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Preview of the earlier chapters:
Chapter 1
In December of 1991, Steve Eisman was working for Oppenheimer and Co. as an analyst and became
known for his knack for ignoring consensus, an analysis of a stock’s future sales and earnings.
In the early 1990s, the Salomon Brothers trading floor began a whole new bond market by packaging
mortgages into bonds. In this way, they began to tap the unused equity many people had in their
homes, driving the interest rates of mortgages so low that even those with less than perfect credit could
get low rates. This led to a surge in subprime mortgages, mortgages offered to those with poor credit
ratings. Subprime mortgages were then packaged into bonds and sold to investors.
Eisman hired accountant Vincent Daniel to help him decipher the suspicious accounting used by
subprime mortgage originators. Daniel discovered companies were booking profits for expected future
values of loans, and prematurely displaying themselves as profitable. However, they were failing to
reveal the delinquency rate of the home loans they were making, claiming that they were selling these
loans to be packaged as bonds, so their risk was limited. An example of this was Long Beach Savings,
one of the first banks to implement what was called the originate and sell method, a method of
originating a loan that was likely to be defaulted on and sell it to another lender, but leave it
on the books to appear as profit…
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