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Michael Burry, Real-Life Market Genius From The Big Short,

Thinks Another Financial Crisis Is Looming
Jessica Pressler

December 28, 2015 1:32

p.m.

Real-life Michael Burry (left), and Christian Bale (right), who played Burry in the film The Big Short.
Photo: Getty Images, Plan B Entertainment
If The Big Short, Adam McKays adaptation of Michael Lewiss book about the 2008 financial crisis and the subject of
last months Vulture cover story, got you all worked up over the holidays, youre probably wondering what Michael
Burry, the economic soothsayer portrayed by Christian Bale whos always just a few steps ahead of everyone else, is
up to these days. In an email, which readers of the book will recognize as his preferred method of communication, the
real-life head of Scion Asset Management answered some of our panicked questions about the state of the financial
system, his ominous-sounding water trade, and what, if anything, we can feel hopeful about.

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The movie portrays all of you as kind of swashbuckling heroes in some ways, but McKay suggested to me
that you were very troubled by what happened. Is that the case?
I felt I was watching a plane crash. I actually had that dream again and again. I knew what was happening, but there
was nothing I, or anyone else, could do to stop it. The last day of 2007, I couldnt come home. I was in the office till
late at night, I couldnt calm down. I wrote my wife an email and just said, "I cant come home; its just too upsetting
whats happening, and I didnt want to come home to my kids like this." As for punishment of those responsible,
borrowers were punished for their overindulgences they lost homes and lives. Lets not forget that. But the
executives at the lenders simply got rich.

Were you surprised no one went to jail?

I am shocked that executives at some of the worst lenders were not punished for what they did. But this is the nature
of these things. The ones running the machine did not get punished after the dot-com bubble either all those VCs
and dot-com executives still live in their mansions lining the 280 corridor on the San Francisco peninsula. The little
guy will pay for it the small investor, the borrower. Which is why the little guy needs to be warned to be more
diligent and to be more suspicious of societys sanctioned suits offering free money. It will always be seductive, but
thats the devil that wants your soul.
When I spoke to some of the other real-life characters from The Big Short, I was surprised to hear that they
thought that financial reform was pretty effective and that the system was much safer. Michael Lewis
disagreed. In your opinion, did the crash result in any positive changes?
Unfortunately, not many that I can see. The biggest hope I had was that we would enter a new era of personal
responsibility. Instead, we doubled down on blaming others, and this is long-term tragic. Too, the crisis, incredibly,
made the biggest banks bigger. And it made the Federal Reserve, an unelected body, even more powerful and
therefore more relevant. The major reform legislation, Dodd-Frank, was named after two guys bought and sold by
special interests, and one of them should be shouldering a good amount of blame for the crisis. Banks were forced, by
the government, to save some of the worst lenders in the housing bubble, then the government turned around and
pilloried the banks for the crimes of the companies they were forced to acquire. The zero interest-rate policy broke the
social contract for generations of hardworking Americans who saved for retirement, only to find their savings are not
nearly enough. And the interest the Federal Reserve pays on the excess reserves of lending institutions broke the
money multiplier and handcuffed lending to small and midsized enterprises, where the majority of job creation and
upward mobility in wages occurs. Government policies and regulations in the postcrisis era have aided the hollowingout of middle America far more than anything the private sector has done. These changes even expanded the wealth
gap by making asset owners richer at the expense of renters. Maybe there are some positive changes in there, but it
seems I fail to see beyond the absurdity.
How do you think all of this affected people's perception of the System, in general?
The postcrisis perception, at least in the media, appears to be one of Americans being held down by Wall Street, by
big companies in the private sector, and by the wealthy. Capitalism is on trial. I see it a little differently. If a lender
offers me free money, I do not have to take it. And if I take it, I better understand all the terms, because there is no
such thing as free money. That is just basic personal responsibility and common sense. The enablers for this crisis
were varied, and it starts not with the bank but with decisions by individuals to borrow to finance a better life, and that
is one very loaded decision. This crisis was such a bona fide 100-year flood that the entire world is still trying to dig
out of the mud seven years later. Yet so few took responsibility for having any part in it, and the reason is simple: All
these people found others to blame, and to that extent, an unhelpful narrative was created. Whether its the one
percent or hedge funds or Wall Street, I do not think society is well served by failing to encourage every last American
to look within. This crisis truly took a village, and most of the villagers themselves are not without some personal
responsibility for the circumstances in which they found themselves. We should be teaching our kids to be better
citizens through personal responsibility, not by the example of blame.
Where do we stand now, economically?
Well, we are right back at it: trying to stimulate growth through easy money. It hasnt worked, but its the only tool the
Feds got. Meanwhile, the Feds policies widen the wealth gap, which feeds political extremism, forcing gridlock in
Washington. It seems the world is headed toward negative real interest rates on a global scale. This is toxic. Interest
rates are used to price risk, and so in the current environment, the risk-pricing mechanism is broken. That is not
healthy for an economy. We are building up terrific stresses in the system, and any fault lines there will certainly harm
the outlook.
What makes you most nervous about the future?
Debt. The idea that growth will remedy our debts is so addictive for politicians, but the citizens end up paying the
price. The public sector has really stepped up as a consumer of debt. The Federal Reserves balance sheet is

leveraged 77:1. Like I said, the absurdity, it just befuddles me.

The last line of the movie, printed on a placard, is Michael Burry is focusing all of his trading on one
commodity: Water. It sounds very ominous. Can you describe this position to me?
Fundamentally, I started looking at investments in water about 15 years ago. Fresh, clean water cannot be taken for
granted. And it is not water is political, and litigious. Transporting water is impractical for both political and physical
reasons, so buying up water rights did not make a lot of sense to me, unless I was pursuing a greater fool theory of
investment which was not my intention. What became clear to me is that food is the way to invest in water. That is,
grow food in water-rich areas and transport it for sale in water-poor areas. This is the method for redistributing water
that is least contentious, and ultimately it can be profitable, which will ensure that this redistribution is sustainable. A
bottle of wine takes over 400 bottles of water to produce the water embedded in food is what I found interesting.
What, if anything, makes you hopeful about the future?
Innovation, especially in America, is continuing at a breakneck pace, even in areas facing substantial political or
regulatory headwinds. The advances in health care in particular are breathtaking so many selfless souls are
working to advance science, and this is heartening. Long-term, this is good for humans in general. Americans have
so much natural entrepreneurial drive. The caveat is that it is technology that should be a tool making lives better in
the real world, and in line with the American spirit of getting better and better at something, whether its curing cancer
or creating a better taxi service. I am less impressed with the market values assigned to technology that enhances
distraction. We dont want Orwells world, but we dont want Huxleys world either.