Michael Burry, who made a fortune betting on the subprime collapse, reacted strangely to acing the most important financial test of the decade.He was “disheartened on many fronts” by the whole experience.
A bit of background: Banks laughed at him when he said he wanted to buy CDOs full of insurance on housing loans. His investors shunned him while those CDOs lost money during the first years. He shut down his hedge fund, Scion Capital, in 2008.
Burry has Asperger’s, which makes interaction with people harder than it is for most people. For Burry, negative interactions are probably amplified.
So now he wants an explanation from all the people who dragged him through crap while he was on his way to making the bet of a lifetime. Particularly from Al Greenspan, who on Bloomberg said that Burry’s insights had been a “statistical illusion.”
Burry wrote an op-ed in the New York Times this weekend. He gets philosophical on Greenspan’s “Burry basically just flipped a coin” dig. Burry retorts:
Mr. Greenspan said that he sat through innumerable meetings at the Fed with crack economists, and not one of them warned of the problems that were to come. By Mr. Greenspan’s logic, anyone who might have foreseen the housing bubble would have been invited into the ivory tower, so if all those who were there did not hear it, then no one could have said it.
If a man claps in the woods and no one is there to hear him, does it make a noise? According to Burry, Greenspan would say no. And then go make-out with Ayn Rand (well, not really).
Seriously, what Greenspan should be doing, according to Burry, is this:
Mr. Greenspan should use his substantial intellect and unsurpassed knowledge of government to ascertain and explain exactly how he and other officials missed the boat. If the mistakes were properly outlined, that might both inform Congress’s efforts to improve financial regulation and help keep future Fed chairmen from making the same errors again.
We didn’t read the entire Greenspan argument on Bloomberg, but going off just the “statistical illusion” comment, he has a point. Statistically, it seems likely that some people would happen into the data that supported Burry’s argument against the housing bubble. Housing is a huge market. How could everyone be on the same side?
But then again, it doesn’t seem like Burry just stumbled upon his data. In interviews with Michael Lewis, Burry reveals that he pored over the fine print written in many loans.
In any case, Burry of course comes out the winner. In 2005, Greenspan was saying this:
“Where once more-marginal applicants would simply have been denied credit,” he said, “lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately.”
In 2005, Michael Burry was buying insurance in case those loans turned out to be worthless.
For more on who were the winners and losers in the financial crisis, read Michael Lewis’ quick guide to the people involved >
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