Without you, I don't have anything to buy.' ' 'He says, 'I love guys like you who short my market. 'Then he said something that blew my mind,' Eisman tells me. I thought, ' You prick, you don't give a fuck about the investors in this thing. 'He 'managed' the CDOs,' said Eisman, 'but he managed what?.

The whole point of the CDO was to launder a lot of subprime mortgage market risk that the firms had been unable to place straightforwardly. A lot of people were told: 'You're the expert in this area, find a way to make money in it - everyone else is.' Refusing to participate in the market at all would, in retrospect, have been the only solution, but this is easier said than done. Hundreds of people at conferences, in meetings and over the phone lines argued that the market for subprime was acting irrationally. In a normal environment, this should have led to the mortgage market grinding to a halt - since no one wanted the BBB portions of any subprime or Alt A deal. No one I encountered wanted to take subprime mortgage risk (or Alt A mortgage) risk directly because the risks were considered too high and the premiums were way too low.

The market was booming, yet they were on the sidelines. The problem this time was the market didn't correct.īy 2006, many companies in the risk business received pressure, in one form or another (investors, rating agencies, etc.), about how they were missing out on revenue opportunities. Normally, when risk becomes mispriced like this, the right approach is to step back and wait for sanity to return. Starting in 2005, following the introduction of credit defaults swaps on mortgages, the spread for lending to risky borrowers fell.

The big short lewis