The teppanyaki room inside the Okada restaurant. Las Vegas. Group of Wall Street financial types having dinner after a conference. January, 2007.
When they saw that Lippman had seated Eisman right next to the sucker, both Danny and Vinny had the same thought: Oh no. This isn’t going to end well. Eisman couldn’t contain himself. He’d figure out the guy was a fuool , and let him know it, and then where would they be? They needed fools; only fools would take the other side of their trades. And they wanted to do more trades. “We didn’t want people to know what we were doing,” said Vinny. “We were spies, on a fact-finding mission.” They watched Eisman double-dip his edamame in the communal soy sauce---dip, suck, redip, resuck---and waited for the room to explode. There was nothing to do but sit back and enjoy the show. Eisman had a curious way of listening; he didn’t so much listen to what you were saying as subcontract to some remote region of his brain the task of deciding whether whatever you were saying was worth listening to, while his mind went off to play on its own. As a result, he never actually heard what you said to him the first time you said it. If his mental subcontractor detected a level of interest in what you had just said, it radioed a signal to the mother ship, which then wheeled around with the most intense focus. “Say that again,” he’d say. And you would! Because now Eisman was so obviously listening to you, and, as he listened so selectively, you felt flattered. “I keep looking over at them,” said Danny. “And I see Steve saying over and over, Say that again. Say that again.”
Later, whenever Eisman set out to explain to others the origins of the financial crisis, he’d start with [that dinner]…The soy sauce in which Eisman double-dipped his edamame was shared by a man who had made it possible for tens of thousands of actual human beings to be handed money they could never afford to repay.
That’s from The Big Short: Inside the Doomsday Machine by Michael Lewis. Steve Eisman was a hedge fund manager at FrontPoint Partners who figured out that the subprime mortgage bond market was full of worthless bonds built upon loans bound to go bad and saw that a critical mass of those loans were going to go bad at the same time which would cause a calamity in the bond and real estate markets. A guy with a hyperactive conscience and a passionate belief in fairness and fair play, he was convinced that a great many ordinary Americans were being screwed and that many, many more would get screwed when those bad loans collapsed the bond markets. And he knew who was to blame. Not those ordinary Americans. Greedy and dishonest mortgage brokers and greedy and dishonest and stupid Wall Street bankers and traders. He tried to warn people, alert journalists who covered Wall Street, call in the Feds. No one listened. So he decided he’d meet out his own form of justice by making a killing off those greedy and dishonest and stupid bankers and traders’ banks and investment firms when the collapse came. Michael Lewis’ The Big Short is about how Eisman and a few other smart, savvy, and basically honest traders did that.
Eisman’s going to be played by Steve Carell in the movie adaptation now being filmed. It also stars Brad Pitt, Christian Bale, and Ryan Gosling. But Eisman is the main character and the closest the story has to hero, and I can’t wait to hear Carell deliver what’s got to be one of his lines:
All of them, including Eisman, thought Eisman was temperamentally less than perfectly suited to making short-term trading judgments. He was emotional, and he acted on his emotions. His bets against subprime mortgages were to him more than just bets; he intended them almost as insults. Whenever Wall Street people tried to argue---as they often did---that the subprime lending problem was caused by the mendacity and financial irresponsibility of ordinary Americans, he’d say, “What---the entire American population woke up one morning and said, ‘Yeah, I’m going to lie on my loan application’? Yeah, people lied. They lied because they were told to lie.”
I hope the movie makes as clear as Lewis makes it in the book. Never mind CNBC’s Rick Santelli and the Tea Party. The financial crisis wasn’t caused by poor people buying houses they couldn’t afford. No one was forced to lend them the money. The banks and mortgage companies were eager to lend it. If anything, they practically forced the money on their customers without explaining---in fact, lying about---the actual terms of the loans. They treated their lower middle class and poor customers like marks in a giant con game, which it turned out was what the the housing bubble was, a big con. And this enraged Steve Eisman.
I’m also looking forward to seeing how the movie turns this into action:
From the social point of view the slow and possibly fraudulent unraveling of a multi-trillion-dollar U.S. bond market was a catastrophe. From the hedge fund trading point of view it was the opportunity of a lifetime. Steve Eisman had started out running a $60 million equity fund but was now short around 600 million dollars’ worth of various subprime-related securities [Note: “short” is good here. It basically means Eisman was betting the bonds weren’t worth what they were selling for. “Long” means betting they were worth more. Almost all of Wall Street was long on mortgage bonds.] and he wanted to short more. “Sometimes his ideas cannot be manifested in a trade,” said Vinny [one of Eisman’s right-hand men]. “This time they could.” Eisman was enchained, however, by FrontPoint Partners and, by extension, Morgan Stanley. As FrontPoint’s head trader, Danny Moses found himself caught in the middle, between Eisman and FrontPoint’s risk management people, who didn’t seem to completely understand what they were doing. “They’d call me and say, ‘Can you get Steve to take some of this off?’ I’d go to Steve and Steve would say, ‘Just tell them to fuck off.’ And I’d say ‘Fuck off.’” But risk management hounded them, and cramped Eisman’s style. “If risk had said to us, ‘We’re very comfortable with this and you can do ten times this amount,’” said Danny, “Steve would have done ten times the amount. Greg Lippmann [Gosling’s character] was now blasting Vinny and Danny with all sorts of negative information about the housing market, and, for the first time, Vinny and Danny began to hide information from Eisman. “We were worried he’d come out of his office and shout, ‘Do a trillion!’” said Danny.
I’m thinking a montage of Carell bursting out of his office and shouting at the actors playing Vinny and Danny to place higher and higher bets, a comic and more verbal variation on the montage of Jessica Chastain in Zero Dark Thirty writing the number of days passing on her boss’ office’s glass partition.
Oh, and as for Santelli and CNBC? Complicit in the con.
Amazingly, the stock market continued to soar, and the television over the FrontPoint trading desks emitted a ceaselessly bullish signal. “We turned of CNBC,” said Danny Moses. “It became very frustrating that they weren’t in touch with reality anymore. If something negative happened, they’d spin it positive. If something positive happened, they’d blow it out of proportion. It alters your mind. You can’t be clouded with shit like that.”
Paul Krugman on Rick Santelli: “He hates the poors.”