Scotch's picture

... Because the little guy wasn't already getting screwed?  Yeah... 5-year cd 1.00 does the job.

Dame Ednas Possum's picture

The Fed failed!

Hardly... they succeeded in their obvious objective to transfer society's wealth into the pockets of the tribe.

Same as it ever was.

God's picture

There will never be another crash in our lifetime.

Mark Haines "generationion low"! The he got whacked for spilling the beans.

J S Bach's picture

Such bull shit.  The "little guy (sucker)" always pays.  What we need to do is make the banksters pay - with their lives.

SuperRay's picture

The fundamental issue is that "growth" is unsustainable. Based on the exponential model, we will not have infinite growth. It's not possible Of course, no one wants to hear this. Mike Rupert, we hardly knew ya

Never One Roach's picture

Legacy from the most admired man in america, mofos!

FEDbuster's picture

"Do not take the free money" reminds me of the old saying "there's always free cheese in the mouse trap".  Saw where Dr. Burry has bought quite a bit of farmland.  Actual physical farmland, not farmland etfs.

aurum4040's picture

Exactly.... I've had the same thought for 15 years now... if I didn't have a 9 year old son, 'it' would have already happened by my own personal doing and I am not bullshiting anyone... 

armageddon addahere's picture

Synopsis: Burry - "DO NOT TAKE THE 'FREE' MONEY"


For the same reason you don't take the free candy from the stranger in the white van?

God's picture

TSA was created to STOP us from flying so much. They harass us until we just give up flying.

The oil is GONE!

newnormaleconomics's picture

After all, the system is the definition of rentier-parasitism and predator-prey, winner-take-all rules and outcomes. The predators are the top 0.001-1% and everyone else is prey, that is, until there's no blood left from the peasants' stone cold carcasses. 

The predators have no competition and are not accountable to anyone but themselves. They say it's evolution, but they make the rules, enforce them, and increasingly disproportionately benefit. 

Then again, who's to say that sociopathy is not the advanced state of human ape evolution, especially in a world of human ape population overshoot? 

I suspect that is what we are witnessing, which implies that the evolutionarily advanced human ape sociopaths won't hesitate if the need arises to exterminate as many of us evolutionary dead-ends as required. 

But consider that prior to the onset of the Oil Age and Second Industrial Revolution in the late 19th century and the advent of public sanitation and vaccinations, the typical male's lifespan was age 45-50. That was sufficiently long enough to sexually mature, be productive and self-supporting, couple, reproduce, and likely live long enough to see one's children come of age, couple, and reproduce, after which one's body progressively deteriorated and self-support become difficult to impossible.

That's all Nature/evolution ACTUALLY requires per its design for human apes. We've only lived beyond age 50-55 for the average lifespan in the West for about a century, i.e., two of those previous average lifetimes. 

Moreover, 50-70% of males worldwide (mostly in SE Asia, Africa, Central Asia, and parts of the Middle East) have an average lifespan of age 57-59, so a large majority of men today are living the 19th-century conditions for lifespan, and likely so will their children and grandchildren.

The point is that pre-industrial or pre-Oil Age human apes are born, live, and die as humans have for most of our existence spanning tens to hundreds of thousands of years, and millions of years before for our predecessors.

But affluent westerners have lifespans of 70-80+ years, but not necessarily lives of enviably high quality, security, and contentment, as aging and dying is becoming prohibitively costly to individuals, households, and society as a whole. 

So, for the readers in their 50s or older (99% male, no doubt), you're living as long or longer than 99.99999999% of all human apes have lived for our existence as a species, but Nature's evolutionary design does not need you (us) to persist in any significant share of the human ape population. In fact, you (we) are more valuable to Nature as dust for plants to feed younger human apes than we are breathing and consuming scarce resources.  

For readers younger than age 50, enjoy life while you can because evolution's clock is ticking down on you toward your appointment with dust.


JRobby's picture

your appointment with dust

We all have it coming


RaceToTheBottom's picture

The outcome of the "war on the 99%" by the 1% will be a general lessening of productivity increases that America is generally known for.


Why work hard when you are just going to get fucked over?


Just Go Gault.  Fuck the rentiers of WS.

Raging Debate's picture

Newnornal - Good comment. We're at the end of evoution for man. Dont expect us to act anything else as squirrels for the winter to the very end. Since we are so close I plead to finish but only a percentage agrees. Fortunately enough but expect pain as always to awaken the majority. 

jemlyn's picture

John Mauldin and others are so upbeat about the progress in medical discoveries and the possibility that we may make it possible to live to be 125 or even 150.  Who is paying for this research?  The people as a whole, R&D surcharges on drugs and procedures, government funding for science.  Who will benefit?  Maybe Mauldin will and his elite buddies but none of this will be available to joe sixpack and it would be disasterous if it were.  The productive aged people will soon be struggling to support those who live to be 80.  I think we should stop funding this kind of medical research.

Buck Johnson's picture

I know, Corzine should have went to prison it was clear cut what he did and they didn't go after him.  Because he was the main financial bundler for Obama on Wallstreet.  


tarabel's picture



Reject away. 

The Internet comes from America as well. We'll miss you.


Vendetta's picture

"The advances in the cost of healthcare in particular  are breathtaking ... "  There, fixed it for ya'

robertsgt40's picture

It really doesn't make any difference if new technologies come along if they're controlled or surpressed by a select few.  Ask the all the widows of the recently offed cancer research doctors how well "innovation" and discovery worked out for them.

KnightTakesKing's picture

No worry, Ham Bone. We will import millions from Syria and the Middle East. Problem solved!

tarabel's picture



Hey, it's time we got some new cuisines around here.

Parboiled goat on flatbread with a side order of camel's eyes sounds like it might hit the spot just right.

Winston Churchill's picture

Thats not an eyeball, although male camels do have two of them as well.

newnormaleconomics's picture

Right, Ham-bone. US real potential GDP per capita is no more than 0.5%/year vs. the long-term 2.1% and 2.6% during the 1980s to early 2000s.

The aggregate of wages and PPI finished goods at the record low for labor share of GDP implies reported CPI around 0%. 

The change rate of bank lending (less interbank loans) to GDP implies trend money supply growth of no more than 2.5%, which is the post-2007 trend rate for nominal GDP (less than 2% per capita) and working-class wages. 

So, the "new normal" of "secular stagnation" is 0.5% real GDP per capita, sub-2% nominal GDP per capita, 2% wage and money supply growth, and ~0% reported CPI.

That's as good as it gets, and demographic drag effects, debilitating dis-ease care costs, and fiscal constraints will further weigh on the rate of growth herefter. 

But we've been here before: Japan since the late 1990s; 1930s-40s; 1890s; and 1830s-40s. We emerged from the previous deflationary eras via debt-deflationary wipeouts that cleared the decks and/or by war (WW II, Spanish-American War, Boer War, Russo-Japanese War, Mexican War, etc.). 

So, this time is likely to be no exception. We will have a debt- and asset-deflationary wipeout that persists, a HUGELY disruptive (and inflationary) regional or world war, or a combination of the two; otherwise, the world follows further the experience of Japan since the early 2000s.

Financialization, debt/GDP, BIG gov't to GDP, and neo-Keynesianism implies the latter indefinitely with wars, mass migration, failed states, and increasing destabilization at the outer core and periphery. 

But it's all good . . . 

NotApplicable's picture

The only growth that ultimately matters is sustainable growth. Which can only occur with growth in savings, as it is the basis for growth in sustainable demand.

Then again, without the parasitic monetary system, continual growth wouldn't even be necessary. At the moment, all we're doing is to try and replace blood at a rate faster than the vampires suck it out of us.


sherryw's picture

Indeed! Harry Dent has been on about this for a long time too..

LibertarianMenace's picture

The underlying population dynamics cited have been well known by honest observers since the 70s. It doesn't surprise me that the wishful thinkers in .guv are the last to figure it out.


Harry Dent for example, was so far ahead of the curve, that the putzes still think he's wrong. The second and third derivatives below levels of replacement aren't just national either, they're global.


When the average age tends toward life expectancy, the population goes extinct. It doesn't explode for example, as does a "bomb". Remember that one?

NoDebt's picture

"The biggest hope I had was that we would enter a new era of personal responsibility. Instead, we doubled down on blaming others, and this is long-term tragic."

Blame, for lack of a better word, is good.  Blame WORKS.


CheapBastard's picture

ZH needs to hold its own vote on The Most Admired Man and Woman of the Year.


Michael Burry might be near the top along with Schiff, Trump and Deez Nutts.


Greed & blame works until it doesn't, Mr. Gecco.

MrNosey's picture
MrNosey (not verified) InjectTheVenom Dec 29, 2015 1:29 PM

The little guy always loses....nothing new there!

One occurring theme joins this story together with so many others....can you guess what that is?

illyia's picture

And, apparently the banksters were just...just...just forced! Backed up into a corner by the heartless hands of  Frank and Dodd! Whoa be the poor abused banksters.

banks were forced, by the government, to save some of the worst lenders in the housing bubble, then the government turned around and pilloried the banks for the crimes of the companies they were forced to acquire.


Whoa, so sad for the poor... - Oh, wait, wasn't there a little thing about securitization... where they needed more and more mortgages to slice and dice to make that delicious CDOsquared souffle ? Were not the mortgageEs simply fulfilling the law of supply and demand as advertised?

Okay. I am being too harsh. BoA should not be punished for ML's, Countrywide's, etc., problems. But it surely must be punished for its own!



RaceToTheBottom's picture

They could have broken up the underwater, failing banks and then given the accounts to the remaining banks, just like the FDIC does on its Friday visits.

Why did they not do that?  

Derivatives, not mortgages outstanding.

So any bozo that blabs about the banks being forced to buy bad banks is an idiot:

  • Banks picked their own prices of their purchases
  • Banks bailouts that followed were to keep the banks from going under because of bailouts, not because some poor folk lost their houses due to flat screens
Vendetta's picture

"banks were forced, by the government, to save some of the worst lenders in the housing bubble, then the government turned around and pilloried the banks for the crimes of the companies they were forced to acquire."

should be:

"favored banks were allowed, by the government, to get larger by accumulating some of the least favored lenders in the housing bubble, then the government turned around and pilloried levied miniscule fines on the banks for the crimes of the companies they were forced allowed to acquire for pennies on the dollar."


taoJones's picture

Didn't the little guy pay for the last crisis too?


MSimon's picture

the "little guy" gonna get schlonged !!


The correct word is shtupped.

Dr. Engali's picture

What the fuck is he talking about? The little guy pays for every crisis.

Schroedingers Cat's picture

Schlonged with a great big Red, White and Blue DICK

Shizzmoney's picture

The "little guy" always gets screwed; it's the nature of the system.