'Big Short' investor Michael Burry broke down his iconic bet against the US housing bubble during a 2008 meeting with a Warren Buffett acolyte - but his warning and advice were ignored

• Michael Burry told a Warren Buffett disciple exactly how to bet against the housing bubble in 2008.
• However, Mohnish Pabrai ignored the warning and advice from "The Big Short" investor.

Michael Burry was one of the few people to predict and profit from the collapse of the US housing market in 2008. The investor of "The Big Short" fame told a Warren Buffett acolyte that year exactly how to capitalize on the impending crash, but his warning and advice fell on deaf ears.

Mohnish Pabrai reached out to Burry ahead of a trip to the Scion Asset Management chief's hometown of San Jose, California. Burry invited the head of Pabrai Investment Funds to his office, and immediately launched into a detailed explanation of his iconic bet against the housing bubble, Pabrai recalled during a recent Mint interview.

"He doesn't even say hello, welcome, or any of that," Pabrai said. Instead, Burry wasted no time outlining how he was using credit default swaps (CDS), a form of insurance against default risk, to bet against mortgage-backed securities (MBS) and position himself to benefit from a housing bust.

The Scion chief laid out why MBS were far riskier than they appeared, and spoke about "how real estate's going to blow up and everything is going to blow up, the whole Western world is going to blow up," Pabrai said.

However, the "Chai with Pabrai" podcast host shrugged off Burry's comments and dismissed their meeting as a weird encounter. As a result, he was caught out by the financial crisis, and his funds lost about two-thirds of their value between 2007 and 2009, he said.

"Now all God could do is he could take the horse to the water," Pabrai said. "He took the horse to the epicenter of the best lake. The horse was too dumb to drink."

"He implored me to go long CDS on MBS," Pabrai said about Burry in a recent tweet. "And he tried hard to educate me. I was too dumb to absorb his sage advice!"

Pabrai and another investor, Guy Spier, together paid over $650,000 to win Buffett's charity-lunch auction in 2008 and pepper the billionaire with questions over a meal. He could have saved a lot more money than that, and pocketed a fortune, by following Burry's free advice.

Burry repeatedly sounded the alarm on the housing bubble before it imploded, but virtually nobody listened. He's grown so accustomed to being ignored that he goes by "Cassandra" on Twitter — a nod to the Trojan priestess who was cursed by the gods to voice true prophecies but never to be believed.

The Scion chief has issued several grave warnings in recent years. He diagnosed the "greatest speculative bubble of all time in all things" in the summer of 2021, and told buyers of meme stocks and cryptocurrencies they were signing up for the "mother of all crashes."

Burry also raised the prospect of post-pandemic inflation as early as April 2020. Moreover, he cautioned last year that American consumers were saving less, borrowing more, and burning through their savings to keep up with rising interest expenses and higher living costs.

A top JPMorgan banker recently noted those trends have fueled the current banking turmoil, which is fanning fears of a credit crunch and another financial crisis.