The Big Short_ Inside the Doomsday Machine - Michael Lewis [76]
When the CEO of Option One got to the part of his speech about Option One's subprime loan portfolio, he claimed that the company had put its problems behind it and was now expecting a (modest) loss rate on its loans of 5 percent. Eisman raised his hand. Moses and Daniel sank in their chairs. "It wasn't a Q&A," says Moses. "The guy was giving a speech. He sees Steve's hand and says, 'Yes?'"
"Would you say that five percent is a probability or a possibility?" asked Eisman.
A probability, said the CEO, and went back to giving his speech.
Eisman had his hand up in the air again, waving it around. Oh no, thought Moses, and sank deeper in his chair. "The one thing Steve always says is that you must assume they are lying to you," said Daniel. "They will always lie to you." Danny and Vinny both knew what Eisman thought of these subprime lenders, but didn't see the need for him to express it here, in this manner. For Steve wasn't raising his hand to ask a question. Steve had his thumb and index finger in a big circle. Steve was using his fingers to speak on his behalf. "Zero!" they said.
"Yes?" asked the obviously irritated CEO. "Is that another question?"
"No," said Eisman. "It's a zero. There is zero probability that your default rate will be five percent." The losses on subprime loans would be far, far greater. Before the guy could reply, Eisman's cell phone rang. Rather than shut it down, Eisman reached in his pocket and answered it. "Excuse me," he said, standing up. "But I need to take this call." And with that, he walked out of the speech. The caller was his wife.
"It wasn't important at all," she says with a sigh. "I was a prop."
After that something must have come over Eisman, for he stopped looking for a fight and started looking for higher understanding. He walked around the Las Vegas casino incredulous at the spectacle before him: seven thousand people, all of whom seemed delighted with the world as they found it. A society with deep, troubling economic problems had rigged itself to disguise those problems, and the chief beneficiaries of the deceit were its financial middlemen. How could this be? Eisman actually wondered, albeit very briefly, if he was missing something. "He kept saying, 'What the hell is going on here? Who the fuck are all these people?'" said Danny Moses. The short answer to that second question was: the optimists. The subprime mortgage market in its current incarnation never had done anything but rise. The people in it who were regarded as successes were those who had always said "buy." Now they should really all be saying "sell," but they didn't know how to do it. "You always knew that fixed income guys thought they knew more than you did," said Eisman, "and generally that was true. I wasn't a fixed income guy, but here I'd taken this position that was a bet against their whole industry, and I wanted to know if they know something I don't. Could it really be this obvious? Could it really be this simple?" He entered private meetings with the lenders and the bankers and the rating agencies probing for an intelligence he had yet to detect. "He was in learning mode," said Vinny. "When he's fascinated about a subject, his curiosity becomes far more important than being confrontational. He'll claim it was years of therapy that enabled him to behave, but the truth is it was the first time he was connecting all the dots."
Much of Steve Eisman wanted to believe the worst, and that gave him a huge tactical advantage in the U.S. financial markets circa 2007. There was still some part of him, however, that was as credulous as