Michael Burry is a former poster at SI who founded a hedge fund to short subprime. He figures prominently in Michael Lewis's The Big Short. I have set forth a piece he wrote for the Vanderbilt U. alum magazine. I have cut off the first two thirds of it as it simply describes subprime and why he shorted it, a familiar story, but I have linked his comments on the future:
vanderbilt.edu
Missteps to Mayhem
Inside the Doomsday Machine with the outsider who predicted and profited from America’s financial Armageddon.
BY MICHAEL BURRY, MD’97
I worry about the future of a nation that would refuse to acknowledge the true causes of the crisis. A historic opportunity was lost. America instead chose its poison as its cure, and the second “Greatest Generation” would never be born.
Today I expect the U.S. government to attempt continuing an easy money policy into the next presidential term—past the meat of the foreclosure crisis, and past the corporate and public financing humps that are upcoming. Junk bonds, incredibly, again are at all-time highs. Quantitative easing seems to be working for now. But this is an invalid validation of what America is doing, a Pyrrhic gamble. As we continue to debase our currency, Bernanke says he is not printing money. Yet I receive an email every day from the Fed saying we just bought another $7 billion or $8 billion in treasuries, monetizing the debt. The scope and breadth of quantitative easing raise severe questions about the Treasury’s needs.
Government borrowing of money for the purpose of injecting cash into society, bailing out banks, brokers and consumers, is an easy decision for a population that has not yet learned that short-sighted easy strategies are the route to long-term ruin. We never quite achieved the catharsis necessary to stoke a deep reevaluation of our wants, needs and fears.
Importantly, the toxic twins—fiat currency and an activist Fed—remain even more firmly entrenched with the financial reforms of last year. The Federal Reserve, having acquired new powers of regulation, has insisted that nothing in the field of economics or finance was of any help in predicting the crisis—period, no more comments. It’s a worthless conclusion that guarantees we’ll make the same mistake again and again.
We need better leaders, but frankly this isn’t going to happen. A problem cannot be solved if it is never acknowledged.
Realizing the economy was on the verge of collapse, I did the logical thing: I sought to profit from it.
Taxes need to be raised, spending needs to be cut, and loopholes need to be shut if we are to have any hope of returning to a stable base. Home ownership should not be a policy of the U.S. government. The banking system needs substantial reform and bank breakups. Glass–Steagall needs a second run in a strong form. And 22.5 million public workers have no business unionizing against the taxpayer. The list of things that won’t happen—but should happen—goes on and on.
By 2020, interest expense on our national debt could very well exceed $1 trillion. All personal income taxes collected in the U.S. in one year do not total $1 trillion. Our country’s math is scary big, but even scarier is that it simply doesn’t work.
Arguments about blooming economic recovery must be considered alongside the fact that all this debt, and all the money being printed, amount to a very real bill, a real tax on our future. This bill has not yet come due, except for savers and those on a fixed income. But it’s a debtor’s prison for our children.
Sober analysis on the part of the individual is paramount. We must remember that entire societies can follow the wrong path for a very long time and run aground.
Nothing is wrong with breaking from the social norm to ensure good outcomes. Legacies are a terrible and sometimes fatal burden in a rapidly changing world, and common sense must rule when it comes to career paths and life choices. This is not a time for responsible individuals to tolerate blind faith directed toward any man or woman. This is not a time to follow.
|
