I was reading Jim Quinn’s latest piece – This Time Isn’t Different – which I highly recommend by the way, and a quote from John Hussman grabbed my attention:
The answer is straightforward: as the bubble expanded toward its inevitable collapse, the role of Wall Street was to create a massive supply of new “product” in the form of sketchy mortgage-backed securities, but the demand for that product was the result of the Federal Reserve’s insistence on holding interest rates down after the tech bubble crashed, starving investors of safe Treasury returns, and driving them to seek higher yields elsewhere.
I have a big problem with that assertion because it implies that investors had no choice but to move the money they managed into highly risky investments in order to obtain high yields. But investors did, do and always have had a choice. While it may be true that earning a high enough return to satisfy the ignorant greed of the public required taking insane investment risks, the alternative was to heed the true underlying fundamentals and stay in cash or move into physical precious metals bullion. No one was putting a gun to investors’ heads and forcing them to play Russian roulette with financial landmines.
Several famous hedge fund managers liquidated their funds and returned their investors’ money. A good friend of mine closed down his investment advisory business because he refused to put his clients’ money into the stock market even though he received calls every day from clients insisting that he buy stocks.
The protagonists in “The Big Short” were portrayed as feeling guilty about making a fortune off the demise of others. But the “others” who lost were people who made bad decisions. While Wall Street did its best to bamboozle the public, there are plenty of people who avoided making bad choices because they took the time to educate themselves in order to avoid making what were obviously going to turn out to be bad decisions.
The United States is collapsing politically and economically because the populace has enabled it to fail by choosing to conduct their lives in ignorance. This video, for me, encapsulates the essence of the problem: