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Acknowledgments

My editor at the now deceased Portfolio, Kyle Pope, encouraged me at the start, as I set off to retrace my steps back to Wall Street. Brandon Adams generously offered his help digging out strange facts and figures and proved to be so smart about the subject that I half-wondered if perhaps he, instead of I, should be writing the book. Among other treasures he unearthed was A. K. Barnett-Hart, a Harvard undergraduate who had just written a thesis about the market for subprime mortgage-backed CDOs that remains more interesting than any single piece of Wall Street research on the subject. Marc Rosenthal served as my jungle guide in the netherworld of subprime lending, and the inner workings of the rating agencies' models, and could not have been more generous with his time or his insight. Al Zuckerman, at Writers House, represented this book ably, as he has my others. Several people read all or part of this manuscript and offered useful advice: John Seo, Doug Stumpf, my father, Tom Lewis, and my wife, Tabitha Soren. Janet Byrne performed an almost startlingly thorough, energetic, and intelligent job copyediting the manuscript, and also proved to be an ideal reader. Starling Lawrence at W. W. Norton, who has edited all but one of my books, and who edited Liar's Poker, was his usual wise and wonderful self.

I've found it impossible to write a decent nonfiction narrative without unusually deep cooperation from my subjects. Steve Eisman, Michael Burry, Charlie Ledley, Jamie Mai, Vincent Daniel, Danny Moses, Porter Collins, and Ben Hockett allowed me to enter their lives. At some unquantifiable risk to themselves, they shared with me their thoughts and feelings. For that I'm eternally grateful.

* United Jewish Appeal.

* ISDA had been created back in 1986, by my bosses at Salomon Brothers, to deal with the immediate problem of an innovation called an interest rate swap. What seemed like a simple trade to the people doing it--I pay you a fixed rate of interest in exchange for your paying me a floating rate--wound up needing a blizzard of rules to govern it. Beneath the rules was the simple fear that the party on the other side of a Wall Street firm's interest rate swap might go bust and fail to pay off its bets. The interest rate swap, like the credit default swap, exposed Wall Street firms to other people's credit, and other people to the credit of Wall Street firms, in new ways.

* The two major rating agencies employ slightly different terminology to convey the same idea. What Standard & Poor's denotes as AAA, for instance, Moody's denotes as Aaa, but both terms describe a bond judged to have the least risk of default. For simplicity's sake, the text will use only the S&P terms, and AAA will be called triple-A, and so forth.

In 2008, when the ratings of a giant pile of subprime-related bonds proved meaningless, their intended meanings were hotly disputed. Wall Street investors had long interpreted them to mean the odds of default. For instance, a bond rated triple-A historically had less than a 1-in-10,000 chance of defaulting in its first year of existence. A bond rated double-A--the next highest rating--stood less than a 1-in-1,000 chance of default, and a bond rated triple-B, less than a 1-in-500 chance of default. In 2008, the rating agencies would claim that they never intended for their ratings to be taken as such precise measurements. Ratings were merely the agencies' best guess at a rank ordering of risk.

* These losses turned not only on how many borrowers defaulted, but also on the cost of each default. After all, the lender held the collateral of the house. As a rule of thumb, in the event of default, the lender collected roughly 50 cents on the dollar. And so roughly 16 percent of the borrowers in a mortgage pool needed to default for the pool to experience losses of 8 percent.

* The story of how and why they did this has been painstakingly told by Financial Times journalist Gillian Tett, in her book Fool's Gold.

* London Interbank Offered Rate--the