In an interview published on Business Insider, hedge fund trader Kyle Bass provided an interesting range of opinions on the world’s current economic situation. However, in light of the recent revelation by The Wall Street Journal that Bass was the source of a reporter in March 2008 asking a Bear Stearns executive a question that aroused so much doubt about the investment bank on Wall Street that Bear Stearns was bought up a within a week by JP Morgan Chase.
The interviewer asked Bass whether the Wall Street Journal allegation was true, about whether he gave the reporter the information that led to the damaging question, and Bass gave a straight answer: “Yes.”
However, he also adds that in November 2006 he gave a presentation to Bear Stearns executives and its entire risk management committee with Bobby Steinberg explaining to them exactly what kind of dynamite they were sitting on. He used to work at Bear Stearns and still had many friends there. He says he cared for the people there. His fund’s prime brokerage account was at Bear Stearns. Therefore, he spent 90 minutes explaining how their mortgage securities were worth far less than anybody yet knew, and how it could soon cause a catastrophe.
In the interview, he does not mention whether Bear Stearns made any move to unload the securities after that meeting. One man told Bass he hoped Bass was wrong.
Therefore, many months before the subprime mortgage crisis hit the newspapers in 2007, he explained how their mortgage securities were extremely high-risk. And some of the mortgages in those securities were already starting to default. He said Bear Stearns was leveraged 33 to one, which is extremely high just by itself.
In that interview, he mentioned it was a good thing for the cost of prescription drugs to go down. That remark should be taken in context. One of Bass’s current methods of investing is to sell pharmaceutical companies short, then file fake patent challenges against one of their drugs. Such challenges cause the pharmaceutical company’s stock price to fall, making his short trade profitable. It’s a form of manipulating the stock market that is apparently legal. His hedge fund makes money at the expense of the pharmaceutical companies, but he is reducing their motivation to develop better drugs in the future. UsefulStooges has further reading on Bass, that really illuminates the path he’s on.