Steve 'Big Short' Eisman: Smart, Lucky, Abrasive (& Now One Of Them)

Tyler Durden's picture

Authored by Jim Quinn via The Burning Platform blog,

I loved Michael Lewis’ book – The Big Short – about the 2008 Wall Street created global financial catastrophe, that is still impacting the little guys on Main Street eight years after it was supposedly resolved by Paulson, Bernanke and Obama. I even wrote an article about it called The Big Short: How Wall Street Destroyed Main Street. I also loved one of the main characters in the book – Frontpoint Partners hedge fund manager Steve Eisman – a foul mouthed, highly skeptical, open minded guy who figured out the fraudulent subprime mortgage scheme and shorted the crap out of the derivatives backing the fraud, making hundreds of millions in the process.

I had the opportunity to attend a 90 minute talk by Steve Eisman last night where he discussed the financial crisis, the response by the Fed and government, and the future for the financial industry. My perception of him, based on the book and movie, was he was a cantankerous asshole who didn’t care what anyone thought about him. My perception matched what I experienced. He was dropping f-bombs, insulting the institution hosting his talk, making fun of business school students (he graduated with a liberal arts degree) and dismissing any question he found to be stupid.

He was very funny. You could tell immediately he was smart and very opinionated. He was confident in his area of expertise. His diagnosis of what happened leading up to the financial implosion was dead on. He correctly tied the entire debacle to ridiculous levels of leverage taken on by Wall Street banks, warped incentives for financial industry employees and rating agencies, and Federal Reserve regulators asleep at the wheel, convinced Wall Street could regulate itself. I think he was too easy on the people who knowingly committed fraud to buy houses they knew they couldn’t afford. He said they were lured into the fraud by the unscrupulous mortgage industry. It takes two to tango.

He described how the credit standards continued to descend as the Wall Street doomsday machine needed more product to convert into toxic derivative products, rated AAA by the greedy worthless rating agencies, so they could sell the weapons of mass destruction to unsuspecting pension funds, mutual funds, and little old ladies. He openly despised Alan Greenspan as the worst Fed Chairman in history and blames him for the lack of regulation leading up to the crisis.

The slimy mortgage originators offered teaser rates of 3% to migrant workers so they could purchase a $700,000 home with nothing down and no proof of income. After three years the rate would adjust to 9%. The underwriters rated the loans based on the 3%, not the 9%. The home occupier had to pay 4 or 5 basis up front to get the loan. Since they could never afford the 9%, they had to refinance and pay another 4 or 5 basis points. The same loan would get repackaged twice into derivatives, while the shysters made out like bandits.

“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.” ? Michael Lewis, The Big Short

This subprime slime was the fuse destined to blow up the system, but it was the Wall Street leverage which created the nuclear bomb attached to the fuse. He described how the Wall Street banks were leveraged 10 to 1 in 2000. By 2007 they were leveraged 33 to 1. And most of the assets on their balance sheet were toxic debt slime. Eisman was a Wall Street guy and understood their mindset. When he would point out how stupid these decisions were, the Wall Street big swinging dicks would respond they made $50 million last year and he didn’t. They were smart because they were rich.

The arrogant pricks who ran Wall Street firms mistook their self pronounced brilliant results for leverage propelled fake profits. Levering up your firm with toxic un-payable debt made you look brilliant in the short term, but created a debt bomb destined to blow up the world. Greed, hubris, ignorance of the products they were creating, complete lack of risk management, and the immoral culture of Wall Street led to the worst financial crisis in world history. Eisman’s diagnosis of the causes was perfect.

In my opinion, his positive response to how Paulson, Bernanke and the Obama administration “solved” the crisis was disingenuous, proof he’s a Wall Street guy at heart, and not the defender of the little guy as described by Steve Carrell, who portrayed him in the movie:

“I think he [Eisman] seems himself as a defender of justice and righteousness, while at the same time being conflicted.”

In the movie he was portrayed as the moral compass. After hearing his praise for the awesome job Paulson did by saving the criminal Wall Street banks with taxpayer money, I think the justice and righteousness stuff is overdone. Earlier in his talk he said banks existed to “fuck you” – his exact words. Then later he says we had to save them or the world would have ended. He spun the same old narrative that if you didn’t save AIG, Goldman, GE, and the rest of the corrupt Wall Street cabal, unemployment would have been 30% instead of the 10% it eventually reached. I guess he believes the BLS bullshit that unemployment is currently 4.7%.

Other smart people, not beholden to Wall Street (he works for Neuberger Berman), argue that we could have had an orderly liquidation of the Wall Street banks that took too much risk and levered themselves 33 to 1. The people on Main Street didn’t lever themselves 33 to 1, but we got to bail them out. Rewarding failure encourages more failure. There were over 8,000 banks in the US and it was only 10 or 20 who almost destroyed the world. They should have paid the price for their criminality and recklessness. Their executives should have gone to jail. Not one did.

I began to realize Eisman is a liberal Democrat when he enthusiastically praised Elizabeth Warren as a champion of the people and how Dodd Frank has completely reined in the Wall Street banks. He positively gushed about his friend Daniel Tarullo, the Fed’s chairman of the Federal Financial Institutions Examination Council. He expounded on how tough he has been on the Wall Street banks and his gotten them under control. Meanwhile, they continue to pay billions in fines for their criminal acts and Michael Lewis’ other bestseller – Flashboys – documents the continued rigging of markets and criminality on Wall Street.

His defense of Wall Street as it’s constituted today reminded me of the Upton Sinclair quote:

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” 

He is a creature of Wall Street who depends on their good graces for his continued income. He wouldn’t even name Bill Miller as the idiot mutual fund manger who bought Bear Stearns as it was about to go under, because his compliance manager said he shouldn’t do so. It was at this point I realized he wasn’t some prescient sage who understands the markets better than the average schmuck. He got lucky. It wasn’t even his idea to short the subprime market derivatives. Greg Lippman from Deutsche Bank sold the idea to him in February 2006. He just acted on the advice.

His dismissal of overturning the Glass Steagall Act as a cause, Fannie & Freddie’s role in the crisis, and the fact this was a calculated control fraud deserving of prison sentences for hundreds of Wall Street executives, changed my view of the man in a matter of minutes. I find liberal minded people like himself are sometimes excellent at diagnosing problems, but their solutions either exacerbate the problem or ignore the real problem.

He said nothing about how Bernanke & Geithner’s threats to the FASB, resulting in the suspension of mark to market accounting, marked the exact bottom of the market. From that point onward, the Wall Street banks, along with Fannie and Freddie, could value their assets at whatever they wanted – mark to fantasy. Amazingly, the banks and the insolvent mortgage companies immediately started reporting billions of fake profits. Loan loss reserves were relieved, while Fannie & Freddie made billions in fake payments to the Treasury, artificially decreasing annual deficits.

Eisman, the man of the people, said nothing about how real median household income is lower today than it was at the height of the crisis, while Wall Street bonus pools are at record highs. He said nothing about senior citizens who used to count on 5% money market returns to scrape by now getting .25% because the Fed used ZIRP to save the Wall Street banks. Eisman is an extremely rich Wall Streeter. He wouldn’t know how to find Main Street, even with a GPS. He was surely blindsided by the deplorables, outside his NYC bubble, electing Trump as a reaction to the screwjob they received from Wall Street, the Fed and the Obama administration.

His laid back view of the Wall Street banks and how great their balance sheets are, with leverage of only 11 to 1, completely ignores the fact the Fed bought $3.6 trillion of their toxic debt at one hundred cents on the dollar, and the Obama administration took on $10 trillion of national debt to give the economy the appearance of recovery – while the majority are still experiencing a recession, except for Eisman’s Wall Street cronies. He had no problem with Wall Street hedge funds buying up all the foreclosed homes, driving prices higher to fix Wall Street balance sheets, and renting them back to the poor people he pretends to care about.

No mention from Steve about why the economy requires emergency level interest rates, nine years after the crisis. He seems sanguine about a $20 trillion national debt, where normalization of interest rates would blow up the world again. He thinks the US banking industry is the safest it has ever been in history. Isn’t it funny that he did an interview a few weeks ago revealing he is long the banking industry? He is just talking his book, just like every other Wall Street chameleon.

Even though stock valuations are at highs only seen in 1929, 2000, and 2007, Eisman sees no stock market bubble. He expects stocks to go higher due to Trump’s tax cuts and deregulation plans. Even though home prices are nearing 2005 levels again, he sees no real estate bubble. He sees no subprime auto loan bubble. He sees no student loan bubble – he said it’s the government’s problem, as if the government gets their money from someone other than the people. He doesn’t care about the debt bubble, because he’s an equity guy. This type of vision might explain why his hedge fund venture after Frontpoint – Emrys Partners – went under in two years.

My experience of seeing Steve Eisman in person was a letdown. I expected some sort of visionary superhero and I got an abrasive, myopic, captured Wall Street guy, parroting the Wall Street line that all is well, the future is bright, debt doesn’t matter, and stocks always go higher. I left the venue wondering whether I have the bad case of cognitive dissonance and can’t see how great things are, or whether Steve has the bad case of cognitive dissonance. I guess time will tell.

There are two things I learned.

  1. Its better to be lucky than smart.
  2. Wall Street will never change.

“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.” ? Michael Lewis, The Big Short

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ParkAveFlasher's picture

You don't get paid without the banks, Steve-O.

BullyBearish's picture

There is no profit in good...

WTFRLY's picture

Cities would burn and people would die en masse but that's probably going to happen under the Syndicate's plan anyway, right?

political_proxy's picture

What lead up to that was the problem. The banksters fincial mismanagement led up to hyper-inflation. Unstable [fiat] money backed by empty promisses from empty suits. Greed and a lust for power led to the monetary collapse.

manofthenorth's picture

Earlier in his talk he said banks existed to “fuck you” – his exact words. Then later he says we had to save them or the world would have ended."

The world would not end ,  just the world as we now know it and that COULD be a good thing.

END THE FED

"It is no measure of health to be well adjusted to a profoundly sick society."

greenskeeper carl's picture

I agree. Our debt based money, where our currency is loaned into existence, might find its intrinsic value of zero, and we would have to go back to pre Roosevelt rules with money. Oh no.

And this guy just got lucky once, he clearly ain't that smart.

booboo's picture

If emergency fed liquidity would not have happened this ass clown would not have made a dime, its real simple. They blew enough cash into the system for the retarded tribe members to collect, that's you Steve ya fucking straight branch cousin fucking toad.

Zorba's idea's picture

Saving our Vampire Banks...the catch 22 of all catch 22's.  Smother the FED in garlic, destroy the crypt caretakers and leave it outside to roast in the morning sun.

OregonGrown's picture

Vaguely reminicent of how things are looking in the silver and gold market, BUT REVERSED......

 

In history it will go down and forever be known as "The Big Spike"!

 

Generational fortunes, Books and Movies will be made!

hope_talk's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2jdTzrM

Got The Wrong No's picture

While we crash and burn, the evil scum will be safe in some far away place like New Zealand. I wonder how long it will take for the pitch forks of the masses to come out in self preservation. One can only Pray that they come out upon arrival.  

Jäger's picture

"Eisman"-  'nuff said

chunga's picture

Brooksley Born warned everybody about this and the tribe ran her out of town.

scv's picture

instead of LEFT/RIGHT political parties////

it has always been RICH vs. POOR

 

The Rich political Party

own it all, so the poor will NEVER win and will die on the frontlines of the riches games

 

 

A. Boaty's picture

Dr. Michael Burry = the real hero in the Big Short. Eiesman had the smarts to get in on the trade, but Burry kicked off the first rock in the avalanche.

Steroid's picture

Are we forgetting something? Even these winners would have nothing without the bailouts.

They depended on it as much as the bailed. The whole bailout was just a redistribution.

On another note, those winners were particularly lucky. Would they survive another month shorting.

The fact is, there are always shorts, only the timing makes the difference.

But I am preaching to the choir.

Jäger's picture

For every guy that made a fortune by shorting housing how many tapped out because they got in too early?

Stanley Lord's picture

How many ZH readers knew the mortgage market was going down?  Many.

How many ZH readers could call Goldman, borrow money and short it?

Zero.

Hugh_Jorgan's picture

'...I never met anyone in the system having a crisis of conscience...' that is INCLUDING himself, it would seem. It's a shame he is portrayed the way he is in the Big Short. I loved that character, it's just too bad he doesn't seem to exist in the money game. Sufficient money numbs any and all empathy, I guess.

We can only hope that Eisman really is clueless and heavily invested in all the wrong places when the system tanks.

piceridu's picture

Hey Jim, thanks for calling him out. It had to be said. Same as it ever was...

Jäger's picture

When is Quinn going to admit that Trump is as tight with Wall St as any of them?  It was all BS from Trump about Wall St before the election-  now he has shown his true colors. Trump won't hesitate to bail them out again- but not without letting a few of Goldman's competitors go tits up like they did with Lehman

SummerSausage's picture

How much did Wall Street give Trump?  How many hundreds of millions did Wall Street give Clinton and the dems?

Trump is not owned by Wall Street and owes them nothing.  Watch and learn.

Hugh_Jorgan's picture

I'm hoping for the best but hope is fading. We're all watching and we've not seem much to make us think when the rubber hits the road he would be able to keep the .GOV Goldman banksters the RINO globalists imposed on him in check. He can't even deal with the activist squirrels in the Judicial branch trashing his travel ban! If 2008 happened again the smart money is betting that the US taxpayer WILL be on the hook again.

Now is not a time to kid ourselves.

tion's picture

I don't see why people are bitching about the GS appointees. You often need GS to make shit happen. That is just the reality right now. Sticking  your head in the sand fixes nothing.

Yeah they are bloodthirsty fucker overers, but the smart money also knows the game, and I daresay the business 'Art of War' alphas take PLEASURE in making GS boys dance. And a couple of Trumps GS might even be loyal to and respect him. As a New Yorker he is probably more cut throat than the valley boys.

You don't send a fucking sheep or housecat into a viper den. Yes there will be a price, but at least Trump will negotiate a good price. And maybe bring back Glass-Steagall.  Obama was a weak limp wristed treasonous little shit that probably gets off on sucking dick and getting spanked, and he hates America.  He probably likes it in the boardroom same as he likes it in the bathhouse, it's no wonder we have gotten fucked so hard. Hillary would have sold us and our children and our grandchildren and the unborn to line her pockets.

NoPasaran's picture

He didn't, he sat their like a quiet scared chicken. He cackled a little in the internets afterwards, but no one gives a shit about that, certainly not the eisman.

atthelake's picture

"Banks exist to fuck you".

Michigander's picture

One of my biggest take-aways from the Big Short was the amount of heat their trade had to take, even when initially correct. It would have taken out lesser men and goes to show the level of manipulation that can be applied...until it can't.

SummerSausage's picture

As many have learned to their dismay - being early is the same as being wrong.

Hugh_Jorgan's picture

Yep, and that was because I think it really did catch most of the big boys flat-footed. They didn't have a real plan then, but no longer. Today, they understand what COULD happen. The dirty, illegal insider trading that took place at Goldman, et al trying to soften the blow leading up to the crash has paled in comparison to all the long-con HFT antics and tricks that we've already seen. Heaven only knows how high the pile of bovine excrement will get in the lead-up to the next "system out of control" moment.

When everyone is banking on ol' dead Bernie to keep western civilization together, this charade will continue despite the smell and the lack of expected responses. Only when vital parts literally start falling off will his animators be forced to deal with the laws of physics, and most of the world see what has been happening for the past decade or more.

Seasmoke's picture

To know who rules over you. Just know who you are not allow to criticize by name.

WarPony's picture

Zionistas aka Khazars (asiatic mongoloids) aka J-tribe - the "Chosen Ones" (/s).  Otherwise, Revelation 2/3:9: "I know thy works, ... and I know the blasphemy of them which say they are Jews, and are not, but are the synagogue of Satan."   "Behold, I will make them of the synagogue of Satan, which say they are Jews, and are not, but do lie,..."

Frozen's picture

This betting masquerading as market-making, or trading, is really great for forward business planning

/s

When does FIRE get trimmed down to size again?

gdiamond22's picture

I still find it mind-boggling that people don't go farther back for the true criminals who made the housing crisis (and the soon to be student loan crisis) - the FUCKING CLINTONS.

I'm not going to get into it but just do some fucking research. I.e. Who started the GSEs and who wanted 'a house for every American'

KC Spike's picture

For that you would actually need to go to FDR and Keynesian  economics. 

gdiamond22's picture

Well yes of course but FDR and Keynesian are responsible for EVERY boom and bust. 'Administrations' (I hate that fucking term) help out from time to time to excacerbate them.

Zorba's idea's picture

Every Boom Bust?  Does that include the 29" crash and all the boom busts that were pre-keynesian. I'm not defending Keyne's, but there are other failed styles of of economic systems.

gdiamond22's picture

The other failed styles is the normal business cycle or if you really dig deep a greater cycle of human behavior. Regardless, the Keynesian system MAGNIFIES those cycles. So yes it does include the 29' crash. Why? The Fed was created in 1913 - the Keynesian baby. Its goal? Be the backstop for Banks. How'd that work out in '29?

We are an imperfect species trying to create a more perfect society. Modern day liberals and their social and economic theory (Marxism) is not the way. It certainly isn't fucking American. It's a disease.

RichardParker's picture

From Antony Sutton's FDR and Wall Street:

"Roosevelt was a creation of Wall Street, an integral part of the New York banking fraternity, and had the pecuniary interests of the financial establishment very much at heart.

To be specific, Franklin D. Roosevelt was, at one time or another during the 1920s, a vice president of the Fidelity & Deposit Company (120 Broadway); the president of an industry trade association, the American Construction Council (28 West 44th Street); a partner in Roosevelt & O'Connor (120 Broadway); a partner in Marvin, Hooker & Roosevelt (52 Wall Street); the president of United European Investors, Ltd. (7 Pine Street); a director of International Germanic Trust, Inc. (in the Standard Oil Building at 26 Broadway); a director of Consolidated Automatic Merchandising Corporation, a paper organization; a trustee of Georgia Warm Springs Foundation (120 Broadway); a director of American Investigation Corporation (37-39 Pine Street); a director of Sanitary Postage Service Corporation (285 Madison Avenue); the chairman of the General Trust Company (15 Broad Street); a director of Photomaton (551 Fifth Avenue); a director of Mantacal Oil Corporation (Rock Springs, Wyoming); and an incorporator of the Federal International Investment Trust.

The really notable Delano on Wall Street was FDR's "favorite uncle" (according to Elliott Roosevelt), Frederic Adrian Delano (1863-1953)...  In 1914 Woodrow Wilson appointed Uncle Fred to be a member of the Federal Reserve...

Intimate Delano connections with the international banking fraternity are exemplified by a confidential letter from central banker Benjamin Strong to Fred Delano requesting confidential FRB data:16
(Personal)
December 11, 1916
My Dear Fred: Would it be possible for you to send me in strict confidence
the figures obtained by the Comptroller as to holdings of foreign securities
by national banks? I would be a good deal influenced in my opinion in
regard the present situation if I could get hold of these figures, which would
be treated with such confidence as you suggest.
If the time ever comes when you are able to slip away for a week or so for a
bit of a change and rest, why not take a look at Denver and incidentally pay
me a visit? There are a thousand things I would like to talk over with you.
Faithfully yours,
Benjamin Strong
Hon. F. A. Delano
Federal Reserve Board, Washington, D.C."

caribbeanbarry's picture

Yes!!! I remember the early nineties, banks with ATM's in poor areas but no Bank branches, mortgages, etc. They were racist you see because they did not loan to those who could not pay, regardless of race...

just the tip's picture

if you don't want to get into then, don't go back to 1980 and ask yourself why bush41 "needed" the presidency?  he had to have some way of getting his kid, not shrub, out of trouble with the savings and loans crisis.

X- x3's picture

Steve 'Big Short' (((Eisman))): Smart, Lucky, Abrasive ((((One Of Them))))

There.

I fixed the typo-errors......dots.....dots......

X-

corporatewhore's picture

Does Mr. Eisman drive a BMW?  You do know the difference between a bmw driver and a porcupine, don't you?

KC Spike's picture

Interesting. He sees the markets going up.  Maybe this is the signal we have been waiting for for those of us who read ZH on a regular basis.

 

They have been so bearish for so long and have been wrong that maybe once we see more morons like Eisman being bullish the markets will finally crash like we all know they should. 

StocksWayUp's picture

All of you guys on here act like you know what you are talking about and you know nothing. NO ONE DOES. 

The only analysts who have been calling the markets correctly since as far back as I can remember is the guys at ShepWave.com

 

They give proof of their market calls. Here are some charts where they bought gold at its lows in December after being short and bought the QQQ also after being short.  So, until these writers for ZH begin showing some proof I will stick with what works and is proven to work.

 

 Charts:  www.shepwave.com/blogs

https://www.facebook.com/166578775325/photos/a.10153488951800326.1073741827.166578775325/10154415124400326/?type=3&theater