The Big Short Movie

[longship]

13. Here is Lewis' explanation of how it worked.

Again, it is Eisman and Wing Chau, probably the most important scene in the book .

There is a reason why Greg Lippmann had picked Wing Chau to sit beside Steve Eisman. If Wing Chai detected Eisman's disapproval, he didn't show it; instead he spoke to Eisman in a tone of condescension. I know better. "Then he says something that blew my mind," Eisman said. "He says, 'I love guys like you who short my market. Without you I don't have anything to buy.'"

Say that again.

"He says to me, 'The more excited you get that you're right, the more trades you'll do, and the more trades you do, the more product for me.'"

That is when Eisman finally understood the madness of the machine. He and Vinny and Danny had been making these side bets with Goldman Sachs and Deutsche Bank on the fate of the Triple-B tranche of subprime mortgage-backed bonds without fully understanding why those firms were so eager to accept them. Now he was face-to-face with the actual human being on the other side of his credit default swaps. Now he got it: the credit default swaps, filtered through the CDOs, were being used to replicate bonds backed by actual home loans. There weren't enough Americans with shitty credit taking out loans to satisfy investors' appetite for the end product. Wall Street needed his bets in order to synthesize more of them. "They weren't satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn't afford," said Eisman. "They were creating them out of whole cloth. One hundred times over! That's why the losses in the financial system are so much greater than just the subprime loans. That's when I realized that they needed us to keep the machine running. I was like, This is allowed?"