‘Big Short’ Says Banks Aren’t the Problem

If you haven’t yet seen the film "The Big Short," then I highly recommend you do so.

The movie gives a great portrayal of the events leading up to the financial crisis as seen by four traders who were able to predict the credit and housing bubble collapse — and how they made money in the process.

One of those four traders is Steve Eisman, played brilliantly in the film by actor Steve Carrell.

In an op-ed in Sunday’s New York Times, Eisman argued for something that might surprise some.

The article, "Don’t Break Up the Banks. They’re Not Our Real Problem," includes an interesting explanation of how too much leverage on the part of banks led to the bursting of the housing bubble.

Eisman also explained that the current regulatory rules on banks are actually working, and that banks now are in much-better shape than they were eight years ago.

So, what’s the real problem facing the economy right now? Eisman says it’s "income inequality."


Eisman’s explanation of what led to the financial crisis reminds us of why corporate culture — and basically not knowing anything different — can be big problems if left unchecked.

According to Eisman, the reason the crisis occurred was as follows:

If I could sum up the catastrophe in one word, it would be "leverage." Using borrowed money, the financial system made huge bets just when losses were about to explode because of subprime mortgage loans.

Eisman explains that the balance sheets at big banks such as Citigroup (C) and Goldman Sachs (GS) surged from 2001 to 2007. He also explained that was due to leverage.

For example, Citi was leveraged 21-to-1 in the first quarter of 2001. By mid-2007, leverage had climbed to 33-to-1. The situation was similar for Goldman, and the rest of the big financial institutions on Wall Street.

As Eisman explains:

The explosion in leverage occurred for several reasons, but one underappreciated factor has to do with psychology and corporate culture. An entire generation of Wall Street executives came of age in the 1990s and 2000s.

Their incomes started to rise after the recession of the early 1990s, going up in virtually a straight line until the financial crisis. Each year they made more, and each year the balance sheets of their respective firms grew. The system fed on itself.

Unfortunately, Wall Street mistook leverage for genius. Then came the irresistible force known as subprime loans.

Now, I am pretty sure you are aware of the subprime loan fiasco and the death spiral it represented for housing, the banks and the entire economy.

The fact is that it nearly took the whole system down.

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Click here to read it on our website.

In the wake of the destruction, Congress passed new regulatory reform such as the Dodd-Frank financial reform act of 2010.

Eisman explains that the division of labor among regulators was key, with the Federal Reserve regulating safety and soundness of the system while the Consumer Financial Protection Bureau is designed to look after consumers dealing with financial institutions.

As Eisman writes:

Under the new regulatory regime, the leverage of the large banks has been reduced. While Citigroup’s leverage peaked at 33-to-1, today it stands at less than 10-to-1. The Federal Reserve has forced similar reductions in leverage across the board.

Risky proprietary trading desks have been eliminated at banks by the Volcker Rule, part of Dodd-Frank. And while the consumer protection board has been around for only a few years, it seems to have made progress in safeguarding consumers from the more egregious practices of the financial-services industry.

I basically agree with this, although Eisman fails to mention that the costs associated with Dodd-Frank have been a big obstacle to banks being able to lend money freely, and to therefore get the economy back on track.

I also agree with another of Eisman’s assessments, and that is that the U.S. financial system is much less risky than it was before the 2008 debacle.

What I find a bit of a misnomer of sorts is Eisman’s basic conclusion. He writes that the real heart of the country’s economic problems is "income inequality."

Here’s how Eisman finishes the NYT article (emphasis mine):

The central economic problem of our time is income inequality, especially the lack of personal income growth for most Americans, which was one of the underlying causes of the financial crisis.

In lieu of rising incomes, credit was allowed to be democratized. Living standards were maintained only because increased credit supplemented deteriorating incomes.

That helps explain, post-crisis, why United States growth is slow: Without easy credit, consumers cannot increase spending, because their incomes have fallen since 2007.

If we want a stronger economy, improving the distribution and growth of personal income should be our focus. Breaking up the big banks will not help, and might even hurt.

I basically agree that the lack of personal income growth for most Americans is a real problem, and that it is at the heart of our economic sluggishness.

Yet calling it "income inequality" implies a kind of "limited pie thesis" — that there isn’t enough wealth to go around as-is.

This argument (which Eisman does not imply or infer in his article) is that income inequality is a problem that can be solved by the redistribution of wealth. This is at the heart of the candidacy of Sen. Bernie Sanders, and it’s a thesis many Americans accept as accurate.

Now, I also agree that if we want a stronger economy, we need to improve personal incomes and growth — and that breaking up banks won’t be a solution.

The way to do that, in my view, is to allow Americans to keep more of their hard-earned money via lower taxes, lower capital gains and dividends taxes and more free-market reforms that put more money in our pockets.

I think the best way to cure "income inequality" is to allow more people to get rich. It’s not to make wealthier people poorer via the taxman.

I hope that Eisman agrees.


Do you think banks are still the big problem they were before the crisis? Do you think income inequality is our biggest economic problem? What about my thoughts on growing the pie via less government?

Let me know your thoughts by leaving me a comment on our website or by sending me an e-mail.


Stocks finished flat after a volatile session, as traders position themselves in front of Fed Chair Yellen’s Humphrey-Hawkins testimony tomorrow before Congress.

•  It’s primary day in New Hampshire. Fox News mistakenly reported early in the day that Donald Trump won. We’ll get the results tonight after polls close at 7 p.m. Eastern.

•  The Empire Strikes Gold. "Star Wars" delivered for Walt Disney Co. (DIS) in Q4. Earnings per share came in at $1.63, blowing past expectations of $1.45. But ESPN remains a concern because of cable "cord-cutting." However, China’s Tencent has just agreed to a multiyear licensing deal to deliver ESPN’s sports content online.

•  President Obama wants more money for regulatory oversight. In his fiscal 2017 budget, he asked Congress to boost the Securities and Exchange Commission’s budget by 11%, and the Commodity Futures Trading Commission’s by 32%.

•  It was another down day for oil. West Texas Intermediate finished the day below $28 per barrel, a 5.9% loss.

Good Luck and Happy Investing,

Brad Hoppmann


Uncommon Wisdom Daily

Your thoughts on “‘Big Short’ Says Banks Aren’t the Problem”

  1. HI Brad,

    Of course the BIG banks are playing highly leveraged bets (ie Derivatives) with other people’s money (OPM). The problem is a Global Elite One World/New World Order plan that involves a Keynesian based, money and banking system that is out of control. You need to spend more time analyzing the actions, behaviors, and activities of the Global Elites playbook (alternative news is doing this very well) and almost all of the issues you bring up on a daily basis can be fully addressed.

  2. “the lack of personal income growth for most Americans is a real problem, and that it is at the heart of our economic sluggishness.”

    “Yet calling it “income inequality” implies a kind of “limited pie thesis” — that there isn’t enough wealth to go around as-is.” -To think otherwise is to think that the supply of gold or oil unlimited. That is ludicrous, and we all know that. But let’s consider the stock market. One hundred people each buy a lot of a stock at for $10 per share. They have invested $10 x 100 x 100 or $100,000. If time passes and investors are optimistic, or “bullish” then we may see 10 people selling their shares for $16 each. If so, then that sale would have increased the total investment by ($16 – $10) x 100 x 10 or $6,000 for a total investment of $106,000. However, all of the current stock holders think that the total value they are holding is $16 x 100 x 100 or $160,000. Now, if the company issuing the stock in the first place truly increased the value of the company by 54%, then the $54,000 value would be there. However, stock is valued (bought and sold) not on the current value, but on the future value instead. Therefore, the $54,000 would likely not exist. This means that the stock market is a game of musical chairs, and there are simply not enough chairs for all investors to sit on when the music stops—“limited pie thesis” All tangible things are limited, and the result is that when one has obtained a greater share, another must have a reduced share. I am not saying that this is a bad thing in itself. The harder worker taking the greater risk must be allowed to reap the greater reward. However, as in all things, When there is excess, the situation becomes bad. How can we tell when there is excess? The people can tell.

    “This argument (which Eisman does not imply or infer in his article) is that income inequality is a problem that can be solved by the redistribution of wealth.” -If it hasn’t been said, then let me say it: All wealth is being redistributed. Every exchange, every investment, every bonus, every bet, every fee, every tax, every fine results in a natural redistribution of wealth. For the winners, more wealth is distributed to them. For those who break even, their wealth remains for another go. For the losers, well, we all know what happens. The natural inclination of mankind is to exercise the power that he has to obtain as much for himself as he can. If he owns the company, he will keep more of the profits for himself and pay his suppliers and workers less if he can get away with doing so. For the corporate CEO, he will close the plant, lay off the workers, build a new plant in Mexico, pay the new workers a small fraction of what the laid off workers were paid, import the same product, sell it at a lower price, increase sales volume, show the board higher profits, and take a larger bonus. For the plantation owner, he will use slaves, pay them nothing, and live in luxury if the law would allow it. This is natural “redistribution of wealth.” If all people had a moral code, a conscience, a desire to live by the golden rule, we would not see the excess that is occurring today. Should the government step in and do its own “redistribution of wealth?” Consider that Abraham Lincoln’s Emancipation Proclamation was a government act of “redistribution of wealth.” You tell us what should be done. Oh, I did say anything about the banks, because you are right. The banks are not the problem. Without law and enforcement and even with it, the people running the banks are the problem. Truly, if they are not a solution, they are part of the problem.

  3. Yes, the wealthy have gotten wealthier and the poor, poorer. But this has been happening since the late 1970s, not just from the year 2000. Look at the BLS data for those earlier years and see how 60% of workers have had no real wage gains for over 40 years with another 20% or more joining the ranks due to the more recent Great Recession.

    This shouldn’t be a surprise when a nation emasculates the earning power of the middle class by concerted political effort to weaken labor unions at the state level, massively imports competing, cheap labor, while failing to advance the training of young people to meet the technological needs of industry. That’s not to mention of course those jobs lost to the steady march of robotics, which are eliminating good paying production jobs and will continue to do so.

    Both political parties need to recognize reality and address these serious short comings…shifting wealth by virtue of taxes won’t fix them, but then again, who says they really want to.

  4. Too much leverage? Really? They’re just now figuring this out? Von Mises (literally) wrote the book decades ago and identified excess credit expansion (in our present day central banks artificially lowering interest rates) to lead to malinvestment (undue risk taking). I believe his explanation was that people mentally use the interest rate as a gauge of risk. When interest rates are low, they think risk is low, without bothering to factor in that the rate is only artificially low due to central bank interference in the market place, not because real risk is low. Add to that political tinkering such as forcing banks to loan to sub-prime clients for vote buying and there was the complete recipe for disaster.

  5. I agree that breaking up the large banks is not the solution. I think we need to bring back manufacturing companies back to the US. That would create many jobs for those lost when companies moved their operations to other countries. We also need to retrain people to perform the high tech jobs that companies cannot fill because of a lack of qualified workforce. The solution I see is to not tax the rich, but to pay people based on the pay for work of equal value. We need a president who places a value on private sector jobs and not assume the government can do the jobs better. I see Sanders as a socialist and we definitely don’t want that. Many people have jobs that are half-time or are underpaid, and as a result they run up dept just to meet their living expenses and they can’t pay for it. The government needs to report the true unemployment figures.I think they should report only those employed full time and not those underemployed or half time and living on food stamps.

  6. I agree that breaking up the large banks is not the solution. I think we need to bring back manufacturing companies back to the US. That would create many jobs for those lost when companies moved their operations to other countries. We also need to retrain people to perform the high tech jobs that companies cannot fill because of a lack of qualified workforce. The solution I see is to not tax the rich, but to pay people based on the pay for work of equal value. We need a president who places a value on private sector jobs and not assume the government can do the jobs better. I see Sanders as a socialist and we definitely don’t want that. Many people have jobs that are half-time or are underpaid, and as a result they run up dept just to meet their living expenses and they can’t pay for it. The government needs to report the true unemployment figures.I think they should report only those employed full time and not those underemployed or half time and living on food stamps.

  7. The challenge is how to address the income inequality issue. Can we do it through tax reform? through re-education? through re-training? Or a combination of all above.
    We cannot rely on introducing more entitlement programs that have no term limits.

  8. Brad,

    First, you are very good at picking tends and stocks, but you suck at suggesting how to “fix” income inequality in this nation. You state:
    “The way to do that, in my view, is to allow Americans to keep more of their hard-earned money via lower taxes, lower capital gains and dividends taxes and more free-market reforms that put more money in our pockets. I think the best way to cure “income inequality” is to allow more people to get rich. It’s not to make wealthier people poorer via the taxman.”

    Oh Brad, could you be more wrong. People who have dividends and capital gains aren’t the ones we need help out to stimulate economic activity (spending). Nor are they the ones financially in trouble, unable to feed their kids, educate their children, etc. To erase income inequality we do need to grow the “pie” but we need to lift up the poorest in our country and give people middle class jobs. Government can do it by rebuilding our infrastructure and educating our children. Higher taxes on Wall Street speculation can be used to rebuild our failing bridges, dams and highways, our airports and other construction projects. Instead of “drill baby drill” our national slogan should be “build baby build.” The effect of these new jobs will not only stimulate economic growth as the construction workers spend their wages, it will also increase tax revenues.

    How did World War II take our economy from the post depression slump to the economic prosperity we enjoyed for decades post-WWII ? Everyone was either fighting or building, fully employed and spending their pay checks directly on food, clothes, etc.

    To restore our economy and deal with income inequality we need to “build baby build” addressing both unemployment and underemployment, tax revenues, etc. Our is a “consumption” driven economy. People need jobs. Building infrastructure will do it.

  9. I am not an economist but the problem seems to me to be the companies are not sharing enuf of their profits with the worker. I think greed by management has hurt the worker. My father was a managing partner with a firm called Haskins and Sells years ago and he always said that morally sharing with the workers stopped the Unions. I don’t know how one controls this but it could be the basic problem.

  10. My understanding from reading the newspapers is that the number of banks in the US has decreased from about 10k before Dodd-Frank to just under 5k today. Also the number of new banks being formed has dropped from 10-20 per year before D-F to just one since D-F passed. This means a big loss of competition and a big loss of employment in the banking industry, and it makes it more difficult for small/medium size businesses to get loans. Perhaps Mr Eiseman could comment on this.

  11. “Income equality,” spoken like a true Socialist/Communist. So the banks lending $$ to unqualified borrowers is a leverage problem and not a GREED and unethical practice problem. Eisman is full of BS and you know it. The same is going on today in the auto business. It should provide more jobs though in the Repo Man career field.

  12. when twenty families own or have more wealth than the bottom half of the population, Something is wrong.

  13. I did see the “Big Short.” It has inspired me to add to me finish my 2 legged stool. I know accounting. I know economics. I do not know what I see in Finance. However, I am learning more about the subterfuge or subprime information that is creating the wide division of wealth and the erosion of the wealth of the Middle Class and funneling it up to the banks. None of it is trickling down.

    Having focused on cause and effect in my reality, I have asked: “If we have little manufacturing and we depend on a consumer economy, why are the wages of the Americans stagnant? I have answered my questions. Because the dark side of Capitalism is cheap labor at all costs. History proves my point. Cause: Slavery–cheap labor. Effect: an expensive and violent Civil War and the violent aftermath. Cause: Immigrants flooding through Ellis Island working without health care and with low wages. Effect: The 1920’s stock bubble because Calvin Coolidge said “Leave Business Alone.” The aftermath–The Great Depression.
    I believe history is repeating itself today. Instead of importing cheap labor we are exporting our creative business secrets to Communist China because they have cheap labor. We should not be shocked when someone can make money betraying our business secrets by selling them protected information.
    We are seeing signs that we are in a Depression today. Slow economic growth, debt bubbles, stock bubbles, and the use of smoke and mirrors by printing money instead of what FDR did–employing people to fix our infrastructure and add wealth to our country.
    Our bread lines are in the supermarkets. People are using debit cards which are food stamps. There are food drives in every community and nationally.
    The banks will cry that they can’t lend money, but they can pay themselves astronomical wages and benefits. I call this the “Little Shop of Horrors” syndrome. FEED ME! IS THIS ANY WAY TO OPERATE A CONSUMER BASED ECONOMY OR IS THIS THE WAY TO EXTRACT THE WEALTH AND RUN THE ECONOMY INTO THE GROUND? Let return to capitalism the way Adam Smith created it based on supply and demand. Carole Doerr

  14. I was told by a former banker that in 1995 they had a Bank Inspector come in, go through their books, and then give them a debriefing when he was finished.
    The inspector told them that they had passed with flying colors, BUT…they were not letting many mortgage loans in a certain part of their city.
    They told the inspector that they did let loans to whoever applied, including in that part of town, if the applicant met the criteria of having good credit scores, having an income, and having money for a down payment.
    To this the Inspector replied: “You don’t have to worry about those things. We have Ginny Mae and Freddie Mac to take care of those loans, and if you want to continue getting good evaluations you will need to start letting those loans.”
    So—if risky mortgages were insisted on by the federal government, and the risk came to pervade the mortgage industry, and it was tolerated through the Bush Administration—What would have happened if those packaged loans had not been passed up the financial pyramid? When the crash came, would it have been a repeat of the savings and loan debacle? And were the largest financial institutions told that they had to accumulate those loans and manage the risk at their level?

  15. In response to the TBTF banks, I believe the Government needs to carefully weigh the privilege it has given banks. Fractional reserve banking is a gift to banks greater than any afforded to other corporations. Regulation won’t stop the gambling, perhaps jail time might. No one went to prison, despite nearly destroying the World economies! Put a few Dimons or Paulsons in the general prison population and see if the fear of that doesn’t move the C-level crowd to know what risks they are taking. Counterparty risk can’t be hedged away and should be insulated from real banking assets.
    As for income inequality, neither a Socialist or tax based solution will work.. The folks that need help don’t pay income taxes and they certainly don’t have investment income! What kind of message does that send… to tax unearned income at a lower rate than earned income? Equally misguided is spending tax revenue on giveaways. There isn’t just one solution to the problem, but the standby Right and Left fixes haven’t worked.

  16. This is an interwoven composite of complexity. Almost nothing in this statement will stand alone as an absolute, with one possible exception: The banks per se are too damned big.

    However, the above having been said, this whole problem or set of problems is basically quite simple: It is based on the unbridled manifesting of the psychotic greed of corporate executives, and government personnel who would pimp their mothers were the opportunity to present itself. This statement is an absolute !

  17. Raising the minimum wage north of $15/hr will go a long way towards helping out those on the bottom rung survive and thrive. I have a hard time believing that continued low taxes for billionaires is helping the economy, if that were true the economy in the USA would be going gangbusters right now. The working class have been getting screwed since Reagan, and Obama is only continuing the trend toward lower wages, little or no benefits, not much opportunity for working people. Couple that with a never ending supply of undocumented workers willing to work for minimum wage (with fake/bogus ID), and the future is not bright for those of us who aren’t part of the landed gentry / ruling class. For those who disagree, I suggest trying to live on $10/hr with no benefits…

  18. You would have to be a complete fool to believe that banks aren’t the problem or at least a good s oh zed part of the problem. Banks don’t even loan money, they trade your signed negotiable instrument for credit. Notice I didn’t mention a loan. You need to read the affidavit of Walker Todd. Bank, and the American Bar Association which controls every aspect of our country are the problem. WAKE UP!

  19. Dear Brad,

    You’re reading too far into Eisman’s comments. The term income inequality itself doesn’t imply that Eisman believes we should redistribute wealth at all. It’s simply a statement of fact. Incomes of the top 1% dwarf that of the rest of the population, and that is a well known fact at this point – that things aren’t equal. I certainly don’t peg Eisman as being some kind of socialist, especially if he opposes breaking up the banks.

    The rich make the laws and will always make them in favor of wealth concentrating at the top, and at some point, the institution known as Wall Street no longer serves the population by providing jobs and income. It just becomes a malignant parasite bent on killing its host, ie. The average working citizen. The elite rich will always seek to push the envelope in this regard at the expense of morality. They do not understand (or care) that they are inciting anarchy by doing so. Caring isn’t profitable, so the cycle goes on.

    I agree with Joe. No bailouts, period. That would have ended the flagrant risk taking, but would have meant national suicide at the same time. No intelligent retail investor acts like the banks do. Buffet doesn’t. That’s why they last. It all comes down to the laws rigging the game so too big to fail means they can act as the economic vampires. So does capitalism need to go? No, but it certainly needs deeper reform than what we got in 2008 which amounts to essentially a band-aid on a century of political exploitation.

    All due respect Ron, but I would peg you as probably middle class. If you knew how unfair the game is, you wouldn’t be telling the readers of UWD how undisciplined people are, though it’s true that many lack what it takes to create wealth.

  20. Yes, we need to grow the pie, and that is the more important thing to focus on. However, the big banks are a serious problem. They suck money out of the economy for the benefit of a few, without increasing anyone’s standard of living. They are only “stable,” if you believe the assets on their books are properly valued, and you ignore the derivitives they hold. When these assets have to be written down because of the decline of the dollar and the decline of the credit worthiness of the U.S., and the failure of foreign banks, their debt/equity ratios will sky rocket.

  21. Hello Brad. Thank you for this easy to understand essay on our economic situation. Our household income is about $80K. I think you will agree that this is not what you would call wealth, nor is it poverty. It is at the lower end of the middle class. We have no problems making ends meet, and manage to put a little away… a little! Let’s say that my taxes were $2K less. (Note that I do not have to worry about capital gains or dividends, I’m not in your league.) That $2K would give me an additional $167/mo to spend a little and save a little. I certainly would welcome the extra money, but what about next year? Will you lower my taxes every year by $2K? I don’t pay all that much in taxes to go very many years like that. I can’t see your plan working for more than a year. It’s a one shot deal that President Bush used and did not produce the desired results. The only sustainable way to increase disposable income is to increase salaries. I do not want government intervention either, so why don’t you pressure the corporations that you invest in to spread the wealth a little more equally.

  22. Let’s never forget that it was the banks that got bailed out for there Ponzi scheme.
    The public got royally screwed and are still hoping to recover there losses from the melt down of 2008. It’s always questionable weather the regulators will do there job consistently
    as they have a very poor track record. I think they are in bed with the banks and after a while loose sight of there obligation to the public.

  23. Real wealth has nothing to do with how much you make. It has everything to do with how much you keep. Forget about taking from the rich and giving to those who think they are entitled. If you want more, figure out how to earn more and keep more. Nothing worthwhile in life is easy. It requires sacrifice, commitment and willingness to put off immediate gratification.

  24. I think that the greatness in this country is the people. When people are financially healthy, they will spend money, which in turn, will boost the ecomony. I.I don’t think the majority of people in this country want to become rich. They just want to be healthy in body , spirit, mind, and financially.Over taxation, government intervention into business, personal lives, and unsound international policy have really hurt us. We have to have fiscal responsibility abroad, as well as domestic. Doing away with the federal reserve system, would be a huge step in the right direction. We also need to do away with the IRS, as well as any other associations that have caused as much damage, and havoc as those two have.Let the states govern themselves, and stop dangling carrots to dying rabbits!NO MORE BIG GOVERNMENT! No more government bail outs! Special interest groups, pork barrell spending, and on , and on.

  25. I smiled when I read this article. Not I disagree with some arguments of author, I just want to point to some obvious reasons that the lower tax will remain as a fantasy.

    Try this, do you think lower tax can maintain a strong military that is the tool to support US dollar as the reserve currency?
    Do you think lower tax can support the welfare system that has already incurred trillions of unfunded liabilities?
    Do you ever believe politicians will live in austerity to support the wellbeing of general population?
    There are more questions but need not to ask any more.

  26. The problem with Dodd Frank is that it made an effort to put the banks in a creditor position and the people in the debtor position. Banks cannot and never will be able to create money without the people since the people are the true creditors. People do physical work and create things. Corporations/banks are just fictions and cannot create anything. Banks take the peoples’ credit and covert it to Federal Reserve notes and that is why money/cash is a note. It is a debt to the people. Read Modern Money Mechanics, a publication put out by the Federal Reserve some 10 or 15 years ago, it explains it quite well. Now banks cannot survive since they have taken most of the credit from the working people.

  27. Hello Brad,
    to the best of my knowledge, consumption is the single biggest factor in determining the GDP, being about 70%. The consumer has had a stagnation in income for more than thirty years. During the years from 2008 to the present, 95% of the increase in wealth have gone to the 1%. How much of that 70% in consumption do they account for? The big multinational companies need to come to grips with the fact that the exhausted consumer and the vanishing middle class who is struggling under a burden of debt cannot serve as the engine of economic growth, and hence, their products are going to stack up in ware houses. That is what we are seeing presently, so whether you want to see it as income inequality, or as a lack of purchasing power by the consumer, until the fundamental problem of a lack of purchasing power by the consumer is addressed in a very meaningful way, our whole economy will suffer.

  28. Income inequality is certainly a problem, but it cannot be solved by legislation. Legislation, in fact, will simply mandate one bias or another, and reduce the chances of giving people opportunities to get ahead. Some people will make the effort, others will not. Laws and regulation will do nothing to compensate for human nature. They will penalize some to give unearned benefits to others. This will reduce incentives for all.

  29. I work for a prosperous American multinational company whose brands are recognized around the world. Our company has in place a multi year cost cutting project with the goal to cut a $1 billion a year from its operating costs. As a result, I have seen many of my colleagues lose their jobs due to outsourcing. For top performers, increases have barely exceeded the rate of inflation while the increase costs of benefits & taxes per paycheck often eliminates any pay increase that was given. The cost cutting has gotten so extreme that they have eliminated the garbage and recycle bins at our workstations in favor of “communal” bins with the stated goal of “cutting” back waste.

    As the company has been prosperous for decades, in 2015 the CEO announced, yet again, that by 2018 the company will be spending $12 billion dollars to buy back stock which works out to approximately $45,000 for each employee worldwide. This $12 billion dollar expenditure will not hire one new employee, will not add a single dollar to R&D, employee benefits or any other expense capital or otherwise that could increase sales or profitability during this period. The only advantage to this plan is that with the reduction of outstanding shares our earning per shares is increasing faster than what our sales and cost cutting can achieve alone.

    Income inequality is a result of the income growth for the majority of workers has not kept up with the level of inflation and taxes levied by local, state and federal authorities. Companies such as my employer are using their profit not to reward their employees but to spend monies on the false economy of massive share buybacks plans that fail to benefit employees who do not own stock or to invest in R&D, new plants and equipment, etc. that is needed now to drive future growth. Perhaps if corporate America share their profitability or would return back some of the money being spent to buy back shares back to their employees as real wage increase, improved benefits, etc the income gap would not be as great as it is today.

  30. Eisman must be a Sanders groupie. Income inequality is an easy to solve problem. Let income earners keep (and spend) more of what they earn to organically stimulate and grow the economy. That would in turn create a faster recovery and more jobs. More jobs means less welfare and more taxes into the coffers. A wonderful cycle to have.

    I have no concrete proof, but have read in more than one newsletter, that the ‘too big to fail banks’ are more leveraged and hold more derivatives today than they did before the ’08 recession. If that’s true, then they didn’t learn the correct lesson but rather, got further hooked on gambling with OPM….yours and mine. And now we’re at the precipice of yet another bigger bubble again that’s ready to burst.

  31. The major financial institutions have continued to grow their derivative portfolios, much of these are in otc transactions. These are only as good as the counter party. A failure of some of these counter parties could lead to a major financial disruption.

    With regard to income inequality, economic growth is the answer. This can be helped with lower taxes and, importantly, a reduction in regulations which are adding significantly to the costs of doing business in the US

  32. Income is the problem, and I agree. Permitting illegal immigration increases competition in labor market, and contributes to low wages. Salary structure of banking industry contributes to the bad large Bank image, and should be changed. Options trading should be eliminated, and Banks should not be permitted to invest reserves in the market, especially reserves identified for home loans…

  33. There is an old Russian joke about the farmer who’s neighbor had a cow and he had none, so every night he prayed to God… Please God let my neighbors cow die.

    This is not too far of the mark for our current situation. The only solution for improving our economic health improve is to increase the taxes paid by the middle class, those vast numbers of taxpayers. We need to figure out how to put them to work. Unfortunately there are much fewer jobs where some on can take a part from there and put it here and make a living wage. Sadly we will have to embrace social inequality to get there. There is just too much difference between high functioning Americans and the middle of the pack. If we don’t, the middle of the pack will just drag us down. So who will win, the have-nots or the haves. It is likely to be a messy battle. Unfortunately, history favors the Have-nots in the short term with the few stealthy haves winning in the long run.

  34. I highly recommend Nomi Prin’s ALL THE PRESIDENTS’ BANKERS for those who really want to understand the current situation.

  35. Income inequality is not the problem, period. It is understandable that people want a lifestyle that their income does not support. The solution to this situation was provided by the banks that made extra money easily available to “ordinary Americans”, without fully considering the implications of the fact that most would not be in a position to replay those loans. The problem was the lack of regulation surrounding the guys that approved those loans. Those approving the loans got their commissions, and obviously had the view of “who cares” I’m making money. Of course it is understandable that people want better lifestyles, even commendable. But doesn’t every 4 year old want more candy and soda, and thankfully mom or dad is there to say “you’ve had enough”. If they didn’t stop the excess of candy or soda their child’s teeth, weight, and general health would suffer. Which would then result in increased medical expenses, and further demands on the Health Services, and hence impact the wider economy. But in the case of the banks, and those in charge, they never considered the wider implications of their actions. But we all know how that turned out.

  36. Brad, while Steve Eisman gives an excellent analysis of what caused the financial crisis of 2008, he praises the blizzard of new regulations (Dodd-Frank) and the horrid “Consumer Financial Protection Bureau”, not to mention the zero interest rate policy of the central bank. The solution, horrendously painful as it would have been, would have been for the financial system to crumble in 2008, ending the Fed, and rebuilding on sound money (i.e. the gold standard). But that’s water under the bridge. I predict a continued sluggish economy, if we’re lucky.

  37. Eisman may be portrayed as savvy trader in the Big Short but in reality he was a third stringer that latched onto an idea two generations away from its inception and then was only kept in the game to provide an outlet for one of the banks trading desks.

    The published leverage figures for the big banks today are hogwash, all they have done is replacing a trillion dollars of loans/securities with a similar amount of the same shit but now laundered through those quasi government agencies. Wow, with a government guarantee (whether it can ever be exercised) those assets become “diskless” and don’t count in the leverage figures.

    Figures don’t lie, but liars figure.

  38. the cause of the crisis was the private bank running the USSA creating funny money leading to false demand. End the Fed and hang the whole gang.

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