Rob Johnson:

Well, you got to have a bubble before you can have a crash, but we don’t quite have a crash today. But let’s start talking about recently the phrase the golden age of greed. You’ve talked about what you’re observing, what kind of things are happening in the United States and perhaps in the world economy. And with a global financial market it’s not even clear where the sovereigns are sometime. Paint the picture for us, what is the golden age of greed.

Jim Chanos:

It’s actually worse than that, it’s the golden age of fraud. And so I coined that term a couple years ago as I started to see post pandemic the excesses really begin to build in the financial markets, both public and private, culminating in 2021, which was the most speculative year that I’ve experienced in the markets in over 40 years. And one of the things I teach in my class, Rob, is that the fraud cycle follows the business and financial cycle with a lag.

That is the longer you have an expansion, the longer a bull market goes on the more incidents of fraud occurs as it matures. And then of course once things turn down you begin to get fraud exposed, because many frauds are at their basis a Ponzi scheme and need to raise new and new capital. And so the poster child for that obviously is what we saw happen in crypto last year, which was the red hot culmination of speculative frenzy, lack of oversight, lack of law enforcement, and just pure unadulterated greed that got caught up, and then exposed in all kinds of schemes that at their very nature simply Ponzi schemes.

And I think that now we see another aspect of what I teach in the class, and that is when people ask where’s the regulation? Where’s law enforcement? One of the things that is as old as financial markets is that we don’t see oversight or new laws and regulations until after people lose money. And that is certainly now the case in crypto where after the fact we’re going to see much more regulation. As we speak the SEC is cracking down now on both onshore and offshore crypto firms and so on.

It dovetails with what I teach in real time. In fact, last year anecdotally the now infamous interview in Bloomberg with Sam Bankman-Fried was released on a Monday afternoon in April, and I teach my class at Yale on Monday afternoons. And I was reading this while I was having my coffee before class, and I ran up to our audio video guys to ask them if they could put this interview that I was reading on my smartphone up on my PowerPoint for that afternoon’s class. Because it’s very rare that in real time you see an industry luminary discussing his industry by describing it as a Ponzi scheme, which is exactly what SPF did in that interview in late April with Matt Levine and Joe Weisenthal on Bloomberg.

And so it all came together last spring and summer in this particular subspace of the financial markets to prove what we’ve been talking about and what I teach about these cycles of greed and fraud that occur in financial markets when things go too long and oversight becomes lax.