Dr. Michael Burry saw the mortgage crisis coming from miles away. He was featured in Michael Lewis’ “The Big Short”, along with others who also saw the debacle coming. This year, Dr. Burry was keynote speaker at the 2012 UCLA Dept of Economics Commencement. It’s a speech well worth listening to. Dr. Burry is quite pessimistic about the future of U.S. as the debt-to-GDP ratio rises to levels higher than that of Greece. And the problems are no longer in the future, he says, but they have already begun to manifest themselves throughout society.
Perhaps most shocking to some (unless you’ve already gotten used to the TSA groping children)… he describes what happened to him after he wrote a New York Times op-ed criticizing the actions of the government and the Federal Reserve ( I Saw the Crisis Coming. Why Didn’t the Fed? – NY Times ). Within weeks all 6 of his funds were audited, he was compelled to provide Congress with every email he wrote since 2003, and the FBI showed up at his door. He wasted thousands of hours and over $1 million in legal/audit fees defending himself against a frivolous witch hunt against someone with clout who dared stand up and say “I saw it, why didn’t you?”
While not one bankster has ended up in jail, banks have collectively been given $$ TRILLIONS more of our money. And instead of consulting with truly smart and insightful people like Burry (instead of the crooked bankers themselves) as to how such events can be avoided in the future, our government offensively attacks those who predicted the crisis well in advance. Instead of seeing people like Burry as able to offer true wisdom and insight, they treat him as if he had somehow played a part in masterminding all the pervasive and massively over-leveraged mortgage fraud that went on.
Another great quote from his speech: “As it turns out, information is not perfect, volatility does not define risk, markets are not efficient, the individual is adaptable.”
As a final note, here’s another great bit of Burry’s insights I’ve kept on hand since reading “The Big Short“:
‘ In Dr. Mike Burry’s first year in business, he grappled briefly with the social dimension of running money. “Generally you don’t raise any money unless you have a good meeting with people,” he said, “and generally I don’t want to be around people. And people who are with me generally figure that out.” He went to a conference thrown by Bank of America to introduce new fund managers to wealthy investors, and those who attended figured that out. He gave a talk in which he argued that the way they measured risk was completely idiotic. They measured risk by volatility: how much a stock or bond happened to have jumped around in the past few years. Real risk was not volatility; real risk was stupid investment decisions. “By and large,” he later put it, “the wealthiest of the wealthy and their representatives have accepted that most managers are average, and the better ones are able to achieve average returns while exhibiting below-average volatility. By this logic a dollar selling for fifty cents one day, sixty cents the next day, and forty cents the next somehow becomes worth less than a dollar selling for fifty cents all three days. I would argue that the ability to buy at forty cents presents opportunity, not risk, and that the dollar is still worth a dollar.” He was greeted by silence and ate lunch alone. He sat at one of the big round tables just watching the people at the other tables happily jabber away. ‘
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