Submitted by Taps Coogan on the 3rd of July 2018 to The Sounding Line.

Legendary market commentator, interest rate expert, and founder of Grant’s Interest Rate Observer, James Grant and legendary short seller Jim Chanos recently held the following wide ranging discussion on financial fraud throughout history. The introduction ends around 7 minutes and 55 seconds.

For video-player controls click on the hyperlink below the video

Jim Chanos and James Grant, “Fraud” from NYHS on Vimeo.

There is far too much to summarize the full discussion here, but here are a few excerpts:

Question:

“It seems to me that there are a lot less frauds in the market than there used to be. We lived (through) the period of the Savings and Loans and some other real-estate frauds, and some individual names… Why are there less frauds now, public frauds? Is that because of increased regulation among other things?”

Jim Chanos:

“Just wait… The fraud cycle follows the financial cycle and so as you’ve notice for the last eight or nine years… we’ve been in a pretty epic bull market but usually these things begin to appear towards the end. I would witness a company that Jim and I would know pretty well called Valeant Pharmaceuticals that eviscerated $100 million in market cap and was the largest single stock loss in hedge fund history a couple years ago. There is a company called Theranos that’s in the private sector that just fooled the best and the brightest in the venture capital field and yet happened in slow motion. So I suspect that, especially in the world of silicon valley and the unicorns, private companies that are burning billions of dollars based on future claims of profitability, I think the jury is still out.”

Question:

“Would you talk to us about the private and public frauds in China?”

James Grant:

“China is the most extraordinary living laboratory in credit formation and credit abuse the world has ever seen and that is a long history of credit formation and credit abuse, but China I think takes the cake… I should preface this by saying ‘concerning China, nobody knows nothing.’ Insofar as there are data and insofar as they are credible, China, to put it very succinctly, has been creating credit at twice the rate of its economic growth, sometimes more than that, and now what China is trying to do is pull that back… and Chinese bank credit as a percentage of its GDP is far greater than anyone else’s. It’s bank credit is far greater than ours with an economy much smaller… So if there are no consequences to this, the world has truly been remade. Imagine all this credit financing all these state supported projects… in a society where information is manipulated and suppressed… We are running our of adjectives to express our dire concern.” 

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