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Charlie knew a prominent historian of financial crises, a former professor of his, and took to calling him. "These calls often came late at night," says the historian, who preferred to remain anonymous. "And they would go on for a pretty long time. I remember he started out by asking, 'Do you know what a mezzanine CDO is?' And he started to explain to me how it all worked": how Wall Street investment banks somehow had conned the rating agencies into blessing piles of crappy loans; how this had enabled the lending of trillions of dollars to ordinary Americans; how the ordinary Americans had happily complied and told the lies they needed to tell to obtain the loans; how the machinery that turned the loans into supposedly riskless securities was so complicated that investors had ceased to evaluate risks; how the problem had grown so big that the end was bound to be cataclysmic and have big social and political consequences. "He wanted to talk through his reasoning," said the historian, "and see if I thought he was nuts. He asked if the Fed would ever buy mortgages, and I said I thought that was pretty unlikely. It would have to be a calamity of colossal proportions for the Fed to ever consider doing something like that." What struck the distinguished financial historian, apart from the alarming facts of the case, was that...he was hearing them for the first time from Charlie Ledley. "Would I have ever predicted that Charlie Ledley would have anticipated the greatest financial crisis since the Depression?" he said. "No." It wasn't that Charlie was stupid; far from it. It was that Charlie wasn't a money person. "He's not materialistic in any obvious way," said the professor. "He's not driven by money in any obvious way. He would get angry. He took it personally."

Even so, on the morning of September 18, 2008, Charlie Ledley was still capable of being surprised. He and Jamie did not normally sit in front of their Bloomberg screens and watch the news scroll by, but by Wednesday, the seventeenth, that's what they were doing. The losses announced by the big Wall Street firms on subprime mortgage bonds had started huge and kept growing. Merrill Lynch, which had begun by saying they had $7 billion in losses, now admitted the number was over $50 billion. Citigroup appeared to have about $60 billion. Morgan Stanley had its own $9-plus billion hit, and who knew what behind it. "We'd been wrong in our interpretation of what was going on," said Charlie. "We had always assumed that they sold the triple-A CDOs to, like, the Korean Farmers Corporation. The way they were all blowing up implied they hadn't. They'd kept it themselves."

The big Wall Street firms, seemingly so shrewd and self-interested, had somehow become the dumb money. The people who ran them did not understand their own businesses, and their regulators obviously knew even less. Charlie and Jamie had always sort of assumed that there was some grown-up in charge of the financial system whom they had never met; now, they saw there was not. "We were never inside the belly of the beast," said Charlie. "We saw the bodies being carried out. But we were never inside." A Bloomberg News headline that caught Jamie's eye, and stuck in his mind: "Senate Majority Leader on Crisis: No One Knows What to Do."

Early on, long before others came around to his view of the world, Michael Burry had noted how morbid it felt to turn his investment portfolio into what amounted to a bet on the collapse of the financial system. It wasn't until after he'd made a fortune from that collapse that he began to wonder about the social dimensions of his financial strategy--and wonder if other people's view of him might one day be as distorted as their view of the financial system had been. On June 19, 2008, three months after the death of Bear Stearns, Ralph Cioffi and Matthew Tannin, the two men who had run Bear Stearns's bankrupt subprime hedge funds, were arrested by the FBI, and led away in handcuffs from their own homes.* Late that night, Burry dashed off an e-mail to his in-house