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The collapse of Bear Stearns would later be classified as a run on the bank, and in a sense that was correct--other banks were refusing to do business with it, hedge funds were pulling their accounts. It raised a question, however, that would be raised again six months later: Why did the market suddenly distrust a giant Wall Street firm whose permanence it not so very long before took for granted? The demise of Bear Stearns had been so unthinkable in March of 2007 that Cornwall Capital had bought insurance against its collapse for less than three-tenths of 1 percent. They'd put down $300,000 to make $105 million.

"Leverage" was Eisman's answer, on this day. To generate profits, Bear Stearns, like every other Wall Street firm, was perching more and more speculative bets on top of each dollar of its capital. But the problem was obviously more complicated than that. The problem was also the nature of those speculative bets.

The subprime mortgage market had experienced at least two distinct phases. The first, in which AIG had taken most of the risk of a market collapse, lasted until the end of 2005. When AIG abruptly changed its mind, traders inside AIG FP assumed their decision might completely shut down the subprime mortgage market.* That's not what happened, of course. Wall Street was already making too much money using CDOs to turn crappy triple-B-rated subprime bonds into putatively riskless triple-A ones to simply stop doing it. The people who ran the CDO machine at the various firms had acquired too much authority. From the end of 2005 until the middle of 2007, Wall Street firms created somewhere between $200 and $400 billion in subprime-backed CDOs: No one was exactly sure how many there were. Call it $300 billion, of which roughly $240 billion would have been triple-A-rated and thus treated, for accounting purposes, as riskless, and therefore unnecessary to disclose. Much, if not all, of it was held off balance sheets.

By March 2008 the stock market had finally grasped what every mortgage bond salesman had long known: Someone had lost at least $240 billion. But who? Morgan Stanley still owned $13 billion or so in CDOs, courtesy of Howie Hubler. The idiots in Germany owned some, Wing Chau and CDO managers like him owned some more, though whose money they were using to buy the bonds was a bit murky. Ambac Financial Group and MBIA Inc., which had long made their living insuring municipal bonds, had taken over where AIG had left off, and owned maybe 10 billion dollars' worth each. The truth is it was impossible to know how big the losses were, or who had them. All that anyone knew was that any Wall Street firm deep in the subprime market was probably on the hook for a lot more of them than they had confessed. Bear Stearns was deep in the subprime market. It had $40 in bets on its subprime mortgage bonds for every dollar of capital it held against those bets. The question wasn't how Bear Stearns could possibly fail but how it could possibly survive.

Finishing his little speech and heading back to his chair, Steve Eisman passed Bill Miller and patted him on the back, almost sympathetically. In the brief question-and-answer session that followed, Miller pointed out how unlikely it was that Bear Stearns might fail, because thus far, big Wall Street investment banks had failed only after they were caught in criminal activities. Eisman blurted out, "It's only five past ten. Give it time." Apart from that, he'd been almost polite. In the back of the room, Vinny and Danny felt the curious combination of relief and disappointment that followed a tornado that narrowly missed the big city.

It wasn't Eisman who upset the tone in the room, but some kid in the back. He looked to be in his early twenties, and he was, like everyone else, punching on his BlackBerry the whole time Miller and Eisman spoke. "Mr. Miller," he said. "From the time you started talking, Bear Stearns stock has fallen more than twenty points. Would you buy more now?"

Miller looked stunned. "He clearly had