We’ve written about a few spies on this website, but Richard Sorge, the subject of a new biography by Owen Matthews, was not just any spy. As Joseph Bottum wrote in a recent review of Matthews’s book, An Impeccable Spy, Sorge was “possibly the greatest spy who ever lived.” A German nationalist in his youth, he emerged from World War I (and a subsequent doctoral program in political science) as a diehard Communist. Moving to Moscow, he was hired by the Soviets as a spy and sent back to Germany to work undercover as a journalist and pretend to be a loyal Nazi even as he was spying not only on the Nazis but on their Japanese allies.
He was so good at posing as a Nazi that
Goebbels became a friend, or at least a friendly acquaintance.
That wasn’t all. He infested the social and professional circle of Japanese prime minister Fumimaro Konoe with fellow Soviet
agents. The German ambassador to Japan, Herbert von Dirksen,
trusted him so much that he became a fast friend, appointing Sorge to
an intelligence post, and giving him “the run of the German
embassy.” (Apparently the ambassador didn’t know that Sorge had
bedded his wife.) For eight years, as Bottum puts it, Sorge “managed
to convince the Germans that he was working for them, the Japanese
that he was an important Nazi to whom secrets could be revealed, and
the Soviets that he was their man.” It was thanks to him that the
Kremlin learned about the establishment of the Axis alliance, about a
German-Japanese pact banning the Comintern in those countries, about
the Japanese decision not to attack the USSR through Manchuria, and
about the planned German invasion of Russia in 1941. Meanwhile Sorge
led a social life that makes at least a few of the James Bond movies
look tame and unimaginative.
It all had to come crashing down
eventually, and so it did. After the Japanese secret police heard one
of his secret radio transmissions to te Soviets, they arrested and
tortured him, wringing from him a confession before he was hanged in
1944. Although he had provided the Soviets with an extraordinary
amount of useful information, and although he proclaimed his undying
loyalty to the Communist cause even as he was being executed, the
Kremlin repaid his intense devotion by arresting his wife after his
death on charges of being a German spy, which she almost certainly
Whether Sorge really was the greatest
spy ever seems doubtful. Does the best spy ever end up being caught
and hanged by the enemy? Never mind: if not the greatest spy, he was
surely one of the most colorful ones. There’s enough material here
for a thrilling spy movie. It has sex and skullduggery, drinking and
carousing, Nazis and Commies, glimpses of two world wars and a
gallery of famous historical figures, plus a whole bunch of
picturesque international settings. There’s everything, in fact,
except somebody to cheer for: Sorge was, after all, spying against
two of the most loathsome regimes in history on behalf of another of
the most loathsome regimes in history. What, after all, to make of a
German who spied against Hitler to help Stalin? The Soviets, in later
years, made him a national hero; to those of us today who despise
both Hitler and Stalin equally, he remains one of those puzzling
figures whose contempt for one form of totalitarianism was equaled
only by his adoration for another form of it.
Michael Lewis, the financial writer, has said that when he first met Kyle Bass, “I had an experience I’ve often had while listening to people who seem perfectly certain about uncertain events….One part of me was swept away by his argument….The other part suspected he might be nuts.”
Lewis isn’t the only financial insider who’s had a mixed reaction to Kyle Bass. The Dallas hedge-fund manager has, it must be acknowledged, won his share of praise. Once upon a time, indeed, he was considered something of an instant legend. Only two years after launching his own hedge fund in 2006, he struck it rich as a result of having predicted the subprime mortgage crisis.
For fifteen minutes, he was the hottest guy in the game.
Since then, however, things haven’t gone very smoothly for Kyle Bass. Far from it. In recent years – not to put too fine a point on it – his fund, Hayman Capital Management, has often performed disastrously. It’s had its ups, but some of its downs have been headline-making. In April 2012 alone, it lost 29% of its value. During the first quarter of 2014, it dropped by over 6%.
Time and again, Kyle Bass’s confident forecasts have proven wrong – often catastrophically so. Most famously, he’s been saying for years that the Japanese economy is an immense Ponzi scheme and that any minute now the market will catch on – leading inevitably to a debt crisis that sends bond yields sky-high and makes the yen all but worthless. In July 2013, he warned that this implosion would come within about two years – and would rock international markets so dramatically as to force the Western world to reconstruct its economic order from the ground up.
His doom-and-gloom prophecies for Japan, however, have yet to be fulfilled. And as time has gone by, more and more observers have clobbered his analysis. In May 2012, Joe Weisenthal of Business Insider called Bass’s take on Japan “totally simplistic and incorrect.” Noting that Bass bases his forecast largely on Japan’s debt-to-GDP ratio, Weisenthal pointed out that debt-to-GDP “is a lousy measure of anything” because it “just doesn’t tell you anything about interest rate risk or credit risk.”
After all, argued Weisenthal, foreigners hold plenty of U.S. debt, but this hasn’t sent the American economy into a tailspin; by contrast, Italy’s public debt is mostly held domestically, yet that country is headed down the tubes. Yes, Weisenthal acknowledges, “there are a lot of yen floating around the world,” but ultimately “that currency will find its way home.” This, in Weisenthal’s view, is what Kyle Bass doesn’t get:
For a country that borrows in its own currency, government spending finances borrowing! If Japan spends 100 billion yen on something, that’s 100 billion yen out there in the world that will eventually wind up in a financial institution, where ultimately 100 billion yen worth of JGB will be purchased.
Weisenthal also made this observation:
True sovereign bustups are not the result of accounting or numbers, but the result of some kind of social/political dysfunction. Japan is arguably the most stable society in the world, with low unemployment and a functioning economic and political culture. Thanks to the country’s population dynamics, Japan isn’t a growth dynamo, but there aren’t even the vaguest hints of instability. It’s not the kind of place where you’d see a meltdown.
Another expert who’s disputed Kyle Bass’s Japan scenario is Jesper Koll, head of Japanese equity research at J.P. Morgan Securities Japan. In Koll’s view, as paraphrased by Stephen Harner of Forbes, “Kyle Bass has not fully thought through some of his points, or has ignored contrary indications.” Yes, wrote Harner, the economic policies of Prime Minister Shinzō – who set a 2% inflation target and decreed a “Keynesian deficit spending stimulus” – might raise interest rates, but “there will be no crisis, and there may not be higher rates.”
Koll’s view, in short, is that Japanese government bonds “remain an attractive asset.” Koll made a number of cogent points – among them, that deregulation in several sectors of the Japanese economy could send productivity soaring and significantly boost the country’s economic health.
Curiously, while sounding a death knell for Japan, Kyle Bass has been bullish on – of all countries – Argentina. In September 2014, the BBC reported that unlike Moody’s and other ratings agencies, which were “very critical” of the regime of Cristina Fernández de Kirchner, “Kyle Bass believes that the current economic policy of the Argentinian government is the correct one.”
So gung-ho, in fact, has he been on investment in Argentina – which, it will be recalled, defaulted on its debt last year for the second time in thirteen years – that The New York Post commented on August 28, 2014, that Kyle Bass, addressing this subject on the previous day, had “sounded more like Argentina’s leftist economy minister Axel Kicillof than a U.S. hedge-fund manager.”
Was the Post on to something? Throughout Argentina’s debt crisis, Kyle Bass did come off not like a responsible financial manager but like a paid spokesman for the Casa Rosada (Argentina’s White House). As the BBC noted, Hayman Capital has a “good relationship” with Fernández – a leader who, like her late husband and predecessor, Néstor Kirchner, is notorious for her destructively socialist economic policies and her government’s staggering levels of corruption. The ruling by a New York judge that Argentina couldn’t dodge its debt to holdout creditor Paul Singer of Elliott Management was legally solid, but Kyle Bass wasn’t having any of it: Singer, he charged inappropriately, was “holding poor countries as hostages.”
Then there is his perplexing enthusiasm for General Motors. It’s been his biggest position for some time, although he admitted himself that a massive GM recall made 2014 “a tough year” for his firm. Still, he insisted that GM’s management was “doing a great job” and that the company was “much leaner” than in the 1990s. “By every metric” except the recall issue, Kyle Bass claimed, GM is “doing great.”
In February 2015, all his major moves having failed him, Kyle Basstried a new tack: selling pharmaceutical companies short and then exploiting a relatively new process, “inter partes review,” to challenge their patents. First he went after Acorda Therapeutics, whose major product is Ampyra, a treatment for multiple sclerosis, and whose stock fell nearly ten percent as a result of his challenge. It remains to be seen how this new move will pan out.
Meanwhile, Kyle Bass finds himself entangled in what may be America’s least enviable legal battle. A few years back, he went into business with the late Chris Kyle, subject of the recent film American Sniper and now a posthumous national hero; the enterprise has since gone bankrupt, and Chris Kyle’s widow, Taya, has sued a Hayman Capital attorney, making a host of serious charges, among them that he pressured her husband to surrender the rights to his firm’s now-iconic logo and that (in violation of Texas law) the lawyer never made clear that his ultimate loyalty was to Hayman and not Kyle. Also at issue are a loan on the Kyle family home and the profits from his bestselling memoir. However you cut it, it’s a shabby situation for a hedge-fund superstar to find himself in.
Briefly put, Kyle Bass’s star has slipped considerably since he made his name – and his fortune – on the subprime mortgage crisis. It seems fair to say that what looked for a while there like a Midas touch has turned out to be something more like a case of first-time gambler’s luck giving way to the usual Vegas pattern of loss after loss after loss.
Sure, he could still turn things around. Who knows? Stranger things have happened. But given his recent record, we wouldn’t bet on it.