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The Big Short's Michael Burry Warns "The Little Guy Will Pay" For The Next Crisis
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 NYMag.com 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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I always enjoy reading intelligent thoughts. Such a rare commodity these days.
Burry, blaming the unwitting borrowers, proves he's no hero but just another scumbag.
Michael Lewis deceived the public and covered up for the status quo corruptus-- turning villains into heros.. Yves Smith of Naked Capitalism lays it out plain and simple:As I already wrote here,
Yves basically declares that Michael Lewis is not morally perfect and therefore a villain of the highest order.
Which is especially funny as Yves Smith in 2008/09 on notions "let the big banks fail/go bankrupt" effectively declared "we can't do THAT!",
and now she has to maintain her own dreamworld to avoid realizing that with her stance she has become a stooge for TPTB - willingly or unwillingly.
I'm no financial expert, but I believe that shorts are committed to buying their position at a future date. Without short covering, prices would drop lower. So I fail to see what is so immoral about that.
I believe that Lewis and the movie producers performed a valuable service by warning the public to the depth of corruption in the financial world.
The idea that it is immoral to make money betting against a fraud is pretty dumb. Those of us who are stacking gold and silver are doing the same thing.
Spiritof42, I would not say it's immoral to buy or sell shorts
I would say it's immoral to permit banking systems to be dependent from both state bailouts and central bank liquidity... while allowing them to engage in something that has very little to do with banking and it's more properly financial trade bordering to a casino of contract bets
the immorality of the thing is in the socialization of risk while allowing a privatization of profits
in short, if anything is "systemic relevant", and so not allowed to fail... it should be nationalized or restricted or regulated or smashed in small pieces until it isn't anymore
the immorality is in the "hostage taking" capabilities, which allow a "Hunk" to claim: cough up a trillion or you'll have tanks on the streets
the whole "finance world" used to be something like the grease in the machine, making up 2% of GDP. now, in some countries, it's The Industry, period
give us private capitalism, straight, or state capitalism, straight. both morally defensible positions, compared to this crony capitalism that involves parts of the two... depending from how things are going
ghordius, +100.
I agree with eveything you said. The idea that shorting is a wrongdoing comes out of the mouths of fraudsters and believed by masses of gullible people.
Half in federal mm fund, half in gold. Paid off house and no debt. Pension, SS and Medicare. I figure whichever way the shit shack topples I'll have enough to get me to the graveyard. Meanwhile, work on personal sanctity, help others, and enjoy the evenings with a big bong hit. Not too complicated. I truly enjoy the ZH insight. Bless y'all.
So does this mean it's going to get worse before it gets better?
much much worse, seriously.
it is the system, structural shit man.
The next crisis and the little guy is going to get his big gun out.
"The Big Short" - Scandalous Wall St exposé
"The Big Schlong" - Scandalous Hillary exposé.
or for her, it might be "The Big Oyster" -and pearl
If you have the right letters after your name and hang out with the right people, you can make some serious money via...Book Tours, Speaking Engagements, posting on or hosting a cool/hot Website.
It's not what gets said that is The Attraction and what gets the applause, but Who says it. That way, you can play the one-upmanship with your trendy friends and colleagues, and impress your next prospective employer.
It's a world addicted to clicks.
This is one way the little guy will pay for the next crises. Martin Armstrong reports that the EU officially made bailouts the law of the land.
http://www.europarl.europa.eu/news/en/news-room/20131212IPR30702/Deal-re...
I believe they are now legal in the USSA and Canada too.
It's a good practice to keep no more money in the bank than you need for everyday expenses.
This RAT made big shekels from the 2008 crisis and the Hollywood jews turned him into a hero.
How about a COLA .... for the "Social Suck Set" .... we actually paid into the system ?
.... and we spend our money .... very "judiciously" (Judenlichlisch) ?
well it's just a movie after all...but this guy can kiss my ass..CRIME, is crime. nobody went to jail- NOBODY..half a trillion pulled in one day from MM and SEC did nothing...the little guy got over leveraged BS. is sick to read.
in crime someone always gets the money..we know alot of them-all with get out of jail cards, thanx mr holder yu fucking corrupt shit.
trying to blame the public is truly sick and laughable. sell this shit someplace else..the big short you say..I say fuck you.
Your kids live in your basement .... because, Muslims and immigrants .... are sopping up all .... entry level housing .... with their lavish subsidies .... it's just another stealth tax .... like Obamacare ?
Little guy is gonna pay? Are you fucking kidding me? Have you looked at the inside of the US. The little guy has BEEN paying for the last 8 years. Debt expansion ALWAYS fucks the little guy with unseen and uncounted forces like hidden inflation, 0 interest rates, massive undereported unemployment. This has become class warfare on scale not seen in the US since the 30's.
Obama's "War on the Middle Class" .... there's no war on women .... on gays .... on terrorists .... on government employees .... on the poor .... on anybody .... except the middle class ?
I would like to buy .... a "Lifestyle Annuity" .... with cradle to grave coverage .... for my yet unborn chile .... I want it to match or better .... government care for niggers .... what would it cost .... $10 million .... 40 million wards of the state X $10 million = $400 trillion .... more than the assets of the 1% ?
Unfunded government liabilities .... are assets .... to the beneficiaries .... why is that not calculated into .... the asset distribution models .... that are bandied about ?
I'm really starting to wonder about thie theory that 'printing money' and 'easy credit' cannot be sustained. Why not? As long as they have the means to print money they can never go broke and as long as they have a gun pointed at the world in the form of the largest military ever conceived of in history, the rest of the world will keep taking it. I dont see a flaw in the plan, if any countries try to back away from the dollar they send in our freedom fighting heroes to rip their government apart and replace it with one which will play ball. It's genius, and I really find it hard to believe that this will change in any of our lifetimes.
The updraft of cheap money .... is like a tornado .... sucking in Muslim terrorists .... and all classes of immigrant riff raff .... that will crimp the sustainability models .... for Ponzi Paradise ?
So did the Romans and other empires. They fail to act in the interest of the common citizenry, become elitist, lose support, have a crisis in confidence and come crashing down. Even empires ultimately need the consent of the people to survive long term. Frag the PTB!
But...do they have the best military in the world? While the US was "liberating" the various countries GEN Clark was describing, the Russians were crafting equal or better military systems.
I assert the US lost Primacy when Bath House backed down over the Syrian attack in 2012 when he refused to enforce his red line with cruise missile attacks on Syria. The Russians surrounded the Syrian coast with their warships and dared the US to fire missiles over them. What would have happened? The Russians have always had a strong commitment to science and ECM. We now know they possess some kind of advanced ECM system which can jam or neutralize enemy C4ISR.
What would have happened if the USN had fired those cruise missiles? Would they have jammed?
That event was the first real face-to-face since the Cuban Missile Crisis. This time, the US backed down.
The growing Fascism in the US is not going to endear too many with the idea of defending the Bankster/War Class. The BRIICS are using each others' currency. They are acquiring Gold.
They are going to try and kick the can again and find it bouncing off a wall and hitting them in the head. When? That's the Trillion Dollar Coin question....
Yet as good as Dr. Burry is in this, no where do I see him wade in and slam fiat currency, which steals the value of a person's savings over the course of a lifetime, leaving him with paltry resources for creating wealth without having to borrow more fiat credits or retire without being a burden to society, and socialism, which is anathema to laissez faire free enterprise, which serves to minimize barriers to entry into markets, thus levelling the playing field for the little entrepreneur and neutralizing the destructive politician/fat cat, choosing winners and losers, vote buying scam that is our current criminal, banksta, fascist, fraudulent system. They are creating a individualist society and the middle class must respond or die.
i guess dr burry, thinks it was ol john q public who created cds and all the derivative debt vehicles - then leveraged them, yep i remember 100 x leverage on my portfolio of cds's..that cunt blythe masters ate my lunch.
Post fat finger, rant and clunky Kindle edits:
Yet as good as Dr. Burry is in this, no where do I see him wade in and slam fiat currency and socialism. Fiat steals the value of a person's savings over the course of a lifetime, leaving him with paltry resources for creating wealth without having to borrow more fiat credits or retire without being a burden to society, and socialism is anathema to laissez faire free enterprise, which serves to minimize barriers to entry into markets, thus levelling the playing field for the little entrepreneur. It helps neutralize the destructive politician/fat cat, choosing winners and losers, vote buying scam that is our current criminal, banksta, fascist, fraudulent system. They are creating a fascist society and the middle class must respond or die.
Mr Burry, one does not get a hang-over from licking crank from PK's ass. Im sure it sounded good when you wrote it.
You are constitutionally incapable and unqualified to detirmine where our economy has gone awry because of where you have chosen to focus your interests. Though Ill bet you execute a fine strangle. A plumber would have a better chance of seeing and resolving our problems.
Based on the stories here and the movie preciews, I bought the book and couldnt put it down
The real enemies were the ratings agencies. Wannabe big shots who couldnt dare do their job correctly for fear of losing business
Those cunts should have been made bankrupt and I thought it was justice when their stocks were shorted
Didnt they later claim that their ratings were free speech protected "suggestions" not to be taken as scientifically accurate
The real enemies were the ratings agencies.
There was a scene in the movie where some of the shorts went to Standard & Poors to know why the mortgage backed securities weren't graded down. When pressed, the woman confessed that if they graded the securities down, the banks would take their business elsewhere.
Remember when S & P was pilloried by the feds a few years ago for downgrading government bonds by one notch.
Exactly Spirit. That is when they added Moodys and S and P totheir short list
Lewis is a good writer. I would like to read his take on how Obama sanctified the theft with Too Big to Fail
Sheila Bair's book and Ron Susskind's Confidence Men were good.
I have the title: Foaming the Runway
That was Geithner's comment on buying up the garbage loans at 100 cents on th dollar
Burry is very bright. Perhaps a genius.
He's giving everyone a heads up on confiscation--the big bail in where the little guy will get the bill
A friend just forwarded this link to me, from the U.S.
Honesty hurts...
https://www.linkedin.com/pulse/truly-big-shorts-john-m-cunningham?trk=pr...
The collusion between the federal government and banks with the Federal Reserve, FDIC, FHA, HUD, Freddie Mac, Fannie Mae, Community Reinvestment Act and more is what led to the financial crisis.
When government gets in bed with big business we get: ratings agencies rubber stamping investments, regulators looking the other way, banks giving liar loans, the government bailing out banks and taxpayers paying for everything.
Abolish the Fed, FDIC, FHA, HUD, Freddie Mac and Fannie Mae. Repeal the Community Reinvestment Act.