The Next “Big Short”

As I left the Tropic Cinema yesterday (1/24/16) after being spellbound by The Big Short I was awash in mixed emotions.  The overall feeling was a profound sense of hopelessness. But mixed with it was a sense of vindication because my own assessment of how the real estate bubble happened was confirmed by the film.

I can’t honestly say that I saw it coming, at least not on my own.  I happened to read an article about a couple of MIT guys who were predicting the crash and how their predictions were being dismissed by the real estate professionals. What those guys said made sense to me and squared with my own experience of booms and busts in commercial real estate.

My morose mood came from the sense that the collective self-deception and willful blindness that created the 2007-8 economic crisis was not cured by the ensuing bust.  People continue to game the system. Eight years later the perpetrators are sharing a bonus pool that exceeds by a factor of two the total earnings of all those who work at or below the minimum wage. While the prosecution of drug dealers and petty thieves occupies most of the workload of prosecutors across the nation, the guys who erased about 6 trillion dollars of private assets haven’t missed a beat, or a meal, it would seem.

I see another one coming.  Not housing this time but fossil energy. I earnestly hope that in eight more years I am not feeling angry about “The Big Short 2” describing how the energy industry savaged the land, water, and air before needing to be bailed out by the very taxpayers they steam-rolled.

Drilling companies are going bankrupt at an alarming rate. Twenty-six went belly up in 2015, up from five and six in the preceding two years. Even mammoth Exxon’s drilling business is losing money. Why?  Because the supply of fossil energy far exceeds the demand. The price of oil dropped below $30 a barrel. The price of natural gas will stay low for the foreseeable future.  While we like the prospect of gasoline being under $2 a gallon, we know that global warming not only happening but it’s happening at an alarming rate.  There won’t be a big resurgence of demand for fossil fuels without disastrous consequences.

But the energy industry doesn’t see it coming. The agencies that rate their stocks and bonds don’t seem to see it coming either. The great juggernaut lumbers on.  Pennsylvania’s state government, has been working overtime to expedite the development of 30,000 miles of pipeline infrastructure to collect shale gas and deliver it to Philadelphia for processing into liquid natural gas (LNG).  There are 9,000 fracked shale gas wells of which less than half are connected to collector pipelines. There are 16,000 more approved permits awaiting drilling.

Everybody in this voracious industry wants to make a killing before the music stops, and there are unwary banks and investors who will put up the money.  As “The Big Short” so cleverly depicted with the housing boom, the various players will use guile and craft to shift the ultimate risk to others until the bubble bursts.

What then?  Ordinary people (Donald Trump’s ‘losers’) will be left with farms and forests scarred by well pads, collector right of ways, pipelines, compressor stations, LNG refineries, all fallen into disrepair and abandonment because their owners are bankrupt or missing in action. They’ll be taxed to fund the sealing of leaking and dangerous orphaned wells. They’ll be experiencing first-hand the recently documented health impacts of methane and dozens of toxins brought to the aquifer and the air by the reckless large-scale perforation of the Earth’s surface.

As we see in The Big Short, there will be some guys and gals, a lot smarter than me, who also see it coming.  They will short fossil energy at the right moment and become wealthy overnight.

For my part I have spoken at hearings of the PA Governor’s Task Force and the Delaware River Basin Commission. In the two minutes they allotted me I do little more that say “heads up” and point to the danger. Perhaps this is what each of us must do — just what little we can do — the next right thing. And pray that with Divine Assistance that little bit along with many others’ small but earnest efforts will eventually suffice. God Save America.