Steve Eisman, the financier who got rich with subprimes



concurrence

The financial crisis has destroyed entire cities, ruined millions of savers and endangered the global economy, but it also enriched a handful of financiers who gamble on the collapse of the American property sandcastle.

Steve Eisman is part of this core of Cassandra, whose bank account and portfolio have grown as the accumulated shortcomings of US households subscribing to the now famous subprime & # 39 ;, these mortgages run a risk with variable interest rates and fast prohibitive.

His daring bet is told in the movie "The Big Short", released in 2015, in which the American actor Steve Carell plays the character of Mark Baum, Steve Eisman in real life.

Grizzly hair, rugby rugby player, the fifties is distinguished by its frankness, which cuts the coded universe of Wall Street traders.

laxity

From 2004 to early 2007, Mr. Eisman, married to a former banker, is portfolio manager at the hedge fund of FrontPoint Partners.

He is responsible for investing the money of wealthy clients in financial stocks, stimulated by the stock market by the euphoric success of & sub 39; subprime & # 39 ;. In order to satisfy investors who are looking for investments that yield, banks invent exotic instruments, which the general public will get to know about the crisis: CDO for Collateralized Debt Obligation or RMBS, financial collateral with mortgages.

It distributes them all over the world and praises the refinement that minimizes risks.

Despite having a degree in law from Harvard, Steve Eisman does not understand much about these financial products with barbaric acronyms and he is not the only one, as he will soon realize at a 2004 Las Vegas conference.

Subsequently, he discovered epicenter in & # 39; subprime & # 39; in Florida, California, Nevada and Arizona. lax banks and lenders, who do not even know the financial situation of their customers.

"How is it that a mortgage was provided to a customer who could only honor the first three years of monthly payments?" Asks Mr. Eisman during an interview with AFP in the buildings of the fund Neuberger Berman, his new employer, in the heart of Manhattan.

He contacted the rating agency Standard & Poor & # 39; s, whose famous triple A, the best possible rating, connects to the financial products CDO and RMBS and she replied that the models do not contain a negative hypothesis.

The financier identifies a large number of bad debtors and decides to bet on their fall. He convinces Goldman Sachs and Deutsche Bank to create Credit Default Swaps (CDS), which form an insurance policy to cover the non-repayment of a borrower.

"When you yell + (against the current, etc.), the whole world is against you," he says.

Betting against Deutsche Bank

At the beginning of 2007, the defaults of American households were multiplied, because the companies and wealthy households speculating on the rise of the property, suddenly decided to withdraw from the market, which accelerated the fall in prices.

In eight months, 84 mortgage companies in the United States are on the straw. The value of Steve Eisman's portfolio increases from $ 700 million to $ 1.5 billion and will continue to rise.

"I felt like Noah (on his ark to escape the flood)," he said, following the biblical image, while denying that he could have benefited from the misery of millions of Americans. "Do you think Noah was happy?"

For him, if there is a guilty, it is the bankers and traders who were convinced that they were omniscient. "It's hard to argue with someone who thinks he's God because he earns a lot of money," he says.

The financier, who has become one of the most influential voices on Wall Street, also attacks regulators, including Alan Greenspan, the former president of the US central bank, the Fed, a strong proponent of deregulation.

"Before the crisis, the bank supervisors had two missions: to ensure the safety of the banking system and to protect consumers against bad actors, they were simply bad," Eisman condemns.

His next big bet? "I do not have one, because car loans or student loans (US) do not entail systemic risks such as subprime and US banks are healthier and more robust," says the financier, who recently bought bank shares.

But "I would not say the same thing for European banks, including Deutsche Bank," adds Steve Eisman. He gambled on a collapse of the German market in shares and has already reaped first fruits, due to the aggravation of the bank's problems.


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