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‘Big Short’ fund manager says financial system is safe
Topic Started: 7 Aug 2017, 05:35 PM (1,570 Views)
Rufus
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‘Big Short’ fund manager says financial system is safe
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Steve Eisman, the US investor who successfully predicted the subprime crisis and was portrayed on screen in The Big Short, the Oscar-winning film, says the world’s financial system is safer than it has been for decades.The fund manager, who made a fortune betting against subprime mortgages and the banks holding them in the run-up to 2008, said that regulations introduced since the financial crisis to shore up banks, such as the US’s Dodd-Frank rules, should avert future systemic problems. “The world is a very different place to what it was pre-crisis. For the first time in my working life, which is more than 30 years, I would regard the financial system as safe,” Mr Eisman told FTfm on the eve of the 10-year anniversary of the subprime mortgage crisis“

The system is now heavily regulated and closely watched, which I believe is right.

”After Donald Trump’s election as US president last year, Mr Eisman started buying US bank stocks, convinced that they will see a profit-boosting mix of higher interest margins and lighter capital standards. But Mr Eisman, who now works as a senior portfolio manager for Neuberger Berman, the $271bn asset manager, said that financial companies in Europe could be a problem in future, arguing that not “every bank in the world is safe”. “European authorities did not follow the lead of the US and allow the banks to take the pain early. This was a mistake.

The other hindrance has been the austerity policies of governments, which has prolonged the pain for the continent,” he said.The combination of these factors means that parts of the European banking system remain undercapitalised, said Mr Eisman, who was portrayed by Steve Carell in the 2015 film of Michael Lewis’ book.

Mr Eisman’s nose for badly crafted loans has also drawn him to the US auto industry, where he has shorted “some” of the subprime lenders and “one or two” used-car sellers.

During the recession, Mr Eisman told the FT in May, car loans held up pretty well. Consumers tended to default on their house first, credit card second and car third. But the deterioration of underwriting standards has been so dramatic that losses are bound to rise, he predicted. Falling used-car values caused by a glut of vehicles coming off lease contracts will probably push up defaults too. “It is starting to get a little dicey in terms of credit quality,” said Mr Eisman.

The fund manager rose to fame at FrontPoint Partners, a division of Morgan Stanley, the bank, where he shorted mortgage-backed securities and made $1bn in profit along the way. “People always come up to me and ask what the next ‘big short’ will be. The truth is I simply do not have an answer, and do not want to have an answer to this question. “I lived through this period and do not want to see anything like it again,” he said.

But the former hedge fund manager added that widespread problems across the entire financial system are less likely now, even in areas that have been flagged as a concern, such as subprime auto loans, which are car loans given to people with bad credit scores.“

There is simply not enough leverage in the system to create a major systemic issue like a decade ago,” he said. “The reality is the system is much safer today and there are not any systemic concerns.”





Take risks - if you win you will become wealthy, if you lose you will become wise
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herbie
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Jeez, it could be a bitch if ya'd bin hangin' out on bein' a bear ta make ya life's fortune then hey? - LOL
Edited by herbie, 8 Aug 2017, 02:51 PM.
A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
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Rufus
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herbie
7 Aug 2017, 05:48 PM
Jeez, it could be bitch if ya'd bin hangin' out on bein' a bear ta make ya life's fortune then hey? - LOL
don't tell Simon.
Take risks - if you win you will become wealthy, if you lose you will become wise
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Simon_S
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Rufus
7 Aug 2017, 05:50 PM
don't tell Simon.
Oh....So all that DEBT doesn't matter now because one person thinks the financial system is safe.......

This may be the perfect time for you to Borrow BIG and Get RICH Sooner..... :lol

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Rufus
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Simon_S
7 Aug 2017, 09:50 PM
Oh....So all that DEBT doesn't matter now because one person thinks the financial system is safe.......

You're plankton, he's a whale.
Take risks - if you win you will become wealthy, if you lose you will become wise
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herbie
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Rufus
8 Aug 2017, 09:06 AM
You're plankton, he's a whale.
My personal thought is that housing bears should be happy to hear that the financial system is 'safe'.

Because let's face it, if nothing else, the harsh reality of experience over the last decade has taught us that when central banks have cause to believe the financial system just mightn't be 'safe', bears are in for an AWFUL lot of grief from them.
A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
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Rufus
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herbie
8 Aug 2017, 01:28 PM
My personal thought is that housing bears should be happy to hear that the financial system is 'safe'.

Because let's face it, if nothing else, the harsh reality of experience over the last decade has taught us that when central banks have cause to believe the financial system just mightn't be 'safe', bears are in for an AWFUL lot of grief from them.
What they think will work for them is a housing crash so that they can buy in at the market bottom and wait for the recovery, but when we look at markets that have experienced a genuine crash, what resulted is ordinary people being forced out of their homes, and the youth were still kept out of the market due to other factors like an inability to borrow and unemployment. The homes were then bought by hedge funds and the wealthy, so ownership rates fell significantly.

It's a bit like people hoping for our banks to crash without understanding that a significant portion of their super is invested in our banks.
A good chess player will be thinking quite a few moves ahead - but these guys - nothing.
Take risks - if you win you will become wealthy, if you lose you will become wise
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herbie
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Rufus
8 Aug 2017, 03:18 PM
... but these guys - nothing ...
Seems so. I've yet ta ask any of 'em "Wot's ya 'Plan B'?" - 'N get anything other than a big fat TOTAL No response/as in Total 'nothing' from any of them?
A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
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Ex BP Golly
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Rufus
8 Aug 2017, 09:06 AM
You're plankton, he's a whale.
He can't believe he's going to pull of the same trick again.

This time he's talking up the market before hand though.

You are Soylent Green.
Edited by Ex BP Golly, 8 Aug 2017, 03:53 PM.
WHAT WOULD EDDIE DO? MAAAATE!
Share a cot with Milton?
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Rufus
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Ex BP Golly
8 Aug 2017, 03:52 PM
He can't believe he's going to pull of the same trick again.

This time he's talking up the market before hand though.

You are Soylent Green.
More plankton. The whales will be happy.
Take risks - if you win you will become wealthy, if you lose you will become wise
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