Money manager who saw the mortgage meltdown coming says the central bank boss needs to explain why the Fed didn't
Former Federal Reserve Chairman Alan Greenspan should have foreseen the collapse of the U.S. housing market and warned the public, one of the most prominent bettors against the subprime market wrote in a New York Times commentary yesterday.
“He should have seen what was coming and offered a sober, apolitical warning,” Michael Burry, who was head of Scion Capital LLC, wrote in the Times. “Everyone would have listened; when he talked about the economy, the world hung on every single word.”
“Unfortunately, he did not give good advice,” Burry said. In 2005, “Mr. Greenspan trumpeted the expansion of the subprime mortgage market” at a time when “the tide was about to turn,” Burry wrote.
“The signs were all there in 2005, when a bursting of the bubble would have had far less dire consequences and when the government could have acted to minimize the fallout,” Burry said in his commentary.
Burry, who was among the first to bet on subprime mortgage defaults, said Greenspan and other Fed officials have never asked how he came to his conclusions about the market.
“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,” Burry wrote.
Burry said Greenspan has dismissed those who saw the coming crisis as people who just got lucky.
Burry referred to Greenspan's appearance last month on Bloomberg Television's “Political Capital with Al Hunt” in which he said the success Burry and others had in predicting the economic collapse was a “statistical illusion.”
On ABC's “This Week” program, Greenspan said yesterday his comments weren't directed specifically at Burry.
It's possible Burry is part of “an extremely small group” of economists and investors who are “really exceptionally adroit” at forecasting, Greenspan said.
Greenspan said he and much of the “sophisticated investing public” didn't predict the economy's collapse. That allowed Burry, who bet against the subprime market, to make his money, Greenspan said.
Burry is one of the main characters in Michael Lewis's recently published book “The Big Short,” the story of the people who shorted the most questionable mortgage deals.
In the book, Burry is portrayed as a loner from a young age who excelled in areas that required intense concentration.
Originally, investing was a hobby for Burry, who as a resident neurosurgeon at Stanford Hospital in the late 1990s typed his ideas onto message boards late at night
In looking for undervalued companies, Burry discovered his own house in San Jose, California, was overpriced, prompting a broader investigation of the housing market.
In the article, Burry said he began seeing problems in the housing market as far back as 2004 with the reappearance of interest-only mortgages.
“Increasingly, lenders concerned themselves more with the quantity of mortgages they sold than with their quality,” Burry wrote.
At the same time, the Federal Bureau of Investigation reported cases in mortgage fraud increased fivefold between 2001 and 2004, Burry said.
