JON ERLICHMAN, HOST: We want to start with this idea oI the lessons Irom the crisis, what we've

learned. I know you know lawmakers have spent a lot oI hours trying to get to the bottom oI what led to
the Iinancial crisis in the Iirst place.
Do you think it has been a productive eIIort on -- on their part so Iar?
MICHAEL BURRY: Well, I think it's diIIicult Ior -- Ior Congress to really get a handle on this. I think it's
such a partisan environment and they need to -- and I think they need to be so aware oI -- oI -- oI what their
positions ought to be that it's a little bit diIIicult. I've seen what could -- the most signiIicant development
is really the -- the empowerment oI the Fed in the wake oI all this, which is a little surprising.
The Federal Reserve, in my view, hadn't seen this coming and -- and in some ways, possibly contributed to
the crisis as a -- and -- and what we're seeing coming out oI this is, is Congress saying we don't know how
to -- to regulate this. We don't know how to prevent this Irom happening. Let's empower the Fed. The Fed
can -- they can -- now they can look over thriIts. They can do this and that and the other. I'd have to have a
special pneumonic to -- to remember all the diIIerent powers the Fed got.
But they've thrown it to the Fed and now Bernanke is the most powerIul Fed chairman in history. I'm not
sure that's the -- the right response. That -- the result tends to tell me they're not -- they're not getting it
right.
ERLICHMAN: What's the danger oI having more power Ior the Federal Reserve?
BURRY: Well, I don't Ieel that the economic theories and policies that got us into this mess are the same
policies and theories that will get us out oI this mess. And more to the point, I don't -- I'm 100 percent sure
that the policies and theories that got us into this mess won't prevent the next mess Irom happening.
And that's probably my biggest Irustration with the whole process. I don't think that -- I think with all the
blame on Wall Street and all the Iocus on Wall Street -- the increase -- the perp walks Ior Wall Street --
these things, in a lot oI ways, are non -- are not very productive. I think it's not very productive to blame a
narrow set oI individuals or a narrow set oI institutions.
Nobody is taking time to blame anything that anybody in Congress did or the Fed did or the other
businesses, you know, how the banks acted, how the mortgage brokers acted, how people acted, how
borrowers acted. There's -- there's a lot oI blame to go around. And I think this blame game being oriented
entirely toward Wall Street is -- is not overall helpIul.
ERLICHMAN: Alan Greenspan is aware oI at least some oI your views on Fed policies. As you know,
Bloomberg's Al Hunt asked Alan Greenspan earlier this year -- and Greenspan called your insight, looking
back, the insights you had heading into the housing crisis, as a, quote, "statistical illusion."
How did you Ieel about those comments?
BURRY: Well, I have to say, I understand. He was crowned the maestro about a decade ago by Bob
Woodward. And, you know, in -- in those -- in 2003, he said that national bubbles in real estate don't
happen. In 2004, he counseled Americans to in -- to that -- that they're overlooking adjustable rate
mortgages, that they should Iavor adjustable rate mortgages in their Iinancial plan. In 2005, he touted the
technology advancements that are making credit available to people who otherwise would not receive
credit. And these technology advancements are the same -- that same sort oI language is used by IndyMac,
New Century, Ameriquest, these subprime loans that ended up Iailing spectacularly. And, you know, those
names and a little bit -- they're a little bit dwarIed or eclipsed by the other big names.
But the -- what I've seen -- what I saw was a Fed that crashed rates Irom 2000 -- the beginning oI 2001 to
2003, it took rates Irom 6 percent or so down to 1 percent. In that time Irame is when we Iir -- we saw the
-- the divergence where income diverged Irom home prices. So when you look -- iI you chart income --
national income or the -- home prices started to diverge in 2001.
You know, I think that this was a policy oI his, that had gone on pretty much almost entirely -- his entire
tenure. The Greenspan put (ph) was established back in the late '80s -- the Mexican crisis, the Asian crisis,
the Russian crisis, the long-term capital, the -- the dot-com blow up, 9/11, the accounting scandals, the --
his response all along was to -- to lower rates. And then, ultimately, when lower rates were no longer
goosing asset prices, he did not see how the types oI mortgages that were being introduced Iurther
accelerated the housing price game.
ERLICHMAN: So what are you getting at, that Alan Greenspan should come out and say I am to blame, I
should take a lot oI the blame Ior the housing boom and subsequent bust?
BURRY: I think it's beyond the capacity oI 99.9 percent oI humans on this earth to reject their legacy in
that manner, to -- to completely bury themselves Ior all the rest oI history. I think it's very diIIicult,
especially you've had a -- a long and -- and illustrations and as an acclaimed career as Greenspan has had.
So I don't expect him to say these things. I think it's just important that people recognize what helped get
us to the point we're at today, which is a very bad spot.
ERLICHMAN: What about you?
Earlier this year in a "New York Times" op-ed, you said: "Nobody in Washington has wanted to hear your
side oI the story."
Is that still the case, that nobody in Washington has called you to ask Ior some inIormation on how we
avoid this happening in the Iuture?
BURRY: Well, in -- aIter the op-ed was published, I was contacted by the FSA -- FCIC. And I actually
went to Washington and -- and spoke with them Ior a bit. And -- and so -- so that has happened at this
point, yes.
ERLICHMAN: And what did they ask you?
What kind oI questions did they ask you?
BURRY: It was largely what caused -- you know, it was largely a question as to what caused the crisis,
largely, in, you know, over about two hours, variations -- variants on what caused the crisis, what -- and my
actions through it...
ERLICHMAN: (INAUDIBLE)...
BURRY: -- in terms oI shorting the market.
(OFF CAMERA REMARKS)
ERLICHMAN: So you went Washington, spoke with members oI the FCIC Ior a couple oI hours. They
got your input and what did they do in -- with that inIormation now, as Iar as you know?
BURRY: Oh, I don't -- I'm not privy to that inIormation.
ERLICHMAN: But do you -- do you Ieel like, at this point, at the very least, lawmakers have reached out
to you to get your opinions on how this (INAUDIBLE)?
BURRY: I don't -- not to the extent they could have and certainly not in a way that would encourage my
cooperation. I think that ideally, it would be an inIormal chat. It wouldn't be a -- a demand Ior documents
or anything like that.
ERLICHMAN: We talked about Alan Greenspan, but what about Warren BuIIet, someone who was at an
FCIC hearing earlier this year, when he said you and John Paulson saw this housing bust coming but who
was going to listen to you back in 2005, which goes back to something you said earlier. It's a Iair point.
BURRY: Well, you know, my mother became a real estate agent in 2005. And it's -- it's tough. It's tough.
You know, it's no Iault oI hers. I mean and it's a -- I had business partners didn't listen to me. I had
employees that didn't listen to me. A lot oI my investors didn't listen to me.
You know, perhaps I'm not a very persuasive person. But you're -- it's correct. Nobody -- nobody was
listening at that time. I shouldn't say nobody. There were a Iew that were. But by and large, it was not an
easy sell in 2005.
ERLICHMAN: Let's talk about the Wall Street players, Goldman Sachs, Ior example, the role that Iirms
like Goldman played in all this. You worked with Goldman. They helped you with your trades all the
time.
What did you make oI the SEC suit against Goldman Sachs earlier this year?
BURRY: I think that -- my Iirst thought when I saw that -- it was on a Friday, I think, it was announced.
My Iirst thought was they're looking Ior a scapegoat. And they Iound some young trader in France and he's
probably got some Iabulous e-mails and they -- and they've dug through them and Iound a scapegoat. That
was my thought.
The SEC is -- has -- has been absent Ior a long time. They haven't done much oI anything that's very
helpIul Ior -- Ior investors, in my view.
And now they're going aIter Goldman Sachs. It was a par -- I think it's a -- there's a -- I think it's a response
to some political pressure and -- to Iind a scapegoat. That's what I thought.
ERLICHMAN: But at the same time, Goldman has always maintained that it acts and acted in the best
interests oI its clients. You were a Goldman client.
Did you Iind that to be the case?
BURRY: I don't believe that -- I don't believe that any Wall Street bank always acts in the best interests oI
its clients. I -- I think that's Ialse. I think that I Iought Goldman a lot. And not just Goldman. I Iought all
my counter parties a lot.
It's an incredibly vicious, incredibly competitive world when you're going to go take a position opposite
one oI those banks.
And I think -- and I think that it's not whole -- a whole lot better -- I think even iI you just want to buy a
corporate bond and you call up a bond broker, I think you need to be aware that that bond might not -- it --
that the advice you're getting might not be in your best interests and turn -- and that bond could be coming
out oI the broker's inventory.
There's a lot oI -- there's a lot oI issues that could come -- come into play.
ERLICHMAN: Goldman has now settled that suit, while the suit was...
BURRY: Predictably.
ERLICHMAN: Right. Ongoing during that suit, they announced -- the board announced that they were
going to set up a special committee so that even though we believe we are always acting in the best
interests oI clients, we're going to make sure that there's a committee that's looking out Ior clients. So this
is something they're doing to avoid any news out there that they're not acting on behalI oI their clients.
Do you think that's a positive step?
Does it make a diIIerence at all?
BURRY: I think it makes no diIIerence at all. I think it makes no diIIerence at all. I think, you know, the
way Wall Street works, they are interested in getting a stream oI Iees -- an annuity oI Iees coming oII their
clients and they want to trade around on top oI that Ior some extra return. And it's more complicated than
that, but that's basically it.
I think, too, that -- that Wall Street is a pretty clubby place. I don't think that Wall Street competes with
itselI very well. And so a lot oI those Iees and a lot oI those practices are not -- well, whether it's the Iees
they charge, whether practices in advising clients or -- or trading client securities, there's not enough, in my
view, oI a market mechanism to rein them in -- competitors who would do a better job, Ior instance...
ERLICHMAN: Had...
BURRY: And that's really what would rein them in, in my view.
ERLICHMAN: I have to ask, when you Iirst learned about that SEC/Goldman suit, did you wonder, oh,
are they going to -- are they going to come aIter me?
Am I going to get -- be getting a call Irom the SEC Ior -- Ior my role?
BURRY: Well, my -- my view was that they probably went through an awIul lot oI Goldman e-mails and
this is all they could come up with. You know, and I thought they -- they will -- I -- I was aIraid that I
would get a request Ior all my e-mails and then they would just go through everything to Iind -- you know,
I thought -- I had -- I'd be lying iI I said I wasn't aIraid at some point that they'd come aIter the short sellers.
That was -- that was a concern oI mine, I think, in May oI 2008 I Iirst expressed it to my general counsel,
that -- this was when Bear was charged. I think it was about May or June that -- when those managers at
Bear were charged. And I thought that was a raw deal. I wasn't privy to anything there, but I just -- it -- it
Ielt, again, more like a scapegoating mechanism.
So I started to Iear it then. And, yes, it's been a concern.
ERLICHMAN: But the SEC never contacted you?
BURRY: Not yet.
ERLICHMAN: But it does go back to that question, what -- what was your role or the role oI others like
you in the crisis?
In other words, iI there hadn't been investors making the types oI bets that you were making -- buying
credit deIault swaps and then all oI a sudden putting this tremendous pressure -- knowingly that they were
accepting it, but Iirms like AIG ultimately ended up with -- do you look back and think I contributed in
some way to this or no?
BURRY: Oh, I -- I don't think so at all. I think that the number oI players -- and even when you look at
Paulson, I mean the -- I think when you get into Paulson and Magnetar, the size is quite a bit diIIerent. But
-- but still, the size oI this market was immense -- much bigger than these players and -- and it's much
bigger than me. I was a 600 hundred something million dollar Iund I had a couple billion on, you know, in
terms oI the short. It's -- that was -- that was nothing relative to the market.
So, one, I don't think that, you know -- I think we're also getting at a bigger question, which is how much
are derivatives to blame Ior the crisis we're in.
And I think that there's really two parts to that. Derivatives certainly in -- increased the indecision oI the
dealers and insurance companies and helped drag the system down when everything went bad.
Would -- it's a Iair question, though, would housing prices have gotten as high as they did, would they have
Iallen as Iar as they have, would jobs have been lost like they did even iI we didn't have derivatives?
And I think quite possibly. I don't think that derivatives caused our economic crisis. I think, yes, it caused
some oI these bailouts that we've had to do oI AIG and these sorts oI things, which are a huge cost to the
taxpayers.
But the nut oI it is that our economy was headed in a certain direction. No part oI my thesis on why and
when it would happen -- it would come down had anything to do with derivatives.
ERLICHMAN: What about something else that's happening on Wall Street?
Bloomberg has reported that Goldman Sachs is shutting down its proprietary trading business and that there
are other Iirms that are thinking oI making that kind oI move, too.
Is that the kind oI move that makes Wall Street saIer, iI it's not trading Ior its own book, it's getting...
BURRY: Absolutely. I think that brokers should not trade Ior their own account in securities -- and
securities that are also available to their clients. I just don't think that's pa -- that should be done. I think
broking should be pretty boring -- saIe, boring, low return business. And I think the same is true Ior banks.
They should be very saIe, solid, indestructible businesses. And so there are -- some oI these seemingly
Draconian measures, I think, do need to be taken.
ERLICHMAN: So Wall Street is going to be a lower return business?
BURRY: Well, I'd like to see the -- you know, I -- I'd like to see how the -- the destruction oI those
proprietary trading desks really works out in -- in the real world.
ERLICHMAN: What about the Iuture oI the hedge Iund industry?
Stan Miller's decision to close up shop recently got a lot oI attention.
Do you think we're going to see other announcements Irom other players in the hedge Iund industry?
BURRY: You know, I'm not sure. I would say that being a hedge Iund manager is not -- it's not something
that goes oII well with your -- your, you know, the parents at your kids' school and that sort oI thing. It's
not something that I think has the same kind oI cachet and -- and it doesn't -- and it actually attracts some
derision. And so I think maybe that aIIects some things.
I think that every manager -- and I know this was the case with me. And I've talked with a number oI other
managers. I haven't spoken with Doug & Miller but I think I saw it in a report. The interaction with the
clients becomes dissatisIactory. And when that -- when -- when your -- your customers -- your interaction
with your customers is no longer satisIactory, a lot you're -- why -- why go to a -- you know, once you've
made some money, why continue to do it?
And I think that's going to -- that's at work, too.
ERLICHMAN: But the interaction is not satisIactory, why?
Because the returns aren't what they once were?
Is that...
BURRY: The demands Ior transparency, the Iocus on volatility month to month, week to week,
perIormance reporting; the complete lack oI patience on the part oI many hedge Iund investors. Also, the --
I think people Iorget, Ior a -- they think, oh, hedge Iund managers are rich and they're powerIul and they're
always happy. And that is not true. They're -- when -- when they're down, hedge Iund managers, you
know, at least the ones I know -- Ieel it every bit as much as -- as -- as their clients, or worse. And it's a --
it's a -- it's a tough emotional roller coaster to manage.
ERLICHMAN: But what about Iees?
You always had a diIIerent view on what, as a hedge Iund manager, you should be charging, than a lot oI
the hedge Iund players on Wall Street.
And it raises the question, can the model that exists today Ior what hedge Iunds charge continue going
Iorward?
BURRY: I believe that it should -- it should con -- you know, it should be allowed to continue. I don't
think that there's anything inherently wrong with -- with a carry provision -- a 20 percent carry, that sort oI
thing. I think that, you know, charging on very high asset management Iee and charging a 20 percent carry
isn't the right way to go. But I think it should -- there should be some provision or law Ior a manager -- a
money manager to set up into private contracts with other private citizens who are credited or suIIiciently
sophisticated and enter into whatever terms -- you know, I mean I think, you know, there -- there are hedge
Iunds who have super high Iees and super high -- super high carried interest and a super high asset
management Iee and they've done really world, some oI the most successIul ones. So -- and their clients
are very happy.
So I -- I don't think there's anything inherently evil in that -- in that scheme.
ERLICHMAN: At the end oI the day, it sounds like you're not all that impressed with our response so Iar
to the Iinancial crisis, that more could be done.
And given where we are now and what's already on the table, what are the implications oI our response?
BURRY: I think that we're -- by not learning the lessons we needed -- we needed to learn we're essentially
dooming ourselves to repeat. It's -- it's that simple. It's, you know, now and I -- I may be a little conIused
on your question.
Could you ask it again?
ERLICHMAN: Yes. I think the question that people want to know about is iI -- iI we're not getting it, iI --
iI we're gathering inIormation but we're not learning Irom the Iinancial crisis, then what are the long-term
implications?
In other words, what are you worried about right now?
II -- iI we haven't...
BURRY: Well, there's been a -- there's -- my number one concern is there's been a complete, utter, totally
abdication oI personal responsibility throughout our entire society. I don't think that anyone anywhere is
taking blame themselves Ior what they did to contribute to the crisis. And I think that -- again, it gets back
to that blame game. I think that's -- it's the most damaging thing we can do, as a country, is -- is to blame a
narrow set and not look within ourselves Ior what each oI us did or didn't do to -- to basically -- wrong that
led to this mess.
Go ahead.
ERLICHMAN: You're saying Irom the average mortgage broker all the way up to the Federal Reserve?
BURRY: From the borrower through the average mortgage broker all the way up to the Federal Reserve,
through Congress, the president -- several presidents. I think there's -- there's -- this has been coming Ior a
while. And there's been a -- a lessening oI the credit standards over a period oI time that's ultimately led to
the kind oI blow oII top that we had.
ERLICHMAN: Well, then, what's your take on the housing market right now and what's going on in the
housing market right now?
BURRY: It's -- it's an artiIicial market. There's -- there are a tremendous number oI homes where the
homeowners -- I think it's 2 point -- somewhere between 2.5 and three million homes where the
homeowners are more than nine months past due and are not getting notices that they're past due. They're
just living there Ior Iree. I actually know one that's been there Ior a Iew years without having to pay
anything.
There's this tri -- and the re -- and I think that Fannie and Freddie are basically being used Ior special
purpose vehicles by our government to support the housing market. The private mortgage market is
practically non-existent. Ninety-six, 97 percent oI mortgages are -- are Ilowing through Fannie and Freddie
now.
It's -- I think Fannie and Freddie are in -- are -- are exercising a tremendous amount oI power over the -- the
market by withholding properties Irom sale and not making -- and not Iorcing Ioreclosure -- the Ioreclosure
process.
I think that it would be best iI the government just completely got out oI the mortgage market and let -- and
let the housing -- because home prices are a Iunction oI income and -- and the leverage applied. Everybody
buys these with credit. So this -- we need -- I'm sorry. I lost my train oI thought.
ERLICHMAN: That's OK.
Do you want to take it over -- do you want to start again on the housing question or do you want to --
because I could kind oI -- I could ask you a Iollow-up, which is based on what -- based on what you just
said about the housing market, that it's an artiIicial market, then what's -- what's this mean Ior the
economy?
BURRY: Well, I think that we've -- we've had this massive inIlation oI this -- oI this asset, housing, on the
back oI easier and easier credit. And it's so-called -- it's a credit induced asset inIlation, which we've seen
beIore. The consequence is deIlation in that asset when it -- when it bursts.
In this case, over 65 percent oI people own homes. This was -- this was an asset that the nation participated
in in a big, big, thorough, broad Iashion. I honestly think this is the biggest bubble, the biggest -- the most
signiIicant bubble, essentially, that the world has seen. And I think -- I don't think there's going to be
another one that we're going to see that's -- that's even bigger. Some people have maintained Treasuries but
I think that -- so we're going to deal with that overhead. It's an incredible deIlationary Iorce being applied
to our economy. And we've got the Fed doing -- you know, the government doing everything it can to
stimulate with monitoring Iiscal policy. And we're leveraging ourselves to do it.
What's really important, too, it's a little bit oI an artiIicial economy as well as an artiIicial housing economy
because we're not paying Ior this yet. All those bailouts, all the stimulus, all this money we're printing, this
isn't hitting us yet. It's like we're a teenager and we've got depression and our parents have given us a credit
card and said cure -- go cure your depression.
And it's not being made clear, we have to pay this back at some point. Taxes haven't gone up. Services
haven't been cut. We're spending more every -- more. We're not raising taxes. We're -- at this point, we're
not Ieeling the impact oI all the borrowing we've had to do to save all these institutions and to support the
economy to this point.
We're making -- again, we're making the same mistake. I don't see, you know, because I -- now, because
the Fed has been -- I think the Fed can keep rates very low. I think it has a tremendous power to keep rates
low. But it didn't help Japan. I don't know iI we're any diIIerent than Japan 10 to 15 years ago. We're
basically using the same tools to Iight the same problem.
Look at where Japan is now. They have the highest debt to GDP ratio oI any country, because it's suicidal
to raise rates when you have the debt load -- when the debt loads get so high.
So I think you -- what do you have?
Three billion in the EU, $2.5 -- I'm sorry -- $3 trillion in the European Union, $2.5 trillion that's in
corporate debt in the U.S. coming due by 2013. There's an election cycle. Obama is going to be up Ior
reelection. And I think politics inIluend -- inIluences it tremendously.
I think the stimulus, the monetary stimulus, the Iiscal stimulus will -- will continue through that point and
at least and -- and so in the -- over the next Iew years, I -- I'm not really seeing much change Irom what
we've been experiencing.
ERLICHMAN: So whether you support it or not, you think the Federal Reserve is going to go Ior what
they like to call QE2, another round oI quantitative easing?
BURRY: Absolutely. Absolutely. That -- I think that's -- that's the history oI the Fed since Volcker. I
think that -- yes, well, anyway.
ERLICHMAN: Well, you know, there are people on -- you mentioned Japan. As Ior U.S. economy, there
are a lot oI people who say one day maybe the U.S. economy or the United States will lose its AAA credit
rating. You're the guy that everybody knows is the housing market bear.
Are you a bear on the U.S. economy?
BURRY: Well, it's tough. I mean you look at our $1.5 trillion deIicit and you're -- we're assuming that
there's going to be growth in the economy that's going to basically help us dig our way out to -- you know,
a better -- a better annual budget picture in a Iew years. And I -- and I -- and I don't think that's going to
happen. I think we're -- and we're going to -- unless we reduce taxes or cut our spending tremendously,
we're going to be Iacing a crisis oI conIidence in the -- in our credit. It's really interesting, you know, the --
the Chinese government owns -- and when I say credit, in -- in our Treasury.
I -- the Chinese government owns around $900 billion oI U.S. Treasuries. That's roughly the amount oI
income -- all the per income -- personal income tax collected Irom all Americans every year. The numbers
are getting so big that you don't just think oI it as an easy tax -- a tax increase on the -- on personal income
tax will solve the problem. It can't. You raise a Iew extra hundred billion. It's -- it's not going to change
the big picture in any way.
What are we going to do as a country to -- to solve our problem with this massive growing debt, our
massive deIicit, the Iact that our economy just doesn't seem to want to get oII the ground?
And, you know, there's no good answer. It's a giant gamble, in my opinion, to leverage our Iuture and our
kids' Iuture and their kids' Iutures to -- to try to get out oI this. I think it's a giant gamble. And -- and I
don't think it's a very good gamble. I think that it's very diIIicult to predict exactly which way it's going to
go, but I don't think it's a good gamble.
ERLICHMAN: We're going to take a 20 second break iI you want to grab a...
BURRY: Sure.
ERLICHMAN: -- a sip oI water.
(OFF CAMERA REMARKS)
ERLICHMAN: All right. Anyone who has read Michael Lewis' book, "The Big Short," knows that you
shut down your hedge Iund in 2008. You can read it on your Web site -- but you're still investing your own
portIolio, correct?
BURRY: Correct.
ERLICHMAN: How do you Iind your investment ideas?
BURRY: You know, I -- I -- I essentially just read news. I search. I -- I say -- I'm reading a lot. I read a
lot oI news. And, you know, I rarely use screening tools. I basically Iollow my nose and -- on news
stories. And -- and, you know, more oIten than not, it's a dead end, but sometimes it produces something oI
value.
ERLICHMAN: And how much time -- how much news will you read beIore you Iind that idea that you
really want to go with?
BURRY: It's -- that's really hard to quantiIy. I -- I literally am always -- I'm addicted to it, so I'm always
doing it. It's really diIIicult to quantiIy, I'm sorry. But it's -- it's not very common and it, you know, it's --
it's tough to Iind really good ideas.
ERLICHMAN: OK.
BURRY: The correlation has essentially been unity Ior a long time in the markets. Basically, all assets
seem very correlated. And, you know, it's -- well, that's not the biggest reason. The biggest -- you know,
it's just that I'm interested in Iinding investments that aren't just simply going to Iloat up and down with the
market.
And -- and so the incredible correlation that we're experiencing -- we've been experiencing Ior a number oI
years is -- is problematic.
I think, though, that there is opportunity. I mean basically the Iinancial economy has gone big. We bail --
you know, by all these bailouts basically created these giant -- certainly too big to Iail now institutions.
And -- and the smaller banks are Iail -- are the ones that are Iailing, you know, every week.
Smaller hedge Iunds are going out oI business because nobody trusts the small ones. They all want to go
with the big ones. All this is draining liquidity and draining some oI the demand Ior smaller and micro cap
stocks and smaller issues oI bonds and that sort oI thing.
And -- and it -- investing personally, that's where I dig around most oI time.
ERLICHMAN: Are you making money these days?
BURRY: Yes. You know, it's tough, but, you know I -- it -- you know, it's certainly been a good last year-
and-a-halI or so. I think that you know, I'm -- I'm not just Iocused on stocks, so some oI it is not
measurable. I've put another -- I -- I believe that agriculture land -- productive agricultural land with water
on site is -- will be very valuable in the Iuture. And I've put a good amount oI money into that.
So I've -- I -- I'm investing in alternative investments as well as stocks.
ERLICHMAN: But buying -- just buying the land, not some stock type (INAUDIBLE)...
BURRY: Well, I'm a value guy, so I don't -- I want to buy the land. I want the raw land and then I'll --
that's the way to get it cheapest.
ERLICHMAN: How much oI your portIolio is in land, would you say?
BURRY: Oh, I -- I don't want to disclose that, but it's a signiIicant amount at this point.
ERLICHMAN: What about stocks?
You say you're buying small cap stocks, is that what you're saying?
BURRY: Yes, you know, I -- I think -- well, not all the time. Again, I -- I just Iollow my nose and
wherever it leads. The -- I've -- I'm investing in -- in -- in some very big companies and some very small
companies, some here, some in Asia. It -- it's hard to -- it's hard to nail it down as -- as a certain type oI --
and this has been a problem ever since -- when I was investing in the hedge Iund, even iI you broke it out,
large cap, small cap, it didn't tell you what the thesis was. II you had broken it down by industry, it oIten
didn't tell you what the thesis was.
The -- the -- the thesis, I -- I'm looking Ior an original thesis. I want a thesis that I haven't heard about or
seen or in -- and I don't take others -- others -- the theses oI others very well.
So I'm looking Ior an original thesis and it leads me to disparate areas.
ERLICHMAN: Well, you know the thesis on Wall Street these days Ior anyone who thinks the market is
going up. They say stocks are cheap.
BURRY: Um-hmm.
ERLICHMAN: What do you think about that?
BURRY: Wall Street always thinks stocks are cheap. That's -- I'd hate to live in New York and hear that
10 times a day.
ERLICHMAN: BeIore I ask you a couple more questions on that, I want to go back to land.
Can you give a little more color on the type -- type oI land you're buying?
BURRY: Well, you know, part oI it is that we don't want to drive up the price oI this land, so I think that
I'll reIrain on -- on that question. I'm sorry.
ERLICHMAN: OK.
All right, what a -- what about sectors?
For example, what about bank stocks?
Do -- can you Iind bank stocks that you like?
BURRY: Banks are very diIIicult to -- to analyze. And -- and they've not been generally something that
I've spent a lot oI time on.
I'll tell you the in -- the areas that -- I'm very interested in smaller tech companies. I think -- what I'm
interested in are companies with a secular growth proIile or a secular history that I think will play out that
is generally not dependent on what the government does, which is kind oI hard to Iind.
You know, do -- I'm looking Ior good products, good management, good market position, competitive
dynamics. So I'm -- so I think digging around in smaller, secular growth stories, I think it -- they've been
neglected.
I think it's especially true in Asia. Smaller companies in Asia, I think, are neglected. There are some very
cheap companies there.
Yes, so.
ERLICHMAN: Well, speaking oI government inIluenced sectors, what about the Ior-proIit education
companies?
They've got a -- a lot oI attention, where you see Steve Iseman, who's also proIiled in "The Big Short," gets
a harsh critic, in his words, that Morleykin (ph) (INAUDIBLE) a prime mortgage market.
Do you Ieel the same way about Ior-proIit -- Ior-proIit education companies?
BURRY: Right. You know, I don't have a good opinion on the Ior-proIit education companies. I've -- I'm
not -- I've never liked them, never liked them, probably Ior similar reasons. And there's always been some
shenanigans in the Iinancials, too. And so I've never liked them.
But, ironically, I'm in this book, "The Big Short," but I'm not a big short. I don't go out looking Ior good
shorts. I'm spending my time looking Ior good longs. That's what I did beIore. I shorted mortgages
because I had to. The -- every ounce -- every bit oI logic I had led me to this trade and I had to do it. And I
had to pull back on equities because I saw what was coming I thought would aIIect everything.
Fundamentally, I'm looking Ior long-term investments in equities and -- and bonds. And Iundamentally,
that's what I'm doing -- long investments, not short investments.
ERLICHMAN: OK. Would you go long some housing stocks today aIter they've been crushed?
BURRY: I'd rather -- you know, I'm -- in my situation, I'd rather go long housing itselI or real estate itselI.
You can -- depending on how you structure it, you can -- in the real market you can -- in the physical
market, you can get some pretty good deals. And I've done some oI that, too.
ERLICHMAN: So we can take away that while you're bearish generally on the housing market, that the
guy who made this big bearish bet on housing a Iew years ago is now seeing value in some real estate out
there.
Is that what you're saying?
BURRY: I think there is some value in -- in real estate. Yes. I mean you have to buy it right and it's --
there's certainly -- it's not in general. That's the problem. I think that there's an awIul lot oI people out
there looking to buy these distressed properties now. And -- and so you need to -- you need to Iind special
solutions. It's -- it's how I've invested Irom the very beginning. I'm always -- I'm look -- I'm looking Ior
these special situations, these unique ideas. And -- and it's true in real estate, too.
And I mean I -- I know one property we bid on, we were the second lowest bid oI 30 bidders. It's -- and,
you know, I think that market is a little overcrowded, but we were about to structure our bid so that we
were Iavorable and -- and got the property.
So, you know, in any event, I don't want to go into that too much, but...
ERLICHMAN: I want to give you an opportunity right now -- I don't know iI you want to -- do you use
Kleenex Ior your eye at all?
BURRY: Oh, is it -- is it doing something?
ERLICHMAN: It's -- it's -- I don't -- I just -- I don't know what...
BURRY: Let me see.
ERLICHMAN: I just wanted to give you the opportunity to...
BURRY: Let me see...
(OFF CAMERA REMARKS)
ERLICHMAN: OK, let's talk about how some oI the other players are investing these days. II you look
inside John Paulson's book, though, you know, you'll Iind that he's the biggest shareholder in a home
builder, in Viser Homes (ph). His Iirm is also a big shareholder in -- in mortgage insurer, PMI. And he's
not the only one. There are a lot oI hedge Iunds that own shares in PMI.
What do you think oI that strategy, oI going along (INAUDIBLE)...
BURRY: I had the thought, when I started to put on a short, that when this all plays out, well, I'll be
running so much money and I'll be able to swoop in and -- and buy some oI these things really cheap. And
as it has played out, I just don't think that the recovery is going to be that robust. And so I'm not terribly
interested. I -- I Ieel that some oI the Iuture crises that we're going to Iace and some oI the Iuture hurdles
we have are Iundamentally -- will -- will be an impediment to achieving some good gains in some oI those
investments.
So I'm -- I'm largely staying away Irom -- Irom that thesis now.
ERLICHMAN: (INAUDIBLE)...
BURRY: You know, I -- go ahead.
ERLICHMAN: No, no, go, please.
BURRY: So, you know, Paulson's big on gold. And -- and that's something that is -- is -- is interesting to
me and given how it might -- how I see the world playing out.
But other than that, you know, I -- so I'm not, you know, I'm just saying that other than gold, I -- I haven't
really bought into any oI the other DCs (ph).
ERLICHMAN: What do you do, do you buy -- do you like buying -- some people like to buy the physical
gold bars?
Some people buy...
BURRY: It's a tough...
ERLICHMAN: (INAUDIBLE)...
BURRY: It's a tough one to play, yes. But, you know, I don't want to go too much into what I'm doing
there. But I do -- I am bullish on gold. I think that the -- the way the central banks around the world are --
are treating their -- the currencies -- I mean, you know, the -- the U.S. dollar is strong relative to Europe.
But what's that saying?
I think that we're -- we need to be aware that central banks worldwide have Iollowed the lead oI our central
bank and are debasing their currencies.
ERLICHMAN: So that would suggest that you're bearish on the U.S. dollar.
Are you a U.S. dollar bear?
BURRY: Long time bearish. I think that I don't have a lot to say in terms oI timing.
One oI the issues -- one oI the Ieatures oI the sub -- the subprime short, the real estate short, is I can put a
very speciIic time on it because I was waiting Ior the worst possible mortgage, basically, the -- the pay
option arm, the cash Ilow arm, which, in a world where people buy homes because -- on -- on the monthly
payment that they need to make, when they don't need to make hardly any payment, that's about as -- as --
the -- the -- the penultimate extension oI credit to a homebuyer.
And when I saw those worked through the -- the -- the prime credits and then a little bit into subprime
credits, I said, OK, the timer has been set. And I thought 2007, it -- iI not beIore, things are going to come
down.
You don't have -- I don't -- I can't Iind that -- that timer on any oI these other theories -- Treasuries, China.
I mean there's all these theories. I think we've become a nation oI -- oI -- oI bubbleheads where we've just
had this huge bubble burst and now everybody has got their ideas on what the next bubble is and what's
going to blow up next.
And that's not hard to do. It's not hard to say there's going to be a -- there's a bubble and this and that.
The tough part is when -- when will it come blow -- come down?
And with -- with mortgages, I could do that. With housing, I could do that. I think it's more diIIicult to
time that out with some oI these other things -- China and Treasuries, that sort oI thing.
ERLICHMAN: So it's not as iI you're -- you've got some sure bet on the U.S. dollar right now that you're
expecting to pay oII in a couple oI months or something like that?
BURRY: No, none other than the gold investments.
ERLICHMAN: You mentioned John Paulson. (INAUDIBLE) the question, since the two oI you are oIten
mentioned, have you ever had a conversation with John Paulson?
BURRY: No.
ERLICHMAN: Would you like to?
BURRY: Sure. I -- I just don't know him. So, I mean, you know, he's just -- he's another hedge Iund
manager and I wouldn't be averse to it but...
ERLICHMAN: Sometimes it Ieels like John Paulson gets more attention than you do. I don't know iI it's
because oI the dollar amounts under management or because he's on Wall Street and you're out here in
CaliIornia.
But have you ever thought about that?
BURRY: About Paulson getting more attention?
ERLICHMAN: Yes.
BURRY: No. That's not a -- that's not an issue. We're very -- it seems like we're very diIIerent. I think
the way I go about investment is just very diIIerent. And I think Paulson and a lot oI those others got the
trade Irom Lippman, Greg Lippman. And, you know, I think a lot oI people -- I think a lot oI hedge Iunds
get their trades Irom Wall Street and get their ideas Irom Wall Street. And -- and -- and I just like to Iind
my own ideas.
So I don't need to talk with Iund managers to get their ideas. I want to Iind my own ideas.
ERLICHMAN: What about credit deIault swaps, which obviously made you a lot oI money?
Do you still use them today Ior other types oI investing?
BURRY: No, I don't. I'm out oI credit deIault swaps.
ERLICHMAN: And who do you trade with?
Anyone who's read "The Big Short" knows that you were trading a lot with Goldman Sachs.
For trades like credit deIault swaps, but on an average day, iI you want to pull the trigger on a trade, who
do you deal with?
Do you call up Goldman Sachs or various Iirms?
Or how do you do it?
BURRY: I have my Iavorite brokers that I've used Ior many years and I stick with them. I think you might
be getting at whether any oI these brokers I used are a little bit upset or -- or something and, you know,
with "The Big Short." But -- but I haven't really heard anything like that.
ERLICHMAN: I have to wonder iI you get calls Irom people who would like you to actively manage their
money again?
Do you -- do people call you up and say...
BURRY: Absolutely. Well, that's -- yes, it's Iunny. In -- in 2008, I don't think we had one call. And that
was aIter we had that big year in 2007. And -- and now we're getting a lot oI them. It's the power oI the
Michael Lewis book. It's -- it's good. It's a lot oI publicity. But -- but I take it all -- it's -- I take it all with a
grain oI salt. When I -- when I was running -- when I got started and had some -- a good run Ior the Iirst
Iew years, I actually had to close the Iund because my phone was ringing oII the hook with people that
wanted to give me money. And I didn't want to talk with them all oI the time.
And -- and a good number oI them didn't turn out to be the investors that I wanted. So, you know, you hear
oI good returns and you go chasing a manager. I don't think that's the right way to go about it.
ERLICHMAN: So the sense I'm getting is you wouldn't start managing money again just because you're
getting publicity Irom the Michael Lewis book, is that what you're saying?
BURRY: No. No, I'm not doing that. No.
ERLICHMAN: And, you know, would you ever consider...
BURRY: Sure.
ERLICHMAN: (INAUDIBLE) again?
BURRY: You know, I'll never say never. But -- but certainly not right now.
ERLICHMAN: Why?
BURRY: Well, there are a Iew reasons. But, you know, involved -- there are a Iew reasons I'd rather not
get into. But I'm having a -- a good time oI it now. I think it's remarkable. Investing without investors is
the most Ireeing thing. I can be one oI the market completely, nobody cares. You know, I can get 100
percent invested on -- in March oI -- you know, I can -- I can -- I can get 100 percent invested in -- on the
turn oI a dime and nobody squawks. It's -- it's great.
ERLICHMAN: There's been some chatter, iI you look on the Internet, that you should be going over to
Berkshire Hathaway, work on -- work on Warren BuIIet's team.
Have you ever been contacted by Warren BuIIet about working on (INAUDIBLE)?
BURRY: Oh, no. No. And that's a ridiculous notion. I've -- there's only one Warren BuIIet. Warren
BuIIet doesn't have a team on the investment side. I -- BuIIet -- Warren BuIIet is -- was an inspiration Ior
me go to into money management. And I largely patterned my early career aIter what I'd read about him in
"The Making oI An American Capitalist" by Roger Lowenstein, which I thought was a phenomenal book.
And reading that book, I immediately recognized, there's no point in even trying to be like BuIIet. There's
only one.
ERLICHMAN: Have you had a conversation with Warren BuIIet?
BURRY: No. Never. I think -- yes, no. We haven't had a conversation.
ERLICHMAN: But iI he called and said, I know you're not managing money right now, but we'd love Ior
you to come and work Ior us, would you consider it?
BURRY: I'd tell him exactly why I -- there's no reason Ior me to be there.
ERLICHMAN: So you're -- you're a young, wealthy guy.
Outside oI investing your own money, like how would -- what are you doing?
BURRY: You know, spending time with my kids. I have, you know, a seven and a nine-year-old. And
anybody with a seven and nine-year-old, boys, so it's Iun. I'm doing -- dedicating myselI to some other
endeavors, too -- and I'd rather not discuss. But, you know, just the normal things that people do. And it's
managing money in this oIIice. I've got a small staII and -- and then spending time with Iamily.
ERLICHMAN: Here's the big question, on your iPod, are you still just listening to Metallica or are
(INAUDIBLE)?
BURRY: I added The Black Crowes.
ERLICHMAN: Oh.
BURRY: And Blink 182.
ERLICHMAN: And how is the guitar playing going?
BURRY: You know, I have no talent there. So it's Iun, but it's like I got into wine a Iew years ago and I
have no talent there, either. But it's Iun.
ERLICHMAN: We're going to take a very quick break.
(BREAK FOR DIRECTION)
UNIDENTIFIED MALE: Time code 11:14:02, 3, 4.
(BREAK FOR DIRECTION)
ERLICHMAN: Mike, let's start when you were a kid. Your interest and Iascination with stocks started
very early, didn't it?
BURRY: Very early, absolutely. Actually, and the style started pretty early, too, because the Iirst stock I
looked at I think I was in second grade. It was American Motors, and it made Jeeps that went with my little
green men, my little Army men.
So I knew I connected right away. Oh, you know, big "A," small "m," -- you know, Iorce (ph) and change
-- and that's a real -- they make Jeeps. And what's more, iI that stock or the one above it goes Irom $1 to
$2, or $2 or more dollars, you double your money. Very concrete, very simple, very attractive.
Even at that age I think, you know, it sparked an interest. I know a Iriend oI mine that's now working at
MicrosoIt. He took a robotics course one summer in third grade, and we ended up creating a stock market
game on this in Basic, I think, printing stock certiIicates and all that. So it was pretty early.
ERLICHMAN: So you were Iamiliar with things like stock symbols in the second grade?
BURRY: Not really Iamiliar. I mean, we're talking the most basic oI knowledge. I think, you know, our
stock game was a huge cheat, too, probably. It was just -- it's basically something is worth something and a
certain price, and iI you double it it's twice as much money. And it's a real company.
ERLICHMAN: What are some other examples, early examples? I mean, those are some great ones. What
about other memories you have with your interest in the markets or --
BURRY: Well, you know, I think that I had some social challenges when I was younger, and I was very
attracted to being a rock star, an athlete, or, as it turned out to be -- or something like a money manager.
The reason being that they're perIormance-based.
Sports, it doesn't matter how nice a guy you are. It doesn't matter how you groom your hair. II you
perIorm, that's all you need to do.
And so Irom a young age I was pretty interested in the whole idea oI meritocracy and people being ranked
as they should according to their eIIort and talents. And I thought, you know, running money was
something where I could put the eIIort in and do it. So that kind oI carried me through. I think I Iirst
started really investing in high school, then certainly all through college I was addicted to all that stuII.
ERLICHMAN: Yes, you weren't only buying stocks, you were buying options.
BURRY: Futures even, yes, when I was at UCLA.
ERLICHMAN: I guess you were -- you said you were at bookstores at night reading all the business
books.
BURRY: Absolutely. Absolutely. My Friday nights would be spent at either one oI two places, OIIice
Depot or a bookstore.
And the bookstore, you can sit around there a long time and people don't care. OIIice Depot, you stay
around there a long time, they start to ask questions.
But I was interested in business. I was interested in starting a business and I was interested in markets.
ERLICHMAN: You tie it into your social challenges as a child. It's well documented in books like "The
Big Short" that you had cancer and lost one oI your eyes as a child.
Can you explain a little bit more about how that or any social challenge related to that aIIected this desire to
excel in sports, excel in all sorts oI areas?
BURRY: Well, I think that as you come up in sports with one eye, as a kid you try everything. I played
soccer, baseball. I played Iootball, basketball. I played everything.
But you do run into some limits. Not all the ones you -- actually, I did OK in a lot oI things. But when
they started throwing curveballs in baseball and things, I couldn't hit. I got one hit all season. So there was
that kind oI stuII.
There was -- you know, I was aware oI it because you're never not aware that you have an artiIicial eye.
You can Ieel it. I mean, you Iorget about it sometimes but, by and large, every day you're aware you have
an artiIicial eye.
And as a kid, and as you're growing up and you're dealing with that, you just -- yes, you're growing up with
it, so you're used to it, but at the same time you know you have it. You notice when you're looking at
somebody and they keep moving to the side because your eyes are not lining up. You notice it when kids
tease you because you're cross-eyed or that sort oI thing.
So, you know, or kids asked me to take it out every single year through high school. So you're aware oI it.
And other people make sure that -- and so you are -- you would be interested -- I was interested in
competing in a diIIerent space, and that's where the whole athlete, rock star, money manager thing came up.
And so the other thing was writing, being an author. So that was another twin interest I had way back then.
ERLICHMAN: I think what Iascinates a lot oI people about your story is that you didn't know then what
you know now, which is you do have Asperger's syndrome --
BURRY: Right.
ERLICHMAN: -- which some people will say in certain cases will contribute to someone's ability to be
able to really Iocus in one area.
BURRY: Right.
ERLICHMAN: And I have to ask you about thinking back now and your early Iascination with the
markets, whether or not you think, oh, yes, that played a role too?
BURRY: Oh, absolutely it did. I don't know, why would a second or third-grader get so Iascinated with
the markets? He's washing money and pressing it in books and creating stock computer games and that sort
oI thing. I mean, not why else, but that was one oI the things.
I've had these interests that have been very intense in my liIe. The two interests that are really intense
being music and the markets. And every once in a while there's something else that will catch my Iancy Ior
a little bit, but it always comes back to those two things.
And the thing about the eye was I realized as an adult that that was -- I was a little bit protected in that I had
an excuse Ior why I didn't Iit in, whereas most people with Asperger's don't know why they don't Iit in.
And I can say I didn't know I had Asperger's, but I knew I had a Iake eye. And so I was a little bit
protected there.
ERLICHMAN: So let's talk about your schooling. You decide to go to medical school even though you
have this great Iascination with the markets and business.
Why did you decide to become a doctor?
BURRY: Nobody in my Iamily had been a doctor. I had gone through all the pain oI the premed
curriculum. Even though I did economics at UCLA, I had done premed. And I actually applied to both
business school and med school.
And I got into both, and med school is a whole heck oI a lot harder to get into. And so that was a good part
oI it.
The other part oI it was that I thought even in -- maybe it's just being in college, but even in high school I
thought that just -- I came to this realization that just dealing with numbers and money is not a humane way
to live your liIe. It's not a helpIul way to live your liIe.
And so I really did have this interest in going into medicine to help people. I mean, in the starkest terms.
ERLICHMAN: But when you became a doctor, you did realize there were some things about the
proIession that you didn't like as much.
Is that Iair to say?
BURRY: Well, absolutely. My hands are useless. And so I couldn't do -- you know, there's a lot oI things
you can't do or can't do well.
And so I just don't have a good perception probably because oI my eye and space, and small spaces, so
sutures and little things. So, you know, that was part oI it.
I think that I became very aware oI the business oI medicine very early in medical school. I actually
applied and was accepted to do an MBA at Vanderbilt while I was there Ior medical school. And -- but I
couldn't aIIord it in the end.
The business oI medicine -- this was Clintoncare. Remember 1993, 1994? It was a big --I would stay up
until 3:00 in the morning debating health care policy with -- there's a medical ethics Ph.D., a guy. I think
he went into Psych.
Anyway, we just sat in the student lounge debating this stuII until all hours. And my interests really went
towards policy. And even my Iirst summer in med school was spent doing health care economics research
up at the Rehabilitation Institute oI Chicago. The American Hospital Association is up there in Chicago,
and I was able to access their Iiles. And I wrote a paper there outlining legislative changes and how they've
aIIected the development oI health care in the rehabs and (INAUDIBLE) space.
And so that was -- my interest in the markets just was overwhelming my interest in medicine.
ERLICHMAN: So here you are now, the doctor, the doctor who starts blogging sometimes during your
shiIts about some oI your investment ideas.
BURRY: Now, I'll point out that when you're blogging -- I was blogging at night. This is on call, you
don't have anything else to do. There's nothing possibly else you can do other than sleep, so I wasn't
neglecting patients to do this.
But yes, I started -- this was aIter my dad died. And this was -- I started really in the middle oI medical
school, starting in the clinical years. I had already been investing. I started to explore it a little bit online.
ERLICHMAN: I guess the question is why would you want to share your investment ideas? I mean,
investing is one thing, putting it out there is another.
BURRY: It was actually an interest -- one oI the interests that captured my Iancy Ior a while was taking
apart computers and putting them back together and trying to make them Iaster. And this was really
exciting in the late '80s and early '90s, when it was actually cheaper to put together your own computer and
you can run around all these little stores that had the motherboard that you wanted or something.
And so I would put together computers and try to make them Iaster. So I was very interested in computers.
And so I had this twin -- this interest that -- maybe just Irom growing up around here. But the Web was
very exciting to me, because I had been on some bulletin boards beIore that, the Wildcat (ph) bulletin
boards, and so the Web was very exciting to me and I wanted to put something up there.
And a Iew other students were putting up medicine pages. And I said, well, I can put up something like
that, but I know nothing there. I thought I knew something in investing, and so I put that up and it kind oI
took oII.
ERLICHMAN: How did that Ieel? How did it Ieel?
All oI a sudden, you're getting this Ieedback. You've got investment Ians. That was probably something
you never experienced, to get that -- I mean, nobody gets that until you put yourselI out there.
BURRY: You know, it really Iit with my idea oI meritocracy. The Web is this wild thing that, iI you put
some good content up there, possibly somebody comes.
I wasn't advertising anywhere. Possibly, somebody comes and reads it. And I didn't think it would
necessarily lead to anything, I just thought somebody will actually read it. Wow, somebody actually read
what I wrote.
Well, somebody that read it was this guy that was hired at MSN, Jon Markman. "I'm Jon Markman and I'm
running MSN Money" to compete with AOL at the time. This was, like, '96, '97.
And so I started writing Ior them. And then I started getting paid a dollar a word to write, which was -- I
didn't have a lot oI money, and I was actually in a lot oI debt. So that was tremendous validation Ior what I
was doing in that space.
ERLICHMAN: And what was it like to be a value investor, which you are, at a time when there was this
tech mania going on, the dot-com boom?
BURRY: Well, the dot-com boom, I was here. I was here Irom '98, '99, 2000, up at StanIord. And it was
all around me, tech stocks.
I would walk to clinics, and I'd walk with a resident who just made a million dollars on Polycom or
something like that. It had gone up. And so it was surreal. Actually, because StanIord is located right on
Sand Hill Road, which is the main strip Ior dot-com mania.
So it was an interesting perspective. My natural state is an outsider though, and no matter what group I'm
in or where I am, I've always Ielt like I'm outside the group and I've always been analyzing the group. And
everything about -- a lot oI these companies, I knew you can drive by them, you can visit them -- were not
worth what they should be worth or what they were being marked at.
So I was just Iollowing my value investing vision, or special situation/value investing vision. And all this
other stuII just seemed like, well, it was going to end badly. I knew it was going to -- this is where I say it's
easy to spot a bubble. I mean, that was easy to spot.
I mean, I think a lot oI people did, too. II you talked to people back then, just like with the housing bubble
oI 2003-2004, there were people talking about it being a bubble but nobody knows when and maybe it goes
on Iorever. That was it was interesting because nobody did know really when it would end, why it would
end. So it was certainly an interesting time to be doing that. That was I think I received some reputation
speciIically Ior that, though, value investing during the dot-com and doing well with it.
ERLICHMAN: You mentioned the passing oI your Iather. You`re this medical student. You have a lot oI
student loans. Clearly you`ve got a talent Ior investing but becoming a proIessional investor, iI you don`t
have the money to do it, I would think is challenging. To a certain extent that changed, did it not, aIter his
passing and you did end up with some?
BURRY: Well, not a lot. I mean, I think that excuse me I mean, it didn`t pay oII my loans or anything
like that. But it did give me some money to invest, a decent amount, $50,000 to invest. What I would do is
I was using that to help Iinance my liIestyle because I`d grow that and then just spend it. When I got
married that`s what we were getting our money oII just that.
Well anyway, so it was a signiIicant amount oI money at the time and I don`t think it had honestly I think
it was at $45,000 is what I had and I said, this is the last little bit that I got this is the nut oI what I got
Irom my dad and I don`t want to just pay down my medical school debt with it. It`s like now I want to do
something. So I put it into starting the partnership.
ERLICHMAN: Let`s talk about the hedge Iund. You decided to call it Scion Capital. Why`d you pick the
name?
BURRY: I was big into Iantasy books as a kid and David let`s see I`ll get this right Terry Brooks,
Scions of Shannara, Elfstones of Shannara, that sort oI thing. There`s a whole series, Shannara series, and
Scions of Shannara when I was thinking oI a name was right there. I was living in my home I grew up in
Ior Iree when I did it. So the bookshelI was still there and I just looked at the book and picked it.
ERLICHMAN: So it really didn`t take a lot oI time this is what`s so Iascinating Ior you, the doctor, to
say, okay, I`m going to start up a hedge Iund, to get contacted Irom some pretty well-known investors.
Who was contacting you?
BURRY: Well, geez, just a lot oI individual investors but also people who were analysts at other at
mutual Iund companies or one guy was a PM. Generally it was lower level people but deIinitely
institutional contacts. But then there`s the brokers. There`s brokers Irom Morgan Stanley and that sort oI
thing, that would call and they`d have some business ideas; then came some oI the pretty well-known
hedge Iund guys.
I knew I was getting attention when I said something I think in 1999, late 1999. I said that Vanguard Iunds
are the worst Iunds to invest in now. Those index products are going to do horribly over the next decade
and I linked to the site and I got a cease and desist Irom Vanguard. So I realized, oh, people are reading
this and I got a little tool to see who`s reading my site and that`s when I saw that it was all these
institutions. It was all coming Irom Iinancial institutions.
ERLICHMAN: There`s a great part in The Big Short where Joel Greenblatt, the value investor and author,
says, hey, I want to invest with you. I want to Ily you to New York Iirst class. Come on. Come to the East
Coast and let`s meet. What was your reaction? Were you nervous? What were you thinking at that time?
BURRY: Well, he called me. I`d already decided I`d already leIt medicine. The year in medicine goes
to June, the end oI June. So he called in mid-July and I`d already leIt and I`d actually interviewed him in
`97 I think it was Ior a spinoII story I was doing Ior MSN and I just dropped it. I did the story and then I
didn`t talk to him again. I don`t remember him thinking anyway, he helped me with the story and then
we dropped it.
So I didn`t hear Irom him and then he called me at home in July oI that year that I leIt medicine and said,
yeah, you want to come to New York? We want to talk. I had already had the conIidence to leave
medicine and to start this and I thought I was going to get some money. I think Joel calling up though, and
since I knew who he was, that was really signiIicant.
ERLICHMAN: And then you get to New York and you learn that not only does he want to invest with you
but and I`m taking this Irom the book so you correct me iI I`m wrong but I`d also like to buy a quarter
oI your business, oI your Iund, and pay you a million dollars Ior it, right? That`s essentially
BURRY: That`s roughly it and it was hugely exciting. I mean, actually I went out with my wiIe and yeah,
it was hugely exciting. Actually I didn`t know I mean, actually I had been to New York once beIore but
not Ior business and I just didn`t know how to dress. I didn`t know anything about it. But I came back and
told my wiIe and it was exciting certainly.
ERLICHMAN: Would you say it was liIe changing? Was that one oI those moments in your liIe?
BURRY: It was liIe changing. The business was going to be the business regardless but it was liIe
changing because it really opened some doors early on. I was having trouble getting a prime broker. I`d go
to Bear or whoever and they would not necessarily pay much attention. So once he was involved, I got my
prime broker very quick and the account really quick and that sort oI thing.
ERLICHMAN: Let`s talk about perIormance in the early years; again, correct me iI I`m wrong. In 2001,
the Iund`s Iirst Iull year, you`re up 55 percent. The next year, market`s down more than 20 percent.
You`re up 16 percent. In those early years, were you thinking about the investors and worrying about them
or was it just Iun? You had this money to play with and you could put the investments you could put the
money to work and you were hitting home runs.
BURRY: Well, there`s a story that stuck with me regarding Warren BuIIet, that an investor showed up
when he was running his partnership back in the early `60s and pounded the door wanting to know what
was going on and he kicked him out oI the Iund and said, I`m not dealing with you, and kicked him out oI
the Iund. That`s how I ran the Iund. I didn`t oIIer transparency. I provided one quarterly report in a letter
Iorm and that was all you got.
I basically demanded that iI you`re going to invest in my Iund, you need to accept my terms Irom the
beginning, the terms not being super high Iees but I`m not going to cater to you. So those Iirst Iew years I
Ielt I was getting money in and I was doing OK and I didn`t have to deal with investors too much. I didn`t
think about them too much in my investing process and it didn`t inIluence my investing process that I had
investors.
ERLICHMAN: Were they the types oI investors who simply respected that or did they say were they
sending you giIt baskets saying, thanks, Mike?
BURRY: No, no and I didn`t expect that at all. In Iact, no, I think there was nothing involved like that. It
was just there was good relationships with investors who rarely called.
ERLICHMAN: Let`s get to the big trade oI your career. It`s as early as `03 that you`re starting to think,
raise a lot oI questions and do research on the housing situation and by 2005 you are ready to make this
bearish bet on subprime mortgage bonds. OI course this is still a time we were talking about this earlier
when there weren`t a lot oI people who were out there thinking this way. Arguably nobody was. What was
your research telling you?
BURRY: Well, again, there`s you have to weave in that big picture with the rate cuts into `03, with
mortgage rates at 40-year lows by `03 and then what I had termed extension oI credit by instrument took
hold. You had ARMs which adjustable rate mortgages were created or basically allowed back in 1982
with the Depository Institutions Act oI `82 I think it was. But they really took hold starting in the late `90s
and then actually really more the early 2000s ARMs really exploded. I viewed the ARM a little
suspiciously.
I thought it was a little bit oI a teaser rate mortgage I thought. But it didn`t concern me too much. When
rates collapsed, oI course the ARMs exploded and in 2003 something curious had happened. The interest-
only mortgage was reintroduced and that spurred me to write a section in my letter called Basis Ior
Concern. The interest-only mortgage to me was you`re getting closer to that point oI maximal provision oI
credit to the mortgage, to the asset, to the homebuyer. I really thought that incomes had already stopped
had diverged Irom the housing prices.
Now, we`re Iloating entirely on the type oI credit being oIIered. By 2003, rates aren`t going any lower. So
you need to change the instrument that you`re oIIering to the borrower to get home prices up and to keep
volumes up. So when the interest-only mortgages were introduced I noted it and I mentioned it to
investors. Then I watched it. So I watched it in these mortgage pools and I knew about mortgage pools
because oI research I had done into PMI and the mortgage guarantors because they had stretched their
business and started guaranteeing mortgage pools in so called bulk transactions and negotiated transactions.
So what I was looking Ior was the penultimate mortgage, the mortgage that would mark that the top is
coming. So instead what I noticed was just that the interest-only mortgages were growing as a percentage
oI these subprime mortgage pools that were being sold or that were being put together by Wall Street. I
watched that grow and then in 2005 the option ARM, I mean, the pay option ARM arose, also called cash
Ilow ARM. These in many cases oIIered the minimum payment that could be less than the interest
payment would be and the diIIerence would negatively amortize into the balance, the principal balance.
So that was 2005 and actually those were only in Alt-A mortgage pools but within those pools you can see
that some oI them were being paid to subprime borrowers as early as `05. So I thought that`s pretty much
it. When these interest-only mortgages and then the pay option ARMs Ilooded the channels and you could
see it in the balance sheets oI Countrywide and Washington Mutual as well because they were holding a lot
oI this.
When you saw that hit kind oI the maximal distribution through the system, I said home prices can`t go up
anymore. They just can`t. Income wasn`t doing enough to support it and that`s it. You`ve blown the wad.
This is it. You`ve hit the penultimate mortgage and home prices cannot go sideways. They will
necessarily Iall, the reason being that home price appreciation was built into the interest-only mortgages
and the pay option ARMs.
It was part oI the trade that the borrower did to get this house that they counted on reIinancing it into the
home price appreciation. They counted on it. They never expected that they would actually get to the end
oI that teaser rate period and have to pay that higher amount per month.
So home price appreciation was built into the whole transaction Ior a couple years then. Once home prices
were no longer going up, this stuII would be pulled Irom the market. It wouldn`t be part oI it anymore and
it wasn`t and home prices would necessarily start to Iall. The credit would start to be pulled away and just
on the margin as the credit was pulled way, home prices would start to Iall. So that`s what I saw in 2005
and that`s why I just essentially made it the big largest investment oI my liIe.
ERLICHMAN: In theory, it all makes sense to people now. But this is heavy stuII even Ior people who
are seen as smart investors. Do you think that you have an ability that is superior than most people out
there? I mean, you did some very intense research on this.
BURRY: I did a lot oI work on it. But I was surprised. I put so much on in the summer oI `05 and the Iall
and the winter oI `05 and `06, early `06. I tried to raise a Iund, Milton`s Opus, - Milton`s opus being
Paradise Lost. I tried to raise a Iund called Milton`s Opus to just do this because I wanted to do it in big
size but I couldn`t get it going.
The urgency came Irom my belieI that I can`t be the only one thinking this. There`s no way. This is way
too important a market, way too critical a market to our economy and those were the years when jobs were
increasing 200,000, 300,000 a month, the number oI jobs and over halI oI them were mortgage or housing
related jobs.
People were cashing out hundreds oI billions a year to Iinance their liIestyles. This was too important.
Why isn`t anybody else seeing this? Somebody will see it and when they do, spreads will blow out wide
and I`ll lose my cheap protection, right, because I`m buying cheap protections. I want to get it on when it`s
cheap beIore it blows wide because it might blow wide well beIore things crash
ERLICHMAN: Let`s talk about that prediction because buying credit deIault swaps is something back then
even nobody was doing.
UNIDENTIFIED FEMALE: John, I`m going to stop you Ior a second.
ERLICHMAN: Sure.
UNIDENTIFIED FEMALE: We have so little tape leIt. I`m just letting you know we only have one
minute leIt on this camera.
ERLICHMAN: OK.
UNIDENTIFIED FEMALE: How are you doing?
UNIDENTIFIED MALE: We actually he put another card in so we have 19 minutes on these two.
UNIDENTIFIED FEMALE: You do?
UNIDENTIFIED MALE: Yeah.
UNIDENTIFIED FEMALE: Sorry. I thought we were out-out.
UNIDENTIFIED MALE: No, that`s great.
UNIDENTIFIED FEMALE: I know you guys are making progress. I think there are some, at least on my
list that are
UNIDENTIFIED MALE: Are we still rolling?
UNIDENTIFIED FEMALE: I think you`re doing good.
ERLICHMAN: Yeah, I`d say we have about
UNIDENTIFIED FEMALE: Like three or Iour?
ERLICHMAN: Yeah, 15 more minutes. We have tape time Ior 15 more minutes?
UNIDENTIFIED MALE: I have nine minutes on this one.
UNIDENTIFIED MALE: Nine.
ERLICHMAN: OI course, we`re not even asking Mike iI he minds talking Ior an hour or so.
BURRY: I don`t mind. Yeah, no that`s Iine.
UNIDENTIFIED MALE: Your two main cards are 18 minutes, the two main cards.
UNIDENTIFIED MALE: And I`ve got nine minutes.
UNIDENTIFIED MALE: Cameras are still rolling, right?
UNIDENTIFIED FEMALE: Then I want us
UNIDENTIFIED MALE: Still rolling, we haven`t cut.
UNIDENTIFIED FEMALE: You have nine minutes?
ERLICHMAN: You guys are good?
UNIDENTIFIED MALE: Yeah.
ERLICHMAN: Great. Well, what I was going to say Mike was you were doing something at the time
nobody was doing which is to call up Wall Street Iirms and say, hey, I want to buy credit deIault swaps,
buy some protection on subprime mortgage bonds. Even now it`s still tricky Ior a lot oI people to say.
When you called around to the Wall Street Iirms, what was the reaction you were getting Irom Iirms like
Goldman Sachs, et cetera?
BURRY: Well, what I was looking Ior was a standardized swap, a standardized swap. What Wall Street
was doing a little bit in `04 and `05 were custom spoke swaps Ior, let`s see, there were people with
mortgage portIolios and other portIolios looking to hedge a little bit. So there were over-the-counter, kind
oI one-oII kind oI deals being done beIore that. Now, what happened in certainly credit deIault swaps
existed beIore that. The corporate market was huge. Corporate CDFs were a big, big market and I was
very well aware oI that.
So in March oI `05 when I was calling around, there was just not nobody was doing standardized swaps.
I did receive some color though in terms oI what people were doing and who was buying these. Nobody
was buying these over-the-counter one-oII deals to bet against the market. They were just already in the
market. They were looking to hedge themselves a little bit generally. But I did get some responses that
conIirmed that standardized swaps were coming at some point. I basically wanted to be on top oI that
when it was happening.
ERLICHMAN: On the simplest oI levels, you`re buying some protection Irom a Iirm like Goldman Sachs
and then Goldman Sachs is Iinding somebody who`s on the other side oI that trade, generally with these
types oI transaction it was Iirms like AIG. Is that ?
BURRY: In the early days where Goldman told me outright they were warehousing the risk. They would
try to put together Abacus deals and they would warehouse the risk. I brought it up as a concern with
Goldman. You`re warehousing the risk Ior the next two months. How do I know you`re not just going to
control the market Ior the next two months? So it was a subject oI some contention actually in the summer
oI `05.
Early on, the synthetic CDO deals like the Abacus deals, they hadn`t existed beIore. They needed to get
started. To get started, these banks would sell protection where they could and then warehouse the risk and
then sell it oII. I have no idea about AIG. I was not involved with any discussions regarding AIG or what
they`re doing, although I did bet against AIG as a short precisely because I knew they were AAA rated and
when they lost that rating they would have to post a tremendous amount oI collateral.
ERLICHMAN: You outlined a trade that was clearly not going to occur overnight.
BURRY: Right.
ERLICHMAN: It was going to take a couple years to play out. So when you went you didn`t have to
provide too much inIormation, I would imagine, to your investors but this was something very diIIerent
than a good old values doc investment where you could see potentially return in whatever, six, nine
months. So how did you position it to your investors?
BURRY: My positioning with my investors had always been Irom the beginning give I need three to Iive
years. II you`re going to be here one or two years, there`s no point. I`m going to invest in things that are
turnarounds, that are ugly, that may not turn around Ior quite a while and it`s not six to nine months. I
never marketed six to nine months. It was always years.
The credit deIault swap, especially on the mortgage portIolio, I saw a clock. I saw the time clock. I knew
when it was going to happen. We just needed to make it to that period make it through to that period.
That was something that was a hard sell when it moved against us initially.
ERLICHMAN: When did you know? When was the moment where what was happening in the market
was starting to play out as you had anticipated and you said, yeah, they`re going to thank me soon, my
investors?
BURRY: I always thought that when it all I was actually 100 percent conIident. I thought it was a sure
thing. I thought that I never thought that because basically those mortgages started going bad by late `05
and `06. They started going bad early. It was just a matter oI time Ior the technicals to catch up with the
Iundamentals, which is oIten the case with value investing.
So it was all it all Iit into my mental model Ior how investing should work and even when there was the
investor rebellion and even when we had these diIIiculties in `06, I was 100 percent conIident when it was
going to happen and I would tell people just wait. We`re on the cusp, 2007 it will happen and it did start to
happen. It started to play out in our marks really not until the summer but a little bit in early `07.
ERLICHMAN: You were 100 percent conIident.
UNIDENTIFIED FEMALE: John?
ERLICHMAN: Oh yeah.
UNIDENTIFIED FEMALE: You have two more questions. That`s it. Otherwise we have no more tape
Ior B-roll at all.
ERLICHMAN: OK, all right. Well, I should ask then this is a show called Risk Takers and you clearly
didn`t see yourselI as taking risk. This was a no-brainer trade but others would have seen this maybe as
risky trade, no?
BURRY: I think there was a tremendous amount oI conIusion surrounding this. I was buying essentially
put options on the market. I couldn`t lose more than the little bit that I or buying insurance. It was like I
paid the premium but I was not responsible Ior the notional. I think there was a lot oI conIusion when we
got up to I think $8.4 billion notional short.
That notional amount was what we could make. It had nothing to do with how much it would ultimately
cost us. In Iact, the $2 billion in mortgage shorts were only marketed on our books at about $83 million
and that`s about what would cost us iI everything went to zero. So it wasn`t I didn`t see it as a hugely
risky trade. I saw it as an incredibly asymmetric a very good opportunity.
ERLICHMAN: But how did you Ieel when there were investors that got their money back, made money
on this trade and then said, we`re not interested anymore?
BURRY: The hedge Iund industry increasingly even since I started has (audio break) iI you`re volatile,
you`re risky period and I have never thought that volatility is equivalent to risk or that risk is derived Irom
volatility. That`s never been part oI my mindscape. I think Wall Street loves using volatility as a measure
oI risk. There`s tremendous social prooI in it. There`s all the Nobel prizes, but I think it`s Ilat wrong.
ERLICHMAN: At the end oI the day, how has this trade, this big short, aIIected your liIe? Is there one
thing more than anything else?
BURRY: I think that the largest angle, which is not a good one, is that I`ve really lost Iaith in our leaders
to do the right thing. I think that loss oI Iaith, that loss oI I mean, I Iind it sad what happened in the
economy and how we`re not working to Iix the problems. It really does aIIect me quite a bit.
ERLICHMAN: You alluded to this earlier but I have to ask beIore we go, do you think there`s a bond
bubble out there, all this money being issued by Treasury and people gobbling it up. Do you think there`s a
bond bubble right now?
BURRY: I don`t know. There`s not much more oI a bond bubble than there was in Japan 10, 15 years ago.
It can go on a while I think. We`re very important to the world. We`re the number one consuming
economy by Iar. Even when China overtakes us in terms oI overall GDP size, we`re still going to be the
number one consuming economy. We`re very important to the world and I think that needs to be kept in
mind.
ERLICHMAN: All right, thanks Mike. They`re going to kill me Ior asking the question.
UNIDENTIFIED MALE: Can we get a room tone?
UNIDENTIFIED MALE: Everyone quiet Ior one second.
UNIDENTIFIED FEMALE: Gently.
UNIDENTIFIED MALE: Let`s get room tone really quick.
UNIDENTIFIED FEMALE: Yeah so let`s just hold Ior one minute. We`ll just be quiet Ior room tone.
UNIDENTIFIED MALE: OK, quiet please, begin room tone. End room tone.
UNIDENTIFIED MALE: So we`re just going to pull back and get a couple wide shots.
UNIDENTIFIED FEMALE: No, well
UNIDENTIFIED MALE: We can always dub him and restart, the micro-card started earlier.
UNIDENTIFIED FEMALE: I can`t well, I can`t really
UNIDENTIFIED MALE: End transcription.
END