2 - 4 minute read
In 2015, Michael Burry, the real-life head of Scion Asset Management and the subject of the book and film The Big Short, warned of a looming financial crisis. In an email interview with Vulture, Burry expressed his belief that the reforms put in place following the 2008 financial crisis were insufficient and that the system remained vulnerable to another collapse.
Burry pointed to the Federal Reserve’s zero interest rate policy and its impact on savers as one contributing factor to the potential for future financial instability. He argued that the policy, which was implemented in response to the recession, broke the “social contract” for those who had saved for retirement and left their savings insufficient. Additionally, Burry criticized the Federal Reserve’s decision to pay interest on the excess reserves of lending institutions, which he believed had “handcuffed lending to small and midsized enterprises, where the majority of job creation and upward mobility in wages” occurs.
Burry also took issue with the fact that the largest banks had only become bigger following the crisis, and that the Federal Reserve had gained even more power. He argued that government policies and regulations had played a significant role in the “hollowing-out of middle America,” and that the private sector had been unfairly blamed for the problems caused by the crisis.
Burry’s predictions of a looming financial crisis have unfortunately proven to be correct. In the years since he made these statements, the global economy has continued to face a number of challenges and uncertainties, including the ongoing trade tensions between the United States and China, the COVID-19 pandemic, and rising debt levels. Many experts believe that these factors, along with others, have contributed to a fragile economic environment that could be susceptible to future crises.
In light of these ongoing challenges, it is more important than ever for individuals and policy makers to be vigilant in addressing potential risks and taking steps to mitigate them. While it is impossible to predict exactly when and how a financial crisis might occur, being prepared and taking proactive measures can help to minimize the impact of such an event on both individuals and the economy as a whole.