Dr. Michael J. Burry at UCLA Economics Commencement 2012

now it is with great honor that I introduce today's keynote speaker dr. Michael burry Michael is one of our own an economics graduate at the class of 1993 and we are thrilled that he has come back to campus to speak today he is joined by his wife auntie and his sons Michael and Nicholas his brother-in-law John and sister-in-law are men Michael was an exceptional undergraduate here at UCLA as if a full course load as an econ major wasn't enough he also managed to fulfill rigorous pre-med requirements after leaving UCLA he proceeded to earn his medical degree at Vanderbilt but the drawer of the investment world soon ADA came his desire to practice medicine by the time he founded Sion Capital in 2000 Michael had already earned a stellar reputation as an investor with extraordinary vision now about a year and a half after the financial crisis hit in 2008 Queen Elizabeth of England visited the London School of Economics and she asked the distinguished faculty there why nobody had predicted the financial crisis she should have come to UCLA because Michael did he used his vision to predict the collapse of America's financial and real estate markets he foresaw the failure of companies such as AIG Fannie Mae Freddie Mac Countrywide Financial and Washington Mutual you might recognize his story from his profile in Michael Lewis's 2010 bestselling book the big short Michael closed Scion Capital in 2008 and these days he fund startups and invests his own money Michael will no doubt have some predictions for all of us in the audience today and certainly some prescient words of advice for the class of 2012 I know we will all be inspired by his story and his vision and now it gives me great pleasure to welcome the UCLA economics commencement speaker for the class of 2012 dr. Michael burry well thank you professor farmer class of 2012 congratulations it's a quite achievement to graduate from UCLA you know it's nice to be back in Westwood I certainly have fond memories of my time here in many ways the campus is much the same but in some ways I can see it's different I dunno your campus life's been much different than mine 20 years ago I had no internet no snow smartphone no cell phone I don't think you know but I did invest my summer earnings and stocks and futures and I remember being absolutely starved for information I had to send away for financial statements sometimes waiting weeks for a response and I would take a near-daily trip to Westwood to pick up a Wall Street Journal to check yesterday stock quotes today it's much different information swarms us comforts us it disrupts us it's an age of infinite distraction for those so willing you are the generation that has had instant messaging Facebook Twitter and Angry Birds nagging your fingertips at every moment it's been arguably as addictive as any drug throughout history and I do imagine it took some terrific willpower during your studies to study of course it's not lost on anyone that you started your term UCLA in the midst of a global financial panic the consequences of which are far from settled the fault is not your own but the future it leaves certainly is as a result of what happened while you were growing up you now face a future that will feature either another a Great Recession during your 20s or during your 40s a u.s. debt to GDP ratio exceeding 200% and that's not me that's the Congressional Budget Office me I think they're ignoring reflexivity and I think you face both now Greece was at 160 percent GDP debt to GDP when it's last of its nine lives started running out from my perspective this is all the more tragic because the financial meltdown was both predictable and preventable this was no black swan and no other serendipitous excuse should be acceptable to anyone of late Europe's convulsions are in the news even this should not be surprising back in 2006 when a bunch of us shorted Portugal Italy Greece and Spain we called them the pigs for a reason I can explain it in one sentence when the entitled elect themselves the party accelerates the brutal hangover is inevitable Californians and indeed all Americans ought to take note my career after UCLA arced in such a manner that I found myself right in the middle of the financial meltdown profiting from it because I had predicted it I have been a Chicken Little or a cassandra to some especially in government I'm one lucky sob in truth I was just trying to figure it all out from my earliest years I found that life for all its amazing possibilities very often does not make sense and at least as often is not fair today it is absolutely not fair the world you are being dealt there are many ways to deal with an unfair world one may to now drop out run away one may get angry one may fight one could do ultimately what I did accept the world for what it is work hard to exploit the opportunities it presents and try to do so it is just a manner as possible now there are two kinds of working hard you can work hard you can work smart or you can work dumb when I was in sixth grade my dad dumped a pile of bricks in the backyard and after school he had us move me and my brothers move the bricks to the side yard the next day he had us moving back to the back yard the next day back to the side yard and so forth has continued for quite a while I'm not sure what he intended by this but I did learn that work hard work for hard work sake alone would not do later in observing the tenure system so endemic to academic ventures I would think to myself hey there just moving a pile of bricks in fact I began to doubt traditional education I committed myself to educating myself as opportunities arose still as I graduated from UCLA I headed to Vanderbilt Medical School I had read liars poker by Michael Lewis and it nearly convinced me that even if I could become a great money manager I shouldn't besides medicine appeared just my interest in medicine would fade however as the act as I studied economics and regulation of healthcare while in Chicago in 1994 the government payer would weigh far too heavily on that playing field and I did not think it would be fair enough so during medical school I put up a website some ideas on stocks and markets as I graduated medical school in 1997 Microsoft out of the blue offered me $1 a word to write for the new MSN Money website being wordy and being in debt naturally I said yes so therefore during my Medicine internship I wrote for Microsoft and ran my website there were synergies between two of the three and I had unknowingly found a back door to Wall Street none of this was nearly as well-planned as it seems in retrospect there were a number of crises including a divorce and at one point I was so despondent over my direction that I even applied to law school again and again I figured as long as I kept asking questions working so hard to answer questions I would eventually find my way as I turned 29 I ran out of reasons why I couldn't or shouldn't left medicine start an investment firm that point the decision became came very easily as perhaps should be the case more often than not I simply weighed the paths before me without considering the path on which I had been at tsiyon capital my job 24/7 was to ask ask questions and seek answers I mostly examine stocks and bonds as long investments but one day I came across a subprime residential mortgage-backed securities ation and I wondered if I could figure out any of that other questions soon followed why our home price is diverging up and away from the household income trend line answer if it's not income its leveraged what exactly are the incentives of lenders that make mortgages only to sell them on through to Wall Street answer volume at the expense of credit standards when interest rates bottom how far could lenders push mortgage terms in order to keep refinancings home prices and loan volumes rising the answer to this question would put a ticking timer on the boom and a date on the crash back in 2005 other questions stood out how much is consumer spending dependent on cash out refinancings what percentage of jobs are dependent on the assumption of rising home prices won't AIG have to start posting massive cash collateral for the first time if it were downgraded isn't it worrisome that Fannie Mae cannot find term sheets that describe perfect hedges against its massive mortgage portfolio are the rating agencies so conflicted that they could be this blind in my letters to investors I described a downturn that would be unprecedented no with no counterpart in the amount in the modern era Wall Street's risk models would fall all at once and every single CEO and every single politician would be disastrously wrong I put my money where my mouth was at its peak I was short eight point four billion dollars worth of subprime mortgages and certain financial companies the most we could lose was less than 100 million dollars thanks to credit derivatives and at first we did lose it was a negative carry trade investors business partners and even employees questioned strategy lawsuits were threatened our distress was reported in the press and Wall Street looked to squeeze our short besides all this I had to stomach what I knew was coming a tragic end to the follies this was not fun I did not tap dance to work but the firm survived we turned the tables on Wall Street and I became the 1% in a way I never imagined when I was sitting where you sit today I had bet against America and won in 2010 I published an op-ed in The New York Times posing what I thought was a valid question of the Federal Reserve Congress and the president I saw the crisis coming why did not the Fed never did any member of Congress any member of government for that matter reach out to me for an open collegial discussion on what went wrong or what could be done rather within two weeks all six of my defunct funds were audited the Congressional Financial Crisis Inquiry Commission demanded all my emails and list the people with whom I conversed going back to 2003 and a little later the FBI showed up a million in legal and accounting costs and thousands of hours of time wasted all because I asked questions it seemed they would pump me at gunpoint or not at all that summer the Federal Reserve put out a paper that concluded nothing in the field of economics or finance could have predicted what happened with regards to the housing bust and subsequent economic fallout Ben Bernanke Ben Bernanke continues to backfill this logic and I fear that history is being written wrong yet again the ignorance is willful as we move forward as a country it is worth considering mainstream economics and finance in light of recent events our nation's economic policies are born of a synthesis of theories on how to deal with the Great Depression of the 1930s yet seems unable to honestly examine the most recent one sadly at the highest levels of economic thought in government questions are not tolerated it is as if we are dealing with the binary judgment of a fundamentalist religion finance theory and practice they are no better the continuing crisis makes a mockery of the principles which have guided credit policy and risk management since the 1960s as it turns out information is not perfect volatility does not define risk markets are not efficient the individual is adaptable but the dark ages of Finance allow no such light mainstream economists and finance practitioners please check your premises you have contradictions before you truthfully I do not expect much to change practically speaking history has demonstrated the ability of sovereign nations to justify them themselves and to postpone the moment of crisis this will be even more true for the United States is the largest economy by far with the strongest central bank as a result over the course of your lives you experienced withering but stealthy attacks on your quality of life as government attempts to manage its faltering finances you will see declines in the quality of health care the quality of education the quality of public safety and the quality of our currency of course this is a false prophecy I'm simply describing what is already happening class of 2012 by graduating today you are taking a step another step on a path that is fairly well warned a path that in and of itself defines little about your future many have started from where you start today and done great and wonderful things but many to have lived lives of another sort whatever you see is the next obvious step consider whether you are being true to yourself your strengths your weaknesses your needs before you take it the next decade or so before you have kids before you get married is the most flexible most genius decade of your life you ought consider stepping outside your paradigm to for a fresh look now and again if you are considering a career on Wall Street or in Washington DC you should be aware of the social proof that operates there this is that many if not most people will be doing questionable things that obviously may money and obviously earn respect from common peers if you find yourself in such a place I would ask you to consider a rule I learned as a physician first do no harm besides life is not that short life is well and long enough for you to come to regret any activity or habit involving an exchange of long-term risk for short-term benefit this is what many if not most Americans did during the refinancing and consumption boom of last decade and it was what our government did in egging on the boom this is also the gospel of drunk drivers and cheating spouses of course when you encounter the opposite the short-term risk exchanged for long-term benefit consider hitting that button again and again and again past maybe prologue but this is not true for the individual the individual can think different and the individual can act different than those that got us all into this mess no matter how the economic tides may sweep away the majority and in an individual can stand clear each of your lives individually is an epic chance you can leave here today and you can choose to never stop learning never to stop asking questions I must say it will not be without staggering difficulties there will be times when you will stare at yourself in the mirror and wonder why but faced with a setback you will be most creative under stress you will think better and act stronger so much so that looking back it will seem as though it was all meant to be thank you and good luck

Channel: UCLA

Views: 661,436

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Keywords: ucla, uclachannel, commencement, economics, 2012, michael, burry

Id: 1CLhqjOzoyE

Length: 21min 38sec (1298 seconds)

Published: Wed Jun 20 2012

Reddit Comments

[u/[deleted]]

This guy is the real deal. He's now betting on Farmland + Gold (which means he believes in hyperinflationary scenarios).

Scary stuff.

[u/econleech]

He was featured in Michael Lewis's Big Short, a very good read.

[u/avert_your_maize]

Maybe someone actually will listen this time.

[u/tonypotenza]

I had bet against America, and won.

Wow, that's deep stuff.