Big Short investor who foresaw 2008 crash says there’s ‘no true danger’ after Silicon Valley Bank collapse and current crisis will resolve itself quickly – as former top regulator says ‘fear is the big problem now’
- Big Short investor Michael Burry believes there is ‘no true danger’ of a full-scale financial crisis
- His assessment came as Sheila Bair, the former chair of the regulator which took control over SVB, urged calm and said most banks are ‘probably just fine’
- Bair added: ‘I don’t see any pervasive problems in our banking system. I do think regulators need to be careful how they communicate’
Big Short investor Michael Burry believes there is ‘no true danger’ of a full-scale financial crisis following the collapse of Silicon Valley Bank.
Burry, who made a fortune by correctly predicting the 2007 subprime mortgage crisis, gave the assessment as a former top regulator also said ‘people need to keep their head’ because most banks are fine.
Burry tweeted: ‘The crisis could resolve very quickly. I am not seeing true danger here.’
Markets rebounded slightly on Tuesday morning after stocks in the banking sector plunged yesterday amid fears many institutions faced similar problems to SVB.
SVB was shut by the Federal Deposit Insurance Corporation last week after a run on the bank left it unable to cover customer withdrawals. Regulators and the FDIC have since pledged to cover customers’ deposits in full.
Michael Burry, whose predictions about the subprime mortgage crisis inspired the Big Short, said he believes the crisis in the banking industry will ‘resolve very quickly’
Sheila Bair, the former head of the FDIC, said on Tuesday: ‘I do hope people keep their head. Most of these regional banks are probably just fine’
Burry had earlier compared the crisis to crashes in 2000 and 2008, adding: ‘People full of hubris and greed take stupid risks and fail’. Both tweets have since been deleted – something Burry does with all of his posts.
Former FDIC chair Sheila Bair urged calm on Tuesday and said regulators need to ‘be careful’ about their messaging to avoid stirring up panic.
She said: ‘I do hope people keep their head. ‘Most of these regional banks are probably just fine.’
Bair said it’s ‘not clear’ whether more banks will fail but warned the industry to remain calm and pointed out that SVB’s problems were ‘unusual’
Bair told CNN: ‘It concerns me everybody is kind of getting tagged with the same problems that silicon valley bank had. That was an unusual situation.’
She said mismanagement by bosses at SVB contributed to its downfall. The bank used customer deposits to buy Treasury bonds which have plunged in value over the past year after the Fed hiked interest rates to deal with rampant inflation.
Bair added: ‘I don’t see any pervasive problems in our banking system. I do think regulators need to be careful how they communicate this just by the fact that they made this very unusual and very unusual and very extraordinary systemic risk determination. It’s unsettling a little bit’.
She also said the Fed will likely pause further interest rate rises to prevent a similar crisis at other banks exposed to the same issues that caused SVB to fall.
Michael Burry (left) made a fortune by predicting the 2007 subprime mortgage crisis and was played by Christian Bale in The Big Short (right)
Fears for the banking sector remained on Tuesday morning as Credit Suisse shares fell five percent to an all-time low in early trading after the bank confirmed material weaknesses and an $8billion loss in 2022.
Credit Suisse CEO Ulrich Koerner has however insisted that the ‘SVP credit exposure is not material’.
While Credit Suisse’s shares took a nosedive, US banks rebounded vigorously.
Shares of First Republic Bank were up by 42 percent in early trading, while Western Alliance and PacWest were also both up.
Former SVB staff have attributed its failure to ‘idiotic decisions’ rather than a looming global financial crash.
They say CEO Greg Becker spooked the markets by announcing the bank’s vulnerabilities last week and his hope to raise billions to save it.
Credit Suisse shares fell on Tuesday morning concerns for the banking sector remained
‘That was absolutely idiotic. They were being very transparent. It’s the exact opposite of what you’d normally see in a scandal. But their transparency and forthright-ness did them in,’ said one former employee.
Insiders also say that Credit Suisse – the seventh largest investment bank in the word – is more highly regulated than SVP was, so is ‘conservatively positioned against any interest rate risks.’
Swiss financial regulator FINMA on Monday said it was seeking to identify any potential contagion risks for the country’s banks and insurers following the collapses of Silicon Valley Bank and Signature Bank .
‘FINMA takes note of the media reports on Silicon Valley Bank and Signature Bank in the USA and is closely monitoring the situation,’ FINMA said in a statement.
The latest day of turmoil in the banking sector came as annual inflation in the US dropped again in February to 6 percent.
Investors will hope the latest evidence inflation rates are cooling will restore some faith in the economy. February’s 6% CPI figure is lowest annual inflation rate since September 2021
The positive news paved the way for the Federal Reserve to slow or pause its interest rate hikes as it confronts a banking crisis.
The Labor Department’s Tuesday report on the consumer price index showed that February marked the eighth straight month of declining annual inflation, from this summer’s peak of more than 9 percent.
February’s 6 percent figure is lowest inflation rate since September 2021, and was in line with what economists had forecast for the month.
The Federal Reserve has been rapidly raising interest rates over the past year in an effort to rein in inflation by cooling the economy, but hopes to avoid tipping the economy into a recession with soaring unemployment.
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