Michael Burry warns of next financial crisis

by MPA06 Jan 2016
Michael Burry, renowned financial guru who was recently portrayed by Christian Bale in The Big Short, said that the government and society at large has learned nothing from the last financial crisis, and that the next one may be on the horizon.
 
The hedge fund manager warned that debt stemming from the government’s standing policy of “easy money” is precipitating a gradual push towards adopting negative interest rates, a step that would pose an unsustainable burden on the global financial system.
 
“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,” Burry told New York Magazine.
 
“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,” Burry added.
 
Burry was part of a circle of analysts and professionals who foresaw the 2007 sub-prime mortgage crisis, and profited from its effects. Burry himself saw the signs as far back as 2005, and subsequently invested in customized financial products targeting sub-prime mortgages, effectively betting against the seemingly robust real estate market.
 
Despite his dire predictions for the next few years, however, Burry said that all is not lost as U.S.-made innovations continue cropping up at a rapid pace, complementing the growing number of experienced entrepreneurs. These developments might stymie a bubble’s effects on the economy and per capita purchasing power, he added.

COMMENTS

  • by Griff | 1/6/2016 12:10:24 PM

    I only have my gut that tells me financial woes are not over. I don't have Burry's in depth market knowledge, but I do know too much money is concentrated at the 1% level. As long as lobbyists run our country only the wealthy will be well served. If we can turn the tables with a Congress that works FOR the people not for the corporations and banks we will see stability. Until then. we are living on the edge of a cliff waiting for the next bailout of the too bigs.

  • by Jonathon | 1/13/2016 12:22:09 AM

    This country is headed for disaster because many have been brainwashed to hate the productive people in society while they coddle the people who continually feed off the system. There was a time in our country when people looked up to the successful person and lectured the non productive members of society. Today, we have the opposite. This will not end well.

  • by MoeJoe | 1/18/2016 5:43:32 PM

    Jonathon makes a strong point. Yes. It stinks that the top 1% have so much control... but people need to look at the picture as a whole.

    If you take from the top 1% or increase minimum wage too drastically and too quickly or increase their taxes, they will in turn TAKE from their employees or just move to another country and take the jobs with them. They don't just accept the new rules and accept lower profits. They start by making all or most positions Part Time so that they do not have to pay benefits. If they have a retirement program, they stop matching contributing or make it less desireable or get rid of it altogether. Health insurance goes to cheaper company's which means employees get less coverage, higher premiums and deductibles - IF they qualify. Pensions... well, I am sure we can all guess why there are not very many of those anymore! One way or the other, they are going to make their money. The more they make, the more they TRY to take care of employees - at least in most cases. We cannot keep trying to make it on part time jobs with no benefits. Obama talking about all of these great jobs created is leaving out that most are part time and lower wage jobs and people are still working two and three jobs to make ends meet and barely at that. Unemployment is down because most no longer qualify for it. I'm not saying give the rich everything... I am just saying we need to be careful what we ask for because in the end it is going to hurt the middle class -not help.

    I am in the middle class. I was finally moving UP and out of the middle class, when the government (Democrats, by the way) basically took over the mortgage banking industry and cut off all small/medium size companies to get rid of the smaller players. Since that time (when they were supposed to be HELPING consumers), mortgage costs have gone up drastically and people needing smaller mortgages really have no place to get their mortgages done. Brokers were selling products CREATED by THE BIG LENDERS/BANKS. Brokers had nothing to do with the melt down caused by those mortgage products because they did not create them. Fraud, as we have all seen now, was in all aspects of the business -not just the smaller company's who had spent years making a name and building legitimate businesses which were taken away in a matter of months. Since when is the government supposed to have so much control that they can tell any person how much their "work" is worth and tell you what you can and can't make. Get ready world... they are going after many other job fields.

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