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

And just in case the biting irony is lost on anyone: I'll wager 90% of the folks bemoaning the evil corporate empires of the world aren't dumping their Vanguard S&P or Russell holdings anytime soon.  I can count on one hand the number of people I know who hold anything in the equity market that sacrifice ROR or their time and actually put their own money where their mouths are, and do their own market research and self-select investments accordingly.  And no, most "green" funds don't count if one is at all concerned about risk and volatility.  If anyone has rushed out to dump any Vanguard or Fidelity MF that holds Dow or VW in the last few months, I'll eat my hat. 

tom said:

Of course, the poor beleaguered soft-drink manufacturers aren't exactly forced to suffer through the humiliation of government subsidies. They have teams of lobbyists pushing for these handouts. Which brings us back around to the morality. They want to profit at the expense of the public's health, and they want the public to pay for it.

So, you'd be for less government then?  That way there'd be less to lobby for. Yes?

ctrzaska said:

And just in case the biting irony is lost on anyone: I'll wager 90% of the folks bemoaning the evil corporate empires of the world aren't dumping their Vanguard S&P or Russell holdings anytime soon.  I can count on one hand the number of people I know who hold anything in the equity market that sacrifice ROR or their time and actually put their own money where their mouths are, and do their own market research and self-select investments accordingly.  And no, most "green" funds don't count if one is at all concerned about risk and volatility.  If anyone has rushed out to dump any Vanguard or Fidelity MF that holds Dow or VW in the last few months, I'll eat my hat. 

Not to mention the vast array of products that I'm sure everyone here consumes and benefits from.

terp said:

tom said:

Of course, the poor beleaguered soft-drink manufacturers aren't exactly forced to suffer through the humiliation of government subsidies. They have teams of lobbyists pushing for these handouts. Which brings us back around to the morality. They want to profit at the expense of the public's health, and they want the public to pay for it.

So, you'd be for less government then?  That way there'd be less to lobby for. Yes?

I'm just for less fantasy economics.

Give the people what they want.

tom said:

terp said:

tom said:

Of course, the poor beleaguered soft-drink manufacturers aren't exactly forced to suffer through the humiliation of government subsidies. They have teams of lobbyists pushing for these handouts. Which brings us back around to the morality. They want to profit at the expense of the public's health, and they want the public to pay for it.

So, you'd be for less government then?  That way there'd be less to lobby for. Yes?

I'm just for less fantasy economics.

You too have an issue with Draft Kings?

terp said:

tom said:

terp said:

tom said:

Of course, the poor beleaguered soft-drink manufacturers aren't exactly forced to suffer through the humiliation of government subsidies. They have teams of lobbyists pushing for these handouts. Which brings us back around to the morality. They want to profit at the expense of the public's health, and they want the public to pay for it.

So, you'd be for less government then?  That way there'd be less to lobby for. Yes?

I'm just for less fantasy economics.

You too have an issue with Draft Kings?

If Chris Christie is for it than I'm against it.

Back to being serious.  You realize that the fact that Corporations can lobby for regulatory advantages, licensing schemes, subsidies, protectionist tariffs, etc is a government problem and not a business problem.  Yes?

that's not even wrong.

Why use Coke as an example when we have Union Carbide? 

or these guys

The only sure thing is that the corporation will pursue profit and avoid losses.  That's why I don't understand how or why screening borrowers is assigned to a party that then suffers no consequence if the borrower doesn't pay back the loan.  

Woot said:

In 2016, being socially responsible makes good long-term fiscal sense to shareholders.  

What on Earth would lead you to think that?  

The cases of VW and BP were merely bad bets.  In pursuit of profits, corporations gamble on things like deferred maintenance and substandard parts on underwater drilling equipment, or building deception into a cars' computer to mask unacceptable emissions.  My guess is that this is supported by shareholders. 

Red_Barchetta said:

Woot said:

In 2016, being socially responsible makes good long-term fiscal sense to shareholders.  

What on Earth would lead you to think that?  




The cases of VW and BP were merely bad bets.  In pursuit of profits, corporations gamble on things like deferred maintenance and substandard parts on underwater drilling equipment, or building deception into a cars' computer to mask unacceptable emissions.  My guess is that this is supported by shareholders. 

And they will cost their companies in a huge manner.  Much more than they ever benefitted.  And corporations will get away with this crap less and less. 

Ask most shareholders, and they would not approve of their investments being "bet" on huge global fraud.   It is way too risky.  And costly. 

Inappropriately market a prescription drug and be fined billions of dollars.  Inappropriately market financial securities, and be fined billions of dollars.  But its not the fines, it is the corporate reputation and harm to the shareholder value. 

Volkswagen is worth $25 billion dollars (-42%) less than it was worth the day prior to the news breaking about the scandal.  BP lost half its value right after the spill (about $80 billion).  That's why "on Earth" I think shareholders don't want Corporations taking unethical bets. 

woot, most shareholders simply don't want Corporations losing those bets. In the case of shareholder support for amorality - ctrzaska is right on that. Where he's wrong, I think, is overestimating the number of people who this actually amounts to, because as is typical among many MOL'ers, they tend to think pretty much everyone is in the investor class, when it's actually pretty much no one. (my use of the words investor class as opposed to simply "investors" is deliberate and maybe we can discuss that separately)

Woot said:

Red_Barchetta said:

Woot said:

In 2016, being socially responsible makes good long-term fiscal sense to shareholders.  

What on Earth would lead you to think that?  


....

The cases of VW and BP were merely bad bets.  In pursuit of profits, corporations gamble on things like deferred maintenance and substandard parts on underwater drilling equipment, or building deception into a cars' computer to mask unacceptable emissions.  My guess is that this is supported by shareholders. 

  That's why "on Earth" I think shareholders don't want Corporations taking unethical bets. 




   

if I can return to a slightly earlier subject...

The discussion on immorality vs amorality was a bit bizarre, with the point of some seeming to be that corporations are blameless because they are amoral instead of immoral.

Well, of course a corporation is neither of the two, when you talk strictly about the definition of a corporation.

Some people seem to forget that the amoral decisions made by corporations are made by people - who have the choice to do it or not. 

Is  the Volkswagen scandal a case of amorality or immorality?

I don't think trying to separate groups into "moral" and "immoral" is all that helpful a frame. Put me on the side of seeing corporations as amoral, and further, expecting them to be so.

We can (and should) expect individuals within corporations to act morally, even while realizing that some of them will, and some of them won't. But keep in mind that any given member of a corporation has various obligations they need to try to balance, so just insisting on them acting morally isn't as clear as we'd like to pretend.

I'd agree that like anyone else, they have obligations to society as a whole. They also have specific obligations to the collective enterprise that is a "corporation," though. And further, they have obligations to their families. And these various obligations can conflict. If some action, for instance, has some abstract cost on "society" at large, but gives the corporation a competitive advantage, should they always prioritize the more abstract society over the more concrete relationships of their colleagues? And further, if passing up this advantage puts them at a disadvantage in comparison to other companies, then what? And what are the implications of failing to pursue an advantage, and so passing up, for instance, greater income for themselves and, by extension, being better able to meet their obligations to their families?

I don't think this leads to the conclusion that corporations have no moral obligations. Quite the opposite. I think what it leads to is the need to set those expectations at a society-wide level - eg through laws and regulations.

Concretely, for instance, if we imagine a world with zero regulations around pollution, on what basis could we fault VW? Rather, wouldn't VW be at fault for NOT casting pollution concerns to the side? In this world, a CEO that prioritized the needs of society re pollution would be putting their own company at a competitive disadvantage. Do it long enough, and perhaps their company might even cease to exist, and all the jobs (and people who depend on those jobs) along with it.

We'd have a perverse situation where the moral CEO is punished for giving weight to the needs of society as a whole.

Much better to set universal expectations, so that disregarding society's needs is more costly, not less. VW acted immorally here and, appropriately, now they are paying for it. This is as it should be, and only possible because we don't set moral expectations for particular companies, but rather set the parameters for the playing field as a whole.

PVW said:

We can (and should) expect individuals within corporations to act morally, even while realizing that some of them will, and some of them won't. But keep in mind that any given member of a corporation has various obligations they need to try to balance, so just insisting on them acting morally isn't as clear as we'd like to pretend.

I have noticed that the corporate misconduct that makes the headlines is not morally ambiguous at all.

tjohn said:

PVW said:

We can (and should) expect individuals within corporations to act morally, even while realizing that some of them will, and some of them won't. But keep in mind that any given member of a corporation has various obligations they need to try to balance, so just insisting on them acting morally isn't as clear as we'd like to pretend.

I have noticed that the corporate misconduct that makes the headlines is not morally ambiguous at all.

I'm not sure the corporations that haven't had such scandals are necessarily just made up of more virtuous people, though, nor am I convinced that every act of unambiguous immorality makes the headlines.

PVW- Well stated.

drummerboy- I'm actually speaking about what you seem to define as the "investors", not the "investor class", assuming the definition of the latter applies to those with discretionary income and thus the more affluent, wherever one draws the line.

Forgive me if this was already covered in this thread and I missed it, but what, if anything, happened to the ratings agencies that were rating the mortgage-backed securities (MBS) as safer than they actually were?

We can talk about the Fed, or Big Banks, or little banks, or Fannie Mae, etc, but wasn't a big part of the problem that people didn't actually understand the real risk?  I mean, yes, they probably should have (anything to good to be true generally is, so there ought to have been far more skepticism by all the players), but if the agencies were saying an MBS was AAA, isn't that the crux of the matter? More so than the banks (which by no means were blameless), shouldn't the majority of the blame fall on those whose job it was to accurately gauge and communicate risk?

PVW said:

Forgive me if this was already covered in this thread and I missed it, but what, if anything, happened to the ratings agencies that were rating the mortgage-backed securities (MBS) as safer than they actually were?

We can talk about the Fed, or Big Banks, or little banks, or Fannie Mae, etc, but wasn't a big part of the problem that people didn't actually understand the real risk?  I mean, yes, they probably should have (anything to good to be true generally is, so there ought to have been far more skepticism by all the players), but if the agencies were saying an MBS was AAA, isn't that the crux of the matter? More so than the banks (which by no means were blameless), shouldn't the majority of the blame fall on those whose job it was to accurately gauge and communicate risk?

Well, I think this gets to the original comment by Hero, who said 

"Corporations have no morals.   When there is no penalty for theft, the bottom line is the only motivation."

The first sentence is problematic and in the final analysis, unimportant. 

The second sentence gets to the fact that the individuals in the corporation who make the decisions that are ultimately "amoral" and harmful, never pay a PERSONAL penalty of any significance. Yeah, the stock price may go down. Big deal. The decision makers are already independently wealthy and know they will suffer no financial consequence, and will never go to jail (and by "never" I mean 99% of the time.

And this fact - no consequences - makes Hero's statement absolutely true.

"When there is no penalty for theft, the bottom line is the only motivation."

Not "wholly untrue" and "without evidence" (paraphrase) as has been stated.

I guess I meant my question in a more technical manner. A lot of regulation and lawsuits affecting banks came out after 2008, but what happened with the ratings agencies? I feel like I hear a lot about the banks but not much about them.

they deserve a ton of blame. But we have one party that wants to put it begins us as soon as possible if not sooner; and another that just wants to blame it all on Barney Frank.

PVW said:

I guess I meant my question in a more technical manner. A lot of regulation and lawsuits affecting banks came out after 2008, but what happened with the ratings agencies? I feel like I hear a lot about the banks but not much about them.

oh yeah, I agree with that also, and it's just a perfect example of how the people who have rigged the system (because that's exactly what they did) have not been, and will never be, punished.

Another data point for Hero's contention.

PVW said:

Forgive me if this was already covered in this thread and I missed it, but what, if anything, happened to the ratings agencies that were rating the mortgage-backed securities (MBS) as safer than they actually were?

The rating agencies are protected by the free speech principle. Thus, they were let off the hook.

PVW said:

Forgive me if this was already covered in this thread and I missed it, but what, if anything, happened to the ratings agencies that were rating the mortgage-backed securities (MBS) as safer than they actually were?

We can talk about the Fed, or Big Banks, or little banks, or Fannie Mae, etc, but wasn't a big part of the problem that people didn't actually understand the real risk?  I mean, yes, they probably should have (anything to good to be true generally is, so there ought to have been far more skepticism by all the players), but if the agencies were saying an MBS was AAA, isn't that the crux of the matter? More so than the banks (which by no means were blameless), shouldn't the majority of the blame fall on those whose job it was to accurately gauge and communicate risk?

Unequivocally, yes.

Formerlyjerseyjack said:

PVW said:

Forgive me if this was already covered in this thread and I missed it, but what, if anything, happened to the ratings agencies that were rating the mortgage-backed securities (MBS) as safer than they actually were?

The rating agencies are protected by the free speech principle. Thus, they were let off the hook.

Ironic how much the issuers paid for free speech.

drummerboy said:
Well, I think this gets to the original comment by Hero, who said 

"Corporations have no morals.   When there is no penalty for theft, the bottom line is the only motivation."

The first sentence is problematic and in the final analysis, unimportant. 

The second sentence gets to the fact that the individuals in the corporation who make the decisions that are ultimately "amoral" and harmful, never pay a PERSONAL penalty of any significance. Yeah, the stock price may go down. Big deal. The decision makers are already independently wealthy and know they will suffer no financial consequence, and will never go to jail (and by "never" I mean 99% of the time.

And this fact - no consequences - makes Hero's statement absolutely true.

"When there is no penalty for theft, the bottom line is the only motivation."

Not "wholly untrue" and "without evidence" (paraphrase) as has been stated.

Amoral corporations suffer a penalty.  Immoral individuals (generally) do not.  While the distinction is ass-backwards, that's the reality.

And if you're suggesting that every corporation has as its sole motivation the bottom line regardless of law, you're even more irrationally cynical than what you and others have posted.  No caveats, no exceptions, only absolutes.  Odd.

Reckless lending needs to cost the reckless lender.  Not the American tax payer.  Not the neighbors of the foreclosed house. The lender.   

This goal seems a lot more attainable than teaching corporations right from wrong.  There are not enough nannies in the world for that.