Man who saw the last crisis thinks we are on the verge of another one

Looking for an entertaining movie about the 2008 financial crisis? Well you are in luck because one is playing at a theater near you.

The Big Short tells the true story of a group of financial professionals who realized the housing boom  was unsustainable, so they "shorted" the housing marketplace. Of course, most financial experts mocked them because everyone knew the  housing boom would never end right?

The film tells the story in a very entertaining manner. One of the best parts of the movie is the series of entertaining vignettes explaining the complex financial instruments that fueled the housing boom. The film benefits from strong performances by an A-list cast, including Christian Bale, Ryan Gosling., Stephen Carell, and Brad Pitt.

The film does have a few flaws. First, the characters repeatedly say that no one on Wall Street or in DC realized the housing boom is really just a bubble. I guess the scriptwriters never heard of Ron Paul.

The second flaw is that, for all the time the movie devotes to explaining the financial instruments Wall Street used during the bubble, there is no discussion of the role the Federal Reserve's inflationary monetary policy played in creating the housing bubble. There is also no discussion of how Fannie Mae, Freddie Mac,and the Community Reinvestment Act "encouraged" banks to make loans to people who had no business getting mortgages.

The failure to mention the Federal Reserve is very interesting considering that Michael Burry, one of the investors portrayed in the movie, recently gave an interview in New York Magazine where he explains why the Federal Reserve's post-2008 massive money creation is endangering the economy:

Where do we stand now, economically?
Well, we are right back at it: trying to stimulate growth through easy money. It hasn’t worked, but it’s the only tool the Fed’s got. Meanwhile, the Fed’s policies widen the wealth gap, which feeds political extremism, forcing gridlock in Washington. It seems the world is headed toward negative real interest rates on a global scale. This is toxic. Interest rates are used to price risk, and so in the current environment, the risk-pricing mechanism is broken. That is not healthy for an economy. We are building up terrific stresses in the system, and any fault lines there will certainly harm the outlook.

What makes you most nervous about the future?
Debt. The idea that growth will remedy our debts is so addictive for politicians, but the citizens end up paying the price. The public sector has really stepped up as a consumer of debt. The Federal Reserve’s balance sheet is leveraged 77:1. Like I said, the absurdity, it just befuddles me.

Read the whole thing here.

Last falls 99 Homes, which dealt with the foreclosure crisis that followed the meltdown did mention the role of the Federal Reserve. The film's villain, a real estate broker specializing in foreclosures,explains that he would rather be putting people in homes but has no choice because the system was ruined by, among other things, "Greenspan pumping out money."

The first step toward reforming our dysfunctional monetary policy is to force the Federal Reserve to open its books so the American people can finally learn the whole truth about the Fed's operations. That is why Campaign for Liberty has launched a major program to pass Audit the Fed through the Senate. Please support our efforts by pledging to call your Senators and by supporting our Audit the Fed matching grant challenge.


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