The Big Short: Inside the Doomsday Machine Read Online Free PDF Page A

they are presenting to you and the actual numbers." The subprime companies did not appreciate his effort. "He created a shitstorm," said Vinny. "All these subprime companies were calling and hollering at him: You're wrong. Your data's wrong . And he just hollered back at them, 'It's YOUR fucking data!'" One of the reasons Eisman's report disturbed so many is that he'd failed to give the companies he'd insulted fair warning. He'd violated the Wall Street code. "Steve knew this was going to create a shitstorm," said Vinny. "And he wanted to create the shitstorm. And he didn't want to be talked out of it. And if he told them, he'd have had all these people trying to talk him out of it."
    "We were never able to evaluate the loans before because we never had the data," said Eisman later. "My name was wedded to this industry. My entire reputation had been built on covering these stocks. If I was wrong, that would be the end of the career of Steve Eisman."
    Eisman published his report in September 1997, in the middle of what appeared to be one of the greatest economic booms in U.S. history. Less than a year later, Russia defaulted and a hedge fund called Long-Term Capital Management went bankrupt. In the subsequent flight to safety, the early subprime lenders were denied capital and promptly went bankrupt en masse. Their failure was interpreted as an indictment of their accounting practices, which allowed them to record profits before they were realized. No one but Vinny, so far as Vinny could tell, ever really understood the crappiness of the loans they had made. "It made me feel good that there was such inefficiency to this market," he said. "Because if the market catches on to everything, I probably have the wrong job. You can't add anything by looking at this arcane stuff, so why bother? But I was the only guy I knew who was covering companies that were all going to go bust during the greatest economic boom we'll ever see in my lifetime. I saw how the sausage was made in the economy and it was really freaky."

    That was the moment it first became clear that Eisman wasn't just a little cynical. He held a picture of the financial world in his head that was radically different from, and less flattering than, the financial world's self-portrait. A few years later, he quit his job and went to work for a giant hedge fund called Chilton Investment. He'd lost interest in telling other people where to put their money. He thought he might be able to remain interested if he managed money himself and bet on his own judgments. Having hired Eisman, Chilton Investment had second thoughts. "The whole thing about Steve," said a Chilton colleague, "was, 'Yeah, he's a really smart guy. But can he pick stocks?'" Chilton decided that he couldn't and relegated him to his old role of analyzing companies for the guy who actually made the investment decisions. Eisman hated it, but he did it, and in doing it he learned something that prepared him uniquely for the crisis that was about to occur. He learned what was really going on inside the market for consumer loans.
    The year was now 2002. There were no public subprime lending companies left in America. There was, however, an ancient consumer lending giant called Household Finance Corporation. Created in the 1870s, it had long been a leader in the field. Eisman understood the company well, he thought, until he realized that he didn't. In early 2002 he got his hands on Household's new sales document offering home equity loans. The company's CEO, Bill Aldinger, had grown Household even as his competitors went bankrupt. Americans, digesting the Internet bust, seemed in no position to take on new debts, and yet Household was making loans at a faster pace than ever. A big source of its growth had been the second mortgage. The document offered a fifteen-year, fixed-rate loan, but it was bizarrely disguised as a thirty-year loan. It took the stream of payments the homeowner would make to Household over fifteen