Steve Eisman's The Big Short

The Big Short outlines the players of one of the largest financial fiascos of all time. Steve Eisman was a graduate of Harvard Law and University of Pennsylvania. Upon graduating law school he realized he hated law. He was able to get a job at Oppenheimer and Co. as a Junior Equity Analyst because his parents were employed there. They paid his first year salary so that he could be hired. He built credibility with several company profiles that ended up correct. He was not refined as typical Wall Street characters. These characteristics made people either love him or hate him. His coworkers loved him. Those on the other end of his "truths", hated him. He would be upfront and brutal about a company that was not up to snuff. He also exposed CEOs for untruthful business people. He thrived in conflict. He questioned the status quo in everything from business to religion. During Eisman's time at Oppenheimer, mortgage bonds became popular. Mortgage bonds were different from corporate bonds. They were claims on cash flows
from a pool of individual mortgage loans. A problem with these bonds was borrowers could pay off their loans anytime they pleased. Borrowers typically repaid loans when the interest rates declined and they could refinance to a lower rate. This led bond makers to divide these bonds up in units called tranches. Tranches were segments of the bond payments ordered by risk. The highest risk tranche was giving the highest interest rate but had the highest chance of loan prepayment. Standards were governed by agencies Freddie Mac, Fannie, Mae and Ginnie Mae. As these bonds became even more popular, bond makers started combining high risk mortgage loans into subprime mortgage bonds. Oppenheimer became a leader in mortgage bond market. Eisman became a leader also. He was able to hire a team of people to work for him. He hired Vinny Daniel. Vinny was from Queens and had a lower class childhood. He was highly skeptical of everyone. During the time Vinny was hired, Eisman lost his son in an accident at his home. This changed the way Eisman looked at the world. He realized that anything could happen to anyone at any time.
Eisman was favorable to the subprime mortgage bond market but knew something was wrong.
He and Vinny noticed that the subprime mortgage industry only stated their earnings and very little after that. Delinquency rates were not stated. Vinny realized that something was off as well. Eisman began calling out each subprime loan originators. After quiting at Oppenheimer, Eisman went to Chilton Investment. Since all of the subprime mortgage companies went out of business, he focused on Household Finance Corp. He found they were making dishonest mortgage loans. They were also making a high number of them. He teamed up with ACORN to take action against HFC. They found that the US Attorney General had also investigated but didn’t release their findings. The subprime industry grew to the top companies in mortgage lending. Lehman bros., Bear Sterns, Merrill Lynch and Morgan Stanley. Eisman and Vinny watched the market for the right time to
short.
Michael Burry, in 2004, studied the bond market and how subprime mortgage bonds worked. He read several prospectuses. He could see the lowering standard of lending. They lowered standards to increase volume. He began looking for tools to bet against subprime loan bond market. He used corporate credit default swaps, a tool traditionally used for hedging. He contacted large investment banks such as Morgan Stanley and Bank of America to start offering credit default swaps for subprime