Hedge Fund Manager James Chanos Delivers Leaders Forum Lecture on Financial Market Reform

James Chanos YC '80, founder and president of Kynikos Associates, has a long history of saying something is headed down when most others are calling for it to continue going up. He became famous on Wall Street during the 1980s for noticing cracks in supposedly solid corporations; he was one of the first to turn on Enron at the beginning of this decade; and he predicted the end of the housing boom when the idea struck many as ridiculous. And now that the U.S. economy appears to slowly be pulling out of the worst recession since the Great Depression, he is sounding a new alarm. “If you told me a year ago we’d come out of this crisis with almost nothing changed, and in some cases even worse, I would’ve scoffed,” he said. “That is unfortunately the reality we’re facing right now. And it does set us up for the next round of bubbles and crashes.”

Chanos spoke at Yale SOM on October 26 at the year’s first Leaders Forum lecture. As one of the world’s most prominent short sellers, Chanos has questioned the assumptions of Wall Street for nearly 30 years. He founded Kynikos in 1985, after several years working as an analyst at other companies.

Chanos took the SOM audience through a number of concerns he has about the state of the financial industry. A proponent of more banking regulation, Chanos went through a list of changes that should have been made – but weren’t – after the global financial system nearly melted down last year. He worries that rather than learning its lesson, Wall Street will fall prey to moral hazard, where investors believe the government will cover bad bets. As a leader of a lobbying group for hedge funds, Chanos often travels to Washington to discuss financial issues with politicians. The experience hasn’t left him any more optimistic. “I’ve been stunned by the level of financial illiteracy in Washington,” he said. “And it’s hamstringing our ability to make good financial policy.”

He added, “There’s a growing cynicism that the system is rigged.”

Watch and listen (mp3) to Chanos’ Leaders Forum
lecture. (34:48)
View the slide presentation from Chanos' lecture on businessinsider.com.