These Four Predicted The Global Financial Crisis; Here’s What They Think Causes The Next One
by Tyler Durden
ZeroHedge.com
Sat, 09/15/2018
A different kind of hurricane slammed into the American East coast, the nation and ultimately the world ten years ago today.
Amidst the multiple introspective columns and soul searching that naturally occurred this week, which looked back on the missed warning signs behind the 2008 financial collapse exactly a decade ago this weekend, there is a small group of people whose opinions are actually worth paying attention to.
Though arguably no single individual accurately called all aspects of the crisis in its entirety, precipitated by the implosion of Lehman Brothers, some did very publicly predict key facets with prophetic clarity. As Market Watch’s Howard Gold explains in his profile of four analysts the world should have been listening to: “People warned about subprime mortgage loans, derivatives, and too much leverage, but nobody, to my knowledge, said a bursting housing bubble would cause a global crisis that would lead to the demise of venerable financial firms, require trillion-dollar taxpayer bailouts, and cause a recession that rivaled only the Great Depression in its magnitude.”
Trouble is like many religious prophets of ancient history, they were rejected at the time, cast as dour harbingers of gloom and doom.
Here are four names and their very public warnings that attempted to jolt the financial and banking sectors out of their sleepy stroll toward the abyss before 2008, as well as their predictions for the next big one, and what to look out for.
Howard Gold interviewed each, and laid out the key quotes summarizing then and now…
Economist A. Gary Shilling
President of consultancy A. Gary Shilling & Co., he started writing about a housing bubble in the early 2000s which Greg Lippmann (of “The Big Short” fame), credits with giving him the idea to bet against subprime mortgages. Describes Gold, “he warned his newsletter subscribers about a housing bust and wholesale deleveraging of household debt that would hobble the economy for years.”
And this epic anecdote from the interview:
John Paulson contacted Shilling in August 2006. “He talked about credit default swaps. I didn’t know what they were,” Shilling recalled.
Shilling did some consulting for Paulson’s hedge fund and even invested what “was for the Shillings a major piece of money in this.” Paulson, of course, loaded up on CDS’s and made $4 billion in what has been called “the greatest trade ever.” “We made 15 times our money,” Shilling says.
His predictions pre-2008:
“Subprime loans are probably the greatest financial problem facing the nation in the years ahead.” —January 2004
“The [speculative housing] bubble’s break will cause widespread pain…and be much worse economically than the 2000-2002 bear market.”—June 2006
“We continue to forecast a 25% fall in median single-family house prices nationwide.” —November 2006.
What he says now:
“The ultimate thing that brings down financial markets is excess leverage … So, you look where’s the big leverage, and right now I think it’s in emerging markets.”
Shilling is particularly worried about the $8 trillion in dollar-denominated emerging-market corporate and sovereign debt, especially as the U.S. dollar rises along with interest rates. “The problem is as the dollar increases,” he said, “it gets tougher and tougher for them to service [that debt] because it takes more and more of their local currency to do so.” Of that, $249 billion must be repaid or refinanced through next year, Bloomberg reported.
The Rest…HERE
