Vanity Fair has an excerpt from the new Michael Lewis book that chronicles Michael Burry, an independent fund manager who foresaw the collapse of subprime backed assets and made a fortune shorting them. Today, Burry has a piece in the Times taking Greenspan to task for failing to foresee it.
Back in 2005 and 2006, I argued as forcefully as I could, in letters to clients of my investment firm, Scion Capital, that the mortgage market would melt down in the second half of 2007, causing substantial damage to the economy. My prediction was based on my research into the residential mortgage market and mortgage-backed securities. After studying the regulatory filings related to those securities, I waited for the lenders to offer the most risky mortgages conceivable to the least qualified buyers. I knew that would mark the beginning of the end of the housing bubble; it would mean that prices had risen — with the expansion of easy mortgage lending — as high as they could go.
Atrios highlights a passage that I missed the first time:
Since then, I have often wondered why nobody in Washington showed any interest in hearing exactly how I arrived at my conclusions that the housing bubble would burst when it did and that it could cripple the big financial institutions. A week ago I learned the answer when Al Hunt of Bloomberg Television, who had read Michael Lewis’s book, “The Big Short,” which includes the story of my predictions, asked Mr. Greenspan directly. The former Fed chairman responded that my insights had been a “statistical illusion.” Perhaps, he suggested, I was just a supremely lucky flipper of coins.
And everyone who opposed the Iraq war was just a supremely lucky pacifist hippie. And everyone who warned that George W. Bush was too lazy/incurious to be a successful president was just an unhinged partisan.