WEBVTT - The Short Sellers 0:00:15.316 --> 0:00:15.836 Pushkin. 0:00:22.356 --> 0:00:24.756 I'm Lydia Dean Cott, and I'm Michael Lewis. 0:00:25.356 --> 0:00:25.836 So Michael. 0:00:25.956 --> 0:00:28.476 Last week for the special series about The Big Short, 0:00:28.956 --> 0:00:32.156 you spoke with Adam McKay, who directed The Big Short movie. 0:00:32.676 --> 0:00:34.076 And today we're going to talk to some of the 0:00:34.076 --> 0:00:37.236 real people who inspired the characters in the movie, the 0:00:37.276 --> 0:00:39.716 people who were in your book. And I want to 0:00:39.756 --> 0:00:42.436 start with a scene that's really early on in the movie. 0:00:42.796 --> 0:00:46.396 It shows a meeting between the team at a small 0:00:46.476 --> 0:00:49.916 investment firm called front Point Partners with the bond trader 0:00:50.036 --> 0:00:53.116 from Deutsche Bank. And this bond trader had called them 0:00:53.156 --> 0:00:55.636 up and he said he had this deal for them 0:00:55.716 --> 0:00:58.276 that was too good to be true. And also he 0:00:58.316 --> 0:00:59.236 called them by accident. 0:00:59.436 --> 0:01:00.316 That's exactly right. 0:01:00.476 --> 0:01:04.196 And in the movie, the bond trader's name is Jared 0:01:04.356 --> 0:01:06.956 Vennette and he's played by Ryan Gosling. 0:01:07.396 --> 0:01:08.796 Here's the clip you smell them? 0:01:08.836 --> 0:01:10.636 What is the what? 0:01:10.636 --> 0:01:20.556 What's that small cologne? No opportunity? No money? Okay, there's 0:01:20.636 --> 0:01:22.116 no money, okay. 0:01:23.316 --> 0:01:27.196 Ryan Gosling is playing Greg Littman. Even Greg Littman thinks 0:01:27.196 --> 0:01:30.836 he's Greg Lipman when he's watching it. And Steve Carell 0:01:31.036 --> 0:01:34.116 plays a character named Mark Boll because Steve Eisman said 0:01:34.116 --> 0:01:36.276 he didn't want his name in the movie. So well 0:01:36.916 --> 0:01:39.436 that Evan Eisman says, yeah, that's kind. 0:01:39.276 --> 0:01:41.876 Of me, Like do people were lustress? 0:01:41.996 --> 0:01:44.796 Do they actually talk like this like this? 0:01:45.436 --> 0:01:49.156 Only Greg Lipman talks like this, he does. Oh my god. Yes, 0:01:49.396 --> 0:01:52.996 I'm racking my brain thinking to take myself back to 0:01:53.076 --> 0:01:55.116 why I was so excited when I was writing the book, 0:01:55.476 --> 0:01:59.476 and one of the reasons was Greg Littman was the 0:01:59.516 --> 0:02:02.116 only honest man on Wall Street at that moment. He 0:02:02.196 --> 0:02:04.116 was he had figured out what was going on. He 0:02:04.236 --> 0:02:07.196 was indeed selling the trade of the century. Everything he 0:02:07.236 --> 0:02:10.156 said was true, but he seemed like use car salesman, 0:02:10.356 --> 0:02:13.836 so nobody trusted him. Nobody believed him, but he was 0:02:13.876 --> 0:02:16.676 the only person you should trust. And on the other 0:02:16.716 --> 0:02:19.876 side of it, Steve Eisman was like the person on 0:02:19.876 --> 0:02:24.076 Wall Street designed to mistrust Wall Street, like so deeply 0:02:24.116 --> 0:02:27.476 cynical about Wall Street people, especially people involved in the 0:02:27.476 --> 0:02:32.116 subprime mortgage market. So these two were meant to just 0:02:32.276 --> 0:02:35.316 be at each other's throats, and yet it ends up 0:02:35.316 --> 0:02:37.716 being a match made in heaven. I would go into 0:02:37.716 --> 0:02:40.316 Eisman's office when I started working on the book, and 0:02:40.356 --> 0:02:42.796 I would take off the other guys into rooms by 0:02:42.796 --> 0:02:46.156 themselves to just hear the story of which important person 0:02:46.196 --> 0:02:49.596 on Wall Street Eisman had insulted most recently. He just 0:02:49.676 --> 0:02:52.316 did it over and over and over. I couldn't control himself. 0:02:52.716 --> 0:02:58.876 And they assumed when when Greg Lippman wanders into their office, 0:02:59.036 --> 0:03:01.676 then yeah, he's gonna end up being lunch, you know, 0:03:02.556 --> 0:03:05.796 and instead they're made to be on this big screen together. 0:03:07.116 --> 0:03:09.556 This is the Big Short Companion podcast. To the break 0:03:09.636 --> 0:03:13.276 Michael Lewis's conversation with Greg Littman and a little later 0:03:13.316 --> 0:03:14.956 on the real Steve Eisman. 0:03:24.276 --> 0:03:26.836 Greg Littman is now the chief investment officer at the 0:03:26.836 --> 0:03:31.356 asset management firm Libramax Capital. I noticed when I first 0:03:31.356 --> 0:03:33.436 met him how good he was it breaking stuff down, 0:03:33.676 --> 0:03:36.276 and that hasn't changed. How do you put it in 0:03:36.276 --> 0:03:39.916 the simplest terms, like this financial crisis through your eyes 0:03:41.236 --> 0:03:42.876 and what you experienced. 0:03:43.636 --> 0:03:47.636 Human nature vacillates between fear and greed, and during long 0:03:47.636 --> 0:03:51.316 periods where things are going well, people get greedier and greedier. 0:03:51.356 --> 0:03:54.756 And so what happened during a great financial crisis was 0:03:55.356 --> 0:03:58.996 that institutions were taking on greater and greater risks in 0:03:59.116 --> 0:04:02.396 order to generate the same returns as instrates kept going 0:04:02.396 --> 0:04:05.956 lower and credit spreads kept tightening. So if you're a 0:04:06.036 --> 0:04:08.876 banker an insurance company you need to generate a certain return, 0:04:09.636 --> 0:04:12.356 you accepted a greater amount of risk for the same 0:04:12.436 --> 0:04:16.236 reward because in a competitive process, everybody else was doing 0:04:16.316 --> 0:04:18.836 the same. And so that was the setup for the 0:04:18.836 --> 0:04:21.596 Great Financial Crisis. And then the match that lit it 0:04:22.316 --> 0:04:27.316 was the aggressive lending to homeowners in America. And as 0:04:27.556 --> 0:04:31.356 home prices went up faster than incomes went up, the 0:04:31.436 --> 0:04:35.636 mortgage payments had to adjust to enable people to afford 0:04:36.676 --> 0:04:39.116 a house that they previously would have been unable to 0:04:39.156 --> 0:04:41.796 afford that price, and so the mortgages became more and 0:04:41.836 --> 0:04:45.076 more back ended. There was a saying, a rolling loan 0:04:45.156 --> 0:04:48.076 gathers no loss. As long as we make new loans 0:04:48.396 --> 0:04:51.316 to pay off the old loans, they'll never be a problem. 0:04:51.476 --> 0:04:54.476 So I had a view that someday there would be 0:04:54.476 --> 0:04:57.276 an issue where you couldn't pay off the old loan 0:04:58.276 --> 0:05:00.316 with a new loan, and therefore the payments were going 0:05:00.356 --> 0:05:03.156 to go up so high that they would default. 0:05:03.316 --> 0:05:07.676 So it's so interesting the social role you played in 0:05:07.716 --> 0:05:10.916 the market, seeing the world as it is and much 0:05:10.916 --> 0:05:13.716 of the financial system is not. Most of the people 0:05:13.716 --> 0:05:15.476 in the big banks are not seeing what you're seeing. 0:05:17.156 --> 0:05:19.916 You're running around the world with the truth, and only 0:05:19.956 --> 0:05:21.996 a handful of people basically believe the truth. 0:05:22.156 --> 0:05:24.516 I pitched two hundred and fifty hedge funds roughly, and 0:05:24.556 --> 0:05:26.516 I got about seventy five to do it. So, so 0:05:26.516 --> 0:05:27.956 first of all, you're not going to have seventy five 0:05:27.996 --> 0:05:30.436 people that are the same. And it's more than seventy 0:05:30.436 --> 0:05:32.236 five people, because you know, there were more than one 0:05:32.236 --> 0:05:34.756 person in most of these places, so call it you know, 0:05:34.796 --> 0:05:36.836 three hundred people, right, So you're not going to have 0:05:36.836 --> 0:05:38.236 three hundred people that are the same in the same 0:05:38.236 --> 0:05:40.316 way the one hundred and seventy five firms that met 0:05:40.356 --> 0:05:43.236 me and didn't do it, they're not all the same either, right. 0:05:43.076 --> 0:05:48.076 But certainly, I think it's reasonable to say that that 0:05:48.196 --> 0:05:51.756 people that were very establishment people, people that you know, 0:05:51.836 --> 0:05:54.516 were the prompting of they're high school. Those were people 0:05:54.556 --> 0:05:57.316 who generally didn't see it, didn't want to see it, 0:05:57.956 --> 0:06:00.596 and people who felt a little bit more like outsiders 0:06:01.556 --> 0:06:04.596 were either more more willing or more able, or in 0:06:04.596 --> 0:06:06.956 some cases, I think you know, some of your characters 0:06:06.996 --> 0:06:10.436 even were hoping to see it, you know, more than others. 0:06:10.916 --> 0:06:12.996 I put the trade on in the fall of five. 0:06:13.236 --> 0:06:16.036 That's when I start the trade, and I'd explain to 0:06:16.156 --> 0:06:18.316 my bosses, I run a business make two hunred million 0:06:18.316 --> 0:06:20.916 dollars a year for you, I want to put this 0:06:20.996 --> 0:06:23.236 trade on. I'm going to spend twenty million dollars a 0:06:23.276 --> 0:06:26.556 year until I win. The fixed income globally makes sixteen billion. 0:06:27.116 --> 0:06:30.796 So if everything continues the way it's been going and 0:06:30.836 --> 0:06:33.236 I put this trade on, y'all are going to make 0:06:33.276 --> 0:06:34.556 fifteen point nine to eight billion. 0:06:35.596 --> 0:06:36.876 You're not even going to notice my thing. 0:06:37.476 --> 0:06:39.996 And if my thing blows up, I think it's going 0:06:40.076 --> 0:06:42.196 to affect your sixteen billion, So you're. 0:06:42.076 --> 0:06:45.676 Going to need my money. So that's the thesis. 0:06:46.076 --> 0:06:48.276 So about six months later they were like, well it 0:06:48.276 --> 0:06:52.476 didn't work yet, and I was like, so, m I 0:06:52.596 --> 0:06:54.556 told you the thesis was this two to four years, 0:06:54.596 --> 0:06:57.796 and like leave me alone. Well, we don't like that. 0:06:58.036 --> 0:07:01.516 You need to find people that believe in this besides yourself. 0:07:01.836 --> 0:07:04.236 So if you can't find anybody else, we're going to 0:07:04.276 --> 0:07:07.636 close you down. And we really don't like losing, you know, 0:07:07.796 --> 0:07:10.956 two million a month until we make a billion. We 0:07:10.996 --> 0:07:15.036 don't like that because they lived for this month's earnings report, right. 0:07:16.596 --> 0:07:19.436 So I went on a mission to find people to 0:07:19.676 --> 0:07:22.636 allow me to stay in the game. That's I looked 0:07:22.636 --> 0:07:25.636 at these people and said, hey, like, I'm going to 0:07:25.636 --> 0:07:27.476 give them something that I think is great for them, 0:07:28.196 --> 0:07:29.796 and what they're going to give me an exchange for 0:07:29.836 --> 0:07:32.276 that is enable me to stay in the game. I 0:07:32.396 --> 0:07:34.436 viewed this meeting them as much better for them than 0:07:34.436 --> 0:07:36.596 for me, very good for me. I was giving people 0:07:36.916 --> 0:07:39.156 an amazing thing and just they weren't going to make 0:07:39.196 --> 0:07:41.156 all the money, but they were going to make tons 0:07:41.196 --> 0:07:43.156 of money. So I was on a mission where I 0:07:43.196 --> 0:07:46.236 had to find people to cover this week's bill. What 0:07:46.356 --> 0:07:48.956 is true is it was sort of a wrong number 0:07:49.076 --> 0:07:51.196 in the sense that I was trying to reach the 0:07:51.196 --> 0:07:54.756 front point that was long one of these subprime originators. 0:07:54.956 --> 0:07:56.956 But what's also true is I was trying to find 0:07:56.956 --> 0:07:59.556 anyone that was willing to listen to my idea and 0:07:59.596 --> 0:08:02.516 pay this week's You know, bar tab, Had. 0:08:02.356 --> 0:08:03.436 You ever met any of them? 0:08:03.556 --> 0:08:04.596 No? 0:08:04.596 --> 0:08:06.436 No, Now, they reminded me of people that I went 0:08:06.476 --> 0:08:10.156 to summer camp with. I had gone to a summer 0:08:10.196 --> 0:08:13.356 camp where it was run by a charity so people paid, 0:08:13.556 --> 0:08:15.796 you know, differently based on their income. And there's a 0:08:15.796 --> 0:08:19.076 lot of kids from Queens in the Bronx. And and 0:08:19.156 --> 0:08:21.556 while I was sort of very solidly middle class for 0:08:21.636 --> 0:08:24.276 that camp, it was like a lower class camp in 0:08:24.356 --> 0:08:29.316 terms of income. I found them entertaining. I found Eisman 0:08:29.476 --> 0:08:31.356 to be more difficult than the other guys. 0:08:32.756 --> 0:08:34.956 And what was difficult about Heisman? 0:08:36.596 --> 0:08:41.436 So look, there were people then, not not Eisman, but 0:08:41.476 --> 0:08:43.716 there were people that whatever I said, you know, I 0:08:43.716 --> 0:08:46.716 said black, they said white, and we're just like difficult 0:08:46.756 --> 0:08:48.716 for the sake of being difficult. But I remember him 0:08:48.716 --> 0:08:52.476 as being a little bit that way. Also, you know, 0:08:52.516 --> 0:08:54.076 I don't I remember not thinking he was a nice 0:08:54.076 --> 0:08:56.636 guy for sure. I would also say I met a 0:08:56.636 --> 0:08:59.116 lot of people who were extraordinarily wealthy during this time, 0:08:59.356 --> 0:09:02.836 and most of those people seemed unhappy, uh And which 0:09:02.876 --> 0:09:05.676 is interesting, uh in and of itself. And and and 0:09:05.796 --> 0:09:08.356 you know, much wealthier than than than Eisman was at 0:09:08.356 --> 0:09:08.716 the time. 0:09:10.796 --> 0:09:13.276 So that's Greg Lippman, the person who, in the run 0:09:13.356 --> 0:09:16.196 up to the financial crisis sniffed out Wall Street's dark 0:09:16.236 --> 0:09:20.716 secret long before most everybody else. I really appreciate him 0:09:20.716 --> 0:09:23.476 talking with me again after all this time When we 0:09:23.516 --> 0:09:25.196 come back from the break, I speak with the fellow. 0:09:25.196 --> 0:09:27.916 We were just talking about Steve Eisman, the founder of 0:09:27.916 --> 0:09:31.996 front Point Partners and at the time won very difficult customers. 0:09:36.156 --> 0:09:39.276 How did the Volkswagen Beatle go from being Hitler's dream 0:09:39.356 --> 0:09:42.716 car to a hippie icon. How did a disgruntled center 0:09:42.756 --> 0:09:46.476 fielder change the business of sports? I'm Jacob Goldstein and 0:09:46.596 --> 0:09:49.356 on Business History my co host Robert Smith, and I 0:09:49.436 --> 0:09:52.436 dig into the people and companies who created the modern world. 0:09:52.836 --> 0:09:56.396 Business History is full of innovations and failures and insights 0:09:56.436 --> 0:09:59.676 into how business works today. At the end of today's 0:09:59.676 --> 0:10:01.676 episode of Against the Rules, we're going to play a 0:10:01.676 --> 0:10:06.076 clip from our episode about Jim Simon's decades ago. Simon's 0:10:06.116 --> 0:10:10.876 basically invented modern algorithmic trading. After a few early hiccups, 0:10:10.876 --> 0:10:14.516 including buying up all the potatoes in Maine, Simon's built 0:10:14.516 --> 0:10:19.116 a machine that generated incredible returns for decades. The show 0:10:19.196 --> 0:10:21.996 is called Business History and the previous coming up at 0:10:21.996 --> 0:10:26.716 the end of today's episode of Against the Rules, and. 0:10:26.716 --> 0:10:29.436 We're back in the Big Short. One of my main 0:10:29.516 --> 0:10:32.436 characters was a guy named Steve Eisman, who managed an 0:10:32.436 --> 0:10:36.636 investment fund under Morgan Stanley called front Point Partners. He 0:10:36.676 --> 0:10:39.596 had a long history with subprime mortgages, and he said 0:10:39.676 --> 0:10:42.996 something was wrong with the mortgage backed securities market long 0:10:43.036 --> 0:10:46.356 before many other people did. In the movie version of 0:10:46.396 --> 0:10:50.556 the book, his character was called Mark Baum, played by 0:10:50.596 --> 0:10:54.036 the actor Steve Carell. To a t hold on, So, 0:10:54.116 --> 0:10:55.556 mortgage bonds are dogshit. 0:10:55.996 --> 0:10:58.116 CDOs are dogshit wrapped in catshit. 0:10:59.756 --> 0:11:00.356 Yeah, that's right. 0:11:01.676 --> 0:11:05.196 Institutions treat the CDOs like they're as solid as treasury bonds, 0:11:05.196 --> 0:11:08.956 and they're going to zero now, it can't be right there. 0:11:09.276 --> 0:11:11.796 Five hundred billion and housing bus so last year alone, 0:11:11.836 --> 0:11:15.756 the ratings agencies, the banks, the fucking government, they're saying, 0:11:15.756 --> 0:11:17.076 they're all asleep at the wheel. 0:11:25.676 --> 0:11:29.156 Lipman, God bless him, is actually an incredibly honest person, 0:11:30.036 --> 0:11:33.036 incredibly honest. He was always honest with us. But he 0:11:33.076 --> 0:11:35.236 comes across as a bit like a used car salesman, 0:11:36.596 --> 0:11:39.636 and that's just who he is. Yeah, you know, But 0:11:39.636 --> 0:11:42.516 but like I said, there is not one thing that 0:11:42.596 --> 0:11:45.956 Lipman ever did that wasn't completely about board with me. 0:11:46.116 --> 0:11:48.756 But after the meeting, like you know, the guys thought said, 0:11:48.756 --> 0:11:50.116 what do you think? I said, what do I think? 0:11:51.276 --> 0:11:53.356 Somebody just told me how to make a gazillion dollars. 0:11:53.356 --> 0:11:55.676 I'm ready to go, and I said, wait a minute, 0:11:55.676 --> 0:11:58.716 he's going to screw with somehow. And he actually told 0:11:58.756 --> 0:12:00.556 you how he was going to screw you. He said 0:12:00.556 --> 0:12:02.076 to us in the meeting, let's say the credit to 0:12:02.156 --> 0:12:04.516 false swap goes down in price. Let's see why it 0:12:04.836 --> 0:12:07.236 par And it goes down to thirty cents on the 0:12:07.316 --> 0:12:10.636 dollars you made seventy cents. He says, when you want 0:12:10.636 --> 0:12:13.556 to get out, I'll take you out at forty. And 0:12:14.596 --> 0:12:16.956 guess what he was wrong, because by the time we 0:12:16.996 --> 0:12:19.556 wanted to get out, everybody wanted our credit to fault swots. 0:12:19.636 --> 0:12:21.676 That's how he thought he was going to screw you, right, 0:12:21.796 --> 0:12:22.996 But he didn't. 0:12:23.276 --> 0:12:27.796 When you think back on the financial crisis on that period, 0:12:28.476 --> 0:12:30.356 what scenes pop into your head. 0:12:30.596 --> 0:12:34.676 One scene that's not in the movie is so you 0:12:34.796 --> 0:12:38.116 go back. So Lehman was on that Sunday in I 0:12:38.116 --> 0:12:41.596 think September. I forget whatever day to like fourteenth or something. 0:12:41.916 --> 0:12:45.356 So that was Sunday, and then Merrill Lynch got bought 0:12:45.436 --> 0:12:48.676 out by Bank of America on the same day. I 0:12:48.676 --> 0:12:51.076 remember sitting in a restaurant. I had a black bear 0:12:51.236 --> 0:12:52.956 and I remember looking at my BlackBerry and it comes 0:12:52.996 --> 0:12:56.396 across AI's fucked. It's basically what it said. I said, 0:12:56.396 --> 0:13:00.636 Oh God, here we go. And then Friday. At the 0:13:00.756 --> 0:13:05.956 end of that day, Friday, Paulson stopped short selling. But 0:13:06.116 --> 0:13:11.116 in the morning it looked like planet Earth burning literally. 0:13:11.156 --> 0:13:13.236 I mean, I remember We're sitting at the desk and 0:13:13.476 --> 0:13:16.596 Danny was having like an anxiety attack, so with the 0:13:16.596 --> 0:13:18.876 rest of us by the way, and I had to 0:13:18.916 --> 0:13:22.236 go to a conference. And then I got a phone 0:13:22.236 --> 0:13:24.836 call from Portera to say that because Danny was going 0:13:24.836 --> 0:13:27.196 so nuts, they took him, walked him out of the office. 0:13:27.276 --> 0:13:29.916 I'm coming, I said, meet me at the Saint Patrick's Cathedral, 0:13:30.076 --> 0:13:33.156 which was a block from our office. And I remember, 0:13:33.476 --> 0:13:36.196 so it's Friday now, like at around one thirty and 0:13:36.276 --> 0:13:39.356 an hour, Paulson is about to come out with this news, 0:13:40.076 --> 0:13:41.356 but we don't know that obviously. 0:13:41.716 --> 0:13:44.116 And remind me of the news is that the news was. 0:13:44.116 --> 0:13:48.476 That there's no short selling of financial companies, right, so. 0:13:48.516 --> 0:13:51.276 You couldn't you couldn't you couldn't bet against Morgan Stanley 0:13:51.276 --> 0:13:52.036 and Goldman Sachs in. 0:13:52.036 --> 0:13:54.796 The stock market correct and cause an enormous rally in 0:13:54.836 --> 0:13:55.916 the market. For two days. 0:13:56.036 --> 0:13:56.516 That was it. 0:13:58.756 --> 0:14:02.116 And we were sitting on the steps of Saint Patrick's 0:14:02.116 --> 0:14:06.676 Cathedral and it was a gorgeous day, gorgeous day, and 0:14:06.756 --> 0:14:09.556 I remember turning to one of the guys and I 0:14:09.596 --> 0:14:13.276 said something like, these poor people, they have absolutely no 0:14:13.396 --> 0:14:17.636 idea what's about to hit them? That I remember. 0:14:19.356 --> 0:14:22.156 Did what you imagine what was about to hit them 0:14:22.276 --> 0:14:25.476 hit them? Or did it play out differently than you imagined? 0:14:26.036 --> 0:14:28.556 It mostly hit them. I mean the government stepped in 0:14:28.636 --> 0:14:33.076 and prevent the worst, which it had to do. But look, 0:14:33.116 --> 0:14:35.636 I don't remember unemployment levels got to like ten percent. 0:14:35.836 --> 0:14:37.636 They would have gone to thirty. It would have been 0:14:37.676 --> 0:14:38.996 a depression, there's no question. 0:14:39.196 --> 0:14:39.716 Yeah. 0:14:40.036 --> 0:14:48.356 So the government prevented the worst, and it was about 0:14:48.396 --> 0:14:50.276 as good a job as they could do, with one 0:14:50.356 --> 0:14:55.476 major mistake. I think the biggest mistake the Obama administration 0:14:55.636 --> 0:14:59.236 made was and nobody went to jail. That was a terrible, 0:14:59.596 --> 0:15:05.476 terrible policy error. And by the way, to this day, 0:15:05.676 --> 0:15:10.756 no one knows how it happened, why that happened. The fraud, 0:15:11.156 --> 0:15:13.716 and this is the biggest fraud in human history, was this. 0:15:14.116 --> 0:15:19.116 When you're a Wall Street firm, you have a relationship 0:15:19.156 --> 0:15:23.636 with subprime lenders from whom you're buying mortgages to create 0:15:23.636 --> 0:15:27.116 a securitization. And basically what you do is you go 0:15:27.196 --> 0:15:29.076 to the subprime firm and you say, I'll buy every 0:15:29.116 --> 0:15:33.236 single loan that you make that has the following characteristics, 0:15:33.476 --> 0:15:35.196 and you lay them out and call that like that's 0:15:35.196 --> 0:15:37.916 your underwriting box. You go buy a billion dollars worth 0:15:37.956 --> 0:15:41.596 of mortgages. On the day you buy them, you buy 0:15:41.636 --> 0:15:45.036 them blind. You have absolutely no idea what's in the files. 0:15:45.756 --> 0:15:49.956 So a billion dollars worth of mortgages. You can't securitize 0:15:50.436 --> 0:15:53.956 a billion dollars worth of mortgages and say we have 0:15:54.036 --> 0:15:57.076 no freaking idea what's in these files. Even Wall Street 0:15:57.076 --> 0:16:00.196 won't do that, but it's expensive to go through five 0:16:00.236 --> 0:16:03.796 thousand files. So literally every single Wall Street firm hired 0:16:03.796 --> 0:16:05.796 a due diligence firm, and they hire the same due 0:16:05.796 --> 0:16:10.876 diligence firm. It's called Clayton Mortgage. Yeah, so Clayton Mortgage 0:16:10.916 --> 0:16:14.876 was hired by literally every single Wall Street firm, and 0:16:15.236 --> 0:16:17.596 every single Wall Street firm gave Clayton Mortgage the same 0:16:17.636 --> 0:16:21.956 marching orders, which is pull a statistically significant sample of 0:16:22.036 --> 0:16:27.036 the files and tell us what's in them. So, starting 0:16:27.036 --> 0:16:30.116 in six when the underwriting standard as we all know 0:16:30.236 --> 0:16:33.396 now went completely to hell, the report start to come 0:16:33.436 --> 0:16:37.956 back very bad, meaning anywhere from ten percent to forty 0:16:37.996 --> 0:16:43.796 percent of the sample is no good, meaning there's not 0:16:43.916 --> 0:16:47.396 enough employment history in here, the debt level is too high, 0:16:47.676 --> 0:16:53.436 you know whatever. So you contractually, you the Wall Street firm, 0:16:53.476 --> 0:16:57.316 contractually have the right to put back to the lender 0:16:57.916 --> 0:17:00.636 any loan that you find upon due diligence does not 0:17:00.676 --> 0:17:06.116 adhere to your underwriting standards. So here's my favorite question. 0:17:06.556 --> 0:17:11.356 So let's say thirty percent of the ten percent is 0:17:11.396 --> 0:17:14.316 no good? How many Wall Street firms then ordered Clayton 0:17:14.356 --> 0:17:17.276 Mortgan to do due diligence that remaining ninety percent? Can 0:17:17.316 --> 0:17:23.756 I answer that? Please do it? Zero? Thank you right? Zero? 0:17:24.516 --> 0:17:28.076 And in the prospectus there would be a paragraph and 0:17:28.116 --> 0:17:31.556 the paragraph would say risks, some of these loans might 0:17:31.556 --> 0:17:36.516 not adhere to our ownderwriting stacks. Yes, So, by the way, 0:17:36.836 --> 0:17:38.276 just to tell you how bad this is. So this 0:17:38.436 --> 0:17:41.236 was discovered by the Financial Crisis Commission. They had it 0:17:41.316 --> 0:17:45.036 hearing in Sacramento. This is Philangelies, and I remember listening 0:17:45.076 --> 0:17:47.476 and the Clayton mortgage guy was testifying to this, and 0:17:47.516 --> 0:17:49.076 when he was done, I turned to one a good 0:17:49.156 --> 0:17:51.196 that people are going to chall I mean, this is unbelieved, 0:17:51.436 --> 0:17:54.116 this is the biggest fraud new ministry. Then it's not complicated. 0:17:54.116 --> 0:17:57.756 They're going to go to jail. So in the Angelides 0:17:57.916 --> 0:18:01.316 did an actual referral of this very top there to 0:18:01.396 --> 0:18:06.196 the Justice Department for criminal investigation. And then, as far 0:18:06.236 --> 0:18:11.236 as we know, nothing happened. Nobody investigated. Now why I 0:18:11.236 --> 0:18:14.316 don't know, and to this day I do not understand it. 0:18:15.236 --> 0:18:18.276 If they investigate and people go to jail, who goes 0:18:18.316 --> 0:18:19.036 to jail there? 0:18:19.716 --> 0:18:21.996 Oh? Who goes to jail would be the people on 0:18:22.036 --> 0:18:29.396 the securitization desk, their supervisors. Maybe you know, the such 0:18:29.396 --> 0:18:31.796 a bad fraud, the heads of the firms should be 0:18:31.836 --> 0:18:35.396 banned from running farms for the rest of their lives. 0:18:35.996 --> 0:18:38.756 So what blank find should have been banned from being 0:18:38.836 --> 0:18:41.916 the CEO of Golden Socks? I mean, you go right 0:18:41.996 --> 0:18:44.596 up the line. This is a decision that was made 0:18:44.636 --> 0:18:46.036 without footprints. 0:18:48.236 --> 0:18:50.436 That's the first time I've heard that story. How does 0:18:50.476 --> 0:18:52.556 it play out differently? If people go to jail. 0:18:53.716 --> 0:18:56.876 The economy would have played any differently? Now few difference, 0:18:56.996 --> 0:18:59.476 I mean, you know, prior to the crisis. Everybody's sitting 0:18:59.476 --> 0:19:02.116 there that's suspecting that there's two systems of justice, one 0:19:02.156 --> 0:19:05.516 for rich or one from poor. Now we know that 0:19:05.636 --> 0:19:07.156 definitely is also. 0:19:07.076 --> 0:19:09.436 Two systems of capitalism, once one for rid, which one 0:19:09.476 --> 0:19:09.996 for poor. 0:19:10.036 --> 0:19:12.476 Exactly, and so now we know, so that created the 0:19:12.516 --> 0:19:15.636 tea party. I'm convinced that this whole, this, this created 0:19:15.676 --> 0:19:18.236 the tea party. And then from and then from there 0:19:18.276 --> 0:19:20.516 you could draw your own conclusions. 0:19:19.876 --> 0:19:21.196 And the agger is still there. 0:19:22.076 --> 0:19:22.676 It should be. 0:19:23.076 --> 0:19:29.276 Yeah, how has it being the face of the Big 0:19:29.356 --> 0:19:32.796 Short affected your life since the movie came out? 0:19:33.196 --> 0:19:34.836 I mean, it doesn't affect it on a day to 0:19:34.876 --> 0:19:36.996 day basis. I mean sometimes it's kind of funny if 0:19:36.996 --> 0:19:40.356 they take the bus across town and somebody looks at 0:19:40.396 --> 0:19:41.876 me and says, there, aren't you, Steve Wiseman. 0:19:43.636 --> 0:19:44.916 Are you still running money? 0:19:45.516 --> 0:19:49.716 No, not running any money, just my own, just your own. Yeah, 0:19:49.756 --> 0:19:52.716 And I'm very long term invested. I don't trade. 0:19:54.676 --> 0:19:56.956 Do you see anything going on in the banking system 0:19:56.996 --> 0:19:57.596 that worries you. 0:19:59.276 --> 0:20:01.996 The only thing that might worry me is, you know 0:20:02.036 --> 0:20:05.676 the look the private equity world is multiples bigger than 0:20:05.716 --> 0:20:09.076 it was, and nobody really knows what's going on there. 0:20:09.236 --> 0:20:11.556 Prior equity world has not been stressed tested like the 0:20:11.636 --> 0:20:17.476 banks at all. So if there's a problem that emerges, 0:20:17.796 --> 0:20:20.636 I think it will emerge from there. But I don't 0:20:20.636 --> 0:20:23.196 have any more data on this to add even a 0:20:23.196 --> 0:20:27.596 single additional sentence. That's the problem. 0:20:27.876 --> 0:20:30.396 How often do you find yourself pushed in the position 0:20:30.556 --> 0:20:33.996 of trying to guess what's happening next, like you're nostro 0:20:34.036 --> 0:20:34.796 damas well. 0:20:34.676 --> 0:20:37.316 It's not so much that. So this is the funny thing. 0:20:37.316 --> 0:20:40.996 These days on CNBC they call me Happy Steve because 0:20:40.996 --> 0:20:43.156 I'm actually quite bullish on the mark. I've been bullish 0:20:43.196 --> 0:20:48.556 for years, and they always bring up the deficit. I 0:20:48.596 --> 0:20:53.276 call this the OI the deficit discussion. And the last 0:20:53.276 --> 0:20:57.516 time I was on SO my theory, which is I've 0:20:57.556 --> 0:20:59.636 said this like three thousand times because every time I'm 0:20:59.676 --> 0:21:01.716 on TV day they basically want they're begging me to 0:21:01.756 --> 0:21:03.556 predict the end of the world because of the data. 0:21:03.716 --> 0:21:08.876 They said, look this, this this argument about the deficit, 0:21:09.876 --> 0:21:13.476 it's forty years old. The last time on CNBCO was 0:21:13.476 --> 0:21:15.556 on it was like this like the tenth time I'm 0:21:15.596 --> 0:21:17.596 on the show, and they asked me the same question 0:21:18.316 --> 0:21:20.796 and I go like this, you know, you know, the 0:21:20.836 --> 0:21:26.076 problem is all these people want to be me. They 0:21:26.116 --> 0:21:29.316 want to be the person who predicts the end of 0:21:29.356 --> 0:21:33.316 the world, and I got news for all the position 0:21:33.356 --> 0:21:34.676 of Steve Eisman is taken. 0:21:44.836 --> 0:21:48.196 So when I met you, I met you because Meredith 0:21:48.516 --> 0:21:51.436 Whitney told me I should meet you, and I came 0:21:51.476 --> 0:21:55.636 away from the first encounter thinking that was a born teacher. 0:21:56.476 --> 0:21:59.756 So it's funny. It's generally two of the main characters 0:21:59.796 --> 0:22:03.476 of my books. They're all really good teachers. Billy Bean 0:22:04.516 --> 0:22:07.916