‘Big Short’ Greg Lippmann on career, housing bubble betting and Fed outlook

  • Greg Lippmann of “The Big Short” discussed his famous bet against the US housing bubble.
  • The former Deutsche Bank trader detailed how he identified the lucrative opportunity.
  • Lippmann also reflected on his career path and was played by Ryan Gosling on screen.

Greg Lippmann, the Deutsche Bank trader played 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 blamed the Federal Reserve for fueling market volatility today.

Here are Lippmann’s 8 best quotes, slightly edited for length and clarity:

1. “People are the same. My parents were cleaning my room when I was about 25, and they found my
second year report card. At that time, I received my opinion from my employer at the time, Credit Suisse. You put my 25-year job journal next to my second-year report card, and the strengths and weaknesses are exactly the same.”

2. “I worked on the 18th floor and the trading room was on the third floor. Every day I would come downstairs and if someone was traveling for work, sick or on vacation, I would just sit at their desk. I would do my job and I wouldn’t tell anyone.

“I thought, number one, people would see me, number two, I would hear them talking and picking something up, so I’d be up front if a job ever came up.” (Lippmann was explaining how he became a trader at Credit Suisse in the 1990s.)

3. “In the top quartile of US ZIP codes for home price appreciation, where homes were growing 12% to 14% per year, the default rate was still 6% or 7% after six years. Now It’s pretty amazing that people default even though their home has gone up more than 50% in value.

“It was kind of shocking to me, that you have an asset that’s well into 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 in default, and bonds are covered, and 18% of loans in default, and bonds are zero. We already know that the bottom quartile of America, about 28 % of people are in default. I looked at this and thought, after getting over the shock, these bonds would eventually default.” (Lippmann was reflecting on his revelation that mortgage bonds rated BBB or BBB-, which were rated as fairly safe investments, were extremely risky.)

5. “You get paid 6-10 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-to-1 long shots 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 got me. (Lippman was referring to his signature bet against mortgage bonds.)

6. “The Fed is moving away from a role of supporting financial markets towards a role of fighting inflation. The federal government will focus more on helping ordinary citizens through a variety of programs, which they already have – gas tax holidays and things like that.”

7. “I think we’re entering a more volatile time in the economy right now. The Fed is going to be, instead of being a force for low volatility, a source of higher volatility. You already see that with dithering on different things, will they ease next year or not. Less than a year ago they said they weren’t going to tighten up at all in 2022.” (Lippmann added that corporate America seemed “as hardened or fragile as ever”.)

8. “There are far fewer people attractive to play you in a movie than Ryan Gosling. If one of the sexiest men in the world plays you in a movie, it’s hard to complain about it.”

Read more: A Michael Burry expert breaks down what makes the “Big Short” investor special. It also revisits Burry’s iconic bet against the housing bubble and its GameStop, Tesla and Ark bets.

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