hedge fund managersMichael Steinhardt is not a value investor, but I thought it would be very interesting to here his views on the financial crisis. Steinhardt founded Steinhardt, Fine, Berkowitz & Co.  in 1967, when hedge funds were far less common than they are today. Steinhardt Partners achieved   24% per annum returns –over a 28-year period.  Steinhardt’s strategy consisted of investing in equity, bonds,  options,  and currencies. He achieved his results through a mixture of trading and long term investing.

Steinhardt retired in 1995. In 2004 he joined WisdomTree and helped it achieve the phenmenoal success it is today with over $13 billion aum. Currently, Steinhardt is Chairman of the Board of Israel Energy Initiatives Ltd (IEI), a unit of IDT corporation. Steinhardt authored a book titled, No Bull: My Life In and Out of Markets.

Michael Steinhardt was asked to testify before The Financial Crisis Inquiry Commission. The Financial Crisis Inquiry Commission (FCIC) was a ten-member commission appointed by the United States government with the goal of investigating the causes of the financial crisis of 2007–2010. Michal Steinhardt, with his decades of experience in the financial industry was asked to testify before the Commission.

I have transcribed Michael Steinhardt’s testimony before the commission below. For reader’s pleasure I have put the document in scribd, and  text format.

FCIC Interview With Michael Steinhardt Steinhardt Management
10/04/2010 FCIC staff audiotape of interview with Michael Steinhardt, Steinhardt Management


Gary Cohen:    A gloomy afternoon, beginning of fall. And with me are Jamie Sacron [Phonetic] and Donna Norman from the Financial Crisis Inquiry Commission. This is Gary Cohen and we are interviewing Michael Steinhardt in his office on Madison Avenue. Mr. Steinhardt, is it okay if we tape your interview?


Michael Steinhardt:     Yes.


Gary Cohen:  Very good. So, we – the Commission is charged with trying to figure out why and how the financial crisis occurred, write a report, deliver it to the President and the Congress on December 15th and hopefully what we present to the American public will help shape the regulations that are going to be in the Dodd-Frank Bill and perhaps give lessons which maybe it will be 70 years before the next financial crisis rather than just – rather than the period of time that we had.

So, we’d like to ask you some questions. What do you think actually was the crisis? Which part of it was where the crisis came into focus and the system started to fall apart?


Michael Steinhardt:   Sometimes I think if you grow too old and you get a little too balanced then you no longer even willing to answer serious questions like that in not only one sentence but one paragraph because it’s complicated to answer it properly. It’s very complicated. I mean to say for instance that Greenspan who for most of his period as head of the Federal Reserve was a near demigod. He was extraordinarily well-respected. I think that’s a fair statement and that was odd. But then he was and I remember, he used to come here before he became Chairman of the Fed, he was a paid hand in [0:02:32] [Indiscernible] and he would come here once every quarter because [Indiscernible] paid for people like him and other economists to visit their clients and I was one of their clients. And he was one of many that would come and I – the impression that I only have – an impression of him was that he – and that’s the expression I would use about him for decades now and he wasn’t so interesting because all he did was extrapolate the obvious and that was the expression I used then and that’s the expression I would use now of something going like this.

You could invariably rely upon him to say we continue to go in that same trajectory like this. We continue to go. And he was just plain boring. I found him to be a really uninteresting guy as someone from whom you might learn something. And therefore, when the crisis came and he had that wonderful expression that I don’t remember what it was now but you’ll remember what it was about something exuberance and stuff like that.

Gary Cohen:                            Irrational exuberance.


Michael Steinhardt:     So, he was a guy who was a demigod for all that time who used terms like irrational exuberance and who allowed some sense and courage, the extraordinary excesses of the period. It was like the Pope blessing things going on in World War II. [0:05:00] That’s a terrible analogy but in some sense, I don’t think it’s terribly unfair analogy because you depend on certain people as your moral police. That’s what he was. And he didn’t act appropriately. In retrospect I think, he would acknowledge that.


Now, was that, going back to your question, a major reason for the tobacco? I’m not sure. I’m sorry.


Gary Cohen:                            Go ahead.


Michael Steinhardt:                 No, go ahead.


Gary Cohen:                            I was asking you actually a more – a narrow question which is when do you think the sub-prime problems which came evident in 2006 and 2007 really converted themselves into full blown great recession and narrowly avoiding another depression? Do you have a sense of when that moment tipped?


Michael Steinhardt:                 No, I don’t. I don’t for I’m the wrong person unfortunately to really be as sensitive as I might have been at other points because I wasn’t so involved. I mean you should know a little bit about my history. I stopped managing other people’s money in 1995 and from 1995 through today, I have 80 or 90% of my efforts to Jewish future. And that’s where I spend my time and I should be able to say I still have that machine and I still have this occupational hazard to take a look more often than not. But it’s not quite the same so I don’t have a great answer to that question as to the ingredients that led to excesses becoming so clear that they created the market tobacco that they did. Is that an answer to your question?


Gary Cohen:                            Yes.


Michael Steinhardt:                 Okay. Sorry.


Gary Cohen:                            When you were actively trading, would you say the market was more of an equity market? Because it seemed to me that this crisis was a debt crisis.


Michael Steinhardt:                 When I was active in the market, when I started in the ‘60s, in the ‘70s, some of the works that are common place words today didn’t exist. I mean one can’t but acknowledge and one should acknowledge the extraordinary technological innovations that have occurred in the last, 20, 30, 40 years in the financial world. And I don’t think they’re given enough credit. Phraseology, even basic phraseology like private equity, I’m not sure existed in the ‘60s.  All sorts of things that are obvious and things that are

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