Silicon Valley lenders clueless, claims 'Big Short' money manager
Published 20/09/2016 | 02:30
steve Eisman, a money manager who famously predicted the collapse of subprime mortgage securities, has turned his sights on the internet loan industry.
While the loans these companies make are small on average and don't portend to be the next 'Big Short' - the title of the book and film that detailed Mr Eisman's bet against the debt central to the 2008 financial crisis - there is reason for investors to be cautious, he said.
The central problem is that these lending startups, their founders and backers in particular, don't have a lot of experience making loans to consumers, and some of them approach loan-making as they would retail sales, Mr Eisman said in opening remarks at a conference of investment bankers and investors in Miami Beach, Florida.
"When you go to Amazon and buy a book, you buy it and the transaction is over," he said. "But when you take out a loan, that is just the beginning of the transaction - it's like a relationship."
"Silicon Valley, I think, is clueless" to this, Mr Eisman said. The remarks were given inside a large conference hall of the beachfront Fontainebleau Hotel, where several thousand Wall Street securitisation professionals are convening this week for their 22nd annual ABS East Conference. It's the same gathering where, in one scene of the film 'The Big Short', the character based on Mr Eisman bursts into outrage at a mortgage executive giving a talk.
As risky private mortgage lending has faded, Wall Street firms looking for outsize returns have turned to other types of consumer loans, with online lending sprouting as a hot new trade.
Venture capitalists poured money into developing software and algorithms meant to make underwriting loans more efficient and then find investors to finance the loans, rather than directly funding borrowers themselves.