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One was the sheer complexity of modern finance: how to explain credit-default swaps and collateralized debt obligations to my mother? I’m actually not sure that my mother ever read The Big Short-she prefers mysteries-but she has always been my standard: if my mother can’t understand what I’m saying, there’s no point in saying it. But when I set out to retell them I ran into a couple of problems.
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To my surprise these peculiar people proved willing to tell me their stories. This handful of peculiar people had bet directly against the biggest banks on Wall Street, filled with the putatively smartest people, and made billions: how had THAT happened? Yet they’d found a way to see what the expert insiders had missed: that the big Wall Street banks had become so bizarrely organized that it was hard to say where their stupidity ended and their corruption began. Several had come to the subprime-mortgage bond market cold, with little knowledge of bonds or mortgages and none at all of credit-default swaps and collateralized debt obligations. The group included some seriously interesting and peculiar people-the sort of oddballs and misfits who would have a hard time getting a job at a big Wall Street bank. There turned out to be about 15 of them, who had gone all in on the bet against subprime-mortgage bonds. I set out to find as many of these people as I could. Someone had to be on the other side of the big Wall Street firms’ stupid bets. Their employees, the putative best and brightest, and surely the most self-interested people on the planet, were committing mass suicide. The big Wall Street banks had become the dumb money. Morgan Stanley announced that it had lost more than $9 billion on what appeared to be a bet by a single trader. Merrill Lynch announced a $4.5 billion hit, then revised it to $19 billion and then finally to more than $50 billion. Citigroup’s losses went from $6 billion to $40 billion to more than $65 billion. What caught my attention in late 2007 were the weird, amorphous, and ever growing trading losses in the subprime-mortgage bond market suffered by the big Wall Street banks. I’d written one book about Wall Street, Liar’s Poker, and pretty much assumed I’d never write another, as I further assumed that nothing would ever happen on Wall Street that was as interesting to me as what had happened to me-or, if it did, I’d be the last person anyone on Wall Street would want to tell about it. In early 2008, I started working on what became my book The Big Short.