From Against the Rules: Michael Burry Speaks

SPEAKER_1 (0:00)

Hello, Katie and Rob here.

SPEAKER_2 (0:01)

If you're a devoted Unhedged listener, you may remember we talked recently about Michael Burry, an investor who's taken short positions in the AI giants, Nvidia and Palantir. But Burry's history of shorting the market goes back even further to the subprime housing market crash, which Michael Lewis chronicles in his book, The Big Short.

SPEAKER_1 (0:22)

Well, that book is now 15 years old, and to mark the anniversary, Lewis is revisiting the 2008 financial crisis to understand its legacy. For his podcast Against the Rules, he sits down once again with Michael Burry. We hope you enjoy the conversation, and if you do, you can find The Big Short Companion series on the Against the Rules podcast.

SPEAKER_2 (0:43)

And get the new audio book version of The Big Short on Audible, Spotify, pushkin.fm slash Big Short, or wherever you get your audio books.

Lidia Jean Kott (0:57)

I'm Lydia Jean Cot.

Michael Lewis (0:58)

I'm Michael Lewis.

Lidia Jean Kott (0:59)

And surprise, we're here for extra episode of The Big Short Companion series.

Michael Lewis (1:05)

One we weren't expecting, that's right.

Lidia Jean Kott (1:07)

Yeah, because we got the hedge fund manager, Michael Burry, to be on the podcast.

Michael Lewis (1:11)

We didn't really get him to be on the podcast. It's funny what happened.

Lidia Jean Kott (1:15)

Well, first we should say who Michael Burry is.

Michael Lewis (1:16)

Michael Burry is one of the three main characters in both the book and the movie of The Big Short. He was a really important character to me.

Lidia Jean Kott (1:24)

In the movie, he's played by Christian Bale.

Michael Lewis (1:26)

In the movie, he's played by Christian Bale.

Lidia Jean Kott (1:28)

He doesn't do interviews and we've asked him to be on the podcast earlier and he said no. So yeah, so what happened?

Michael Lewis (1:33)

First he said, I'd like to help. Then he said, I wouldn't like to help. Then what happened was his trading activity got released to the public, which it does. He has to file a 13F form with the SEC saying what his positions are. It's not a perfect picture of what he's doing. It did say that he had put on big short positions against Palantir and Nvidia. So he was betting against the AI bubble. All he did was file what his positions were. He doesn't do media, he doesn't do interviews and it exploded. Like it was on Twitter, on CNBC, people were both attacking him and praising him. His reasoning for not coming on the podcast was he wanted to lay low.

And he was trending on Twitter for 48 hours. So it was like, what's the point? He can't lay low. And as he tells us, he says like, this only happens to me. But I was really glad to have him on because I felt like we were missing somebody.

Lidia Jean Kott (2:25)

Yeah, no, same. And also because people were asking, I was getting messages being like, are you guys going to have Michael Burry?

Michael Lewis (2:30)

There's something also nice about subjects who aren't promiscuous, who don't just talk to everybody.

Lidia Jean Kott (2:36)

Because it makes you feel special or?

Michael Lewis (2:37)

It makes you feel special, it makes the audience feel special, and the reader feels special. It's like nobody else has this story.

Lidia Jean Kott (2:44)

And one thing I wanted you to explain is, he was one of the first people, one of the early people to bet on the subprime mortgage crisis. And when he was trying to do it, there weren't any financial instruments to do that, right?

Michael Lewis (2:58)

It was how to do it in a way where if the madness just kept going and going, you weren't going to be bankrupt quickly.

So you could have done things like bet against mortgage companies in the stock market. You could have shorted their stock. But it's a bet that's hard to hold for a long time. And so your timing has to be exquisite. What he did was basically invent or have Wall Street firms invent for him the credit default swap on subprime mortgage bonds, which is essentially an insurance policy on bonds backed by some prime loans. So if the loans go bad and the bonds go bad, you get paid off on this insurance policy. Think of it like, I get to buy insurance on your house, fire insurance, and if it burns down, I get paid. So there's something a little goofy about it. I mean, it used to be, very oddly, it used to be that I could go buy life insurance on you. And if you died, I got paid a bunch of money. This obviously creates a very bad incentive.