Pushkin.

I'm Lydia Dean Cott, and I'm Michael Lewis.

So Michael.

Last week for the special series about The Big Short, you spoke with Adam McKay, who directed The Big Short movie.

And today we're going to talk to some of the real people who inspired the characters in the movie, the people who were in your book.

And I want to start with a scene that's really early on in the movie.

It shows a meeting between the team at a small investment firm called front Point Partners with the bond trader from Deutsche Bank.

And this bond trader had called them up and he said he had this deal for them that was too good to be true.

And also he called them by accident.

That's exactly right.

And in the movie, the bond trader's name is Jared Vennette and he's played by Ryan Gosling.

Here's the clip you smell them?

What is the what?

What's that small cologne?

No opportunity?

No money?

Okay, there's no money, okay.

Ryan Gosling is playing Greg Littman.

Even Greg Littman thinks he's Greg Lipman when he's watching it.

And Steve Carell plays a character named Mark Boll because Steve Eisman said he didn't want his name in the movie.

So well that Evan Eisman says, yeah, that's kind.

Of me, Like do people were lustress?

Do they actually talk like this like this?

Only Greg Lipman talks like this, he does.

Oh my god.

Yes, I'm racking my brain thinking to take myself back to why I was so excited when I was writing the book, and one of the reasons was Greg Littman was the only honest man on Wall Street at that moment.

He was he had figured out what was going on.

He was indeed selling the trade of the century.

Everything he said was true, but he seemed like use car salesman, so nobody trusted him.

Nobody believed him, but he was the only person you should trust.

And on the other side of it, Steve Eisman was like the person on Wall Street designed to mistrust Wall Street, like so deeply cynical about Wall Street people, especially people involved in the subprime mortgage market.

So these two were meant to just be at each other's throats, and yet it ends up being a match made in heaven.

I would go into Eisman's office when I started working on the book, and I would take off the other guys into rooms by themselves to just hear the story of which important person on Wall Street Eisman had insulted most recently.

He just did it over and over and over.

I couldn't control himself.

And they assumed when when Greg Lippman wanders into their office, then yeah, he's gonna end up being lunch, you know, and instead they're made to be on this big screen together.

This is the Big Short Companion podcast.

To the break Michael Lewis's conversation with Greg Littman and a little later on the real Steve Eisman.

Greg Littman is now the chief investment officer at the asset management firm Libramax Capital.

I noticed when I first met him how good he was it breaking stuff down, and that hasn't changed.

How do you put it in the simplest terms, like this financial crisis through your eyes and what you experienced.

Human nature vacillates between fear and greed, and during long periods where things are going well, people get greedier and greedier.

And so what happened during a great financial crisis was that institutions were taking on greater and greater risks in order to generate the same returns as instrates kept going lower and credit spreads kept tightening.

So if you're a banker an insurance company you need to generate a certain return, you accepted a greater amount of risk for the same reward because in a competitive process, everybody else was doing the same.

And so that was the setup for the Great Financial Crisis.

And then the match that lit it was the aggressive lending to homeowners in America.

And as home prices went up faster than incomes went up, the mortgage payments had to adjust to enable people to afford a house that they previously would have been unable to afford that price, and so the mortgages became more and more back ended.

There was a saying, a rolling loan gathers no loss.

As long as we make new loans to pay off the old loans, they'll never be a problem.

So I had a view that someday there would be an issue where you couldn't pay off the old loan with a new loan, and therefore the payments were going to go up so high that they would default.

So it's so interesting the social role you played in the market, seeing the world as it is and much of the financial system is not.

Most of the people in the big banks are.

Not seeing what you're seeing.

You're running around the world with the truth, and only a handful of people basically believe the truth.

I pitched two hundred and fifty hedge funds roughly, and I got about seventy five to do it.

So, so first of all, you're not going to have seventy five people that are the same.

And it's more than seventy five people, because you know, there were more than one person in most of these places, so call it you know, three hundred people, right, So you're not going to have three hundred people that are the same in the same way the one hundred and seventy five firms that met me and didn't do it, they're not all the same either, right.

But certainly, I think it's reasonable to say that that people that were very establishment people, people that you know, were the prompting of they're high school.

Those were people who generally didn't see it, didn't want to see it, and people who felt a little bit more like outsiders were either more more willing or more able, or in some cases, I think you know, some of your characters even were hoping to see it, you know, more than others.

I put the trade on in the fall of five.

That's when I start the trade, and I'd explain to my bosses, I run a business make two hunred million dollars a year for you, I want to put this trade on.

I'm going to spend twenty million dollars a year until I win.

The fixed income globally makes sixteen billion.

So if everything continues the way it's been going and I put this trade on, y'all are going to make fifteen point nine to eight billion.

You're not even going to notice my thing.

And if my thing blows up, I think it's going to affect your sixteen billion, So you're.

Going to need my money.

So that's the thesis.

So about six months later they were like, well it didn't work yet, and I was like, so, m I told you the thesis was this two to four years, and like leave me alone.

Well, we don't like that.

You need to find people that believe in this besides yourself.

So if you can't find anybody else, we're going to close you down.

And we really don't like losing, you know, two million a month until we make a billion.

We don't like that because they lived for this month's earnings report, right.

So I went on a mission to find people to allow me to stay in the game.

That's I looked at these people and said, hey, like, I'm going to give them something that I think is great for them, and what they're going to give me an exchange for that is enable me to stay in the game.

I viewed this meeting them as much better for them than for me, very good for me.

I was giving people an amazing thing and just they weren't going to make all the money, but they were going to make tons of money.

So I was on a mission where I had to find people to cover this week's bill.

What is true is it was sort of a wrong number in the sense that I was trying to reach the front point that was long one of these subprime originators.

But what's also true is I was trying to find anyone that was willing to listen to my idea and pay this week's You know, bar tab, Had.

You ever met any of them?

No?

No, Now, they reminded me of people that I went to summer camp with.

I had gone to a summer camp where it was run by a charity so people paid, you know, differently based on their income.

And there's a lot of kids from Queens in the Bronx.

And and while I was sort of very solidly middle class for that camp, it was like a lower class camp in terms of income.

I found them entertaining.

I found Eisman to be more difficult than the other guys.

And what was difficult about Heisman?

So look, there were people then, not not Eisman, but there were people that whatever I said, you know, I said black, they said white, and we're just like difficult for the sake of being difficult.

But I remember him as being a little bit that way.

Also, you know, I don't I remember not thinking he was a nice guy for sure.

I would also say I met a lot of people who were extraordinarily wealthy during this time, and most of those people seemed unhappy, uh And which is interesting, uh in and of itself.

And and and you know, much wealthier than than than Eisman was at the time.

So that's Greg Lippman, the person who, in the run up to the financial crisis sniffed out Wall Street's dark secret long before most everybody else.

I really appreciate him talking with me again after all this time when we come back from the break, I speak with a fellow.

We were just talking about Steve Eisman, the founder of front Point Partners and at the time won very difficult customer.

And we're back in the big short.

One of my main characters was a guy named Steve Eisman who managed an investment fund under Morgan Stanley called front Point Partners.

He had a long history with subprime mortgages and he said something was wrong with the mortgage backed securities market long before many.

Other people did.

In the movie version of the book, his character was called Mark Baum, played by the actor Steve Carrell to a tent long.

So mortgage bonds are arkshit.

CDOs are dogshit wrapped in catshit.

Yeah that's right, Okay.

Institutions treat these CDOs like there's solid as treasury bonds and they're going to zero.

No, I can't be right.

There were five hundred billion and housing bus so last year alone.

The ratings agencies, the banks, the fucking government, they're saying, they're all asleep at the wheel.

Lipman, God bless him, is actually an incredibly honest person, incredibly honest.

He was always honest with us.

But he comes across as a bit like a used car salesman, and that's just who he is, you know.

But like I said, there is not one thing that Lipman ever did that wasn't completely about board with me.

But after the meeting, like you know, guys thought said, what do you think?

I said, what do I think?

Somebody just told me how to make a gazillion dollars.

I'm ready to go.

I said, wait a minute, he's going to screw us somehow.

And he actually told you how he was going to screw you.

He said to us in the media, let's say the credit to false swap goes down in price.

Let's see why a par and it goes down to thirty cents.

You made seventy cents.

I made seventy cents, he says, when you want to get out, I'll take you out at forty.

And guess what he was wrong because by the time we wanted to get out, everybody wanted our credit to false swap.

So that's how he thought he was going to screw you, right, But he didn't.

When you think back on the financial crisis on that period, what scenes pop into your head.

One scene that's not in the movie is so if you go back.

So Lehman was on that Sunday in I think September.

I forget whatever day to like fourteenth or something, So.

That was Sunday.

And then Merrill Lynch got bought out by Bank of America on the same day.

I remember sitting in a restaurant.

I had a black Bear and I remember looking at my BlackBerry and it comes across AI's fucked.

It's basically what it's said.

I said, Oh God, here we go.

And then Friday.

At the end of that day, Friday, Paulson stopped short selling.

But in the morning it looked like planet Earth was burning literally.

I mean, I remember We're sitting at the desk and Danny was having like an anxiety attack some with the rest of us by the way, and I had to go to a conference.

And then I got a phone call from Porter to say that because Danny was going so nuts, they took him, walked him out of the office.

I'm coming, I said, meet me at the Saint Patrick's Cathedral, which was a block Tomorrow office.

And I remember, so it's Friday, now, like at around one thirty and an hour, Paulson's about to come.

Out with this news.

But we don't know that obviously.

And remind me of the news is that the news.

Was that there's no short selling of financial companies, right.

So you couldn't you couldn't, you couldn't bet against Morgan Stanley and Goldman Sachs in the stock.

Market correct and cause an enormous rally in the market for two days.

That was it.

And we were sitting on the steps of Saint Patrick's Cathedral and it was a gorgeous day, gorgeous day, and I remember turning to one of the guys and I said something like, these poor people, they have absolutely no idea what's about to hit them?

That I remember, did what you imagine what was about to hit them hit them?

Or did it play out differently than you imagined?

It mostly hit them.

I mean the government stepped in and prevent the worst, which it had to do.

But look, I don't remember unemployment levels got to like ten percent.

They had gone to thirty it would have been a depression, there's no question.

Yeah.

So the government prevented the worst, and it's about as good a job as they could do.

With one major mistake.

I think the biggest mistake the Obama min made was and nobody went to jail.

There was a terrible, terrible policy error.

And by the way, to this day, no one knows how it happened, why that happened.

The fraud, and this is the biggest fraud in human history, was this.

When you're a Wall Street firm, you have a relationship with subprime lenders from whom you're buying mortgages to create a securitization.

And basically what you do is you go to the subprime firm and you say, I'll buy every single loan that you make that has the following characteristics, and you lay them out and call that like that's your underwriting box.

You go buy a billion dollars worth of mortgages.

On the day you buy them, you buy them blind.

You have absolutely no idea what's in the files.

So a billion dollars worth of mortgages.

You can't securitize a billion dollars worth of mortgages and say you have no freaking idea it's in these files.

Even Wall Street wouldn't do that, But it's expensive to go through five thousand files.

So literally every single Wall Street firm hired a due diligence firm, and they hired the same due diligence firm.

It's called Clayton Mortgage.

Yeah, so Clayton Mortgage was hired by literally every single Wall Street firm, and every single Wall Street firm gave Clayton Mortgage the same margin orders, which is, pull a statistically significant sample of the files and tell us.

What's in them.

So, starting in six when the underwriting standard as we all know now went completely to hell, the reports start to come back very bad, meaning anywhere from ten percent to forty percent of the sample is no good, meaning there's not enough employment history in here, the debt level is too high, you know whatever.

So you contractually, you the Wall Street firm, contractually have the right put back to the lender any loan that you find upon due diligence does not adhere to your underwriting standards.

So here's my favorite question.

So let's say thirty percent of the ten percent is no good?

How many Wall Street firms then ordered Clayton Mortgan to do due diligence that remaining ninety percent?

Can I answer that?

Please?

Do zero?

Thank you right?

Zero?

And in the prospectus there would be a paragraph and the paragraph would say risks some of these loans might not adhere to our underwriting stands.

Yes.

So, by the way, just to tell you how bad this is.

So this was discovered by the Financial Crisis Commission.

They had it hearing in Sacramento.

This is Philangelies and I remember listening and the Clayton mortgage guy was testifying to this, and when he was done, I turned to one ago that people are going to jail.

I mean, this is unbelievable.

This is the biggest fraud humanistry.

Then it's not complicated.

They could go to jail.

So in the Angelites did an actual referral of this very topic to the Justice Department for criminal investigation, and then, as far as we know, nothing happened.

Nobody investigated.

Now why I don't know, And to this day I do not understand it.

If they investigate and people go to jail, who goes to jail there?

Oh, who goes to jail would be the people on the securitization desk, their supervisors.

Maybe you know, the such a bad fraud, the heads of the farms should be banned from running farms for the rest of their lives.

So whatyd Blankfine should have been banned from being the CEO of Goldman Sachs.

I mean, you go right up the line.

This is a decision that was made without footprints.

That's the first time I've heard that story.

How does it play out differently if people go to jail.

The economy would have played any differently, No difference.

I mean, you know, prior to the crisis, everybody's sitting there and that suspecting that there's two systems of justice, one for rich or one from poor.

Now we know that definitely is also two systems of capitalism.

One's one for rich, one for poor.

Exactly, and so now we know, so that created the tea party.

I'm convinced that this whole this this created the tea party.

And then from and then from there you could draw your own conclusions.

And the anger is still there.

It should be.

Yeah, how has it been the face of the Big Short affected your life since the movie came out?

I mean, it doesn't affect it on a day to day basis.

I mean sometimes it's kind of funny.

I think the bus across town and somebody looks at me and says, there aren't you Steve eisewe.

Are you still running money?

No, not running any money.

Just my own, just your own.

Yeah, and I'm very long term invested.

I don't trade.

Do you see anything going on in the banking system that worries you.

The only thing that might worry me is, you know the look, the private equity world is multiples bigger than it was, and nobody really knows what's going on there.

Private equity world has not been stress tested like the banks at all.

So if there's a problem that emerges, I think it will emerge from there.

But I don't have any more data on this to add even a single additional sentence.

That's the problem.

How often do you find yourself pushed in the position of trying to guess what's happening next, like you're nostra damas well.

It's not so much that.

So this is the funny thing these days on CNBC they call me happy Steve because I'm actually.

Quite bullish on the mark.

I've been bullish for years, and they always bring up the deficit.

I call this the OI the deficit discussion.

And the last time I was on my my theory, which is I've said this like three thousand times because every time I want TV day, they basically want they're begging me to predict the end of the world.

Because of the death.

They said, look.

This, this this argument about the deficit, it's forty years old.

The last time on CNBCO was.

On, it was like this, like the tenth time I'm on the show, and they asked me the same question, and I go like this, you know, you know the problem is.

All these people want to be me.

They want to be the person who predicts the end of the world.

And I got news for all the position of Steve Eisman is taken.

So when I met you, I met you because Meredithney Whitney told me I should I should meet you, and I came away from the first encounter thinking that was a born teacher.

So it's funny.

It's generally two of the main characters of my books.

They're all really good teachers.

Billy Bean excellent teacher.

I mean, it just could really explain.

That's what I would have done another lifetime.

I would have been a high school history teacher.

It was very useful that you were a character too, that people saw you as a character.

But you have an unbelievable ability to clearly explain things, and it's refreshing to be back in its presence.

Thank you so much to Steve Eisman and to Greg Linman for talking with me again.

Next week I find out what's happened to Steve Eisman's traders at front Point, Vinnie Daniel, Portercollins and Danny Moses.

See you then.

Against the Rules, The Big Short Companion is hosted by Michael Lewis.

It's produced by Me Lady, Jane Kott and Catherine Girodell.

Our editor is Julia Barton.

Our theme was composed by Nick Burtel, and our engineer is Hans Dale.

She special thanks to Nicole opten Bosch, Jasmine Faustino, Pamela Lawrence and the rest of the Pushkin Audiobooks team.

Against the Rules is the production of Pushkin Industries.

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