In today’s Wall Street Journal, James Freeman interviews Paul Singer, who runs the hedge fund called Elliott Management and also serves on COMMENTARY’s board of directors. The interview is well worth your time, but it may disrupt your sleep, because it offers an all-too-believable scenario for the next financial disaster. This time, according to Singer, it might happen due to legislation and regulations passed in the wake of the 2008 meltdown that will bring troubled financial institutions too close to government. In the bailout process, government agencies will have the right to choose which creditors get paid and which don’t—and the uncertainty of that will cause all of them to flee the firm once a bailout is even thinkable. This is the ultimate “unanticipated consequence.”
I can attest to Paul Singer’s prognosticative powers. I first met him in June 2007, and I asked him at the time about the subprime mortgage market, whose problems had begun to make the front page. “The worst recession of our lifetimes is now baked in the cake,” he said, 15 months before the meltdown of 2008.
So he’s worth a listen.