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In 2005, a doctor with one eye, no Wall Street background, and a Metallica obsession sat alone in his office and read 300 pages of mortgage documents nobody else had bothered to open. What he found terrified him. So, he did something insane. He bet over a billion dollars that the American dream was about to collapse.
For 2 years, everyone laughed at him. His own investors tried to sue him. And then, he was right. This is the story of Michael Burry, the man who saw 2008 coming. Michael Burry lost his left eye to cancer when he was 2 years old. Growing up, he felt like he never quite fit in. He'd later find out why.
He had Asperger's. But that same brain had a superpower. Burry could sit for 16 hours straight reading things that would put anyone else to sleep. Annual reports, legal filings, fine print. He became a doctor. But at night, instead of sleeping, he wrote about stocks on a tiny blog. His picks were so good that hedge fund managers started copying him.
In 2000, he quit medicine and started his own fund with money from those readers, Scion Capital. Over the next 5 years, the S&P 500 lost money. Burry's fund? Up 242%. Here's how the housing market worked in 2005. Banks gave mortgages to almost anyone. No job? No income? No problem. They called them ninja loans.
No income, no job, no assets. Why would a bank do that? Because they didn't keep the loans. They bundled thousands of mortgages into a package, called it a mortgage-backed security, slapped a AAA rating on it, the same rating as the US government, and sold it to investors around the world. Everyone was making money.
Nobody was reading the fine print. Except Burry. He noticed something inside those packages. Many mortgages had teaser rates, super low payments for the first two years, and then the rate exploded. He did the math. Millions of people would not be able to afford their homes starting around 2007. When they defaulted, the whole tower of AAA packages would crumble.
The house of cards had an expiration date. There was one problem. You can't short a house. So, Burry went to the biggest banks in the world, Goldman Sachs, Deutsche Bank, Morgan Stanley, and he asked them to create a brand new product for him, a credit default swap on mortgage bonds. Basically, insurance.
He'd pay a small premium every year. If the bonds collapsed, the bank would pay him a fortune. The banks thought he was an idiot. Housing prices had never fallen nationwide. They happily sold him over $1 billion of insurance. They were literally laughing at him while they took his money. Then came the hard part, waiting.
Every month, Burry had to pay millions in premiums. His fund started losing money. His investors panicked. "Sell the swaps. You've lost your mind. We want our money back." He got emails accusing him of fraud. His biggest investor threatened legal action. Burry locked himself in his office, blasting heavy metal, refusing to sell.
He wrote to his investors, "I may be wrong on timing, but I'm not wrong on the outcome." By mid-2007, he was on the edge of being fired from his own company. August 2007. Homeowners started missing payments, exactly as he predicted. By 2008, Lehman Brothers, a 158-year-old bank, went bankrupt. The global financial system nearly stopped.
Those worthless insurance contracts, now they were worth a fortune. Burry's personal profit, $100 million. His investors' profit, over 700 million. The same people who wanted to sue him were now rich because he refused to listen to them. Then, he did something even stranger. He closed the fund, sent everyone their money, and walked away.
Burry didn't have inside information. He didn't have a Wall Street network. He just read what everyone else was too lazy to read. The biggest opportunities are hiding in the boring stuff. If you want more stories about the people who beat the system, subscribe. Next up, the 17-year-old who turned $8,000 into 30 million shorting the Nasdaq.
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