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By Root 293 0

the little kid who lent his new bike to a total stranger. He was still capable of being shocked. His experience with Household Finance had disabused him of any hope that the government would intercede to prevent rich corporations from doing bad things to poor people. Inside the free market, however, there might be some authority capable of checking its excess. The rating agencies, in theory, were just such an authority. As the securities became more complex, the rating agencies became more necessary. Everyone could evaluate a U.S. Treasury bond; hardly anyone could understand a subprime mortgage-backed CDO. There was a natural role for an independent arbiter to pass judgment on these opaque piles of risky loans. "In Vegas it became clear to me that this entire huge industry was just trusting in the ratings," Eisman said. "Everyone believed in the ratings, so they didn't have to think about it."

Eisman had worked on Wall Street for nearly two decades, but, like most stock market people, he'd never before sat down with anyone from Moody's or Standard & Poor's. Unless they covered insurance companies, which lost their ability to sell their product the moment their ability to meet their obligations was thrown into doubt, stock market people didn't pay much attention to the rating agencies. Now Eisman had his first exchanges with them, and what struck him immediately--and struck Danny and Vinny, too--was the caliber of their employees. "You know how when you walk into a post office you realize there is such a difference between a government employee and other people," said Vinny. "The ratings agency people were all like government employees." Collectively they had more power than anyone in the bond markets, but individually they were nobodies. "They're underpaid," said Eisman. "The smartest ones leave for Wall Street firms so they can help manipulate the companies they used to work for. There should be no greater thing you can do as an analyst than to be the Moody's analyst. It should be, 'I can't go higher as an analyst.' Instead it's the bottom! No one gives a fuck if Goldman likes General Electric paper. If Moody's downgrades GE paper, it is a big deal. So why does the guy at Moody's want to work at Goldman Sachs? The guy who is the bank analyst at Goldman Sachs should want to go to Moody's. It should be that elite."

The entire industry had been floated on the backs of the rating agencies, but the people who worked at the rating agencies barely belonged in the industry. If they roamed the halls they might be mistaken, just, for some low-level commercial bankers at Wells Fargo, or flunkies at mortgage lenders, such as Option One: nine-to-fivers. They wore suits in Vegas, which told you half of what you needed to know about them--the other half you got from the price of those suits. Just about everyone else dressed business casual; the few guys who were actually important people wore three-thousand-dollar Italian suits. (One of the mysteries of the Wall Street male was that he was ignorant of the finer points of couture but could still tell in an instant how much another Wall Street male's suit had cost.) The rating agencies guys wore blue suits from J.C. Penney, with ties that matched too well, and shirts that were starched just a bit too stiffly. They weren't players and they didn't know the people who were, either. They got paid to rate the bonds of Lehman and Bear Stearns and Goldman Sachs, but they couldn't tell you the names of, or any of the other important facts about, the guys at Lehman and Bear Stearns and Goldman Sachs who were making a fortune exploiting loopholes in the rating agencies' models. They appeared to know enough to justify their jobs, and nothing more. They seemed timid, fearful, and risk-averse. As Danny put it, "You wouldn't see them at the craps table."

It was in Vegas that Eisman realized that "all the stuff I was worried about, the ratings agencies didn't care. I remember sitting there thinking, Jeez, this is really pathetic. You know when you're with someone who is intellectually powerful: You