Video: Michael Burry 2012 UCLA Commencement Address

Video: Michael Lewis on 'Financial Innovation'

Video: Kyle Bass' Full BBC Hardtalk Interview

"Capitalism without bankruptcy is like Christianity without Hell" and other choice comments from the hedge fund manager profiled in Michael Lewis' most recent book, Boomerang.

h/t Zerohedge

Links to Chapters in Michael Lewis' New Book 'Boomerang'

Besides a new preface, which Zerohedge has done a nice job highlighting here, Michael Lewis' new book Boomerang is a collection of his previously written stories about the financial problems of various European countries and one U.S. state (California).

Below are links to each of those stories in the order of their publication. They're all worthwhile and still very relevant.

 1. Wall St. on the Tundra (Iceland)

2. Beware of Greeks Bearing Bonds (Greece)

3. When Irish Eyes Are Crying (Ireland)

4. It’s the Economy, Dummkopf! (Germany)

5. California and Bust (California)

Video: Kyle Bass on the Worldwide Problem of Too Much Debt

Link to Kyle's video presentation here.

Kyle, btw, is the protagonist in Michael Lewis' latest book, Boomerang. Zerohedge has posted some of the highlights about Kyle from the book here. 

Video: Michael Lewis on the New Third World

Michael Lewis on Bankrupt California

It's Michael Lewis week here at the PolyCapitalist.

His latest in a series of financial disaster pieces he's been penning for Vanity Fair is about his home state of California. The whole article is a must-read (here's a link to the full article) but below are a some of the highlights:

But when you look below the surface, he adds, the system is actually very good at giving Californians what they want. “What all the polls show,” says Paul, “is that people want services and not to pay for them. And that’s exactly what they have now got.” As much as they claimed to despise their government, the citizens of California shared its defining trait: a need for debt. The average Californian, in 2011, had debts of $78,000 against an income of $43,000. The behavior was unsustainable, but, in its way, for the people, it works brilliantly.

On the fiscal nightmare that is the City of San Jose...

The ex-Governator

The relationship between the people and their money in California is such that you can pluck almost any city at random and enter a crisis. San Jose has the highest per capita income of any city in the United States, after New York. It has the highest credit rating of any city in California with a population over 250,000. It is one of the few cities in America with a triple-A rating from Moody’s and Standard & Poor’s, but only because its bondholders have the power to compel the city to levy a tax on property owners to pay off the bonds. The city itself is not all that far from being bankrupt. 

By 2014, Reed had calculated, a city of a million people, the 10th-largest city in the United States, would be serviced by 1,600 public workers. “There is no way to run a city with that level of staffing,” he said. “You start to ask: What is a city? Why do we bother to live together? But that’s just the start.” The problem was going to grow worse until, as he put it, “you get to one.” A single employee to service the entire city, presumably with a focus on paying pensions. “I don’t know how far out you have to go until you get to one,” said Reed, “but it isn’t all that far.” At that point, if not before, the city would be nothing more than a vehicle to pay the retirement costs of its former workers. The only clear solution was if former city workers up and died, soon. But former city workers were, blessedly, living longer than ever. 

This wasn’t a hypothetical scary situation, said Reed. “It’s a mathematical inevitability.” In spirit it reminded me of Bernard Madoff’s investment business. Anyone who looked at Madoff’s returns and understood them could see he was running a Ponzi scheme; only one person who had understood them both­ered to blow the whistle, and no one listened to him. (See No One Would Listen: A True Financial Thriller, by Harry Markopolos.) 

“How on earth did this happen?” I ask him. 

“I think we’ve suffered from a series of mass delusions,” he says. 

I didn’t completely understand what he meant, and said so. 

“We’re all going to be rich,” he says. “We’re all going to live forever. All the forces in the state are lined up to preserve the status quo. To preserve the delusion. And here—this place—is where the reality hits.” 

...and the bankrupt hell that is the City of Vallejo:

On the way back to the elevators I chat with two of Mayor Reed’s aides. He’d mentioned to me that, as bad as they might think they have it in San Jose, a lot of other American cities have it worse. “I count my blessings when I talk to the mayors of other cities,” he’d said. 

“Which city do you pity most?” I ask just before the elevator doors close.

They laugh and in unison say, “Vallejo!” 

I notice on his shelf a copy of Fortune magazine, with Meredith Whitney on the cover. And as he talked about the bankrupting of Vallejo, I realized that I had heard this story before, or a private-sector version of it. The people who had power in the society, and were charged with saving it from itself, had instead bled the society to death. The problem with police officers and firefighters isn’t a public-sector problem; it isn’t a problem with government; it’s a problem with the entire society. It’s what happened on Wall Street in the run-up to the subprime crisis. It’s a problem of people taking what they can, just because they can, without regard to the larger social consequences. It’s not just a coincidence that the debts of cities and states spun out of control at the same time as the debts of individual Americans. Alone in a dark room with a pile of money, Americans knew exactly what they wanted to do, from the top of the society to the bottom. They’d been conditioned to grab as much as they could, without thinking about the long-term consequences. Afterward, the people on Wall Street would privately bemoan the low morals of the American people who walked away from their subprime loans, and the American people would express outrage at the Wall Street people who paid themselves a fortune to design the bad loans. 

The evolutionary explanation underpinning society's collective behavior:

The road out of Vallejo passes directly through the office of Dr. Peter Whybrow, a British neuroscientist at U.C.L.A. with a theory about American life. He thinks the dysfunction in America’s society is a by-product of America’s success. In academic papers and a popular book, American Mania, Whybrow argues, in effect, that human beings are neurologically ill-designed to be modern Americans. The human brain evolved over hundreds of thousands of years in an environment defined by scarcity. It was not designed, at least originally, for an environment of extreme abundance. “Human beings are wandering around with brains that are fabulously limited,” he says cheerfully. “We’ve got the core of the average lizard.” Wrapped around this reptilian core, he explains, is a mammalian layer (associated with maternal concern and social interaction), and around that is wrapped a third layer, which enables feats of memory and the capacity for abstract thought. “The only problem,” he says, “is our passions are still driven by the lizard core. We are set up to acquire as much as we can of things we perceive as scarce, particularly sex, safety, and food.” Even a person on a diet who sensibly avoids coming face-to-face with a piece of chocolate cake will find it hard to control himself if the chocolate cake somehow finds him. Every pastry chef in America understands this, and now neuroscience does, too. “When faced with abundance, the brain’s ancient reward pathways are difficult to suppress,” says Whybrow. “In that moment the value of eating the chocolate cake exceeds the value of the diet. We cannot think down the road when we are faced with the chocolate cake.”

Lewis concludes on an optimistic note:

When people pile up debts they will find difficult and perhaps even impossible to repay, they are saying several things at once. They are obviously saying that they want more than they can immediately afford. They are saying, less obviously, that their pres­ent wants are so important that, to satisfy them, it is worth some future difficulty. But in making that bargain they are implying that, when the future difficulty arrives, they’ll figure it out. They don’t always do that. But you can never rule out the possibility that they will. As idiotic as optimism can sometimes seem, it has a weird habit of paying off.

For more Michael Lewis, both past and present, simply click on the tag with his name at the bottom of this post.

Video: Micheal Lewis on Charlie Rose Discussing the Sovereign Debt Crisis

In addition to sovereign debt Michael covers the movie Moneyball, the ongoing Wall St. Occupation, and discusses his style of writing.

A link to the video interview is here.

Also, here is a roundup of the latest reviews of his new book, Boomerang, about the sovereign debt crisis. 

Review Roundup for Michael Lewis' New Book - Boomerang: Travels in the New Third World

Below are a list of reviews published so far. And here are links to all the chapters in the book, which were previously published in Vanity Fair (except the book's preface on Kyle Bass).

NY Times

Telegraph

Forbes

Washington Post

Amazon customers

Michael Lewis on Germany & the Eurozone

The latest and final instalment in a series of what author Michael Lewis has described as 'Euopean financial disaster tourism' articles he's penning for Vanity Fair can be found here. This latest article focuses on Germany (the previous two covered Greece and Ireland - google them or click on 'Michael Lewis' tag below to get the link).

The Germany articles also features an accompanying interview with Lewis, where 'Europe's least welcome tourist' discusses the problems with the broader Eurozone:

VF Daily: Where did the euro go wrong? 

Lewis: At its conception. They glued together a bunch of countries and cultures that didn’t really belong together in the same currency. So if you put Germany together with Greece in a single currency, it’s a little like watching an Olympic sprinter and a fat old man running a three-legged race. The Greeks will never be as productive as the Germans, and the Germans will never be as unproductive as the Greeks. So if they’re in the same currency—unless the Greeks simply up and move to Germany to work for the Germans—it implies a lifetime of transfers from Germany to Greece. 

VF Daily: Greece was allowed a partial default this week, to the tune of $157 billion, despite the E.C.B.’s disapproval. This measure seems like a Band-Aid, though. Can we expect something much larger to happen, or do presidents and prime ministers just enjoy getting together to argue every six months? 

Lewis: The Germans are basically calling the shots here, because they’re the only ones who can afford to pay the bill. My impression is that the German people do not want to pay it, but the German leadership does not want to be labeled as the people who destroyed the euro. So the way Angela Merkel is playing it is to tell the German people what they want to hear until the moment another crisis occurs, and then she goes into parliament and says, “I need this little check to get us through this rough patch, or you will be responsible for the disintegration of Europe.” What she doesn’t ever come away with, however, is a commitment for fiscal union. She doesn’t get Germany agreeing to underwrite euro bonds—to take all the debt of the southern countries. 

VF Daily: Well, it would be political suicide, right? 

Lewis: She may have already committed political suicide. German people are increasingly unhappy with how she has handled the crisis. I don’t think that the German people are going to go all-in. The step that they would need to take is much more dramatic than this Band-Aid.

Video: Profile of Michael Burry of 'The Big Short'

Video: Moneyball Movie Trailer

Greek Debt Crisis Investment Strategies - A 'Credit Event' is Possibly Imminent

Here are three recent articles I penned for Seeking Alpha on the financial market topic du jour:

1. Why Greece Will Default Soon and What Happens Next (May 31)
2. How to Play the 'Reprofiling' of Greek Debt via ETFs (May 17)
3. Which Currencies Benefit on Rumors of Greece Dropping the Euro? (May 6)

There has been a lot of smoke and noise on the subject of Greece over the past 12+ months. Micheal Lewis (Sep. 9, 2010) had it right, and I stand by my May 31 call that we'll see some type of Greek credit event soon, with 'soon' being this year if not this summer.

At most the politicians may find a way to stretch this to next year, but it's very hard to imagine how this can be pushed out any further than that.

Michael Lewis on How a Japanese Earthquake Could Devastate Wall St.

ML_Tokyo

Mervyn is the Man

Anyone following the ongoing financial crisis (yes, it's not over yet) closely these past few years has probably noted the markedly different rhetoric coming from two central banks on opposites sides of the Atlantic.

BoE Governor Mervyn King

Governor Mervyn King is Ben Bernanke's equivalent at the Bank of England. This weekend he again excoriated Too Big to Fail banks, which predictably led to HSBC threatening to leave town (again).

Is Mervyn out of his mind? I mean, however will London's economy and the U.K.'s tax receipts survive if megabanks like HSBC relocate to Singapore?

The oft-repeated threat by Too 'Bigger' to Fail megabanks that they'll leave town for lax regulatory and lower tax enclaves in Switzerland, Asia, etc. shouldn't scare anyone. If in fact they do carry through on this threat I for one would be at the airport to wave them off goodbye.

For starters, many megabanks don't pay much in the way of local taxes. But that's not the main reason we should call the Too Bigger to Fail bankers' bluff.

With respect to megabanks' threatening to leave town, author Michael Lewis recently made the following analogy:

Your local utility is found to be poisoning the community's water supply, which is making people sick. However, in order to continue providing electricity the utility says that it has to be allowed to poison the water. If the community doesn't allow it to keep poisoning the water then it will leave town for another location which is ok with this. 

The obvious response to this lunacy is to tell the utility to take a hike -- our community can find someone else to provide non-polluting electricity!

Banks are like utilities. They both fulfill important functions. However, Too Big to Fail megabanks are not the only firms capable of providing banking services. If Too Big to Fail firms leave town then other smaller banks, which don't poison the local water, would gladly step into their place. There is nothing so special that Too Big to Fail banks do that can't be easily and quickly replaced. In fact, they are much, much easier to replace than an electricity utility.

Megabanks pose a risk to the health of the economy, just like the water-poisoning utility poses a risk to the well being of the community. When something goes wrong at the Too Big to Fail banks, like it did in 2007-2008, everyone suffers in the form of bigger deficits, higher taxes and lost jobs.

Meanwhile, it looks to be another record setting year for banker bonuses.

Between Governor King and the Independent Banking Commission's Sir John Vickers it would appear that the U.K., unlike the U.S., has the right people in the right place at the right time.

Bravo, Mervyn! Keep up the good fight!

P.S. Interestingly, Mervyn in his pre-BoE life was Michael Lewis' tutor at the London School of Economics.

Michael Lewis on his FCIC 'dissent from the dissent from the dissent'

From Michael:

A surprising number of my fellow citizens appear to be unaware of my service these past 18 months as a member of the Financial Crisis Inquiry Commission. 

Thus it may come as news that I have declined to sign the report issued by the majority, or the dissent by the three- member minority, or even the dissent from their dissent, written by the now-immortal Peter J. Wallison. I hereby dissent from the dissent from the dissent. My dissent is different from all those other dissents, which is why I am dissenting.

Read Michael's full Bloomberg pieced titled 'All You Need to Know About Why Things Fell Apart' here.

Podcast: Interview with Michael Lewis, 'Financial Disaster Tourist'

Link to NPR Planet Money podcast featuring Michael Lewis here.

A description of the interview and a few excerpts:

"At bottom, I'm not all that interested in money," Michael Lewis tells us on today's Planet Money. 

"It's peculiar that I've written financial books and worked on Wall Street. ... I'm interested in something else, and I guess that other thing is character and action and the general drift of societies. Money, because people care so much about it ... is this great prism through which to view people."

On the show, we talk about the long arc of Lewis's work. 

In the '80s, he wrote a book about the people who created mortgage-backed securities. Last year, he described people who bet against mortgage backed securities and got rich when they collapsed in the financial crisis. 

In his next book, he'll profile some of the places that got hit particularly hard in the crisis. 

"We're having this global financial crisis. The cause in the various countries is all basically the same thing: it's incontinent credit. It's money washing in at terms that shouldn't be offered, to people who should never be lent money in the first place. ... But in each place, the symptoms are completely different if you look closely."

"So I thought, here we have an opportunity to create a genre: financial disaster travel journalism. We are going to learn about the places through the prism of their financial affairs. They're all subjected to a temptation: a pile of money in a dark room. Do what you want with it. ... They want to do different things in different places. Those are social portraits. They're masquerading as financial pieces."

Video: Michael Lewis Discusses His Personal Portfolio Strategy

Michael Lewis On Why Ireland Will Ultimately Default

Michael Lewis

Following up on his previous profiles of bankrupt Iceland and bailed out (for now) Greece, Michael Lewis has a new article titled 'When Irish Eyes Are Crying' in the March Vanity Fair.

I highly recommend carving out time to read the full article, but here are a few choice excerpts:

Not knowing why they were so suddenly so successful, the Irish can perhaps be forgiven for not knowing exactly how successful they were meant to be. They had gone from being abnormally poor to being abnormally rich, without pausing to experience normality. 

Ireland’s financial disaster shared some things with Iceland’s. It was created by the sort of men who ignore their wives’ suggestions that maybe they should stop and ask for directions, for instance. 

The journalists were following the bankers’ lead and conflating a positive outlook on real-estate prices with a love of country and a commitment to Team Ireland. (“They’d all use this same phrase, ‘You’re either for us or against us,’ ” says a prominent bank analyst in Dublin.)

The most obvious change in the country’s politics has been the role played by foreigners. The Irish government and Irish banks are crawling with American investment bankers and Australian management consultants and faceless Euro-officials, referred to inside the Department of Finance simply as “the Germans.” Walk the streets at night and, through restaurant windows, you see important-looking men in suits, dining alone, studying important-looking papers. In some new and strange way Dublin is now an occupied city: Hanoi, circa 1950. 

At the rate money currently flows into the Irish treasury, Irish bank losses alone would absorb every penny of Irish taxes for at least the next three years. 

A banking system is an act of faith: it survives only for as long as people believe it will. Two weeks earlier the collapse of Lehman Brothers had cast doubt on banks everywhere. Ireland’s banks had not been managed to withstand doubt; they had been managed to exploit blind faith.

If the Irish wanted to save their banks, why not guarantee just the deposits? There’s a big difference between depositors and bondholders: depositors can flee.

Now the Irish people finally caught a glimpse of the guy meant to be safeguarding them: the crazy uncle had been sprung from the family cellar. Here he was, on their televisions, insisting that the Irish banks were “resilient” and “more than adequately capitalized” … when everyone in Ireland could see, in the vacant skyscrapers and empty housing developments around them, evidence of bank loans that were not merely bad but insane. “What happened was that everyone in Ireland had the idea that somewhere in Ireland there was a little wise old man who was in charge of the money, and this was the first time they’d ever seen this little man,” says McCarthy. “And then they saw him and said, Who the fuck was that??? Is that the fucking guy who is in charge of the money??? That’s when everyone panicked.” 

Ireland’s 87 percent rate of home-ownership is among the highest in the world. There’s no such thing as a non-recourse home mortgage in Ireland. The guy who pays too much for his house is not allowed to simply hand the keys to the bank and walk away. He’s on the hook, personally, for whatever he borrowed. Across Ireland, people are unable to extract themselves from their houses or their bank loans. Irish people will tell you that, because of their sad history of dispossession, owning a home is not just a way to avoid paying rent but a mark of freedom. In their rush to freedom, the Irish built their own prisons. And their leaders helped them to do it.

"Financial-catastrophe tourism" is how Michael describes his visits to various European countries since the financial crisis began.

For more from Michael on his latest story check out the article's accompanying Q&A, where he predicts the Irish people, like the Greeks, will eventually say nach bhfuil níos mó (Gaelic for 'no more') and default:

(quote from Lewis' driver) "The problem with the Irish is that you can push them and push them and push them and they don’t do anything, then they snap and go whacko.” (Lewis' response) I think that’s going to happen. I think that you’re going to be surprised how much punishment they take, and then at some point they’re going to cease to take it. This may be years off; it may not be six months off. I think it’s a pretty slow-burning fuse.

Michael Lewis on Hiding Banned Proprietary Trading at 'Too Big To Fail' Firms

An update from author Michael Lewis on how the Too Big To Fail firms (e.g., Goldman Sachs) are maneuvering around what clearly appears to be an ineffective ban on proprietary trading. Lewis:

"A few weeks ago we asked a simple question: Why are the same Wall Street banks that lobbied so hard to dilute the passages in the Dodd-Frank financial overhaul bill banning proprietary trading now jettisoning their proprietary trading groups, without so much as a whimper? The law directs regulators to study the prop trading ban for another 15 months before deciding how to enforce it: why is Wall Street caving now?

The many answers offered by Wall Street insiders in response boil down to a simple sentence: The banks have no intention of ceasing their prop trading. They are merely disguising the activity, by giving it some other name."

I highly recommend Lewis' recent book The Big Short which I wrote previously about here.