The Golden Age of Fraud in Finance

Rob Johnson of INET interviews Jim Chanos, the president and founding father of Kynikos Associates.

Chanos says we live within the golden age of fraud:

Rob Johnson:

Nicely, you bought to have a bubble earlier than you possibly can have a crash, however we don’t fairly have a crash right this moment. However let’s begin speaking about just lately the phrase the golden age of greed. You’ve talked about what you’re observing, what sort of issues are taking place in the US and maybe on this planet economic system. And with a world monetary promote it’s not even clear the place the sovereigns are someday. Paint the image for us, what’s the golden age of greed.

Jim Chanos:

It’s really worse than that, it’s the golden age of fraud. And so I coined that time period a pair years in the past as I began to see publish pandemic the excesses actually start to construct within the monetary markets, each private and non-private, culminating in 2021, which was essentially the most speculative 12 months that I’ve skilled within the markets in over 40 years. And one of many issues I educate in my class, Rob, is that the fraud cycle follows the enterprise and monetary cycle with a lag.

That’s the longer you have got an enlargement, the longer a bull market goes on the extra incidents of fraud happens because it matures. After which after all as soon as issues flip down you start to get fraud uncovered, as a result of many frauds are at their foundation a Ponzi scheme and wish to lift new and new capital. And so the poster baby for that clearly is what we noticed occur in crypto final 12 months, which was the pink scorching fruits of speculative frenzy, lack of oversight, lack of legislation enforcement, and simply pure unadulterated greed that obtained caught up, after which uncovered in all types of schemes that at their very nature merely Ponzi schemes.

And I feel that now we see one other side of what I educate within the class, and that’s when individuals ask the place’s the regulation? The place’s legislation enforcement? One of many issues that’s as previous as monetary markets is that we don’t see oversight or new legal guidelines and rules till after individuals lose cash. And that’s definitely now the case in crypto the place after the actual fact we’re going to see way more regulation. As we converse the SEC is cracking down now on each onshore and offshore crypto companies and so forth.

It dovetails with what I educate in actual time. In truth, final 12 months anecdotally the now notorious interview in Bloomberg with Sam Bankman-Fried was launched on a Monday afternoon in April, and I educate my class at Yale on Monday afternoons. And I used to be studying this whereas I used to be having my espresso earlier than class, and I ran as much as our audio video guys to ask them if they might put this interview that I used to be studying on my smartphone up on my PowerPoint for that afternoon’s class. As a result of it’s very uncommon that in actual time you see an business luminary discussing his business by describing it as a Ponzi scheme, which is precisely what SPF did in that interview in late April with Matt Levine and Joe Weisenthal on Bloomberg.

And so all of it got here collectively final spring and summer time on this specific subspace of the monetary markets to show what we’ve been speaking about and what I educate about these cycles of greed and fraud that happen in monetary markets when issues go too lengthy and oversight turns into lax.