Another interview with Steve Eisman in only a few days – well this is not an interview but its an op-ed and considering that Steve Eisman does not do much press twice in a few days is pretty sweet – He takes an unpopular point of view that too big to fail banks are NOT the issue (Eisman also made the same point recently mainly that because banks had less leverage than 06, 07, 08 etc. they are far less problematic) and focuses on income inequality – see a small excerpt from his NYT Op-ed
IN the movie “The Big Short,” Steve Carell plays a slightly altered version of me. In real life, I am a portfolio manager and financial services analyst who over a 25-year career has, at times, been highly critical of bank behavior.
More than eight years after the financial crisis, many people say that the large banks still pose a threat to the economy and should be broken up. Such a view captures the justifiable anger many Americans still feel toward the large banks. But I don’t agree. Breaking up the banks would ignore the significant progress made by regulators to reduce the risks posed by these institutions, and it wouldn’t address what I believe is the central problem with the economy today.
There has been much talk in recent years about disruption and trying to pick companies that will disrupt their industries. The debate continued at the Morningstar Investment Conference as Bill Nygren of Oakmark Funds faced off with Morgan Stanley's Dennis Lynch. Q2 2021 hedge fund letters, conferences and more Persistence Morningstar's Katie Reichart moderated the Read More
First, let’s analyze why the financial crisis occurred. If I could sum up the catastrophe in one word, it would be “leverage.” Using borrowed money, the financial system made huge bets just when losses were about to explode because of subprime mortgage loans.
In the first quarter of 2001, Citigroup’s assets stood at $1 trillion, a level it had taken the entire 20th century to reach. By 2007, only six years later, that balance sheet had doubled to $2 trillion. Ditto for Goldman Sachs. In 2000, the investment bank’s assets stood at $275 billion. Eight years later, its balance sheet had grown to over $1 trillion.
Leverage caused the explosion in these balance sheets. In the first quarter of 2001, Citigroup was leveraged 21 to one (meaning it had $21 of assets, including debt and shareholder equity, for every dollar of shareholder equity alone). By mid-2007, leverage had climbed to 33 to one.
See the full piece from Steve Eisman here