[Moneyverse] Where Have All the "Panics" Gone?

The film "The Big Short" is based on the true story of investor Michael Burry. Before the outbreak of the 2008 global financial crisis, Burry bet on a decline in bond prices. His prediction turned out to be much more accurate than expected, resulting in astronomical returns.

The bonds that Burry expected to fall were collateralized debt obligations (CDOs) based on subprime mortgage loans. He entered into a credit default swap (CDS) contract with investment banks, paying a fee similar to an insurance premium, and would receive a payout if CDO prices dropped. At the time, concerns about the repayment ability of CDOs were considered unfounded, so the fees were minimal. This is why his returns skyrocketed.

As shown above, correctly predicting a downturn can lead to massive profits. However, there are people who, instead of investing in a bear market like Burry, widely publicize the idea of an impending "panic-level economic crisis" through media or books. These individuals present only their forecasts without risking their own money. If their predictions come true, they gain global fame and authority, which quickly translates into financial gain. Even if they are wrong, they rarely face criticism. Investors and other economic agents mostly focus on the future, paying little attention to reviewing past forecasts. For this reason, warning that a major economic crisis is imminent has become a "risk-free, high-reward" business. This explains why some academic economists and self-proclaimed economic experts periodically sound the alarm of a coming "panic." If every crisis they predicted had actually occurred, the world economy would be facing even more severe mass unemployment than during the Great Depression of the 1930s.

Nouriel Roubini, Professor Emeritus at New York University who is credited with foreseeing the global financial crisis, published a book titled "MegaThreats" in 2022. He argued that 10 mega threats—including rising debt, stagflation, currency collapse, aging populations, and pension burdens—"overlap and reinforce each other," predicting that "we have come too far, and there will be no happy ending." In 2023, when this book was translated and published in Korea, a domestic author also released a book titled "Financial Crisis Heading for Economic Catastrophe." The outcome, as we all know, was otherwise.

This time, Robert Kiyosaki, author of "Rich Dad Poor Dad," has stepped forward. At the end of last month, he warned on his X (formerly Twitter) account that "a major market crash could come in 2026-2027." He added, "The coming crash could perhaps be another Great Depression." However, these predictions are little more than fortune-telling, as they lack basic requirements. Economic forecasts must be based on the movement of variables, including a pathway such as "if certain variables develop in this way, they could deliver a severe blow to the economy." Such forecasts also provide ways to prevent or mitigate such shocks.

In short, I do not believe that a panic will occur this time either. Even if the bubble in artificial intelligence (AI) investments bursts, a panic will not happen. I will discuss this separately when the opportunity arises.

Criticism of panic predictions is not just an intellectual exercise. When concerns were widespread that the economy would fall into a prolonged recession after overcoming the global financial crisis, I once gave appropriate advice regarding a friend's asset management.

If you come across a claim that "the Great Depression is coming," check whether the person making the claim has actually put their money on the line in that direction. More importantly, see if they have presented any relevant variables and pathways.

Baek Woojin, Economic Columnist

This content was produced with the assistance of AI translation services.