The Big Short_ Inside the Doomsday Machine - Michael Lewis [95]
Then something changed--though at first it was hard to see what it was. On June 14, the pair of subprime mortgage bond hedge funds effectively owned by Bear Stearns went belly-up. In the ensuing two weeks, the publicly traded index of triple-B-rated subprime mortgage bonds fell by nearly 20 percent. Just then Goldman Sachs appeared to Burry to be experiencing a nervous breakdown. His biggest positions were with Goldman, and Goldman was newly unable, or unwilling, to determine the value of those positions, and so could not say how much collateral should be shifted back and forth. On Friday, June 15, Burry's Goldman Sachs saleswoman, Veronica Grinstein, vanished. He called and e-mailed her, but she didn't respond until late the following Monday--to tell him that she was "out for the day."
"This is a recurrent theme whenever the market moves our way," wrote Burry. "People get sick, people are off for unspecified reasons."
On June 20, Grinstein finally returned to tell him that Goldman Sachs had experienced "systems failure."
That was funny, Burry replied, because Morgan Stanley had said more or less the same thing. And his salesman at Bank of America claimed they'd had a "power outage."
"I viewed these 'systems problems' as excuses for buying time to sort out a mess behind the scenes," he said. The Goldman saleswoman made a weak effort to claim that, even as the index of subprime mortgage bonds collapsed, the market for insuring them hadn't budged. But she did it from her cell phone, rather than the office line, on which the conversations would have been recorded.
They were caving. All of them. At the end of every month, for nearly two years, Burry had watched Wall Street traders mark his positions against him. That is, at the end of every month his bets against subprime bonds were mysteriously less valuable. The end of every month also happened to be when Wall Street traders sent their profit and loss statements to their managers and risk managers. On June 29, Burry received a note from his Morgan Stanley salesman, Art Ringness, saying that Morgan Stanley now wanted to make sure that "the marks are fair." The next day, Goldman followed suit. It was the first time in two years that Goldman Sachs had not moved the trade against him at the end of the month. "That was the first time they moved our marks accurately," he notes, "because they were getting in on the trade themselves." The market was finally accepting the diagnosis of its own disorder.
The moment Goldman was getting in on his trade was also the moment the market flipped. Some kind of rout was now on: Everyone at once seemed eager to talk to him. Morgan Stanley, which had been, by far, the most reluctant to acknowledge negative news in subprime, now called to say it would like to buy whatever he had "in any size." Burry heard a rumor--soon confirmed--that a fund run by Goldman, called Global Alpha, had taken huge losses in subprime and that Goldman itself had rapidly turned from betting on the subprime mortgage market to betting against it.
It was precisely the moment he had told his investors, back in the summer of 2005, that they only needed to wait for. Crappy mortgages worth three-quarters of a trillion dollars were resetting from their teaser rates to new, higher rates. A single pool of mortgages, against which Burry had laid a bet, illustrated the general point: OOMLT 2005-3. OOMLT 2005-3 was shorthand for a pool of subprime mortgage loans made by Option One--the company whose CEO had given the speech