The Big Short

by Michael Lewis

Troy Shu
Troy Shu
Updated at: March 12, 2024
The Big Short
The Big Short

What are the big ideas? 1. Subprime Mortgage Bonds and Credit Default Swaps as Gameable Markets: The book reveals how Wall Street firms exploited blind spots in the

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What are the big ideas?

  1. Subprime Mortgage Bonds and Credit Default Swaps as Gameable Markets: The book reveals how Wall Street firms exploited blind spots in the rating agencies' models and gamed the system to create pools of loans more likely to default but still receive high ratings. This unique insight into the subprime mortgage bond market and the credit default swaps market highlights the importance of understanding the underlying risks and complexities of these markets, which are not always transparent or fully understood by investors.
  2. The Importance of Early Identification and Unique Perspectives: The book shows that successful investing often comes from early identification of market risks or trends, as seen with Steve Eisman, Michael Burry, and Cornwall Capital's positions against subprime mortgage-backed securities. These investors' success stories demonstrate the value of having a unique perspective and thorough analysis to identify investment opportunities before others.
  3. The Role of Asperger's Syndrome in Successful Investing: The book introduces Michael Burry, a hedge fund manager diagnosed with Asperger's syndrome, who made a successful bet against the U.S. housing market using credit default swaps. This unique case study highlights the potential advantages of having a different perspective or thinking style, as individuals with autism spectrum disorders may have unique strengths in pattern recognition and attention to detail.
  4. The Impact of Government Intervention on Market Reality: The book discusses the government intervention during the financial crisis through TARP and the Fed buying bad assets from banks, which prevented individual American subprime borrowers from failing but allowed Wall Street firms to avoid recognizing losses in their subprime mortgage portfolios. This insight underscores the complex consequences of government intervention on market realities, and how it can create a false sense of security while masking underlying risks.
  5. The Implications of Complexity and Interconnectedness: The book describes the credit default swaps market's crucial role in amplifying losses during the crisis and the impossibility of determining the true extent of risk due to unknown amounts being bought and sold on every major firm. This learning highlights the importance of understanding the increasing complexity and interconnectedness of modern financial markets, as well as their potential risks and vulnerabilities.


Chapter 1 A Secret Origin Story


  • Steve Eisman identified the subprime mortgage market as a significant risk in 2004, long before the financial crisis of 2008.
  • He had previous experience with subprime lending during the late 1990s when he noticed widespread fraud and misrepresentation in the industry.
  • Eisman's team, which included Vinny, Danny Moses, and Porter Collins, saw that a large portion of subprime loans were now floating-rate and not fixed as they had been before.
  • They also observed that these loans were being sold off to Wall Street investment banks, which then packaged them into mortgage bonds for sale to investors.
  • Eisman realized that the bond market dwarfed the equity market in size and influence, as most major Wall Street firms were effectively run by their bond departments.
  • He believed that there would be a significant opportunity to make money shorting these subprime mortgage-backed bonds or the stocks of companies involved in subprime lending. However, they didn't know how or when this would happen.


“not because he had the slightest interest in God but because he was curious about its internal contradictions.”

“The creation of the mortgage bond market, a decade earlier, had extended Wall Street into a place it had never before been: the debts of ordinary Americans.”

“Because the lenders sold many—though not all—of the loans they made to other investors, in the form of mortgage bonds, the industry was also fraught with moral hazard. “It was a fast-buck business,” says Jacobs. “Any business where you can sell a product and make money without having to worry how the product performs is going to attract sleazy people.”

“Subprime mortgage lending was still a trivial fraction of the U.S. credit markets—a few tens of billions in loans each year—but its existence made sense, even to Steve Eisman. “I thought it was partly a response to growing income inequality,” he said. “The distribution of income in this country was skewed and becoming more skewed, and the result was that you have more subprime customers.”

“A thought crossed his mind: How do you make poor people feel wealthy when wages are stagnant? You give them cheap loans.”

“Success was individual achievement; failure was a social problem.”

“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 years, spread it hypothetically over thirty years, and asked: If you were making the same dollar payments over thirty years that you are in fact making over fifteen, what would your “effective rate” of interest be? It was a weird, dishonest sales pitch. The borrower was told he had an “effective interest rate of 7 percent” when he was in fact paying something like 12.5 percent. “It was blatant fraud,” said Eisman. “They were tricking their customers.”

“If you are going to start a regulatory regime from scratch, you’d design it to protect middle-and lower-middle-income people, because the opportunity for them to get ripped off was so high. Instead what we had was a regime where those were the people who were protected the least.” Eisman”

“When you’re a conservative Republican, you never think people are making money by ripping other people off,” he said. His mind was now fully open to the possibility. “I now realized there was an entire industry, called consumer finance, that basically existed to rip people off.”

“A Home without Equity Is Just a Rental with Debt,”

“The subprime mortgage machine was up and running again, as if it had never broken down in the first place. If the first act of subprime lending had been freaky, this second act was terrifying. Thirty billion dollars was a big year for subprime lending in the mid-1990s. In 2000 there had been $130 billion in subprime mortgage lending, and 55 billion dollars’ worth of those loans had been repackaged as mortgage bonds. In 2005 there would be $625 billion in subprime mortgage loans, $507 billion of which found its way into mortgage bonds.”

“The market might have learned a simple lesson: Don’t make loans to people who can’t repay them. Instead it learned a complicated one: You can keep on making these loans, just don’t keep them on your books. Make the loans, then sell them off to the fixed income departments of big Wall Street investment banks, which will in turn package them into bonds and sell them to investors.”

Chapter 2 In the Land of the Blind


  • Mike Burry, a successful hedge fund manager, shifted his focus from stocks to credit default swaps (CDS) on subprime mortgage bonds in 2005 due to his bearish view on the housing market.
  • He believed that the U.S. housing market was in a bubble and that many subprime mortgages would eventually default.
  • Burry faced skepticism from some of his investors who were more interested in short-term gains than long-term value investing.
  • Wall Street counterparties, who had initially been dismissive or even hostile to Burry's CDS trades, suddenly expressed interest in buying them back as the subprime mortgage market began to unravel.
  • In November 2005, Burry learned that Deutsche Bank and Goldman Sachs were looking to buy back the CDS contracts he had sold them earlier in the year.
  • Morgan Stanley also expressed interest in purchasing CDS contracts from him.
  • Burry suspected that these banks were concerned about the rising default rates on subprime mortgages and wanted to hedge their exposure to these risks.
  • The Wall Street Journal reported that adjustable-rate mortgages were defaulting at unprecedented rates, confirming Burry's bearish view on the housing market.


“Writing a check separates a commitment from a conversation. —Warren Buffett”

“A credit default swap was confusing mainly because it wasn’t really a swap at all. It was an insurance policy, typically on a corporate bond, with semiannual premium payments and a fixed term. For instance, you might pay $200,000 a year to buy a ten-year credit default swap on $100 million in General Electric bonds. The most you could lose was $2 million: $200,000 a year for ten years. The most you could make was $100 million, if General Electric defaulted on its debt any time in the next ten years and bondholders recovered nothing. It was a zero-sum bet: If you made $100 million, the guy who had sold you the credit default swap lost $100 million. It was also an asymmetric bet, like laying down money on a number in roulette. The most you could lose were the chips you put on the table; but if your number came up you made thirty, forty, even fifty times your money.”

“He gave a talk in which he argued that the way they measured risk was completely idiotic. They measured risk by volatility: how much a stock or bond happened to have jumped around in the past few years. Real risk was not volatility; real risk was stupid investment decisions.”

“If you wanted to predict how people would behave, Munger said, you only had to look at their incentives. FedEx couldn’t get its night shift to finish on time; they tried everything to speed it up but nothing worked—until they stopped paying night shift workers by the hour and started to pay them by the shift. Xerox created a new, better machine only to have it sell less well than the inferior older ones—until they figured out the salesmen got a bigger commission for selling the older one. “Well, you can say, ‘Everybody knows that,’ ” said Munger. “I think I’ve been in the top five percent of my age cohort all my life in understanding the power of incentives, and all my life I’ve underestimated it. And never a year passes but I get some surprise that pushes my limit a little”

Chapter 3 "How Can a Guy Who Can't Speak English Lie?"


  • Greg Lippmann, a trader at Deutsche Bank, became bearish on subprime mortgage bonds in late 2005 due to concerns about rising default rates and home price declines.
  • He saw an opportunity in the credit default swap (CDS) market, as AIG was the dominant buyer of CDOs (Collateralized Debt Obligations), which were based on subprime mortgage bonds.
  • Lippmann believed that if AIG stopped buying CDOs, the entire market could collapse, making his short position in credit default swaps highly profitable.
  • He traveled to London to meet with Tom Fewings of AIG FP and presented his bearish case on subprime mortgage bonds.
  • Fewings showed no objection, leading Lippmann to believe that AIG might stop buying CDOs or even consider buying credit default swaps from him.
  • However, AIG did not stop buying CDOs immediately, and Lippmann continued to accumulate a large short position in credit default swaps.
  • The conflict between Lippmann's bearish views and the bullish stance of his employer led to pressure on him to explain his position, but he refused to back down.
  • The subprime mortgage market remained robust for some time, with AIG continuing to buy CDOs and other firms entering the market.
  • Lippmann's large short position in credit default swaps resulted in significant losses for Deutsche Bank due to mark-to-market accounting rules, which required the bank to reflect the current value of its positions on its balance sheet daily.


“When the Goldman Sachs saleswoman called Mike Burry and told him that her firm would be happy to sell him credit default swaps in $100 million chunks, Burry guessed, rightly, that Goldman wasn’t ultimately on the other side of his bets. Goldman would never be so stupid as to make huge naked bets that millions of insolvent Americans would repay their home loans. He didn’t know who, or why, or how much, but he knew that some giant corporate entity with a triple-A rating was out there selling credit default swaps on subprime mortgage bonds. Only a triple-A-rated corporation could assume such risk, no money down, and no questions asked. Burry was right about this, too, but it would be three years before he knew it. The party on the other side of his bet against subprime mortgage bonds was the triple-A-rated insurance company AIG—American International Group, Inc.”

“The “consumer loan” piles that Wall Street firms, led by Goldman Sachs, asked AIG FP to insure went from being 2 percent subprime mortgages to being 95 percent subprime mortgages. In a matter of months, AIG FP, in effect, bought $50 billion in triple-B-rated subprime mortgage bonds by insuring them against default.”

“The rating agencies, who were paid fat fees by Goldman Sachs and other Wall Street firms for each deal they rated, pronounced 80 percent of the new tower of debt triple-A.”

“The CDO was, in effect, a credit laundering service for the residents of Lower Middle Class America. For Wall Street it was a machine that turned lead into gold.”

“With stagnant wages and booming consumption, the cash-strapped American masses had a virtually unlimited demand for loans but an uncertain ability to repay them.”

“On its surface, the booming market in side bets on subprime mortgage bonds seemed to be the financial equivalent of fantasy football: a benign, if silly, facsimile of investing. Alas, there was a difference between fantasy football and fantasy finance: When a fantasy football player drafts Peyton Manning to be on his team, he doesn’t create a second Peyton Manning. When Mike Burry bought a credit default swap based on a Long Beach Savings subprime–backed bond, he enabled Goldman Sachs to create another bond identical to the original in every respect but one: There were no actual home loans or home buyers. Only the gains and losses from the side bet on the bonds were real.”

“Why, for example, wasn’t AIG required to reserve capital against them? Why, for that matter, were Moody’s and Standard & Poor’s willing to bless 80 percent of a pool of dicey mortgage loans with the same triple-A rating they bestowed on the debts of the U.S. Treasury? Why didn’t someone, anyone, inside Goldman Sachs stand up and say, “This is obscene. The rating agencies, the ultimate pricers of all these subprime mortgage loans, clearly do not understand the risk, and their idiocy is creating a recipe for catastrophe”?”

“The less transparent the market and the more complicated the securities, the more money the trading desks at big Wall Street firms can make from the argument. The constant argument over the value of the shares of some major publicly traded company has very little value, as both buyer and seller can see the fair price of the stock on the ticker, and the broker’s commission has been driven down by competition. The argument over the value of credit default swaps on subprime mortgage bonds—a complex security whose value was derived from that of another complex security—could be a gold mine.”

Chapter 4 How to Harvest a Migrant Worker


  • Subprime mortgage bonds were rated based on pools of loans, rather than individual loans, by Moody's and S&P.
  • The rating agencies favored loans with lower average FICO scores to maintain a certain percentage of triple-A bonds, creating an opportunity for Wall Street firms to game the system.
  • The models used by the rating agencies overlooked various risk factors, such as fraudulent practices in no-doc loans and the presence of "silent seconds."
  • Wall Street firms exploited these blind spots to create pools of loans that were more likely to default but still receive high ratings from Moody's.
  • In late 2006, Eisman and his team attended a subprime mortgage bond conference in Orlando and learned that the rating agencies had limited authority to downgrade bonds and often relied on models that could be gamed by Wall Street firms.


“In Bakersfield, California, a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $724,000.”

Chapter 5 Accidental Capitalists


  • Cornwall Capital, a small investment firm, suspects that subprime mortgage-backed securities (CDOs) may be riskier than assumed and decides to bet against them by purchasing credit default swaps on the double-A tranche of CDOs.
  • They face challenges in understanding the market and convincing others of their position, as they are among the first to take this stance.
  • Their analysis is confirmed by an expert they hire, who finds that they have selected poorly performing CDOs.
  • The subprime mortgage market is complex, with various types of securities and structures, and the risks were not fully understood by many investors.
  • Cornwall Capital's position pays off handsomely as the financial crisis unfolds, but their success comes from their early identification of the risks in the market rather than any particular insight into the specific securities they held.


“Charlie Ledley—curiously uncertain Charlie Ledley—was odd in his belief that the best way to make money on Wall Street was to seek out whatever it was that Wall Street believed was least likely to happen, and bet on its happening.”

“They had stumbled either upon a serious flaw in modern financial markets or into a great gambling run. Characteristically, they were not sure which it was. As Charlie pointed out, “It’s really hard to know when you’re lucky and when you’re smart.”

“They hired a PhD student from the statistics department at the University of California at Berkeley to help them, but he quit after they asked him to study the market for pork belly futures. “It turned out that he was a vegetarian,” said Jamie. “He had a problem with capitalism in general, but the pork bellies pushed him over the edge.”

Chapter 6 Spider-Man at The Venetian


  • Steve Eisman attended a speech by the CEO of Option One, a mortgage originator, at the MBS (mortgage-backed securities) conference in Las Vegas in 2007.
  • During the speech, Eisman challenged the CEO's assertion that Option One expected a loss rate of 5% on its subprime mortgage loans. He believed the actual losses would be much higher.
  • After the speech, Eisman left and took a call from his wife. His behavior puzzled some attendees, who thought he was being disrespectful or unprofessional.
  • Eisman and his team were skeptical of the mortgage bond market and began to investigate further. They believed that Wall Street investment banks and rating agencies were hiding risks in the subprime mortgage-backed securities (CDOs).
  • In Las Vegas, Eisman and his associates realized that many people in the industry seemed to be following a party line, with no one questioning assumptions about home prices or loan losses. They concluded that the market was a Ponzi scheme.
  • Upon their return from Las Vegas, they increased their short position in subprime mortgage bonds to $550 million and shorted Moody's Corporation stock. They continued to look for other opportunities to bet against the industry.


“That was the reason the casino bothered to list the wheel’s most recent spins: to help gamblers to delude themselves.”

“Eisman was quick to see narratives, he explained the world in stories, and this was one of the stories he used to explain himself. The”

“He walked around the Las Vegas casino incredulous at the spectacle before him: seven thousand people, all of whom seemed delighted with the world as they found it. A society with deep, troubling economic problems had rigged itself to disguise those problems, and the chief beneficiaries of the deceit were its financial middlemen.”

“It was in Las Vegas that Eisman and his associates’ attitude toward the U.S. bond market hardened into something like its final shape. As Vinny put it, “That was the moment when we said, ‘Holy shit, this isn’t just credit. This is a fictitious Ponzi scheme.’” In Vegas the question lingering at the back of their minds ceased to be, Do these bond market people know something we do not? It was replaced by, Do they deserve merely to be fired, or should they be put in jail? Are they delusional, or do they know what they’re doing? Danny thought that the vast majority of the people in the industry were blinded by their interests and failed to see the risks they had created. Vinny, always darker, said, “There were more morons than crooks, but the crooks were higher up.”

Chapter 7 The Great Treasure Hunt


  • Steve Eisman, a hedge fund manager at FrontPoint Partners, began shorting subprime mortgage-backed securities in 2005, anticipating a housing market collapse.
  • Eisman's team, including Vinny Danielson and Danny Vena, focused on the mezzanine tranche of collateralized debt obligations (CDOs), believing it would be most affected by mortgage defaults.
  • In 2007, Eisman became convinced that major Wall Street firms, such as Merrill Lynch and Bank of America, had significant exposure to subprime mortgages despite their public statements to the contrary.
  • FrontPoint hosted a conference call for investors in July 2007, during which Eisman discussed his bearish view on the housing market and subprime mortgage-backed securities.
  • Jim Grant, editor of Grant's Interest Rate Observer, and his assistant Dan Gertner had also raised concerns about the lack of transparency in CDOs and their potential risks.
  • Eisman's belief that major Wall Street firms were hiding significant subprime mortgage exposure led him to short those firms as well.


“The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him. —Leo Tolstoy, 1897”

“Wall Street investment banks are like Las Vegas casinos: They set the odds. The customer who plays zero-sum games against them may win from time to time but never systematically, and never so spectacularly that he bankrupts the casino.”

“One of the reasons Wall Street had cooked up this new industry called structured finance was that its old-fashioned business was every day less profitable. The profits in stockbroking, along with those in the more conventional sorts of bond broking, had been squashed by Internet competition.”

Chapter 8 The Long Quiet


  • Michael Burry, a hedge fund manager, had been bearish on subprime mortgages since 2005 and held credit default swaps (CDS) on mortgage-backed securities as part of his investment strategy.
  • In January 2007, he wrote a letter to investors explaining his losses in the previous year, despite the S&P 500's gain, due to his underperformance compared to peers and friends. He believed his analysis was correct but faced growing criticism and skepticism from the financial community.
  • Burry's investment strategy gained momentum in late 2006 and early 2007 when subprime mortgage bond hedge funds at Bear Stearns failed, and the index of triple-B-rated subprime mortgage bonds fell significantly.
  • In June 2007, Goldman Sachs and Morgan Stanley experienced "systems failure," which prevented them from accurately valuing Burry's CDS positions. This was likely a cover for sorting out their own losses in the subprime market.
  • The panic inside Wall Street firms began before June 25, as they had insider information about the impending defaults in mortgage pools like OOMLT 2005-3.
  • Despite his early warning and successful bet against subprime mortgages, Burry faced little recognition or gratitude from the financial community. His investors remained mostly silent, and there were few reports of losses due to subprime mortgage troubles, leading him to question where the next Long-Term Capital event would come from.


“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,”

“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.”

“People with Asperger’s couldn’t control what they were interested in. It was a stroke of luck that his special interest was financial markets and not, say, collecting lawn mower catalogues.”

“Only someone who has Asperger’s would read a subprime mortgage bond prospectus,”

“What’s amazing is that they make a market in this fantasy stuff,” said Druskin. “It’s not a real asset.”

“The source of his unhappiness was, as usual, other people.”

“He wore the same shorts and t-shirts to work for days on end. He refused to wear shoes with laces. He refused to wear watches or even his wedding ring. To calm himself at work he often blared heavy metal music.”

Chapter 9 A Death of Interest


  • Michael Burry, a hedge fund manager, made a successful bet against subprime mortgage-backed securities before the financial crisis in 2008.
  • Burry's investment strategy was based on his analysis of the housing market and the underlying risk of these securities.
  • He faced resistance from investors who did not believe him, but eventually proved them wrong when the housing bubble burst.
  • The profit from this bet allowed Burry to retire and start a new venture in the field of autism research.
  • The financial crisis led to significant losses for many Wall Street firms, including Bear Stearns, which had to be rescued by the Federal Reserve.
  • The credit default swaps market played a crucial role in amplifying losses during the crisis.
  • Some small hedge funds and individual investors were able to profit from the crisis due to their early identification of risks.
  • Michael Burry's success story highlights the importance of having a unique investment perspective, thorough analysis, and the ability to stick with one's convictions in the face of opposition.


“These folks don’t know what they’re talking about. If losses go to ten percent there will be, like, a million homeless people.” (Losses in the pools Hubler’s group had bet on would eventually reach 40 percent.)”

“When banking stops, credit stops, and when credit stops, trade stops, and when trade stops—well, the city of Chicago had only eight days of chlorine on hand for its water supply. Hospitals ran out of medicine. The entire modern world was premised on the ability to buy now and pay later.”

“How do you explain to an innocent citizen of the free world the importance of a credit default swap on a double-A tranche of a subprime-backed collateralized debt obligation?”

Chapter 10 Two Men in a Boat


  • Michael Burry, a hedge fund manager diagnosed with Asperger's syndrome, made a successful bet against the U.S. housing market in 2004 using credit default swaps.
  • Burry's fund, Scion Capital, grew from $110 million to over $1 billion by 2006 due to his correct prediction of the impending housing bubble burst.
  • The fund faced challenges as investors pressured for redemptions, and Burry himself struggled with health issues and personal matters.
  • In late 2008, Scion Capital was liquidated due to expiring contracts on subprime mortgage bonds that would have paid out in 2035.
  • Steve Eisman, another hedge fund manager who had bet against the housing market, experienced a change of character after being proven right and receiving widespread recognition for his prediction.
  • The collapse of the investment banking industry, which Eisman saw as 'justice,' left him feeling insulated and calm despite the significant consequences for individuals and businesses.
  • The market realities were not immediately apparent to people on the streets of Manhattan, causing a disconnect between actions and their consequences.
  • Eisman and his partners, including Danny Moses and Porter Collins, had made a fortune by shorting the housing market but felt uneasy about their role in creating the liquidity that fueled its eventual collapse.


“Pope Benedict XVI was the first to predict the crisis in the global financial system…Italian Finance Minister Giulio Tremonti said. “The prediction that an undisciplined economy would collapse by its own rules can be found” in an article written by Cardinal Joseph Ratzinger [in 1985], Tremonti said yesterday at Milan’s Cattolica University. —Bloomberg News, November 20, 2008”

“In 2008 it was the entire financial system that was at risk. We were still short. But you don’t want the system to crash. It’s sort of like the flood’s about to happen and you’re Noah. You’re on the ark. Yeah, you’re okay. But you are not happy looking out at the flood. That’s not a happy moment for Noah.” By”

“Whenever Wall Street people tried to argue—as they often did—that the subprime lending problem was caused by the mendacity and financial irresponsibility of ordinary Americans, he’d”

“The upper classes of this country raped this country. You fucked people. You built a castle to rip people off. Not once in all these years have I come across a person inside a big Wall Street firm who was having a crisis of conscience. Nobody”

“From the end of 2005 until the middle of 2007, Wall Street firms created somewhere between $200 and $400 billion in subprime-backed CDOs: No”

“After that, the men in the room rushed for the exits, apparently to sell their shares in Bear Stearns. By the time Alan Greenspan arrived to speak, there was hardly anyone who cared to hear what he had to say. The audience was gone. By Monday, Bear Stearns was of course gone, too, sold to J.P. Morgan for $2 a share.*”

“To the untrained eye, the Wall Street people who rode from the Connecticut suburbs to Grand Central were an undifferentiated mass, but within that mass Danny noted many small and important distinctions. If they were on their BlackBerrys, they were probably hedge fund guys, checking their profits and losses in the Asian markets. If they slept on the train they were probably sell-side people—brokers, who had no skin in the game. Anyone carrying a briefcase or a bag was probably not employed on the sell side, as the only reason you’d carry a bag was to haul around brokerage research, and the brokers didn’t read their own reports—at least not in their spare time. Anyone carrying a copy of the New York Times was probably a lawyer or a back-office person or someone who worked in the financial markets without actually being in the markets. Their clothes told you a lot, too. The guys who ran money dressed as if they were going to a Yankees game. Their financial performance was supposed to be all that mattered about them, and so it caused suspicion if they dressed too well. If you saw a buy-side guy in a suit, it usually meant that he was in trouble, or scheduled to meet with someone who had given him money, or both. Beyond that, it was hard to tell much about a buy-side person from what he was wearing. The sell side, on the other hand, might as well have been wearing their business cards: The guy in the blazer and khakis was a broker at a second-tier firm; the guy in the three-thousand-dollar suit and the hair just so was an investment banker at J.P. Morgan or someplace like that. Danny could guess where people worked by where they sat on the train. The Goldman Sachs, Deutsche Bank, and Merrill Lynch people, who were headed downtown, edged to the front—though when Danny thought about it, few Goldman people actually rode the train anymore. They all had private cars. Hedge fund guys such as himself worked uptown and so exited Grand Central to the north, where taxis appeared haphazardly and out of nowhere to meet them, like farm trout rising to corn kernels. The Lehman and Bear Stearns people used to head for the same exit as he did, but they were done. One reason why, on September 18, 2008, there weren’t nearly as many people on the northeast corner of Forty-seventh Street and Madison Avenue at 6:40 in the morning as there had been on September 18, 2007.”

“Charlie and Jamie had always sort of assumed that there was some grown-up in charge of the financial system whom they had never met; now, they saw there was not.”

“That was the problem with money: What people did with it had consequences, but they were so remote from the original action that the mind never connected the one with the other.”

Epilogue Everything Is Correlated


  • Michael Lewis's book "Liar's Poker" described his experience working at Salomon Brothers in the 1980s during the bond trading boom
  • John Gutfreund, the CEO of Salomon Brothers during that time, was criticized for turning the partnership into a public corporation, which transferred financial risk to shareholders and led to reckless behavior on Wall Street
  • The subprime mortgage crisis in 2008 was caused by a combination of factors including lax regulations, greed, and misunderstanding of risks
  • Government intervention in the form of TARP and the Fed buying bad assets from banks prevented individual American subprime borrowers from failing but allowed Wall Street firms to avoid recognizing losses in their subprime mortgage portfolios
  • The crisis was not a simple financial panic but rather a result of unknown amounts of credit default swaps being bought and sold on every major firm, making it impossible to determine the true extent of risk in the market
  • The failure of Lehman Brothers could have been economically tolerable if it hadn't triggered payoffs on credit default swaps, but the government's refusal to let it fail created a much larger problem.


“The line between gambling and investing is artificial and thin. The soundest investment has the defining trait of a bet (you losing all of your money in hopes of making a bit more), and the wildest speculation has the salient characteristic of an investment (you might get your money back with interest). Maybe the best definition of “investing” is “gambling with the odds in your favor.”

“What are the odds that people will make smart decisions about money if they don't need to make smart decisions--if they can get rich making dumb decisions? The incentives on Wall Street were all wrong; they're still all wrong.”

“This was yet another consequence of turning Wall Street partnerships into public corporations: It turned them into objects of speculation. It was no longer the social and economic relevance of a bank that rendered it too big to fail, but the number of side bets that had been made upon it.”


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