School of Thought

Oh, do we have thoughts

Question the Givens

Over ten years ago, Steve Eisman was sitting at his desk, figuratively biting his nails. His job as a hedge fund investor had him watching the market religiously. Although he knew his own money would be safe, it was like being in a slow-moving car crash, unable to take control of the brakes.

Eisman has become somewhat of a legend for betting against the US housing market before the mortgage crisis happened back in 2008. Our agency filmed a short video about him back in 2015 to hear more about how he came about his predictions—and why nobody was paying attention.

Eisman says, “Our culture does very poorly dealing with problems that evolve very slowly. All of a sudden people have woken up to the fact that there’s a distribution of income problem in this country.”

There was even a movie made about him, after a book was written called The Big Short, which told the story of how the housing bubble led to the financial crisis. These days, Eisman gets called on to comment on the impending doom of the global economy as if he could stop it this time. In some ways, we’ve learned not to repeat past mistakes.

The subprime market was looking pretty dangerous to Eisman years before the crash. He wasn’t silent about his estimation that the U.S. economy’s reliance on debt would eventually cause the pillars to come tumbling down. There wasn’t a lot he could do, either way, because the public wasn’t really listening. You don’t usually sound the alarm when things are going good. Eisman’s ability to look ahead and make sound calculations about the future is a mathematical art.

At the end of 2018, the New York Times published an article about the many things that might occur to spark another financial crisis. There are a lot of other factors to take into account outside the housing market.

Recession Financial Crisis Eisman

So, are these concerns unfounded, or what?

There’s been discussion recently about how the country might be headed into another recession come 2020. It’s no surprise that Eisman is in the news once again.

According to a recent poll by Duke University/CFO Global Business Outlook, 82% of chief financial officers who were polled about a recession said they believed it was likely and would have started by the end of 2020. Almost half of them also believe we will begin to see the initial downturn sometime during the year leading up to that.

Eisman isn’t so sure about how a recession will play out—it seems to be a bit of conjecture. However, he definitely has a lot to say about the corporate bond market. In a recent interview, he noted that he doesn’t think this is a systemic problem, though. Since 2016, he’s viewed the financial system in the United States as “safe.” He also mentioned that you can’t have a recession when consumer credit is better than it’s been in a very long time.

Although the odds aren’t concerning, he’s not entirely quick to write things off. One thing that might change all of that, he said, is a trade war.

We’ve come a long way from 2008, but there’s still much to be careful about when we look closely at our economy. What else can we learn from Steve Eisman and our past mistakes?