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There are lots of people who search for signs of the end of the world. The homeless guy on the corner. Glenn Beck. The most highly paid one we know of is Kynikos Associates founder Jim Chanos, whose batting average as an investing Cassandra is pretty high (and with the exception of a few disgruntled CEOs of the companies he’s targeted, no one’s ever called him a crazy). He was among the first to call out Enron, WorldCom and the housing/credit bubble that nearly brought the world to its knees. Fellow hedge fund manager Bill Ackman recently said that if he were Treasury secretary, he’d hold a weekly meeting with Mr. Chanos to hear what could go wrong in the markets. No need.The Observer: Did anything surprise you about the Lehman Brothers report? Or did it just validate everything you thought?Mr. Chanos: Except for the shameful New York Fed/Lehman “stress test” disclosures, nothing in it surprised me. We had concerns about Lehman well before 2008. People thought they were tough, no-nonsense guys. But we were saying, actually, they’re incredibly aggressive risk takers with a wide berth for what they consider the truth. We’ve known for a while that the hole in their balance sheet was around $150 billion. To put that in perspective, the hole in Enron’s balance sheet was roughly $65 billion. We can quibble on a billion here, a billion there, but $150 billion? I have to think that fraud was involved. It wasn’t just bad business judgment.
So do you think there will be any perp walks? And why haven’t there been any yet?I would be stunned if there weren’t at least indictments at Lehman and some of the other large institutions that have failed. I don’t know why there haven’t been any yet, but it’s amazing that it’s taken them this long. We’ve known about Lehman’s books since late 2008, but we just needed it confirmed by someone who wasn’t a short seller, since we’re not to be trusted. [laughs] We’ve known something was wrong with their books since the collapse.
Fuld apparently loved the report and has been telling people it vindicated him. He can sleep easy now, which must be nice.I’d say that reaction is not inconsistent with the way he ran his firm.
You were very supportive of Obama during the election, and showed that support in the best possible way, i.e., through cash. How do you think the administration has been doing?You know, I agree with the White House that they were dealt an awfully bad hand and number one, we have to understand that. Number two, the economy does appear to be getting better and the markets certainly have righted themselves. I do not agree with some of the financial rescue decisions that the administration made, which were simply follows-on of the previous administration. And I think that’s still politically hurting this White House. The real problem isn’t the White House; it’s Congress. It’s just completely broken down. On the financial regulatory front we still need to see what happens in the near future. We’ve got the House bill, we’ve got the Senate bill, and I think there’s some good steps in both, and some steps that need to be changed. However, it still amazes me that the banking industry continues to have the clout in Congress that it does, after all that’s happened. I’m stunned by the amount of power they still wield down in Washington.What do you think the passing of the health care bill will mean for the economy? I don’t think health care is out of the woods yet long term, because it’s still increasing as a percent of the economy, and that’s the real problem. In fact, if you look at the two areas of our economy where the government has very large and growing exposure, it’s residential real estate and health care. And both at the end of the day are fairly nonproductive, long term, for our economy. Putting more and more money into housing and keeping us healthy in our golden years doesn’t necessarily make us a more productive society. We should be devoting more of that money to technology and education.
Let’s talk about hate, and that of Goldman Sachs. The other day an ad on Craigslist offered payouts to anyone who would tape him or herself spitting on the Goldman building, peeing on the building, spitting on an employee or peeing on an employee, if the footage was uploaded to YouTube. While it must chafe that you didn’t come up with the idea yourself, you were actually first on the Hate Goldman Trade. [Mr. Chanos had a high-profile public feud in the summer of 2007 with former Goldman Sachs managing director Marc Spilker, Mr. Chanos’ neighbor in the Hamptons, who decided in order to “maximize” his beach enjoyment, he needed to cut down Mr. Chanos’ hedges, without asking permission.] Is that a source of pride? [laughs] I wasn’t the first on the “Hate Goldman Trade,” I was the first to point out that certain Goldman bankers acted as if the rules of society didn’t apply to them. It led me to vent at the time that it seemed that Goldman was not putting clients’ interests ahead of its own. And I think we’ll leave it at that. Page: 1 2 Tags: Wall Street | Enron | Jim Chanos Lehman Submitted by Terry Brennan on Wed, 03/24/2010 - 12:50.
How would Mr. Chanos have proceeded aganst Lehman and when?
Who in the regulatory apparatus failed to blow the whistle or intercede? How could the house of cards have been prevented from forming?
How long begore the 2008 melt down and panis selloff should the federal and state regulators have interceded?
TB --- Brennan Investment Management
Chanos seems to be a good one, but I've had my fill of that Michael Burry fellow that Michael lewis is writing about, and he shows no remorse or awareness that a short position is a useful tool as long as the net sum of short positions do not exceed the total value of the asset or investment, because if it does, then we should be more worried about shorts than people who set up ponzi schemes. There's an inverse correlation to excess on both sides.
The key part of any defense of hedge funds for me is that people argue that hedges do not originate the CDS' that got us into trouble two years ago, they only buy "and sell" them, and for me, the "and sell" is the key. With a few deep-pocketed hedge fund friends, Goldman can easily move a market by letting the funds in at the bottom (ie. when those contracts originate). That, in and of itself, is enough to panic investors, and we know that Goldman--in the past--has used the profits and funds from these shorts (on paper created out of wholecloth) to generate profits from investors. It's easy to flip to the longside too then and buy bonds with great interest rates that rose because people smell panic.
My basic argument is this: that hedge funds see holes in the way that high finance organizes itself, and they attack vulnerabilities to make huge profits. But this is NOT, I argue, simply a way for capitalists to keep in check our fiscal profligacy. (With some, like Chanos, that seems to be precisely the function of a short position, but it's not the ONLY function). Rather, it's the innate weakness of any symbolic system that there will ALWAYS be such vulnerabilities. Any time you construct these systems, someone will be in a backroom to figure out ways to game the system--and profit. That doesn't make them a principled capitalist making sure that companies and states and countries don't get in over their heads. Not at all.
The only real way to prevent such dangerous and reckless gambling is to let the gambler lose his shirt--but the USA did not take that route out of the fiscal crisis. Instead, we backstopped the banks. If the gamblers knew that their "weapons of market destruction" could end in the complete dissolution of their counterparties, they'd be a bit more circumspect, don't you think? The question then is, how do you run an economy when the banks have collapsed? And if the worst happens, how do you distribute food so that billions don't starve?
There are ways to do it.
Chanos seems to be a good one, but I've had my fill of that Michael Burry fellow that Michael lewis is writing about, and he shows no remorse or awareness that a short position is a useful tool as long as the net sum of short positions do not exceed the total value of the asset or investment, because if it does, then we should be more worried about shorts than people who set up ponzi schemes. There's an inverse correlation to excess on both sides.
The key part of any defense of hedge funds for me is that people argue that hedges do not originate the CDS' that got us into trouble two years ago, they only buy "and sell" them, and for me, the "and sell" is the key. With a few deep-pocketed hedge fund friends, Goldman can easily move a market by letting the funds in at the bottom (ie. when those contracts originate). That, in and of itself, is enough to panic investors, and we know that Goldman--in the past--has used the profits and funds from these shorts (on paper created out of wholecloth) to generate profits from investors. It's easy to flip to the longside too then and buy bonds with great interest rates that rose because people smell panic.
My basic argument is this: that hedge funds see holes in the way that high finance organizes itself, and they attack vulnerabilities to make huge profits. But this is NOT, I argue, simply a way for capitalists to keep in check our fiscal profligacy. (With some, like Chanos, that seems to be precisely the function of a short position, but it's not the ONLY function). Rather, it's the innate weakness of any symbolic system that there will ALWAYS be such vulnerabilities. Any time you construct these systems, someone will be in a backroom to figure out ways to game the system--and profit. That doesn't make them a principled capitalist making sure that companies and states and countries don't get in over their heads. Not at all.
The only real way to prevent such dangerous and reckless gambling is to let the gambler lose his shirt--but the USA did not take that route out of the fiscal crisis. Instead, we backstopped the banks. If the gamblers knew that their "weapons of market destruction" could end in the complete dissolution of their counterparties, they'd be a bit more circumspect, don't you think? The question then is, how do you run an economy when the banks have collapsed? And if the worst happens, how do you distribute food so that billions don't starve?
There are ways to do it.
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