Is Private Credit The Next 2008? — ft. Steve Eisman

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This usually shocks people. I have run 27 marathons plus a few ultramarathons. All we'll fueling my body with plants. Yes, I get plenty of protein. I wrap an episode of VPA Fitness Programming and Head Instructor, Peloton,

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That's the percentage of British people who have come up with a business idea at the pub. True story. I've been reading a lot about the downsides of alcohol ad,

and I finally decided to do something about it.

I've decided to stop reading. Listen to me. Market to a finger, then. What you have here is a structure change in the world's history. Cash is trash.

Stocks look pretty attractive. Something's going to break. Forget about it. Here's a question.

“Have you ever come up with a business idea at the pub or at a pub?”

I feel like you're probably out of it. I've had so many bad business ideas. It's not where you came up with the odd vault. Oh, you know that, aren't you? That's very impressive.

I tried to roast you that. I can't tell if it landed. What did you about coming up with a bad business idea at a bar? That's right. Well, here's the thing.

I'm getting. I'm going to New York to get my physical because I belong to one of these high-end concierge places where they bring you a cop salad before they have some guys stick two fingers up your ass and tell you the cop, which is worth 120 grand a year right there.

Oh boy. Oh boy. Anyway, so I'm getting. And I know what they're going to say. There's going to come back and say, oh, you know, on the whole,

you're pretty good. You need to drink less. I'm like, uh, no, not happening. I feel like you have been drinking a little bit less. In fact, when you and I got a drink, I noticed you did not get a drink.

Yeah, but you're not worth it. You're not worth it. If you had bigger tits, we would have been parties.

“By the way, speaking of big tits, I think height and man is the next is the new big tits.”

What do you think? Hight in man? Yeah, 100%. Hasn't it always been? Not as much.

I think that online dating has distilled things down to some antidine metrics and that people have decided that if you're over six feet, specifically women, that's an attribute. And only I think about I was reading somewhere. If you're over six feet and make over six figures,

it's like eight percent of the population. The interesting thing to see if, if height augmentation becomes the new breast augmentation, if people keep on extending that their shins and their limbs. I know a lot of men are putting some, um, what do you call them in their shoes? Lifts, lifts, that's right.

Would you ever do that? Let's say, I mean, you're already a pretty tall guy. But let's say you are five, six. Would you wear lifts or would you consider something like that? Um, I guess I don't know, I would you.

No, I don't think I would. But I'm, I'm interested by how more socially acceptable it seems like it's becoming. Maybe I'm getting the completely wrong idea of social media, which is the total misrepresentation of everything. But I've seen people talk about it online, which makes me think maybe people are actually

doing that, uh, I find it a little bit insane. But, um, maybe it doesn't. I don't know. How tall are you, Ed? Six three. You're taller? This way, I have to look for a do.

I used to be six three and I'm shrinking. You start shrinking as you get older. You, that's right. Your height shrinks, but your prostate gets much, much bigger.

And you also developed this incredible ability to grow hair from your nose and your ears.

So keep in mind that, um, that's exciting. Yeah, yeah, let's look forward to you. Yeah, what else is going on, Ed? Not very much. I'm going to California this week, which will be interesting, and then I'm going, uh,

then we've got South by Southwest, which I didn't realize is literally next week.

“Very excited. I was looking at the calendar. I was like, okay, what have I got coming up?”

We literally have our live show next week. I completely did not really, uh, think about that or consider that, but I'm very excited. I'm excited too. What day is it? Are we on the main stage? Main stage, March 14th, 10 a.m.

Be there, I'll be square.

That's me out here, taller than me.

Um, okay. Q lifts.

“All right, let's get into the stories today.”

What's going on, my brother? Let's do it. Let's do it. We are speaking with a Wall Street legend, Steve Iceman, investment analyst, portfolio manager, and also you know him from the movie The Big Short, where he was played by Steve Carell.

Steve, thank you very much for joining us on Prof. Markets. Thank you. So many people know you as the guy who was played by Steve Carell in The Big Short, one of my favorite movies of all time.

You're also known for predicting the 2008 financial crisis and acting on

it. So we want to get your views on what's happening in the world right now. We don't have a subprime. Wait, it's something going on. That's right. So we've got a lot going on.

I guess we'll start with this. Based on what you're seeing today, what are your greatest concerns? The war is obviously a great concern to all of us as human beings and Americans. I don't think that the war itself long term is a major

going to have a major impact on the market because at the end of the day, the greatest superpower in the world is going to defeat Iran.

I mean, that's inevitable.

“What I think people are probably just beginning to realize today is this is not going to be a”

two-day affair. It should be a two-day affair because if Iran was run by a normal government that had the interest of its own people at heart, they'd have surrounded 24 hours ago or 48 hours ago because there's no way that they can win. They're up against the greatest superpower in the history of the world since the Roman Empire.

But this is a regime that is essentially a death cult and doesn't have the same motivations as a normal regime. As they view the death of their own people, the martyrdom of their people as a sign of their own sacredness and righteousness. And therefore, when you think that way, you can absorb a lot more pain because you see death

is a virtue. So it's going to take longer than a couple of days to decapitate this regime. And I think people are probably just beginning to realize that. And that's where the market's down again yesterday after having rallied. Because they, you know, yesterday they thought that this will be over soon today.

They're really like, "It's not going to be over that soon." Yeah, this seems to be the disagreement among the markets right now. I mean, regardless of what your views are on the war on the potential regime change or on Iran itself.

“I mean, the question seems to be will this mean more certainty or less certainty?”

And we're seeing that reflected in prices. We're seeing that in reflection, the price of oil, which didn't go up dramatically, but it did go up because most of the oil is coming out of the straight-of-war moves, which is right in the region. And so there's some uncertainty there.

I guess my question for you as someone who has seen crashes, who has seen crises, who has predicted one of the greatest moments of uncertainty of all. What does this mean for certainty and for stability going forward? Look, my hope long-term is that the Iranian regime changes in the Middle East has remained and things are much better, but we're not going to know that for weeks.

And but regardless, this is not whatever the eventual resolution here is. It's not going to be a long-term impact on the global economy in my view. Whatever the eventual resolution is going to be. Why is that? Because whatever happens, the Iranian regime will change to some degree or another,

and things will settle down. You know, I don't know who's going to run Iran. Nobody knows who's going to run Iran, but it's not going to be the Ayatola community. You know, he can't, he's dead. So whoever runs it is probably going to be somewhat more amenable to the United States.

And I don't think President Trump is going to allow someone to take over who's not more amenable to the United States. How much more amenable? We don't know, but things will be better. How much better?

I don't know. It'll take three to four weeks to sort of sort itself out. And by that time, all prices will be back down. So in other words, this doesn't change your investment thesis or your investment strategy at large, not by a single dollar.

Part of what I would wrap your thesis in is that it's the things you're expecting. You're worried about or usually the things that get you. It's the things that people aren't talking about. Are there any risks below the surface that you don't think people are brist it?

What are the risks you see that people aren't pricing into the markets right now?

“I think the two biggest long-term risks to the market by far are related to Ayat.”

And related to private equity and private credit. You know, in terms of AI, the risk that I don't think is realistic is some nightmare scenario where you're going to wake up one day and everybody's going to stop buying and video trips. I, that's not possible, at least not any time within the next year. And the reason why that's not possible is just because last year, all of AI infrastructure

spend was $450 billion. And this year, if you just look at Amazon, Google, Meta, and Microsoft,

just those four is $650 billion. I mean, these are crazy numbers. So I'm not trying to justify them, but I'm not spending the money they're spending the money. So when you're going from $450 billion total to just $650 billion just by four guys, I'm not particularly worried about whether NVIDIA is going to have another good quarter. That's, that's not the risk. There are some people out there who think that the entire LOM

enterprise is flawed. And I've spoken to them. And they may be right in terms of that.

“It's not going to create artificial general intelligence, but I think there's enough evidence”

out there that everything that's being created by people who are doing AI has value. The question is, how much value? You know, that so much money is being spent. Are the returns that these companies are going to generate? Are they going to justify those returns? I suspect not. I suspect. And it's way too early to make that prediction because we won't know that for a year. But if I had to take my life on it, I'd say we'd have some kind of replay where

you know, in the internet bubble, the first generation of internet companies basically failed.

And it was the second generation of internet companies that took us on to glory in terms of the value of the internet. So we could have a situation where, you know, companies like AI and Fropik fail. And then there's a recession. And then you come out of it. And the companies that emerge afterwards are much stronger. And that's one possible scenario. And the other thing that I worry about greatly is the tremendous growth in private credit that's been created by private equity.

And a lot of that credit is in captive life insurance companies that are owned by private equity. And this is a two trillion dollar market. All the growth loan growth in the United States since the great financial crisis has not occurred in the banks. The banks have had very little loan growth for the last 17 years with only a few exceptions. Almost all the loan growth in the United States has taken place in private credit. Now, we have not had a credit cycle

in 17 years. So again, this is, you know, if there's going to be a credit cycle. And there's some pretty good evidence now emerging that we're starting to have one. How bad I don't know.

“But whatever problems that will occur, I think will occur in private credit. How bad those”

problems will be. No one knows, you know, that there's no data. You know, one of the difference between talking about private credit now versus talking about subprime loans back then was subprime securityizations reported their data to moody's in S&P every month. So if you spent, I think it cost money was running my hedge fund back then. I think it cost us like $10,000 per year, which when you think about it for a database about what was

that important was it was not that expensive. You could literally look at every single securitization that was created in the United States and look at the all of the credit data for every single securitization. And there were methods where you could, you could see whether the newer securitizations were doing worse than the older securitizations, which is the way you wanted to look at it. And you could do some real credit analysis to figure out what was going on,

which is what I and my partners did. In terms of private credit, that market has grown enormously. There's some signs of a couple of bad credits here and there. And that's all I can say. Because I don't have any data. I just want to double click on both of those things. Are you saying the risk ground AI is the risk to other companies like we've seen with this current cloud SaaS apocalypse or the risk of overspending or valuations built into the SAI companies?

How does the risk manifest itself as it relates to AI and valuations? Let's just pick on open AI just because it's so much fun to pick on open AI.

Okay, so here's a company that just raised $100 billion.

At a valuation, I think it was $850 billion, seven hundred, I mean, you know, when you start to get to these numbers, it's decided to lose me, it's decided to lose me.

You're going to continue to lose money. At some point, you got to make money. Are you going

“to generate sufficient level of returns to justify the valuation that you got on your last round?”

I would suspect probably not, but we won't know that for a year. So, you know, once that happened, once people start to realize that the returns are going to be as good, you will see a slow down, I think, in the whole AI enterprise. That's the risk. On the private credit side, does that mean there's opportunity where you think that there's going to be further erosion of value among the business dev guys,

the blue owls, the TPGs, the KKRs of the world? Well, they would say that, you know, people are picking on their exposure to software and what

these companies basically did was private equity went out and bought companies, a lot of which

“was doing COVID when rates were basically zero. About 20 to 25% of the companies that were bought were”

software type companies and then were levered up with private credit from funds, mostly owned by different kinds of private equity companies or business development corporations. And the question is whether or not these are good credits or not. Now, people are freaking out because they think that AI is destroying software. I actually don't see any signs of that in terms of the earnings. You know, I was sort of amused when service now reported about a month ago.

You know, so when service now reported, I tried to go to the numbers as carefully as I could. And they were great. I mean, there was no question. And there was not one number that you could pick on to say, aha, here's the problem. You know, the revenue was over 20%. They beat on revenue,

they beat on guidance, they beat on earnings and the stock was down 10%. So, you know, I've never seen a

group that goes down on good news, bad news, immediate news. It just goes down on news. So, you know, people are freaking out. But at this point, they're freaking out on a narrative. There isn't any, we know, if you go through the numbers of these companies, there's no real evidence that there's actually a problem at least not yet. It's really interesting because it seems that there are so many different scary narratives out there that are premised on very

different things. Like, for example, the AI bubble narrative was the concern that we're getting ahead of getting too far over our skis, that these valuations are too high that we're not going to

see the returns. That's its own concern. Then there's the concern that AI is so powerful. And this is

what we saw in the satrini article that it's going to delete all of these jobs and that it's ultimately going to destroy our economy, which is going to be the sort of self-defeating mechanism. And then

“there's the other side of this, which is the private credit issue, which I have to say, I think many”

of us understand a lot less than the first two. You're not alone. Yeah, right. And I think the thing that is striking to me is your point, which is definitely we don't know what is going on because it's private, that's just what it is. It's actually worse than that. Okay, please, because everything I've said so far is bad enough, okay. But one of the parts that's worse, which, again, I don't know how to quantify it, is that over the last 10, 12 years, many life insurance companies

have been bought by private equity companies. Now, and now what they have done is they have improved the returns of those companies by having those companies invest in the paper that they themselves generate. Now, in their defense, the yields on that paper are higher. The risk isn't necessarily worse could be. We don't know. But the other thing that's that has happened is they run these companies much more aggressively than traditional life insurance companies were run. So normally, when you

re-insure, you re-insure part of your book with a third entity, and you have an arms length transaction, and you lay off some of the risk on to a third party re-insure. What some of the private equity companies have done is they've re-insured part of their books to their own re-insurers, which sit outside the United States in very, very opaque transactions, but which appear, at least appear to me, to pretty dramatically increase the leverage of these companies in pretty hidden ways.

controlled by private equity, who have levered those companies even more. That's the complexity of it.

“Now, thank God, we haven't had a credit cycle in this country in 17 years. So everything that I'm”

talking about in some ways is academic at this point, because nothing bad has happened, which is what the people who run private equity would say. And if you went to Blueow and said,

and you basically told the story, they would probably say something like, what are you complaining

about, nothing bad's happened? Well, nothing's bad happened, because we've been very, very fortunate not to have a credit cycle. If we have a credit cycle, and like I said, there are some signs that it's starting to emerge, we'll see what happens. It seems as though one of the differences, and this is what we saw in 2008, is that those bad loans were not contained. They sort of extended to every part of the US economy, which is why it was as painful as it was. So far what we've seen is

there is some concern over private credit. I've been reading about it. I've been hearing about it. I've watched the stocks of these companies like Blueow, which is kind of the post-to-child.

I've watched it go down. And to me, I sort of look at that and think, well, I guess people kind of

know what's going on. So if this means the Blueow will go as out of business, then then whatever, but I guess the next question becomes, is it bigger than that? Are there ways where this can materialize and affect all of us? The reason why the great financial crisis was so bad. I mean, it was bad enough that they were bad subprime mortgage loans and people lost their homes. What made it really bad was that the banks, they were all going to go bankrupt.

And when banks go bankrupt, people can't get their money. And people can't get their money.

“It's a freak show. That's why the great financial crisis was so bad. In principle here,”

it won't get as bad because the banks aren't the lenders here. It's the blue owls of the world and the KKRs and the poles of the world. So mostly, the people who would be heard here would be institutional investors. The caveat that I just gave you is that some of the stuff is in life insurance companies where they're individual policy holders. The other caveat is that banks do make a lot of loans to private equity companies. So they help fund them as well.

Now, how big that is is not exactly clear. It's not small, but I don't think the banks, the banks are the best capitalized they've been in our lifetimes. So even if something really bad happened to private equity, I think the banks would be fine. People might get nervous, but I think it'll be okay. I'm more worried about what's going on in life insurance than I am worried about anything going on in the banks. We'll be right back off to the break and if you're

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That's Grammarly.com. In the administration that had to deal with its fair share of global conflicts, he dealt directly with Israel's Prime Minister and thought plenty about the threat from Iran. But the manual told me that the pace of action from this president in the Middle East is giving him whiplash. In 15 months, this president has taken military action against eight countries. I just just

in 50, now we got three more years to go. In 15 months, Iran twice, but you have Syria, Iraq, Somalia, Venezuela, I'm losing Nigeria.

“Today I explained in your feed every weekday and on Saturdays too.”

We're back with prophecy markets. One of the most impressive things about where you and your colleagues did was you saw the rest of the other people weren't saying and you figured out the instrument to leverage that alpha or that dislocation. What's the trade

here if you think the private credit is riskier than people, people perceive? The problem is that

you would try in theory you would try and buy credit default swabs on various kinds of credits. The problem with that trade is that that market is far less liquid than it was in 2006 and 7 because of because the regulators don't like that market very much and they've placed a lot of capital requirements on it. So for example, I don't know if you saw Oracle's credit default swabs have completely blown out. You could think about whatever you want with respect to AI. I don't think

Oracle is going bankrupt. The reason why Oracle's credit default swabs have blown out is that the credit default swap market is extremely illiquid. So if someone, some hedge fund, you know,

like LA associate decides, hey, you know, let's go pick on Oracle and go buy some credit default swabs.

It doesn't take a lot of volume to move that market. So the fact that Oracle's credit default swabs have blown out to some very, very high level right now, certainly Oracle's problem, but it's happened because it's an illiquid market. So doing what I do doing some version of what I did in the debt market right now is very, very difficult. The only obvious trade is to it would be for someone to keep shorting the blue owls of the world, but you know, those talks

of have gotten obliterated. Curious. In terms of risk that we're not pricing in or that we don't see a, well, I'll put forward a thesis and you respond that it's very difficult to outrun multiple contraction. You can, you can perform really well in a market, but if there's flows out of the market into another market, you can double your earnings, but if the multiple on resilience socks goes from 20 to 10, your stocks flat, even after doubling earnings. What I perceive as a risk and this is

some of my political bias coming through is that the rule of law and the rules by which companies get to play by seems to be one-off now. It's no longer, you know, a lot of companies are now subject to a certain amount of political risks that they weren't subject to before, and there's

“some evidence, I believe, that we're potentially going to exhibit after 17 years of multiple”

expansion, multiple contraction in that every company now faces some existential risk around in the S&P around what I'll call this multiple contraction, hear thought. I don't agree. One thing I've come to to as a conclusion about markets, so that many years I've been doing, that is that they're completely a moral. Not a moral, the, they're completely different. They don't everything that you that you just mentioned is you would think that they should care about,

they don't care about that. What they care about is that you're going to beat the quarter, are you returns going higher, what are your margins doing? If something President Trump does actually impacts those numbers, then you're going to get multiple contraction. But as long as what happens politically doesn't impact margins, revenue growth, earnings per share growth, market don't care. What about stability? I mean, I think the argument from, I don't know,

to happen here, we want some such that you want some stability. I think it's not, that's not sense.

“Right? Not sense. Like I said, I think the market's very moral. People are talking”

their political book and, and I don't think the market. I don't think the market cares. I just don't think the market cares. Whether that's good or bad, I just honestly don't think the market cares. I mean, look, I thought, in 2007, I thought, I thought people would care what was going to happen because people were financially being destroyed. The market didn't care all. They only cared when profits went down. That's all. Wouldn't tariffs be part of that calculation?

I mean, if, if you believe that the tariff policy is going to be reductive to prosperity, and maybe that political biases are causing people to overshoot that and exaggerate it in their calculations, but wouldn't that still be part of the calculus? It would be part of the calculus, but at least so far, I think everybody, you know, the funny thing I think about it is, we all want the college. We also keep conquering one-on-one. You know, economics is as something

you learn in colleges is very powerful. You know, they put these graphs up, they put these numbers

up, and you basically walk out of the thing, well, they got to be right because, you know, there's so many numbers, how could they possibly be wrong? And, you know, one of the things that we all learned in Econ 101 is tariffs are bad, destroys the economy, you know, yada, yada, yada.

“And I think that's, and that's why the market went down between last year, between late February and”

April 9th, and then it turned out, it wasn't so bad. It was that bad. And so the market went back up. So, you know, until now, there's some companies, there's some sectors where it is hurt, you know, like the Staples group, you know, it hurt. And so, what's one of the reasons why Staples perform very poorly last year, because they had more, they had actual margin compression on their products. But other than a couple of sub-sectors, it hasn't really seemed to have shown up very much.

The U.S. economy still grew last year. The whole, you know, the thing that drove the U.S. economy last year was AI investment, and that's what's still driving the U.S. economy. That's why I'm so focused on it, because if, if there is a real slowdown, there's no question in my mind. If I, you could give me a day. And so, on this day, it became very, very clear that AI investment was growth was going to get cut

“in half. I tell you we're going into recession. That's how much the U.S. economy is dependent upon that,”

right? So, I'm trying to figure out some potential trades here. If you think that Iran is a bit of a, I don't know, I don't want to say, nothing, burger, but isn't going to have nearly the impact we think of might. We've seen energy stocks go up because of the anticipation that the streets of Hormuz might be more impaired for an extended period of time, taking oil prices up, taking profits of oil companies. Is that a potential short right now, and also on the flipside?

So, I agree with you. I, I look through the numbers of sales for service now, Adobe. I could see absolutely no evidence of why their stocks were down 3% much less 30%. I'm glad you said that, because I, I thought I was having a, I was learning a little crazy. I bought those 3 names. Yeah. I was, that was gutsy. It hasn't been, it hasn't been right. So, I'm still holding strong.

I'll go to a second tier of why everyone's saying, well, these prompts could put the

businesses out of business. And my, okay, the only 10 to 20% maximum of their total top line revenue goes into technology, meaning that 80% of the value they offer is not the technology that AI theoretically could replace. It's client management UI relationships debugging. So, the whole thing, it strikes me as a massive overreaction to fears that if the worst fears play out, it still doesn't, I just can't see anyone strip. I've been using Salesforce at every company. I grew,

and you can't see stripping Salesforce out of your company. You just can't imagine it. It's too difficult. Yeah, these companies are very good at embedding themselves in your company, and the idea that all of a sudden I'm going to pass them on with coming up with prompts to replace Salesforce. Anyways, what if, talk to me about the thesis around going long, the SaaS companies, and going short the energy companies? Well, only for this thing, I don't trade. I am not a trader.

I'm not a medium term trader. I'm not a short term trader. You know, there's certain things that I'm good at and being a trader is not one of them. What I'm better at is picking, you know,

long-term ideas both long and short, and basically sticking with them. If I was trading,

I think energy stocks are as a trade will be lower in a couple of months. That I agree with. The software one is that it's tempted for my own personal portfolio to buy some of these software

like that thing that happened last week will get that fantasy story that's, I think, at the name of the training. It's a training. That was like, you know, that was like reading Arthur C. An Arthur C. Clark novel. You know, that was no better than that. It was a fantasy story. A person who wrote it just concocted some stuff together and everybody freaked out. But, you know, trying the narrative on software stocks is now so bad. And the problem with buying them is,

you know, it's like I said before, they've gone down on good news, bad news, and mediocre news.

So what's the data point that's going to get people to say, "Wait a second, there's a lot more

here in terms of software than just making software?" Maybe it's just time. There's no data point.

“I think that you could point to that's going to change the narrative. That's the problem with buying”

those stocks. But, it's tempting to start to think about buying them. Something I've wanted Steve is, I think a lot of us have watched the big short and a lot of us are moved and inspired by your story. And this is just ubiquitous across all individuals who are interested in the markets who are investing in the markets. Everyone knows about the big short. Something I wonder, is, I wonder if your story made everyone want to be the next Steve Ismer.

So by the way, so I had a very funny line on TV a few months ago where I said, you know, part of the problem here, I'll just repeat it because it's a good one. I said, you know, part of the problem here is that is that, you know, I once predicted the end of the world and I have no interest in predicting it anymore. It was not exactly a pleasant experience, but everybody, people want to predict the end of the world because they want to be me.

Yeah. And I got news for the mall. The role of Steve Ismer has already taken.

“And, but I think it's funny, but there's truth with this, you know,”

people want to be the person who predicts the next and the world. Let me say thank you to those

people. Listen, it wasn't such a pleasant experience the first time around. It was very aggravating

and a lot of things are very anxiety producing, but for some reason, people just want to predict the end of the world all the time. It's also like, you know, there's this whole thesis out there that, you know, Bitcoin for a while had this thesis, which, you know, unfortunately, for Bitcoin doesn't act like that, but the thesis at Bitcoin people had was that, you know, we're all going to the whole world's going to end your current. You're not going to be able to buy

anything in the store with you dollars, so buy Bitcoin. That was basically the thesis. And it actually turns out that Bitcoin doesn't act like that at all. It just goes up when NASDAQ goes up and it goes down when NASDAQ goes down. But, you know, that end of the world thesis has been predicted one form or another for the last 40 years. You know, I remember in the 90s, Pete Peterson,

was making the same claim. And nobody ever steps back and says, wait a second, this claim has

“been made for 40 years. Why hasn't it happened? And I actually find that more interesting. And I think”

the reason why it hasn't happened is that and this is where people don't know about the financial system is basically everything. The entire financial system of planet Earth is not just at the dollars of reserve currency of the world, the entire financial system of planet Earth runs on treasuries. You know, you've got a $3 trillion overnight repo market that purely functions on treasuries. And so the reason why the dollar hasn't had a demise is because there's no alternative

in terms of the financial system to treasuries. If you were to say to me, this this product, whatever it is, Chinese bonds, you know, whatever is a real liquid alternative to treasuries, I would tell you, okay, now I can start worrying about the dollar. But until then, I think it's a that argument is academic. I think the question then becomes because you're one of the people who actually, one of the few people who actually did once predict the end of the world and you got it

right. And so the question then becomes, what was different about that prediction versus all of the other predictions, which is you point out, are all quite reasonable and compelling, whether it's what could happen in the private credit markets, whether it's what could happen to the fiat currency in the current system of the hegemony of the dollar and treasuries. I mean,

next 2008? How do you know? Well, the difference is that there's no data. You know, so if you want to

“be one of those people who says the world's going to end, fiat currency's going to end because”

government is spending too much money. That is the beginning, the middle and end of the argument. There's no other data point. Whereas when you were talking about the subprime crisis, you got monthly data that the consumer was deteriorating. And then, as you dug further, you realized that this paper was owned by systemically important financial institutions literally all over planet Earth. So if the paper kept getting worse and worse and worse, they were going to be massive losses all over

the place. That was the story. And you could track it every single month. When you're talking about some of these other thesis, whether it's private credit or fiat currency, like going back

“to private credit again, the only thing I can actually say is that it's a two trillion dollar market,”

it's grown enormously and there are a couple of credits, try color, first brands, and this new one,

in England, MFS, that have gone bad, but in terms of the size of the entire market are still pretty small. Just along the lines of the deficit, spending $7 trillion a year on $5 trillion in receipts. Do you see that as an existential risk, and if so, how does it play out in terms of a potential trade? I don't see it as an existential risk at all. I think the US debt to GDP right now is 125%, something like that. Japan's a 240. Japan has had lower rates than we have had for the last 30 years.

So again, I come back to the point that I made before, which is as long as the entire global financial

“system runs on treasuries, and there's no alternative. I don't see the deficit problem as a”

problem. If there was a real alternative so that, you know, major money could go elsewhere, then I'd be worried. But until that happens, I just don't see it as an academic fear.

By the way, the whole frickin' world always wants me to predict the end of the world.

They're like, it upsets people when they bring up these issues, and they feel very passionately about them, and I sort of poo poo them. People get upset because sometimes when I go on television, they're literally begging for me to predict the end of the world, and I'm going to say, now the world's not going to end. It's so funny. Because we want to collect stiff. Yeah, no, I understand. I list the world's going to end there. We'll be right back,

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there was dated that was actually indicating that there was a real systemic problem here that was going

“to be genuinely destructive to the markets and to the economy. Right now, what we have are a lot of”

narratives. We have these think pieces on Twitter that are portraying kind of compelling stories, but they're not really providing the data saying look, it's happening in real time. What I actually find fascinating, until whatever correction we're having right now, let's go

back to last year when the market was up a lot. What's amazing is you have two counter narratives

going on in the market. You had the stock market going on, everybody. The raw, raw, raw, raw, NASDAQ, AI, etc., etc., etc., everything's good. And then you had gold going to $5,000 because fear currency's going to end. Now, the two cannot, cannot occur. They cannot live for very long together. And yet, it's like there were two different worlds of investors, like on two different sitcoms that don't talk to each other, and they were operating completely independently of one

another, one basically predicting the end of the world and one basically saying everything is fun.

“And I thought that was, I think, one of the more fascinating things about last year.”

100% and the polarization that we're seeing among investors right now is a whole other new paradigm onto itself. But when I look at and read about 2008 and try to understand it, something I don't really understand is I'm kind of an efficient market. I pull this as believer, like I generally believe. I'm not. So I guess this is the question. It's like, how is it that the data was there and no one knew except for you? That's not a fair statement. Okay, sorry. Okay.

I mean, it's sort of a fair statement, but it's not a fair statement. First of all, it's not like

I'm the only person who looked at the data. That is definitely not true. I looked at the data, but the entire secureization fixed income world looked at that data, like Moses coming down from sign-up with the tablets every month. I mean, that world, that data would come out like mid-month over two days and that market stopped. Literally, there was no trading done for two days while people poured over that data like it was the freaking Rosetta stone. So the statement that,

and here's where I disagree with the efficient market thesis, the information was there. The entire fixed income world had that data. They disintegrated it wrong. Now, they saw the data getting worse. It's all like they said to themselves, all the data is getting better. The data was not getting better, but they because they had made

so much money and that market for so many years. And they basically had, at the end of the day,

you could boil down that entire market down to one assumption. And if that assumptions held, they would have been fine. And that assumption was that housing prices have not gone down in the United States on a national basis since World War II. And because housing prices have not gone down on a national basis since World War II, they can't go down on a national basis. That entire market rested on that assumption. So as long as the data got worse,

as long as housing prices still went up, they figured out that there'll be losses big deal. What they didn't see because they didn't do forensic investigating of the mortgage market was that the underwriting standards had deteriorated to such an crazy extent that people were getting loans to buy homes. They couldn't even afford the first payment. And that eventually took

“housing prices down. And so I think housing prices the United States went down 20 to 25 percent”

from point to point. So when you layer that on top of all the delinquencies and repossessions, that market imploded, but they were not set up intellectually to accept that. Until it was too late. Would it be fair then to say that where we mess up isn't that we just don't see the data, but when our careers and our livelihoods depend on us interpreting the data incorrectly? Yes. I think that the hardest thing, one of the hardest things for human, all human beings, me too,

to deal with are paradigm shifts. You exist in a paradigm that have been around for a very, very long time. Your whole career is based on that paradigm. You've made a lot of money in that

the paradigm was actually wrong because it was based on continuing continuously increasing leverage,

“which is what the financial services industry is paradigm was based on. People have, human beings”

have tremendously difficult time dealing with paradigm shifts, tremendous. It's like a nightmare. They don't want to deal with it. See, what did the movie get wrong? It's a dramatic interpretation or it's meant to be entertaining. What was exaggerated at the upside at the downside? What is the film get wrong? I'll tell you what I thought it got wrong, but it turned out they got right. When I watched the movie the first time and it came out in December, January, December 2014,

January 2015. I thought, I thought that the character of Steve Krill played was great.

It was incredible portrayal. He should win in the academy award, God willing. But that's surely

I wasn't nearly as angry as he portrayed me today. That was my conclusion. And then what happened was way back in 2010, President Obama had created this financial crisis commission and I was one of the people interviewed. I completely forgot about it. And in April of 2015, the financial crisis commission did a data dump. They literally disclose every single piece of paper that they had. And so I was able to read the transcript of my interview. And when I finished reading

the transcript, I said to myself, no, Steve Krill, he got it right. You are that angry. I was. Yeah, I got questions about the movie too. My favorite scene was the sushi scene. You, Steve Krill, playing you, is talking to this guy who's explaining how the whole system works. And he's like, one of the worst guys you've ever met and he's eating his sushi. I feel sorry for that guy. He's not one of the worst guys anybody's ever met. He was just one of the people who managed studios.

And he had the misfortune of having dinner with me. Well, I love that scene. I love the way the guy conducts himself. My question. I actually have two questions. There's the sushi scene. And then there's also the scene with the real estate brokers. And they're like, you don't understand. He's not, he's not confessing. He's bragging. Right. When you look at the markets today, who are the kinds of people who reflect both the sushi

CDO guy and also the real estate broker who wasn't confessing he was bragging. That's a great question.

“I think the private equity guys are the guys who have had a great for the last 15 years. And I think”

may turn out that they're right, that there are no problems. And there's talk prices will go back up. But I think they're all right now and a bit of a state of shock that people could be questioning what they've been doing for the last 15 years. So it's like that's who I think that's sort of mirrors in a way. The device is an investment analyst and portfolio manager with decades of experience in financial markets. He's best known for his pivotal role in predicting and profiting from

the 2008 subprime mortgage crisis, chronicled in the big short. Steve founded and managed emers partners, a long short equity fund focused on fundamental analysis in 2014. He joined New Burger Berman's Madden Direct and portfolio manager currently, Steve Eisenman is the host of the Real Eisenman Playbook, a weekly financial podcast. Steve, this was a pleasure. We really appreciate your time. Thanks very much. Nice to meet you, Sue. Thank you. Real pleasure.

“Edward, you're doing. I thought it was fascinating. I think my, I'm always trying to understand”

because I wasn't really around in 2008 or I was, but I didn't know what was happening. I was just playing football and playing video games. So I don't really understand that time, but I am

always fascinated like how did the world get it so wrong? And how is it that this handful of guys

were able to get it so right? Steve being one of them, Michael Barry being another. And I am constantly asking myself, like, when is that moment going to occur again? And it's not always player to me and so I think what my biggest takeaway is his description that the reason that it happened was because people were so dead set on misinterpreting the data that they didn't even realize that they were misinterpreting it. It was so essential to them for their lives, for their

they looked at the numbers. And I feel like that's a kind of helpful framework and difference for

understanding what the next big misunderstanding, what the next big crash might be. And so I guess my takeaways, I'm now looking for that. I'm looking for the areas in which people are intentionally misinterpreting things because they have to because if they were to interpret it another way, well, it would be a huge inconvenience to them, to that companies and to that careers. I do think that the the war in Iran is about to be market's nothing burger. I just don't think

“I think there's an opportunity. I think oil is going to be less expensive in a month than it is now.”

And it strikes me if you listen to the Trump administration trying to do this improv, kabuki dance, and trying to find already a way to declare victory and leave as the Republican

party. This is the issue that appears to the Republican Party as finally turning on him around. He's

already saying, "Oh, we wanted to do the following things. These are objectives. We are that it's clear that they haven't thought through what their objectives are, but they laid out a series of objectives. It's basically, as far as I can tell, giving them a rip cord to just get out. And the result will be, I think, that energy prices will stabilize and you already see in the markets that if you look at what's happened in metals, which are kind of a risk off, they've already

declined. They spiked, and now they've declined again because it appears that they're not,

“not as freaked out. I actually disagree with that. Maybe we'll talk about it at another episode,”

but I feel like pulling the rip cord, getting out of there, and now what is the big question that I feel like we're all assuming or we're being maybe overly optimistic, that now we've reached a ability. We've gotten rid of the buggy man, we've gotten rid of Hamani, now we're good. And to be clear, I'm not a geopolitical expert, I'm not a military expert, I don't know, but I do think that there is, I'm a little bit struck by the sense of confidence that

investors seem to have that now with stable, now it's somewhat solved. And I just don't feel fully convinced of that yet. I'm not sure it's stable or solved. I just, I think people, whenever they hear war and 20% of oil flows through the streets of Hormos think that oil is going to spike. And if you look at some of these big geopolitical actions, the the markets decline is shallower and shallower because every time they seem to snap back fast, and the people think they're going to.

And it doesn't appear to be, you know, there's always like, okay, it could be World War 3.

Yeah, I didn't feel like it. Unless there's Chinese troops involved or nuclear weapons involved, it doesn't feel like that. And it strikes me that the, I'm not making a judgment whether it's a good or a bad idea, but the Trump administration is already signaling they want, you know, they're 48 or 72 hours in and they've already signaled that they

“want to, they want to declare victory and leave, but that's how I read their most recent statements,”

which means that, you know, I don't see what would be in Iran's interest to try and destabilize things more at that point. I think they would rather just survive get through those hunker down and then, you know, go from, go from there. Well, that to me is the wishful thinking. For me, that's not wishful thinking. I would like to see the Empire of Persia reemerge and have it be more neutral or pro-west. I don't, unfortunately,

I don't think, I think the incompetence and I'm becoming geopolitical, but the incompetence demonstrated by the Trump administration without even thinking through the ability to answer why, why now, and what's the offer? And they clearly, they clearly hadn't thought that you do these issues and they've been forced to answer them real time and we look like in my opinion, he looks like a fucking idiot America's lost a lot of credibility and the real, I'm my opinion,

the opportunity for really productive change here is probably going to come and go as quickly as as we attack in that left. I just don't think this is going to have much impact on the market of the medium of the long term for better for worse, but more and probably back to me, back to me, so I know you're wondering what I was doing in '07 and '08. I was, I want to hear this. Yeah, thank you. It's like we're on a date and you're pretending to be interested in me.

So, I was reinventing myself yet again after the dot, after the dot bomb implosion, I'm like, okay, this internet thing maybe isn't working out for me. And I moved in New York and I was

angry and I just got through a proxy fight in my old company right on book so that I know, I'll be an activist investor and I raised a bunch of money and I bought a big steak and gayway computer and made a little bit of money there. My capital sponsor was again in Phil Falcon and with harbours your capital and Phil was one of the, he's probably the least mentioned of the three or four hedge funds. They got to got to get all the mention was again in John Paulson.

But basically Phil made a billion dollars on these credit default swaps and he made six or seven billion and then he was kind of the, you know, the golden boy, he made this huge bat and his AUM went from a billion to 20 billion and I used to come in and pitch consumer and tech ideas and he said, I'm going to give you an office here and you can come in one or two days a week and just pitch me

and the team on ideas and then basically the whole world imploded and I'm always at 08 and 09 and my

“son had the poor judgment to come marching out of my girlfriend and I remember that was a very stressful”

time and I bought I convinced him to give me $600 million to buy become the largest shareholder in the New York Times and I was going to say, okay, you need to divest of all these stupid assets you know, on the seven tallest building in America, your headquarters, you know, 70% of the bobs and red socks, all these shitty little newspapers about dot com and we're going to double down on digital and I thought the thing was under price of 15 and within like four months of

making this massive purchase and going on the board, basically forcing my way on the board,

the stock was at three bucks a share and I managed to lose a half a billion dollars or $400

million of other people's money in like four or five months just about the time I decided to propagate and it was that was that was such a stressful time and people of your generation

“you know, I hear all these, I don't want to call them sob stories but but fears around jobs”

getting out of college and everything and the economy's not, you know, the market's not going up when you're sitting in a board meeting of the New York Times, I'm not exaggerating. They're like, if we don't raise money the next 60 days, we're declaring bankruptcy because our advertising was $300 million a month, you know, January, February and in March, it's going to be 22 million. The great financial crisis, people just stopped advertising, it just stopped spending,

it was like, and it was like, okay, if we don't figure out a way to raise money, we ended up raising a bunch of money from Carlos Slum of all people, if we don't raise money fast, the cousin, Arthur Salzburg, he's going to be the cousin of the last New York Times, it's going to be bumped into bankruptcy and we're going to lose it and every company I was on the board of

“involved then it was just like, I mean, you don't realize how fast things can flip and people”

your age have never lived through that and they get, I don't want to say they're not resilient

but they think, oh, I mean, you thought employment's a 10% right now, that's a tick up, but it's not historically, that's about average, that's not, and when I got out of business school in 92, only 40% of us had jobs, a graduation. Anyways, my point is it was, I look back on it, it was such a wild time, it was so strange to be constantly on board calls trying to figure out like, are we going to go out of business here and all these boards but I was working at this hedge fund

of this guy who got very famous making this incredible short trade and then effectively, slowly over the next few years went out of business because he had this incredible risk appetite and eventually that catches up with you but I was living in New York, had two babies and lost almost everything again, yeah, that was a very stressful time for me, I didn't feel my heart, I feel my blood pressure going up, just thinking about being 40 and broke again with

but now having like kids that are going to demand that I feed them and send them to school no, no more, baby, no anymore, we'll see, the podcast era has begun, yeah, problem is I'm shrinking again, I don't know if that's a normal thing, and that thinks it can read us out here, I'm going to go start drinking. This episode was produced by Claire Miller and Allison Weiss and engineered by Benchman Spencer. Our video editor is Jorge Carty, our research team is down to Lawn, it's about a

cancelled questionnaire done here at Mia Salvario, Jake McPherson is our social producer, Drew Barrow's is our technical director and Catherine Dillon is our executive producer. Thank you for listening to Proxy Markets from Proxy Media, if you liked what you heard, give us a follow and join us

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