The Big Short: Michael Burry on the Next Financial Crisis

[Bob Malecki]

If anyone who is newer to note investing needs a refresher course on what caused most of the NPLs we buy to be available, read The Big Short or go see the movie. Fascinating how corrupted Wall St. brokers and rating agencies can topple a housing market. 

Dr. Michael Burry, the neurologist in residency turned hedge fund manager with a glass eye (played by Christian Bale in The Big Short) was the first money manager with the vision to see the subprime mortgage meltdown coming and was able to short the CDO bonds and earn his fund over $2 billion. 

In a compelling 2011 lecture for Vanderbilt University, Burry laments that no one has taken responsibility for the subprime financial crisis. He proceeds to name the multiple guilty parties and practices which created the crisis. He calls out Henry Paulson’s convenient change of role, from head of Goldman Sachs – which continued to sell toxic CDOs (collateralized debt obligations) to their clients even as the bank itself was betting against the CDOs itself – to the Treasury Secretary who helped preside over the bailout. Burry defends against the accusation that the money managers who saw it coming were somehow the cause of it.

Watch Michael Burry’s passionate lecture below, “Missteps to Mayhem:”

https://www.youtube.com/watch?v=fx2ClTpnAAs

The Big Short is a fascinating real-life story on how greed and complicity caused a worldwide financial meltdown. This has resulted in an opportunity for us small note investors to help "heal" the wounds of this event, help borrowers if possible and make a profit in doing so. 

[Adam Hershman]

Originally posted by @Bob Malecki:

If anyone who is newer to note investing needs a refresher course on what caused most of the NPLs we buy to be available, read The Big Short or go see the movie. Fascinating how corrupted Wall St. brokers and rating agencies can topple a housing market. 

Dr. Michael Burry, the neurologist in residency turned hedge fund manager with a glass eye (played by Christian Bale in The Big Short) was the first money manager with the vision to see the subprime mortgage meltdown coming and was able to short the CDO bonds and earn his fund over $2 billion. 

In a compelling 2011 lecture for Vanderbilt University, Burry laments that no one has taken responsibility for the subprime financial crisis. He proceeds to name the multiple guilty parties and practices which created the crisis. He calls out Henry Paulson’s convenient change of role, from head of Goldman Sachs – which continued to sell toxic CDOs (collateralized debt obligations) to their clients even as the bank itself was betting against the CDOs itself – to the Treasury Secretary who helped preside over the bailout. Burry defends against the accusation that the money managers who saw it coming were somehow the cause of it.

Watch Michael Burry’s passionate lecture below, “Missteps to Mayhem:”

https://www.youtube.com/watch?v=fx2ClTpnAAs

The Big Short is a fascinating real-life story on how greed and complicity caused a worldwide financial meltdown. This has resulted in an opportunity for us small note investors to help "heal" the wounds of this event, help borrowers if possible and make a profit in doing so. 

 Sigh. Hence the reason why I hated The Big Short. It's told from a completely biased viewpoint, and skews facts to make it seem as though they are right. Just for a quick example (because I'm at work and don't have time to tear down the movie point by idiotic point)...

People think that Wall Street was greedy because they were "betting" on CMOs defaulting. How do you figure this? Because they bought credit default swaps...so they were hoping that the assets would fail. That is the most backwards reasoning I have ever heard. First of all, a bank wouldn't buy a credit default swap as a speculative investment. They purchased credit default swaps as insurance. How do you insure against losses when you need 30 days on the books to package your securitized product? You buy a default swap. 

Essentially saying CDSs were proof that Wall Street was betting against CMOs is like saying you profited from a car accident. Why? Because you had car insurance, so you must have been betting on a car crash.

Adam