Michael Barry, a hedge fund manager famous for predicting the 2008 financial crisis, noted the similarities between the current banking mess and the 1907 panic when J.P. Morgan noted that three weeks after the stand was made, the panic dissipated and the market bottomed.” A stand was made this past weekend,” this well-known investor noted.
Michael Burry: Bank Failures, the Panic of 1907, and the Market Bottoming
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Michael Burry, noted investor and founder of the investment firm Scion Asset Management, compared the current financial turmoil following multiple bank failures to the Panic of 1907 Burry is credited with being the first investor to foresee and profit from the U.S. subprime mortgage crisis that occurred between 2007 and 2010. Michael Lewis wrote a book about the mortgage crisis, which was made into the movie “The Big Short” starring Christian Bale.
The investor in “The Big Short” tweeted Wednesday.
In October 1907, the Knickerbocker Trust failed due to risky bets, causing panic. Two other trusts subsequently failed, and the panic grew. When the crash against the sound trusts began, J.P. Morgan took a stand; three weeks later, the panic subsided&and the market bottomed out. A stand was made this past weekend.
The Knickerbocker Trust Company was one of the largest trust companies in the U.S. Its failure in October 1907 triggered a financial panic that led to a loss of confidence in the entire banking system.
The panic ended when J.P. Morgan bailed out several large banks and persuaded other financial institutions to do the same. This bailout restored confidence in the banking system. The Federal Reserve System was then created on December 23, 1913.
Burry’s tweet came after the collapse of several major U.S. banks, including Silicon Valley Bank and Signature Bank. The former was shut down by regulators last Friday and the latter by the New York State Department of Financial Services a few days later.
In an effort to stop the bank runs and restore confidence in the banking system, the Treasury Department, the Federal Reserve Board, and the Federal Deposit Insurance Corporation (FDIC) announced measures to ensure that depositors at both banks “have access to all their funds.” In addition, the Federal Reserve said it will provide “additional funds to eligible depository institutions to ensure the banks’ ability to meet the needs of all depositors.”
Some on social media agreed with Burry, but others pointed out that the Federal Reserve did not exist in 1907, so the situation is different today.
Burry said in another tweet, “This crisis could be resolved very quickly. I do not see any real danger here.” Regarding the U.S. economy, Burry previously warned that inflation would spike again in the U.S., prolonging a multi-year recession
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