- Greg Lippmann from The Big Short spoke about his famous bet against the US housing bubble.
- The former Deutsche Bank trader explained how he saw the lucrative opportunity.
- Lippmann also reflected on his career path and was played on screen by Ryan Gosling.
Greg Lippmann, the Deutsche Bank trader portrayed by Ryan Gosling in The Big Short, broke his legendary bet against the housing bubble of the mid-2000s on the Capital Allocators podcast this week.
Lippmann is co-founder and chief investment officer of LibreMax, an $8 billion asset manager specializing in structured products. He explained how he became a trader, reflected on his decision to bet against mortgage bonds at the same time as Michael Burry, and accused the Federal Reserve of fueling today’s market volatility.
Here are Lippmann’s 8 best quotes, edited slightly for length and clarity:
1. “People are the same. My parents cleaned my bedroom when I was about 25 and they found mine
Second grade report card. I just got my evaluation from my former employer, Credit Suisse. You put my 25-year-old job reference report next to my second-grader report card, and the strengths and weaknesses are exactly the same.”
2. “I worked on the 18th floor and the trading room was on the third floor. Every day I would go downstairs and if someone was traveling to work, sick or on vacation I would just sit at their desk. I would do my job and not tell anyone.
“I figured, firstly, people would see me, secondly, I would hear them talk and pick something up so that if a job ever opened up, I would have something in my head.” (Lippmann explained how he was a trader at Credit Suisse in the 1990s became.)
3. “In the top quartile of U.S. ZIP codes for home appreciation, where home prices increased 12% to 14% per year, the six-year default rate was still 6% or 7%. It’s kind of amazing people default on payments even though their home has increased in value by more than 50%.
“It was kind of shocking to me that you have an asset that’s well in the money and you’re still in default.” (Lippmann described the housing research he did as a Deutsche Bank trader.)
4. “You’re talking about 16% of the loans defaulting and the bonds are covered and 18% of the loans defaulting and the bonds are zero. We already know that in the bottom quartile of America, about 28% of people are in default. I looked at that and figured, once I got over the shock, these bonds are going to default at some point.” (Lippmann reflected on his revelation that mortgage bonds rated BBB or BBB- were rated as fairly safe investments , were extremely risky.)
5. “You get paid somewhere between 6 and 10 to bet against them and I think the odds are maybe 3 to 1 against me. If you spend your whole life looking for things that are 3 1:1 long shots that pay 6:1, two times out of three you walk away empty handed, but if you look in your pocket, it really is full. That’s what drew me to it.” (Lippman was referring to his signature bet against mortgage bonds.)
6. “The Fed is moving away from a role of supporting financial markets to a role where it will fight inflation. The federal government is going to focus more on helping ordinary people through a variety of programs, which is what they’ve been doing — fuel tax holidays and stuff like that.”
7. “I think we’re entering a more volatile time in the economy. The Fed, instead of being a force for low volatility, will be a source of higher volatility. They are already seeing this with the chatter about various things, will they ease up next year or not. Less than a year ago they said they would not be tightening at all in 2022. (Lippmann added that American companies appear “as indebted or fragile as ever.”)
8. “There are far less appealing people who would play you in a movie than Ryan Gosling. When one of the sexiest men in the world plays you in a movie, it’s hard to complain.”
Continue reading: An expert from Michael Burry explains what makes the “big short” investor so special. He also revisits Burry’s legendary bet on the housing bubble and his GameStop, Tesla and Ark bets.