Monday, January 4, 2016

The Big Short — The Sequel, Coming to a Neighborhood Near You - By Gary North

The speculator who made millions by shorting the subprime mortgage market says another crisis is now in the pipeline.
You may have seen the movie, The Big Short.
It’s going to happen again. The big bank bankers did not learn the lesson Congress wanted them to learn. Why should we expect them to? They skunked Congress — TARP. They got incredibly rich going up, and they got huge retirement settlements after it went down.
The public got no “golden parachutes.” The public got hammered.
The next crisis already in the pipeline.
Read this interview with the man who spotted the opportunity first, and who got very, very rich betting against the bankers.
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 [author ofThe Big Short] 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.
(For the full interview, click the link. Click back twice when you’re finished reading.)