Heads Bankers Win, Tails Taxpayers Lose

Interest Rate Observer, Jim Grant, played an important role as explainer-in-chief in the forthcoming movie "The Bubble" [3] - a documentary that interviews the experts that predicted the 2008 crash and asks what happens next. The brief interview embedded below provides a smorgasbord of Grant's thoughts on topics from Fannie and Freddie as government-sponsored titanic hedge funds, his concerns at the unintended consequence of the debt-sustaining mortgage interest deduction, why MBS are not the root of all evil, and how the federal government is socializing risk for bankers. As usual, the ever-so-erudite Grant sums it all up superbly: "American bankers, based on the experience of 2007-8-9, don't know much about banking, but there's one institution that knows still less and that institution is the United States Congress." Adding that the past two or three years have all been about the unintended consequences of federal"spending, promising, and intervening" in finance and banking to delay a day of reckoning, Grant believes a correction is coming but again warns (in as succinct an eleven-word-sentence about our real world as we have seen recently), that "Bankers get the upside and we - the taxpayers - get the downside."