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November 19, 2019 at 07:05 AM
Don’t expect to see a repeat of the global 2008 economic crisis to be repeated anytime soon, according to investor Steven Eisman, who’s best known for being one of the few experts who predicted the 2008 economic crisis and for being played — minus the name and New York accent — by actor Steve Carell in the film “The Big Short.”
Despite the likelihood that the “global industrial recession” we’re in now will continue into the near future, “there isn’t another financial crisis brewing” along the lines of what we saw in 2008, Eisman told the Sadis Alternative Investment Management Seminar in New York on Thursday.
For now, although there’s clearly been a “slowdown” in the global market, “the consumer is still healthy, the credit quality of loans is still excellent – there’s really no signs of deterioration” – and the job market is strong, said Eisman, who currently serves as managing director and senior portfolio manager at Neuberger Berman Investment Advisers.
Right at the start of the presentation, after jokingly rushing host Sadis & Goldberg Financial Services Group partner Ron S. Geffner to start asking him questions already because he had a flight to catch, Eisman was asked what lessons we have learned since the 2008 financial crisis.
“The financial crisis, in my view, was caused by four interlocking factors: Too much leverage, a big asset class that blew up, systemically important firms owned the asset class, and the role of derivatives,” Eisman responded. He added: “Every financial crisis in human history has had the first three … The only unique aspect of the [2008] financial crisis was derivatives.”
The lessons that have been learned since then, he said, are that: (1) “Alan Greenspan will go down in history as the worst chairman of the Federal Reserve in the history of the United States. No one is close.” (2) “Paradigms last a lot longer than you think they should. The paradigm of the financial system being overloaded was really almost a 20-year story.” (3) “It’s hard to tell people that they’re wrong when they think they’re God…. An entire generation of Wall Street executives mistook leverage for genius.” (4) “Incentives trump ethics almost every time. And the subprime mortgage was a terrible mortgage.”
Perhaps the one biggest difference between 2008 and now is that, “by 2006, the underwriting standards of mortgages” in the U.S. were only “can you breathe?” because, “if you can breathe, we can give you a mortgage,” he pointed out. That is in stark contrast to today, “where getting a mortgage” is much tougher — “and I know this for a fact because I literally just refinanced my own mortgage yesterday and it was the equivalent of a proctology exam,” he said, drawing laughs from the audience.
