Michael Burry, Real-Life Market Genius From The Big Short, Thinks Another Financial Crisis Is Looming

And sounds an awful lot like your good friend terp.  My favorite part is below, but I recommend reading the whole article. 

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.

Financial crises seem to happen every 20 years.

Someone will have to explain this one to me:

"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"

While I do believe there is a retirement crisis looming, I don't see how it is directly tied to low interest rates. The vast majority of retirement accounts are tied to the market, which has rebounded very well.

drummerboy said:

The vast majority of retirement accounts are tied to the market, which has rebounded very well.

How confident are you that the typical retiree has these accounts?

DaveSchmidt said:

drummerboy said:

The vast majority of retirement accounts are tied to the market, which has rebounded very well.

How confident are you that the typical retiree has these accounts?

What kind of accounts do you think are referred to in the OP's article?

"...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..."

CDs and bank savings, mostly.

drummerboy said:

Someone will have to explain this one to me:




"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"

While I do believe there is a retirement crisis looming, I don't see how it is directly tied to low interest rates. The vast majority of retirement accounts are tied to the market, which has rebounded very well.

There is a very large percentage of seniors who don't want to take any risk at all with their savings and depended on CD's, Treasury Bills, interest paid on savings accounts, etc., who have been decimated with zero interest rates. These are people who saved, didn't use their houses as ATMs, and thought that they had saved enough to be able to live comfortably in their senior years. They have been the ones that have been most hurt by the reckless ways of Wall St. and those individuals who used their houses as ATM's and bought houses with low-doc or no doc mortgages. Wall St. was bailed out as were many of the individuals who played the system. The seniors who saved are hurting.

cramer said:

drummerboy said:

Someone will have to explain this one to me:




"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"

While I do believe there is a retirement crisis looming, I don't see how it is directly tied to low interest rates. The vast majority of retirement accounts are tied to the market, which has rebounded very well.

There is a very large percentage of seniors who don't want to take any risk at all with their savings and depended on CD's, Treasury Bills, interest paid on savings accounts, etc., who have been decimated with zero interest rates. These are people who saved, didn't use their houses as ATMs, and thought that they had saved enough to be able to live comfortably in their senior years. They have been the ones that have been most hurt by the reckless ways of Wall St. and those individuals who used their houses as ATM's and bought houses with low-doc or no doc mortgages. Wall St. was bailed out as were many of the individuals who played the system. The seniors who saved are hurting.

401Ks were decimated in the crash (and without new money going in, it takes many more-folds of increases to make up for previous decreases). Interest policy would have either hurt seniors with CDs and saving accounts, or seniors who needed to sell their house to have money to move into other living arrangements that met their needs.

Since the pension lifeboats are gone, there is no 'social contract for generations of hardworking Americans'. It's just luck of the draw whether your financial choices end up being on the side that gets more pounded, or less pounded, by the unpredictability inherent in the capitalist financial system.

sprout said:

cramer said:

drummerboy said:

Someone will have to explain this one to me:




"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"

While I do believe there is a retirement crisis looming, I don't see how it is directly tied to low interest rates. The vast majority of retirement accounts are tied to the market, which has rebounded very well.

There is a very large percentage of seniors who don't want to take any risk at all with their savings and depended on CD's, Treasury Bills, interest paid on savings accounts, etc., who have been decimated with zero interest rates. These are people who saved, didn't use their houses as ATMs, and thought that they had saved enough to be able to live comfortably in their senior years. They have been the ones that have been most hurt by the reckless ways of Wall St. and those individuals who used their houses as ATM's and bought houses with low-doc or no doc mortgages. Wall St. was bailed out as were many of the individuals who played the system. The seniors who saved are hurting.

401Ks were decimated in the crash (and without new money going in, it takes many more-folds of increases to make up for previous decreases). Interest policy would have either hurt seniors with CDs and saving accounts, or seniors who needed to sell their house to have money to move into other living arrangements that met their needs.

Since the pension lifeboats are gone, there is no 'social contract for generations of hardworking Americans'. It's just luck of the draw whether your financial choices end up being on the side that gets more pounded, or less pounded, by the unpredictability inherent in the capitalist financial system.

sprout - This time, the zero interest policy has been in effect for 8 years. Yes, it did accomplish what it was intended to do, and caused a gigantic bull market off the lows.  Let's see what happens now that the Fed. has started to raise rates.

btw - I think that Bernake saved the US and probably the world from a gigantic financial collapse. 

cramer said:

There is a very large percentage of seniors who don't want to take any risk at all with their savings and depended on CD's, Treasury Bills, interest paid on savings accounts, etc., who have been decimated with zero interest rates. 

I couldn't find any breakdowns in a cursory Google search, but that's my understanding: that while the vast majority of the kind of accounts that drummerboy had in mind, and that many of us 23 percenters have, may be tied to the market, a large number of retirees do not have them. (According to one 2015 survey, only half of American adults have any money at all in the market.)

Btw - My favorite group is community banks. They're going to have to consolidate because of the regulatory burden that they're faced with. Look for banks selling below book value and good dividends with a history of raising them. There was a slew of mergers in 2015. For  many of them you have to make an appointment to purchase the stock, but that's a good thing for long-term investors. Look for banks that have a low beta (their stock prices aren't tied to the fluctuations of the market.)  You'll sleep well.

DaveSchmidt said:

drummerboy said:

The vast majority of retirement accounts are tied to the market, which has rebounded very well.

How confident are you that the typical retiree has these accounts?

I didn't say anything about the "typical" retiree. The typical retiree has almost nothing saved away. I'm talking about the fortunate few who have accounts worthy of calling accounts.

cramer said:

drummerboy said:

Someone will have to explain this one to me:




"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"

While I do believe there is a retirement crisis looming, I don't see how it is directly tied to low interest rates. The vast majority of retirement accounts are tied to the market, which has rebounded very well.

There is a very large percentage of seniors who don't want to take any risk at all with their savings and depended on CD's, Treasury Bills, interest paid on savings accounts, etc., who have been decimated with zero interest rates. These are people who saved, didn't use their houses as ATMs, and thought that they had saved enough to be able to live comfortably in their senior years. They have been the ones that have been most hurt by the reckless ways of Wall St. and those individuals who used their houses as ATM's and bought houses with low-doc or no doc mortgages. Wall St. was bailed out as were many of the individuals who played the system. The seniors who saved are hurting.

really? I'd like to see some numbers please about those people having substantial retirement accounts in CD's and the like. I don't think it's a "very large percentage".

My general point is that we do have a looming retirement crisis in this country, but it has little to do the low interest rates of recent years, and almost everything to do with the false promise of self-directed IRA's replacing defined benefit plans.

+1

With fed policy increasing the prime rate now, banks no longer have to increase savings rates due to increased capital requirement regulations.  Saving rates stay low.  Borrowing rates, as Sly and the Family Stone say, wanna take you higher.   

Still not finding a breakdown in my searches, but did come across this:

I don't know that Burry is saying that this itself is a looming crisis -- rather, that it has caused pain for enough retirees to be worth mentioning.

"really? I'd like to see some numbers please about those people having
substantial retirement accounts in CD's and the like. I don't think
it's a "very large percentage".
My general point is that we do
have a looming retirement crisis in this country, but it has little to
do the low interest rates of recent years, and almost everything to do
with the false promise of self-directed IRA's replacing defined benefit
plans."

drummerboy - I'm not talking about people who have retirement accounts. I'm talking about people who have to earn something on their savings  not in a retirement account. It might be difficult for you to to realize that there are people who don't have retirement accounts (although many of them might have participated in a defined benefits pension plan.)  

To sprout's point, I don't see it as a zero sum game. I haven't researched history, but I'm not aware of any other time when savers had to sacrifice in order to bailout those who suffered losses in the market . Interest rates might have been reduced, but not to zero, and certainly not for seven years. Of course, Bernake was an expert on the Great Depression, and did what he had to do to avoid another Great Depression.  We're in an earnings recession now, and savers are still hurting. Corporations aren't using cheap money to make investments - they're using it to buy back their stock, so as to increase the value of their stock. 

btw - As I'm posting, CNBC is reporting that new orders are the lowest since May 2009.

not sure why you think it is difficult for me to realize there are people without retirement accounts. That's kind of my whole point. 

That was an incredibly depressing movie. I wish some of the big shorters who made their killing had thereafter hung it up and become regulators.  There was no one to root for in that movie.  

breal said:

That was an incredibly depressing movie. I wish some of the big shorters who made their killing had thereafter hung it up and become regulators.  There was no one to root for in that movie.  

The bigger point you missed is that politicians don't want to fund regulation. They get bribes (donations) from bankers who don't want to be regulated. At the end of the movie, you saw that only one poor schmuck went to prison.

Eric Holder didn't want to prosecute the banksters because "it might further jeopardize the economic recovery." Do you suppose that Obama disagreed with this?

Do you think Hillary will be any better?

Ha, that's exactly what my wife said when we saw it! The big accomplishment of one of the "heroes" is that he "didn't say 'I told you so'". Really?

We decided that they weren't the heroes in the story, they were just smarter and *maybe* marginally less scummy.

breal said:

That was an incredibly depressing movie. I wish some of the big shorters who made their killing had thereafter hung it up and become regulators.  There was no one to root for in that movie.  

Any truth to the rumor that the FDIC has about 1.5% of total bank deposits and that protected money is a misnomer?

I'd worry about that as much as I'd worry about every house in the nation not being covered with flood insurance.   If that situation ever came up, not having money would be the least of your problems.

I don't know what to think of a guy who's still blaming the borrowers for the financial system melting down.

ml1 said:

I don't know what to think of a guy who's still blaming the borrowers for the financial system melting down.

Are you referring to me?   If so, we have a house at the shore (or had until last year) and I saw a lot of the games that were played by borrowers. Of course, this wouldn't have been possible without the recklessness of the banks. 

eta - My comment about borrowers at the beginning of this thread was no doubt influenced by these cases. 

My peeve about low interest rates is that I'm a municipal bond buyer and rates have been so low for so long that there's nothing to buy. This of course puts me in a different position financially than those who depend on the interest that they earn on their CD's, treasuries, etc, just to get by, and it pisses me off that those who really need the interest from their savings are being hurt - a lot. 

I was referring to Burry

cramer said:

ml1 said:

I don't know what to think of a guy who's still blaming the borrowers for the financial system melting down.

Are you referring to me?   If so, we have a house at the shore (or had until last year) and I saw a lot of the games that were played by borrowers. Of course, this wouldn't have been possible without the recklessness of the banks. 

eta - My comment about borrowers at the beginning of this thread was no doubt influenced by these cases. 

My peeve about low interest rates is that I'm a municipal bond buyer and rates have been so low for so long that there's nothing to buy. This of course puts me in a different position financially than those who depend on the interest that they earn on their CD's, treasuries, etc, just to get by, and it pisses me off that those who really need the interest from their savings are being hurt - a lot. 

ml1 said:

I was referring to Burry

cramer said:

ml1 said:

I don't know what to think of a guy who's still blaming the borrowers for the financial system melting down.

Are you referring to me?   If so, we have a house at the shore (or had until last year) and I saw a lot of the games that were played by borrowers. Of course, this wouldn't have been possible without the recklessness of the banks. 

eta - My comment about borrowers at the beginning of this thread was no doubt influenced by these cases. 

My peeve about low interest rates is that I'm a municipal bond buyer and rates have been so low for so long that there's nothing to buy. This of course puts me in a different position financially than those who depend on the interest that they earn on their CD's, treasuries, etc, just to get by, and it pisses me off that those who really need the interest from their savings are being hurt - a lot. 

Please excuse me.  I'm embarrassed to admit that I haven't read the book or seen the movie.  I'm  going to pick-up a copy of the book tomorrow.

I was referring to the interview linked at the start of the thread

cramer said:

ml1 said:

I was referring to Burry

cramer said:

ml1 said:

I don't know what to think of a guy who's still blaming the borrowers for the financial system melting down.

Are you referring to me?   If so, we have a house at the shore (or had until last year) and I saw a lot of the games that were played by borrowers. Of course, this wouldn't have been possible without the recklessness of the banks. 

eta - My comment about borrowers at the beginning of this thread was no doubt influenced by these cases. 

My peeve about low interest rates is that I'm a municipal bond buyer and rates have been so low for so long that there's nothing to buy. This of course puts me in a different position financially than those who depend on the interest that they earn on their CD's, treasuries, etc, just to get by, and it pisses me off that those who really need the interest from their savings are being hurt - a lot. 

Please excuse me.  I'm embarrassed to admit that I haven't read the book or seen the movie.  I'm  going to pick-up a copy of the book tomorrow.

That stripper in the movie who "owned" 5 houses that she was underwater on?  Yeah, yeah I do blame her. She wasn't disabled or a vulnerable adult.  She was greedy.  And what was the worst that could happen to her?  She loses the 5 houses that she never really owned and declares bankruptcy. A year later, she can sign up for a fresh loan.