Big Short investor says no ‘real danger’ from the current crisis
Big Short investor Michael Burry believes there is “no real 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 put it: ‘people need to keep their wits about them’ because most banks are fine.
Burry tweeted: “The crisis could resolve very quickly. I don’t see any real danger here.’
Markets recovered slightly on Tuesday morning after shares in the banking sector collapsed yesterday on fears that many institutions were facing similar problems to the SVB.
SVB was shut down 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 fully cover customer deposits.
Michael Burry, whose predictions about the subprime mortgage crisis inspired the movie The Big Short, said he believes the banking sector crisis will “dissolve very quickly”
Sheila Bair, former head of the FDIC, said on Tuesday, “I hope people keep their wits about them. Most of these regional banks are probably fine’
Burry previously 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 his posts.
Former FDIC chair Sheila Bair urged calm on Tuesday, saying regulators should be “careful” with their messages to avoid panic.
She said, “I really hope people keep their wits about them. Most of these regional banks are probably fine.”
Bair said it is ‘not clear’ whether more banks will fail, but warned the industry to remain calm, pointing out that the SVB’s problems were ‘unusual’
Bair told CNN, “It worries me that everyone is being tagged with the same problems that Silicon Valley Bank had. That was an unusual situation.’
She said mismanagement by bosses at the SVB contributed to its downfall. The bank used customer deposits to buy government bonds that have fallen in value over the past year after the Fed raised interest rates to deal with rampant inflation.
Bair added: “I don’t see pervasive problems in our banking system. I really think regulators need to be careful how they communicate this just by the fact that they’ve made this very unusual and very unusual and very extraordinary determination of systemic risk. It’s a bit restless.”
She also said the Fed will likely pause further rate hikes to avoid a similar crisis at other banks exposed to the same problems that caused the SVB to fall.
Michael Burry (left) made a fortune predicting the 2007 subprime mortgage crisis and was played by Christian Bale in The Big Short (right)
Banking sector fears continued Tuesday morning as shares of Credit Suisse fell five percent to an all-time low in early trading after the bank confirmed material weaknesses and an $8 billion loss in 2022.
However, Ulrich Koerner, CEO of Credit Suisse, has emphasized that the ‘SVP credit exposure is not material’.
While Credit Suisse shares took a nosedive, US banks rallied strongly.
Shares of First Republic Bank rose 42 percent in early trading, while Western Alliance and PacWest both rose as well.
Former SVB employees have attributed the failure to “crazy decisions” rather than a looming global financial crash.
They say CEO Greg Becker scared the hell out of markets by announcing the bank’s vulnerabilities last week and his hopes of raising billions to save the bank.
Credit Suisse shares fell Tuesday morning. Concerns about the banking sector persisted
“That was downright idiotic. They were very transparent. It’s the exact opposite of what you would normally see in a scandal. But their transparency and frankness killed them,’ said a former employee.
Insiders also say that Credit Suisse – the seventh largest investment bank in the world – is more tightly regulated than SVP and thus “conservatively positioned against interest rate risk.”
Swiss financial regulator FINMA said Monday it is trying to identify potential contagion risks for the country’s banks and insurers following the Silicon Valley Bank and Signature Bank collapses.
“FINMA takes note of the media reports regarding Silicon Valley Bank and Signature Bank in the US and is closely monitoring the situation,” FINMA said in a statement.
The last day of turmoil in the banking sector came when annual inflation in the US fell back to 6 percent in February.
Investors are hoping that the latest evidence of inflation cooling will restore confidence in the economy. February’s CPI figure of 6% is the lowest annual inflation rate since September 2021
The positive news paved the way for the Federal Reserve to slam or pause its rate hikes as it faces a banking crisis.
The Labor Department’s Consumer Price Index report on Tuesday found that February marked the eighth consecutive month of declining annual inflation, from this summer’s peak of more than 9 percent.
The 6 percent figure in February is the lowest inflation rate since September 2021 and matched what economists had predicted for the month.
The Federal Reserve has been raising interest rates rapidly over the past year in an attempt to contain inflation by cooling the economy, but hopes to prevent the economy from sliding into recession with rising unemployment.