‘Big Short’ Greg Lippmann on Career, Housing-Bubble Bet, Fed

  • Greg Lippmann of “The Big Short” fame discussed his famous bet against the US housing bubble.
  • The former Deutsche Bank trader detailed how he identified the lucrative opportunity.
  • Lippmann also reflected on his career path, and being played by Ryan Gosling on screen.

Greg Lippmann, the Deutsche Bank trader portrayed by Ryan Gosling in “The Big Short,” broke down his iconic bet against the mid-2000s housing bubble on the “Capital Allocators” podcast this week.

Lippmann is the cofounder and investment chief 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 volatility in markets today.

Here are Lippmann’s 8 best quotes, lightly edited for length and clarity:

1. “People are the same. My parents were cleaning out my bedroom when I was about 25, and they found my
second-grade report card. I was just then getting my review from my employer at the time, Credit Suisse. You put my 25-year-old employment review next to my second-grade report card, and the strengths and the weaknesses are the exact same.”

2. “I worked on the 18th floor, and the trading floor was on the third floor. Every day I would go downstairs and if anybody was traveling for work, or out sick, or on vacation, I would just sit at their desk. I would do my job, and I wouldn’t say anything to anyone.

“I thought that, one, people would see me, two, I would hear them talking and pick up something, so I would be top of mind if a job ever came up.” (Lippmann was explaining how he became a trader at Credit Suisse in the 1990s.)

3. “In the top quartile of US zip codes for home-price appreciation, where homes were going up 12% to 14% a year, the default rate was still 6% or 7% after six years. Now it’s kind of amazing that people are defaulting even though their house has gone up by more than 50% in value.

“That was sort of shocking to me, that you have an asset that’s way in the money, and you still default.” (Lippmann was describing the housing research he conducted as a Deutsche Bank trader.)

4. “You’re talking about 16% of loans defaulting, and the bonds are covered, and 18% of loans defaulting, and the bonds are zero. We already know that the bottom quartile of America, about 28% of people are defaulting. I looked at this and I thought, after I got over the shock, eventually these bonds are going to default.” (Lippmann was reflecting on his revelation that mortgage bonds rated BBB or BBB-, which were priced as pretty safe investments, were extremely risky.)

5. “You’re being paid somewhere between 6- and 10-to-one 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-to-1 long shots that pay 6-to-1, two out of every three times you walk away empty-handed, but if you look in your pocket it’s really full. That was what attracted me to it.” (Lippman was referring to his signature bet against mortgage bonds.)

6. “The Fed is moving away from a role of propping up financial markets, to a role where they’re going to be fighting inflation. The federal government is going to be more focused on helping regular people through a variety of programs, which they’ve already done — gas-tax holidays and things like that.”

7. “I think we’re entering into a more of a volatile time in the economy right now. The Fed is going to be, instead of a force for low volatility, a source of higher volatility. You’re already seeing this with the waffling about different things, are they going to ease next year or not. Less than a year ago, they said they weren’t going to tighten at all in 2022.” (Lippmann added that American companies appear “as levered or fragile as ever.”)

8. “There’s a lot less appealing people to play you in a movie than Ryan Gosling. If one of the sexiest men alive plays you in a movie, it’s hard to complain about that.”

Read more: A Michael Burry expert breaks down what makes the ‘Big Short’ investor special. He also revisits Burry’s iconic bet against the housing bubble, and his GameStop, Tesla, and Ark wagers.

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