'Moral Hazard on Steroids': The Investor Who Called the Big Short Says Carney's Condo Bailout Is Worse Than 2008 Subprime Fiasco

VANCOUVER — Marc Cohodes built his name and his fortune betting against frauds, from small public companies to the American subprime-mortgage machine that collapsed in 2008. This week, he returned to The Bureau with a blunt verdict on Prime Minister Mark Carney’s plan to spend up to $3.2 billion absorbing Vancouver’s unsold condominiums: he has seen this movie before, and this version is worse.“This Carney buying back Vancouver condos is just really rich,” Cohodes said, “especially on the backdrop of him cutting a deal with China.” What makes it worse than 2008, Cohodes says, is not the size of the losses but the refusal to let them happen at all.In the United States, Cohodes notes, the government let housing fall — “everything went down 40 to 50 percent” — and only then stepped in to keep the banks and brokerages from failing, once the leveraged players had taken their hits. Painful, but the market cleared and prices found a level. Canada, he argues, is doing the opposite: propping up prices before anyone is allowed to lose. “Here, the Canadian government won’t even let the prices clear,” he said. The result, in his words, is “a moral hazard on steroids, which encourages these developers then to go and do this again, and do it again on probably a greater scale.”Moral hazard is the concept Carney, a former central banker, knows intimately, and Cohodes defines it the way a short-seller does: “people doing bad things and taking exceptional risk to benefit themselves. And the risk eventually gets subsidized by the federal government, aka the taxpayer.” Reward the people who built and bought at unsustainable prices, he argues, and you have taught the next cohort that the downside is socialized. His prescription is the mirror image of the bailout, and it is the same argument he has made for more than a decade. Let the towers sell for what the market will bear — but let that “market” consist of Canadian income earners and taxpayers, not foreign investors propped up by underground-banking flows. That is what my reporting on Chinese mortgage fraud and underground banking in Toronto, alongside the laundering apparatus mapped by British Columbia’s Cullen Commission, has exposed.The homes must sell to real home buyers, even at a brutal discount, Cohodes said, and the government must then protect the financial system rather than the developers. “If you’re asking a million three for these,” he said, “we don’t care if you sell them for half a million bucks. As long as law-abiding Canadians buy these, we don’t care.” The banks would take write-downs; some builders would go under; and Canadians shut out of the market would finally buy at prices tied to local incomes. “The winners are the people who buy at a low price,” he said. “The losers are the people who borrowed money and built things at a ridiculously high price.” Instead, he argues, Ottawa is subsidizing the losers and penalizing the people it claims to help.This is where Cohodes’s diagnosis converges with the reporting underlying The Bureau’s analysis of the bailout — and where his language runs ahead of it. I frame it in the podcast discussion like this: “I’m not saying any one developer or even casino owner is knowingly laundering money. I’m saying the structure of the money and the market is Chinese capital flight.” That structural claim is the one The Bureau has documented — through leaked bank files showing fabricated foreign-income mortgages, through a federal financial-intelligence study of roughly 48,000 diaspora transactions, and through the casino-and-real-estate apparatus mapped by British Columbia’s Cullen Commission.What gives the conversation its political edge is that the cast has not changed. The man Carney appointed as federal housing minister, Gregor Robertson, presided as Vancouver’s mayor during a period in which home prices doubled, and once dismissed the first study to flag the inflow of mainland-Chinese mortgage capital as racially divisive. Cohodes’s words for Robertson and for Premier David Eby are harsh. But the narrower point lands: the figures who waved away the warnings a decad