Steve Eisman Quotes

Equity is the cushion that protects financial institutions from unexpected changes in the value of their assets. The greater the leverage, the smaller the losses required to wipe out a company's equity, leaving it without enough money to repay the people who hold its debt.

The real danger with debt is what happens if lots of people decide, or are forced, to pay it off at the same time.

Investment banks manage to go bankrupt through their investment-banking activities, commercial banks manage to go bankrupt through their commercial-banking activities.

The failure of one regional bank, assuming it is following a traditional model, will not threaten the entire system.

You do not want to get your debt ratio out of whack.

Complexity and interconnectedness matter as much as size in assessing risk in banking.

A bank needs models to measure risk. The problem, however, is that any one bank can measure its risk, but it also has to know what the risk taken by other banks in the system happens to be at any particular moment.

I do believe that banks are special - they are very leveraged institutions by nature; therefore, it's even more critical to ensure that the governance and the process of running a banking company are well-organised, managed and regulated.

You know, when the cost of capital goes down, when credit becomes cheap, people start taking greater and greater risks.

The very nature of finance is that it cannot be profitable unless it is significantly leveraged... and as long as there is debt, there can be failure and contagion.

The chances of a bank going out of business are extremely slim, but it's always a good idea to spread around major sums so every penny is backed by insurance.

We don't want to give a business that is not going to come through the troubled waters a loan that they can't pay back.

The fundamental problem with banks is what it's always been: they're in the business of banking, and banking, whether plain vanilla or incredibly sophisticated, is inherently risky.

Market discipline can only limit moral hazard to the extent that debt and equity holders believe that, in the event of distress, they will bear costs.

Leverage is great when it works, and when it doesn't work, it creates a lot of issues. So I think if you limit the amount of leverage that people can borrow, or that banks can borrow, I think you'll find that you'll have a lot less issues going forward.

We've always been modestly leveraged, and we've never believed in a great deal of leverage on either our private equity business or on our investment banking business. And I think it really goes back to my uncle and dad growing up in the Depression and just seeing what happened to people who were overly levered.

Manchester United and Liverpool have been bought with huge leverage, and we've got Roman Abramovich at Chelsea who can turn his loans into shares. It is really important for the Premier League to ask itself: if a club is being bought on such a mountain of debt, isn't that a possible recipe for disaster for the future?

Not so long ago, companies that borrowed lots of money were considered risky, appropriate only for daredevil stock pickers. Those with lots of cash on hand and few outstanding debts might be dull stocks, but they were at least safe bets for bondholders.

Most companies can survive even if their debt ratings are lowered below investment grade, although they will have higher borrowing costs.

Why do we have financial crises? Why do banks lose money? If history is any guide, it hasn't often been the result of speculative bets. It has been the result of banks making loans to individuals and businesses who can't pay them back.

A financial institution has the task of taking risks, and if it's a well run institution - say, Goldman Sachs - it tries to cover the potential losses to itself, but only to itself.

Large credit guarantees also impede optimal allocation of financial resources and increase moral hazard.

With weak balance sheets, banks tend to continue lending unprofitable businesses and leave them existing.

We need to increase the transparency of shadow banking markets so that authorities can monitor for signs of excessive leverage and unstable maturity transformation outside regulated banks.

I've been telling anyone willing to listen that banks have a tendency to sit on time bombs while convincing themselves that they are conservative and nonvolatile.