Greg Lippmann, the Deutsche Bank trader portrayed by Ryan Gosling in “The Big Short,” broke his iconic bet against the mid-2000s housing bubble on the “Capital Allocators” podcast this week.
Lippmann is the co-founder and chief investment officer of LibreMax, an $8 billion asset manager specializing in structured products. He explained how he became a trader, reflected on his decision to bet against mortgage bonds at the same time as Michael Burry, and accused the Federal Reserve of fueling volatility in the markets today.
Here are 8 of Lippmann’s best quotes, slightly edited for length and clarity:
1. “People are the same. My parents were cleaning out my bedroom when I was about 25 and found my
second class certificate. I was just getting a review from my then employer, Credit Suisse. You put my 25-year-old job report next to my second-grade report card, and the strengths and weaknesses are exactly the same.”
2. “I worked on the 18th floor and the business floor was on the third floor. I would go down every day and when someone was traveling for work, sick or on vacation, I would sit at their desk.” I would do my job and not tell anyone.
“I thought, one, people would see me, two, I’d hear them talk and I’d pick something up, so I’d be heartened if a job ever came up.” (Lippmann was explaining how he became a trader at Credit Suisse in the 1990s.)
3. “In the top quarter of U.S. ZIP codes for home price appreciation, where homes were growing 12% to 14% annually, default rates were still 6% or 7% after six years. people default even though their home value has increased by more than 50%.
“It was kind of shocking to me that you have an asset that’s very much in the money and you’re still in default.” (Lippmann was describing the housing research he conducted as a Deutsche Bank trader.)
4. “You’re talking about 16% of loans that are in default and the bonds are covered, and 18% of the loans are in default and the bonds are zero. We already know that the bottom quartile of America, about 28% of people are in default. I looked at that and I thought, that after I got over the shock, these bonds would eventually default.” (Lippmann reflected on his discovery that BBB- or BBB–rated mortgage bonds, which had been hailed as fairly safe investments, were extremely risky.)
5. “You get paid somewhere between 6 and 10 to one to bet against them, and I think the odds are maybe 3 to 1 against me. If you spend your whole life looking for things that are 3 Long Shots – to 1 that pay 6 to 1, two out of three times you walk away empty-handed, but if you look in your pocket, it’s really full. That’s what attracted me to it.” (Lippman was referring to his signature bet against mortgage bonds.)
6. “The Fed is moving from a role of supporting the financial markets to a role where it’s going to fight inflation. The federal government is going to focus more on helping ordinary people through the various programs that they’ve already done — tax holidays and things like that.”
7. “I think we’re entering a more volatile period in the economy right now. The Fed, instead of being a force for low volatility, is going to be a source of higher volatility. You’re already seeing that in the arguments about whether or not they’re going to ease next year. Less than a year ago, they said , that they won’t tighten at all in 2022.” (Lippmann added that U.S. companies appear to be “as leveraged or as fragile as ever.”)
8. “There are far fewer attractive people playing you in a movie than Ryan Gosling. When you’re played by one of the sexiest men in the world, it’s hard to complain.”
Read more: Expert Michael Burry breaks down what makes the “Big Short” investor special. It also revisits Burry’s iconic bet against the housing bubble and his bets on GameStop, Tesla and Ark.