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that no matter how much digging he did he'd never be able to get to the bottom of what exactly was inside a CDO--which, to Jim Grant, meant that no investor possibly could either. In turn this suggested what Grant already knew, that far too many people were taking far too many financial statements on faith. In early 2007 Grant wrote a series of pieces suggesting that the rating agencies had abandoned their posts--that they were almost surely rating these CDOs without themselves knowing exactly what was inside them. "The readers of Grant's have seen for themselves how a stack of non-investment grade mortgage slices can be rearranged to form a collateral debt obligation," one piece began. "And they have stared in amazement at the improvements that this mysterious process can effect in the credit ratings of the slices..." For his troubles, Grant, along with his trusted assistant, was called into S&P for a dressing-down. "We were actually summoned to the rating agency and told, 'You guys just don't get it,'" says Gertner. "Jim used the term 'alchemy' and they didn't like that term."

Just a few miles north of Grant's Wall Street offices, an equity hedge fund manager with a darkening view of the world was wondering why he hadn't heard others voice suspicion about the bond market and its abstruse creations. In Jim Grant's essay, Steve Eisman found independent confirmation of his theory of the financial world. "When I read it," said Eisman, "I thought, Oh my God, this is like owning a gold mine. When I read that, I was the only guy in the equity world who almost had an orgasm."

CHAPTER EIGHT

The Long Quiet

The day Steve Eisman became the first man ever to take almost sexual pleasure in an essay in Grant's Interest Rate Observer, Dr. Michael Burry received from his CFO a copy of the same story, along with a jokey note: "Mike--you haven't taken a side job writing for Grant's, have you?"

"I haven't," Burry replied, seeing no obvious good news in the discovery that there was someone out there who thought as he did. "I'm a bit surprised we haven't been contacted by Grant's..." He was still in the financial world but apart from it, as if on the other side of a pane of glass he couldn't bring himself to tap upon. He'd been the first investor to diagnose the disorder in the American financial system in early 2003: the extension of credit by instrument. Complicated financial stuff was being dreamed up for the sole purpose of lending money to people who could never repay it. "I really do believe the final act in play is a crisis in our financial institutions, which are doing such dumb, dumb things," he wrote, in April 2003, to a friend who had wondered why Scion Capital's quarterly letters to its investors had turned so dark. "I have a job to do. Make money for my clients. Period. But boy it gets morbid when you start making investments that work out extra great if a tragedy occurs." Then, in the spring of 2005, he had identified, before any other investor, precisely which tragedy was most likely to occur, when he made a large, explicit bet against subprime mortgage bonds.

Now, in February 2007, subprime loans were defaulting in record numbers, financial institutions were less steady every day, and no one but him seemed to recall what he'd said and done. He had told his investors that they might need to be patient--that the bet might not pay off until the mortgages issued in 2005 reached the end of their teaser rate period. They had not been patient. Many of his investors mistrusted him, and he in turn felt betrayed by them. At the beginning he had imagined the end, but none of the parts in between. "I guess I wanted to just go to sleep and wake up in 2007," he said. To keep his bets against subprime mortgage bonds, he'd been forced to fire half his small staff, and dump billions of dollars' worth of bets he had made against the companies most closely associated with the subprime mortgage market. He was now more isolated than he'd ever been. The only thing that had changed was his explanation for it.

Not long before, his