"The Big Short's" Steve Eisman Reveals What The Next Big Short Is

Tyler Durden's picture

“That Wall Street has gone down because of this is justice... They fucked people. They built a castle to rip people off. Not once in all these years have I come across a person inside a big Wall Street firm who was having a crisis of conscience."

      - Steve Eisman

 

One decade before he became famous for the being the inspiration behind Mark Baum's character, played by Steve Carell in the movie the "The Big Short", Steve Eisman was making hundreds of millions predicting the next big short, namely the collapse of the subprime mortgage industry. Which is why every appearance of the otherwise reclusive financial guru sees broad popular interest, and this past Sunday, when Eisman appeared at the beachfront Fontainebleau Hotel in Miami, where several thousand Wall Street securitization professionals are convening this week for their 22nd annual ABS East Conference, was no different.

Incidentally, it’s the same gathering where, in one scene of the film "The Big Short," the character based on Eisman bursts into outrage at a mortgage executive giving a talk.


Steve Eisman Photographer: Daniel Acker/Bloomberg

Eisman hadn’t attended a securitization conference since 2007. But Information Management Network, the organizer of an annual confab in Miami, decided to changed that when it invited him to give the keynote speech Sunday.

So what did did Eisman have to say to the industry that he helped bring down? “You fuckers blew up planet earth. Shut up and move on.” adding that “it feels like Daniel in the lion’s den."

Cited by the Asset Securitization Report, he then apologized in advance for offending his audience, and launched into an explanation of the mortgage crisis and an assessment of the current state of the economy and financial system, or “why things still suck.” The bottom line, in his view, we don’t have the three prerequisites for a full-blow crisis: too much leverage, a big asset class that blows up, and a lot of banks holding this asset class.

By that measure, neither subprime auto loans nor student loans are going to be the next mortgage crisis. Eisman seems more concerned about Europe, where banks are still much more highly leveraged than in the U.S., and where regulators in peripheral countries like Italy, Spain and Portugal have been slow to force them to recognize losses.

But while the big picture may not be so bad right now, Eisman said he is not a big believer in marketplace lending. “Silicon Valley is clueless,” he says.

“If you buy a book on Amazon, that’s the end of the relationship.”  Whereas, if you make a mortgage, “that’s the beginning of the transaction.” And there are only two business models. “The first is to originate the loan and hold it, which means you’re a bank. That’s a low margin business. The second is to originate a loan and sell it, and who are they going to sell it to? You [Wall Street]. And you are fickle.”

As Bloomberg adds, Eisman said that the central problem is that lending startups, their founders and backers in particular, don’t have a lot of experience making loans to consumers, and some of them approach loan-making as they would retail sales, Eisman said.

As Bloomberg notes, more than 160 startup firms of this kind have emerged since 2009. The biggest include LendingClub Corp., Prosper Marketplace Inc. and Social Finance Inc. Together these companies arranged more than $36 billion of financing in 2015, mainly for consumers, up from $11 billion the year before, according to a report from KPMG. A spokeswoman for SoFi declined to comment about Eisman’s remarks; representatives for LendingClub and Prosper didn’t return messages seeking comment.

“We have seen loans underperform from their expected loss estimate at the time of underwriting,” Stephanie Yeh, a director at Credit Suisse Group AG, said on a Monday morning panel discussion. “There still isn’t a lot of data.”

Earlier this year, a spike in delinquencies and defaults from some lenders rippled through the community of investors who buy these securitizations. Investors demanded that lenders raise their rates to protect the high returns that they’ve come to expect from the debt. In an audience poll on the same panel, more than 50 percent of the crowd said in a live electronic survey that there is not sufficient data for investors to assess risk tied to unsecured consumer loan securitizations.

To be sure, proponents of peer 2 peer lending cite the benefits of this technology, which include faster approval times, cheaper transaction costs, and more availability of credit to borrowers who may otherwise not qualify for traditional consumer loans, typically of several thousand dollars and with higher interest rates. Big banks, money managers, hedge funds, insurers, trustees, law firms and credit ratings firms are all competing for the online lenders’ business. But these lenders and their wares are new, and they haven’t been tested in an economic downturn yet. This has drawn concern from skeptics like Eisman, who say there’s no telling how the loans will perform long-term. He said Sunday night the business will never scale to the proportions that its proponents claim.

That said, if the recent woes of former lending giant LendingClub are any indication, one won't even need to wait for a downturn before the industry faces its own subprime moment.

Then there is the "risk" of heightened regulation, to which Eisman had an emphatic answer: "Tough," Eisman told an audience member who raised a question about whether regulations from the Dodd-Frank Act should be forced upon companies that specialize in other kinds of consumer debt aside from mortgages. "You live in a bad neighborhood, you blew up planet Earth, so shut up, and move on."

* * *

But while the focus of Eisman's address was his bearish outlook for the marketplace lending model, he had some other just as notable remarks:

On Quantitative Easing.

“QE is no more than monetary policy for rich people,” the money manager quipped. He said that central banks “use QE to go out the risk curve, so people invest in the stock market, but it does not impact the economy.  Most people do not invest in the stock market, they invest in banks [they are saving more] and banks don’t pay interest on their money.”

From a corporate perspective, GDP is lower than pre-crisis, if you buy back stock you get a return on your investment that’s fairly certain, or build a new factory, where the return is uncertain. In a zero interest rate environment, you’ll choose the more certain reward. Very low interest rates have a negative signaling effect. A lot of people think something has to be wrong.

On GSE Market Share

“I’m about as left-wing as they come. Obamacare does not bother me. GSE dominance [of the mortgage market] does.” “The reason that Fannie Mae and Freddie Mac continue to dominate the mortgage market is the federal government decided not to put people in jail. Instead it fined banks. Banks don’t want to get fined, so they don’t make [nonconforming] mortgages.”

* * *

Finally, and most importantly, he explained what he believes the next "big short" will be.

 “In 2007, I’m so happy I can’t stand it. But in 2008, it was planet earth [in trouble]. I told someone I felt like Noah … do you think Noah was happy?”

Asked to name the next big short, Eisman initially declined. “I’m not in such a rush to do it again,” he said. “It took years off my life.” Then he relented, saying, “The only big short out there is when the world loses confidence in QE.”

Predictably, Eisman did not offer any ideas on how to profit when his prediction is - again - proven to be right, since the collapse of the central bank model will mean all fiat-denominated conventional finance as we know it will come to an end, and force the world to revert to "traditional" hard assets, such as gold.

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TahoeBilly2012's picture

Well one thing NO ONE talks about is where the dividends go for stocks owned by the Central Banks (and Treasuires as well). The public is slowly being taken out of the financial loop as they just don't own stocks or bonds anymore. 

zeroDirkHedge's picture

I thought about zero interest rates being a trick for the "right" people buying up whatever they wanted. At zero cost. If you can borrow for free and buy a stock in a dividend paying company, you get free money on top of getting your money for free.

maskone909's picture

"Im as liberal as they come. Obama care doesnt bother me"

A bronx tale- "well there bodderin me!"
https://www.youtube.com/watch?v=_UgsHb2aijE&app=desktop

Seriously how can you hate fucking banks via mortgage crisis and not be bothered by obama care!?! Fuckin guy has issues.

Paul Kersey's picture

At least some in the media have stopped pretending:

"The Debate Is Over: Banking Has Become a Criminal Enterprise in the U.S."

"Tomorrow the U.S. Senate Banking Committee will hold a hearing to take testimony from Wells Fargo CEO John Stumpf and Federal regulators to understand how this mega bank was able to get away with opening more than two million fake customer accounts over a span of years. The accounts and/or credit cards were never authorized by the customer and were opened solely by employees to meet sales quotas, get bonuses or to avoid getting fired for failing to meet sales targets.

The only reason the Republican-controlled Senate is holding this hearing is because the Wells Fargo fake-account story got a lot of coverage in the media when the Consumer Financial Protection Bureau (CFPB) announced a $185 million settlement over the charges on September 8."

http://wallstreetonparade.com/2016/09/the-debate-is-over-banking-has-bec...

J S Bach's picture

Now how can we possibly lose confidence in QE?!  It's the magic of our grandchildren's money that keeps on giving.  Buy! Buy! Buy!

Stainless Steel Rat's picture
Stainless Steel Rat (not verified) J S Bach Sep 19, 2016 6:42 PM

conseQuEnces.

oops's picture

How QE systematically destroyed American society: https://goo.gl/IoiSjv

greenskeeper carl's picture

"It's the magic of our grandchildren's money that keeps on giving"

 

Thats the crux of it right there. I still remember when oldest's social security card showed up in the mail. I tried to hand it to him, even though he was only about a month or so old, and told him that he was now in debt up to his eyeballs. He didn't seem to take it very seriously, but it was a sad day for me, because I was looking at a person that would suffer the full brunt of our fiscal retardation.

Offthebeach's picture

Like in China. Push your face into the pig trough too much and you threaten to wake up the sheeple and a show trial must be had.

Funn3r's picture

For the 23rd time... Every civilised country in the world has a national medical scheme of some kind. It's the right thing to do and unrelated to whether you think you're left or right wing pro or anti gun or whatever. The USA is the last to get one, when are you people going to stop complaining about "obamacare"?

Mustafa Kemal's picture

" Every civilised country in the world has a national medical scheme of some kind."

That is true, and I agree we should, but Obamacare is an obamanation, partly because of the republicans. Now, if the regulation manual was 100 pages instead of 1100 and actually made sense, Obamacare might.

Just visited the emergency room the other evening. I told myself the next time I have to do that I think I would rather die.

Multi's picture

And for the 23rd time... national medical schemes are scams, just call it national medical scam.

In healthcare, as in any other public provided service (e.g. postal, education, so on), the revenue is separated from the customer. In other words, what the physician is going to earn is NOT directly correlated to what you are going to pay for using her service. The rewards for the public service providers depend on what The State decides to allocate to them.

So...  why do you think people whose paychecks don't depend directly on your satisfaction are going to give you a better service than the one given by people whose well-being depends directly from your happiness?

If costs are you complain, NOTHING is more efficient than free markets. If healthcare is expensive it has nothing to do with the small component of free markets it may have in it, to the contrary. 

The Ram's picture

Yes, I also had an extraordinary ER visit last year.  I almost never have anything more than a flu, but a botched dental implant sent me to the ER for uncontrolled bleeding.  Now, I was in for 5 hours, had no real exams, had one bag of platelets infused and the 'out of pocket' costs were over 4K!  And yes, I do have what should be decent medical coverage. I had all these fucking doctors (none of whom even examined me) show up in my room to 'talk to me' and each fucker billed me like $300-$400!  I mean, the fraud was so off the charts.  I have decided that if I ever have to go to the emergency room again, I will just tell them I don't have insurance.  If you don't have insurance, the doctor whores are unlikely to want to have anything to do with you.  Also, if you owe them, you may have negotiating power as opposed to insurance that just pays the co-pay and sticks you with the rest.  I can see the entire medical system collapsing within 10 years.  By the way, the ER was Bethesda West in Boynton Beach, FL.  Stay away from there unless you want to be majorly shaken down!!

maskone909's picture

Most people who pound the table on "we all should have universal healthcare" dont know shit about healthcare. Im a fucking rn and its all a scam. Over and out

FrankDrakman's picture

The Canadian model has its problems, to be sure, not the least of which is its refusal to allow any competition, but on the whole, it does a good job of keeping the population relatively healthy. 

TheRedScourge's picture

No, the population do that. If you need an MRI in Canada to see if you have cancer or not, your cancer could be fatal by the time you even get the MRI. So we fly to the US and pay out of pocket...

 

"Oh Canada, we stand in line for thee"

joey stalin's picture

Obamacare is a particularly special program in that it applies  the concept of 'African Efficiency' to the healthcare system..

BabaLooey's picture

Every civilised country in the world has a national medical scheme of some kind.

HOLD THE FUCK UP BUSTER BROWN.

FIRST - "Every civilised country in the world" IS NOT TEEMING OVER WITH ILLEGAL ALIENS CHOWING DOWN ON THEIR SYSTEM LIKE THE U.S.

The ones that HAVE illegal aliens/undocumented motherfuckers IS suffering big time. Check the U.K., France, and tell me their "system isn't straining under the weight like a spaghetti strap hooked to Dolly Parton's tits.

Yeah............sure.

SECONDLY - BarryOfuckwadNoCare was written to FUCK the middle class - "help" (Ha!) the poor, and the elites? Ha Ha! They could give a shit, as they have their OWN private wards, doctors and hospitals.

 

Lastly, STOP comparing apples to oranges.

 

OFuckYOUCare 'works' - IF YOU DON'T WORK.....THE MORE YOU DON'T WORK...THE MORE IT WORKS.

opport.knocks's picture

You are correct, but Obamacare managed to combine the worst of both private and public systems.

bigmango's picture

Are you seriously trying to compare a scheme that forces you in to the arms of unaccountable PRIVATE companies who charge you whatever the hell they want and have the government enforce payment to single-payer national health care programs? Get a god damn clue. I've lived under both single-payer and the previous American system - and while both approaches have their drawbacks - it's obvious that Obamacare is the absolute worst of both worlds.

Lorca's Novena's picture

What do you mean by " you people"?

 

Anyways, have you looked into the costs involved in obtaining every plan of obozocare? Have you looked at the list of health providers that either folded or refuse to deal with anyone signed on to obolacare?

 

Then, have you checked into how much free coverage 'immigrants' get? Then people like you wonder why a lot of people want other people fucking dead.

Dave's picture

I'll stop complaining when it implodes. Which will be fairly soon. My wife is a PT in a large, non-profit hospital. I hear about what goes on. As an example, in the last 7 months that hospital was denied payment of 54 MILLION dollars by Obamacare insurers for services rendered to patients. They had to lay off 70 staff last week and closed down a department. By law they can't refuse to treat patients. How long do you think a hospital can survive operating without knowing if they will get paid? In addition, I had Blue Cross insurance for 30 years before this Obamacare bullshit came around. Now my policy has been cancelled and I had to replace it with one that is almost 3 times more expensive and requires me to insure for things which I will never file a claim such as maternity. Last time I chedked, a male human didn't need maternity insurance. Fuck Obama and his legacy.

The Ram's picture

'Obama care does not bother me.'  What a fucking moron.  Well the guy is an MD after all.  He played one short and hit it big, but he has no intellectual reasoning ability if he thinks Obama care is 'just ok.'  Oh well, he will find out how toxic this shit is the hard way.  Maybe he can short the hundreds of Obama care insurance funds/frauds that are collapsing.

maskone909's picture

I think the other guy was the md. Just sayin.

MayIMommaDogFace2theBananaPatch's picture

Correct -- Dr. Michael Burry MD was the character played by Christian Bale.

It is interesting that some characters had name changes and others did not.

Did The Big Short movie change names or conflate characters?
http://movies.stackexchange.com/q/47065

greenskeeper carl's picture

well, you guys can focus on the fact that he is a self proclaimed lefty and argue about obamacare all you want. But, there have been dozens of threads devoted to that, so I think focusing to this one point is kinda stupid. Based on his past analysis, he was able to predict the downfall of the US economy through real estate nonsense. If he is now saying the same thing about european banks being the focal point of the next crisis, Id focus on that. He does make many excellent points in that regard. Im not saying you should bet the farm(or anything) on hat he says, but you should listen. Personal politics aside, he is someone worth listening to.

Troy Ounce's picture

 

 

Hey,  that's a good idea!

Just start an app with caters for an online taxi company. Then just fuck the existing taxi industry in the ass and destroy them completely. The competitive advantage: you borrow for free from your friends at Wall street. And the suckers have to borrow at prime +5

And when the existing industry is gone and many lives destroyed you increase the taxi rates to unimaginable levels. Disruptive is the financial narrative. Actually it is about manipulation and power.

Predatory, I call you American. 

And the Americans keep guessing why 10 guys flew themselves into buildings! 

 

 

greenskeeper carl's picture

what a stupid argument to make. People pick up other people and drive them where they want to go. Whoever does that cheaper should win. Sorry people were forced to buy an insanely overpriced government permission slip to drive people around where you are from, but that hardly benefits the average consumer.

The Real Tony's picture

That's the stupidest thing I've ever heard. What happens when the stock market indexes finally meltdown and we see a 10 to 20 year bear market? Your dividend is chopped to ratshit. It's the people chasing yield that will end up losing everything and I mean everything.

Nobodys Home's picture

Somehow I get the feeling it isn't exhibited on their balance sheet.

fockewulf190's picture

"Well one thing NO ONE talks about is where the dividends go for stocks owned by the Central Banks (and Treasuires as well). The public is slowly being taken out of the financial loop as they just don't own stocks or bonds anymore. "

Here is the Twilight Zone scenario:

The dividends go towards buying more stocks.  The goal is to force globalism through corporate control.  Print fiat currency out of thin air, buy stocks with it, get more and more control of national and transnational companies through stock purchases, gain seats on corporate boards, eventually gain complete control of one company after the next.  At the same time, get governments to change the rules regarding corporate ownership of publicly traded companies.  No more Zuckerbergs or Prims who stucture their companies so they always retain control.  That gets tossed out the window.  Their power will disappear because it must.  Private companies either get taxed into oblivion or are forced to sell to "publicly" owned mega-corporations who are owned by the Central Banks   Then comes the phenomena of Central Bank mergers.  Whole nations will be subjected to the mega Cental Banks, which in turn will encourage national governments under their control to merge with each other.  Eventually, the few mega Central Banks on Earth will do what must be done to achieve the ultimate goal: finally merge into one World Bank, using one World currency, and ruled by one World government.  Globalisation is complete.  Time to then play the alien card.

 

stocker84's picture

He lost me at "I'm as left wing as they come"

I wish that was higher up in the article.

Other than that...tell us something we don't know.

In 2004 I was in the market to purchase a home.

The prices were already heated up as I live in a major market.

My office at the time was next to a mortgage broker who often had clients come in with cars whose wheels were worth more than the actual car. Big ass ridiculous wheels... You've seen them. These clowns were buying $400k houses with no money down interest only variable rate loans. They couldn't afford the interest only, but the broker made sure the paperwork looked like they could.

Anyway... You know the story.

The point is, this big short guy wasn't the only one who saw it coming.

I got into many arguments with real estate agents that swore on their lives that real estate never goes down and, my favorite, .. They aren't making any more real estate... And the smirk that would ensue...

I lost employees to the neighbor.. They were like why should I work for$60k a year busting my butt if I can make $100k sniffing cocaine and luring idiots to sign on a line? It's not sustainable I'd say. Bullshit it's not they'd say. It's mathematically impossible I'd say. But it is they'd say. OK... Good luck. They lost everything. They didn't have enough sense to save any of it. They even bought expensive houses and they invited me to coke whore parties. These guys had hit the big leagues and they thought it would last forever.

Now... They work as bartenders and waiters wondering if the damage they did fell off of their credit reports yet.

A new wave of clowns have stepped in to ride the new wave. 

They are so happy thinking this too will last forever.

All fun and games until the music stops and you're still standing... And you realize you're completely naked. 

So... The next big short, is obvious... The problem? The same problem everyone has including the guy in the article above..

TIMING

It's everything!!!

Good luck to everyone in this market.

Everything is the big short.

Short without margin and let it ride, bitches.

Keep some powder dry for buying these dips and wait for the collapse.

Remember the feeling of fear pulling the trigger to go long in 2009...2010...2011? 2012?

I sold too soon.. But I made heaps. I didn't short in 2007, 2008, but I sold near the top in 2007. Pure luck. 

I bought heavy near bottom. 

But I'm short now. I'm not much into long gold. Small position.

I don't have faith because they will suppress it at all costs and if they can't they will take it.

This is a no brainer.

Don't fight the Fed is a rule!!!

However, the Fed is all out of high caliber bullets.

The time is nigh...

Patience. Don't extend yourselves because they can take this higher... But the risk reward favors the obvious. Especially when the masses fear to take the side of the obvious. 

Yes, Peter Schiff will eventually be right. His timing was terrible, but nobody nails that without by accident. Nobody does it consistently.

Make money and hope there is something left to use it on when it all settles.

Good luck.

 

 

 

 

ParkAveFlasher's picture

Who has confidence in QE? 

hedgeless_horseman's picture

 

Who has confidence in QE? 

The confidence men on Wall Street and K Street.

It has worked very well for them thus far, to privatize gains.

Then when it does not work any more, they shall socialize any losses via bailouts.

Wash, rinse, repeat.

Antifaschistische's picture

We need a campaign to put this on Billboards in major US cities...I'd DEFINITELY be a serious contributor.

hedgeless_horseman's picture

 

I wear it on a t-shirt with a smile on my face, a little bit of sunshine for my friends and neighbors.

Bendromeda Strain's picture

Add "Since 1913" and it would be perfect.

Jaspergers's picture

brb, going to post in on the fed's fb page..

Creative_Destruct's picture

“QE is no more than monetary policy for rich people,” the money manager quipped.

Rich People - pure socialsm for the rich. That's who has confidence.

Nobodys Home's picture

If it's ok with you, I'd like to make my own t-shirt with this image.

hedgeless_horseman's picture

 

Please do. 

Don't forget the kids!

joey stalin's picture

Yeah, it really depresses me that this parasitical nonsense will condemn my kids to perpetual poverty and debt-serfdom under our money-grubbing Semitic overlords.

medium giraffe's picture

+1 & One man standing ovation for that graphic HH.

jackstraw001's picture

My two hedges -- gold and lead.  

Sofa King's picture

Funny, when it comes to some bullion dealers...they are one and the same.

Took Red Pill's picture

let's not forget the Lone Ranger and his silver bullets

Crisismode's picture

 

Stockpile Water, Food, Firearms/Ammo, and PMs.

Lots.

In that order.