>> charlie ledley and greg lippman. >> but why did they -- did they tell you why they were only going to focus on him? or did steve eisman say im not going to participate? >> steve eisman said, im not going to participate. all of the characters were -- i had a very -- i had a privileged access to wall street because of liars poker and other books that people were willing to talk to me who werent willing to talk to other people. and i developed relationships with these subjects over a long time and then they want me to be very -- write about them very intimately. but it became a kind of intimate experience for them. .

reduced to 20 minutes or whatever it is. but you don't because you said really don't know what's going to come out of it. activity is total self boredom. anybody be interested in me. i just bored myself for six boring 20-minute piece. >> i had a reaction, the one to ask you about, they only focused on one of your characters. >> mike burry. and but i wondered reading the

book he was an interesting character but so was steve eisman and so was -- >> charlie ledley and greg lippman. >> but why did they -- did they tell you why they were only steve eisman say i'm not going>> steve eisman said, "i'm not going to participate". all of the characters were -- i had a very -- i had a privileged "liar's poker" and other books that people were willing to talk talk to other people. and i developed relationships with these subjects over a long time and then they want me to be intimately. but it became a kind of intimate experience for them. it was just me and them hanging around talking and yes a book was going to come out of it but they didn't think very much think. they thought well it's a book but it's by him and trust himand now the book comes out and on the air? now, steve eisman is technically employed by morgan stanley. morgan stanley won't let him go on the air. he would probably do it anyway if he was feeling bloody-minded want to be a famous person. television. cornwall capital who i had to badger really until letting me on an island somewhere waiting for this end because the lastso they actually all spoke to "60 minutes". they all talked to the producers of thing but there's no way my>> why did mike burry who you>> yes. >> yes, that's a great question. and i think that there's ahe felt -- he thought he had diagnosing what was going in the

american financial system. against the sub prime mortgage and it wound up being a veryand then the world moves on and nobody notices what he's done even though it actually is an incredible investment triumph. so when i called him to talk to had three years of e-mails to document his every move. really felt had been neglected. just reinforcing that. >> well, the next day amazon you're number one and here we are a week later when this is being taped, you're still numberbut you didn't show up on the is interesting today in their surprised about. what about these numbers? >> on the bestseller, i'll give you a quick -- the way the bestseller lists work generally the things that are in theso you wouldn't be -- the "new york times" bestseller list, and the "journal" bestsellers list it's all from -- it's sales fromthe book hasn't been on sale long- enough to hit those lists. even me. the market for it seems to be vast. and that's really great. it's nice that everyone wants -- but i'm just trying to get my mind around what's going on with there's clearly a reservoir not just of anger about what's happened, but a real kind of intense curiosity to know what actually happened on wall street that i didn't expect. people to read my story was going to be a little more difficult than it's been. >> correct anything i see. new orleans was your birthplace? >> i grew up -- it's where most of my gene pool still is. everybody still lives there except me. university.

>> yes. >> and you live in berkeley. and you're married to somebody my age would remember. >> tabitha soren who was the -- >> i mean she's not very old but i remember on mtv in the early days. >> well, she isn't very old. she was 22 or 21 when she went on the air but she used to anchor the news for mtv and interview the rock stars and so on and so forth. and we have three kids, two daughters and a son. ten -- ages 10, seven and three. and the only piece of -- major piece of my biography in just a minute is i went to graduate school in london and i spent eight years living in england right after college. princeton. >> yes. i was an art history major at princeton. and my first ambition was to be an art historian. >> "liar's poker" came out in 1989. you worked at salomon brothers for two years. >> more like three, almost three. i got there in the summer of '85 and i left in early '88. >> and can you give us a couple

of lines about "liar's poker" so we can come up to this book? >> sure. "liar's poker" was the few -- the oxygen for that story was just my own bewilderment that anybody was willing to pay me large sums of money to give investment advice. i mean had been an art history major at princeton. i had, indeed, done an economics degree at the london school of economics but it really didn't have anything to do with giving investment advice. and i had a pretty strong sense, as interested as i was in the kind of the sociology -- well the finance at salomon brothers i had pretty strong sense that i wasn't particularly well suited to telling people what to do with their money. that i didn't think i knew what was going to happen in the stock market and i just didn't -- i didn't feel like i was actually a useful -- making a useful contribution to the global economy but it was clear if i just sat in that seat i'd get rich. and that was a puzzle. why on earth should i paid or anyone get paid all of this money just to sit in this seat? and the trick was just getting

to the seat. and so i left to write a story about it, a nonfiction story that was also trying to explain what had happened on wall street to make these sort of jobs possible, to make them so lucrative. but i really did think when i wrote it that this was it. this is the 1980s. it was a strange little episode in american history. it was going to end. these seats would be less valuable so you had to get the story down on paper just so future generations would believe it. and little did i know that 20 years later people would pity me for how little i made while i was there. that the sums that were paid on wall street had gotten so big that you -- that that just looked quaint. >> the first person in your book is meredith whitney that seems to have a rather strong importance. can you tell us who she is? >> yes, she's a catalyst for me in this story. she was until very recently what's called a sell-side analyst which means she works for the wall street firm that

offering stocks to the public. and she worked for a firm called oppenheimer. and she was a bank analyst, a financial sector analyst. and meredith whitney who i had never heard of started saying things in late 2007 is when i first started paying attention about the wall street that just sounded differently from anything i had ever heard. that she was saying they basically didn't know -- understand the risks they were taking. they didn't understand their own balance sheets. she predicts citigroup is going to have to cut or eliminate its dividend a week before they actually do. she seems to know more about what's going on inside the places than the people who run them. and it's almost her tone that was as interesting as what she said. she was actually kind of condescending to these wall street people. and so i call her up because it just seemed -- she was making a different sound.

i thought i haven't been writing about this world but i'm kind of curious who this woman is and why she thinks this. and she made such sense that she persuaded me pretty early on that -- she didn't put it this way but i put it this way -- that the wall street firms had become the dumb money at the poker table. that somehow these firms which used to be the smart money -- when i left salomon brothers the last thing you wanted to do if you were an investor was be on the other side of one of salomon brothers' trades. if there was some zero-sum bet to be made with salomon brothers you did not make it because you were sure to lose money. and what had happened is somehow the firms had become -- had turned stupid or rather as institutions that that they had become the dumb money. and so that -- i was curious -- that maybe me curious how something big had changed. and then the natural question, of course, was well if they were the dumb money who was the smart money? and that led me to my characters because they were the smart money. >> you know when you use -- there's another word that i would say is throughout your book besides the f-word, the word lie.

>> yes. >> time and time again that people in these companies lied to each other, lied to us, lied to the -- but i want to read you one paragraph -- a little bit of one paragraph-- >> probably not a word that i'm using a lot. it's probably a word that the characters are using. >> this is -- i'm pulling this out of page 174. "he'd go to meetings with wall street ceos and ask them the most basic questions about their wall street sheets." quote, "they didn't know he said," they didn't know their own balance sheets. this is you writing. "once he got himself invited to a meeting with the ceo of bank america ken lewis." quote, "i was sitting there listening to him. i had an epiphany. umi said to my oh my god he's dumb. a light bulb went off the guy running one of the biggest banks in the world is dumb." >> yes. >> is that fair? >> is it fair? >> yes. >> it's absolutely his view. >> this is eisman's. >> it's absolutely a pure representation of his view and then they proceed to make bets against bank of america. the -- is it the -- no -- it's

-- that quote -- those kind of statements tell you -- they're very important in a story like this, in a narrative because they are a revelatory about steve eisman as they are about ken lewis. is the guy really dumb? what's dumb? no, he can get out of the bed in the morning and function. he's not dumb in that sense. but he's dumb in a sense that he doesn't persuasively understand his own business in eisman's mind. and so it's eisman's very blunt way of getting that point across. >> let's talk a little bit about steve eisman. who is he? where is he from? where does he live? >> steve eisman who i was led to by meredith whitney because meredith whitney had trained with him. she was the school of eisman in a way. was a new york born and bred. had gone to the university of pennsylvania. been a brilliant student. went to the harvard law school,

brilliant student. instantly joined, like so many harvard law school grads a corporate law firm and hated it immediately. and so called his mama as one does when one's in trouble and his mama was a -- and father had a very -- they were both prominent brokers at oppenheimer securities. and his mama got him a job. and it was a job as a step and fetch it. he was a junior analyst but analyzing noting at first. and in the mid '90s when he joins the sub prime mortgage market is really just beginning in its earliest form. and there's this new kind of company called a sub prime mortgage originator meaning the people who are looking for borrowers. and someone asked him if he wants to be the analyst on it. so he becomes one of the first two or three analysts of sub prime mortgage companies on wall street. and so -- and pretty quickly he's the world's expert on the subject.

>> how old is he? >> he's in the mid 40s now. when this happened he's in his early 30s. >> you paint in the book that he changes eventually but he seems angry and negative about everybody and says things-- >> there's a character you know it didn't occur to me until one of his colleagues pointed it out they said that when "curb your enthusiasm" came on to hbo, the larry david show, they just they just stole that. that's steve. they said he's larry david. he runs around offending people. and his own wife says to me, "my husband is rude. he has no manners. i know that. i've tried. and i've tried. and i've tried and there's nothing i can do about it." and he is tactless. and tactless throughout the story but there is a pattern to his tactless which sort of endeared him to me. and it was -- he was never rude or mean to little people. he wasn't mean to the secretary. he wasn't mean to his nanny. he was wonderful with them. he was protective and caring about the people beneath him.

what he was -- who he was tactless too were people who were in power, who he thought were abusing their positions. it made him angry. and he would get in these over and over he would find himself in these situations where he's in meetings with wall street big shots and saying things that caused the meeting to come an end or cause the wall street big shot to say i'm never going to set foot in the same room with this man, again, kind of thing. and it got to the point where his colleagues or3bñ his subordinates the people who work with him in this fund that he's managing they'll just stop their jobs for the day to follow eisman wherever he's going because they want to see the show because they know that if he's going to be meeting someone important wall street something is going to happen that they're going to want to see. they say -- one of them says, "it's like watching a crash car when you're watching eisman" in a social situation. you can't watch but you can't not watch. >> and he didn't want to be interviewed on camera for "60 minutes"?

>> he didn't want to be on camera for "60 minutes". i don't blame him. you know i'm very grateful to these people for letting me into their lives and let me write about them as i did. i don't blame them for not wanting to be on tv. i mean it's a peculiar kind of desire to want to be on tv. some people have that bug, but it does kind of -- it does change your life a little bit to have your face known. >> do you have that bug? >> to be on tv? >> no. i get offered every now and then a chance to have a tv show and it just doesn't interest me. it -- i did do -- i'll tell you now when -- my whole -- my interest in television was cauterized by the bbc. when i was -- about 10 years ago my wife and i lived in paris for a year and i did a series of documentaries for the bbc basically to pay for a house renovation and i had to wander around and be on camera all of the time. and i wrote the show. it was a documentary and i loathed it because the interesting bits of what i do is learning about something and communicating in words. then having to get the pictures to go with it and stand up in

front of the camera, it's unbelievably tedious. and if you don't have a picture of it you can't communicate it on tv. and i'd rather just create the pictures out of words. so i don't particularly like. i've had to get used to it because when you go on the road and sell a book it's almost -- i mean a lot of it's tv so you can't avoid it but it's not something i'm -- i don't think i'm particularly good at and i don't particularly like it. >> i picked a paragraph in your book, page 68 and i want to read it. it's long but i wanted you to interrupt it as we go because i want you to define all of this stuff. i mean you even say in a footnote if you've gotten this far, i can't remember where the footnote is, but god bless you you got this far but i'm going to read this. and just -- it doesn't have to be long explanations but to try to get through an understand all of this language. >> the jargon. >> ok. let's start. "the sub prime mortgage market was generating half a trillion dollars worth of new loans a year but the circle of people redistributing the risk that the

entire market would collapse was tiny." go back to sub prime mortgage, define it. >> sure. you know what a mortgage loan is. you borrow money to buy a house. a prime mortgage loan is to someone who's got a -- to a borrower who's got a credit score or a certain number. credit scores are supposedly measuring the likelihood you're going to repay your loan. there's a company called the fair isaac corporation that generates something called a fico score, fair isaac corporation score that tells you -- that suggest what the likelihood is. above you know it has different definitions but above about on a scale of 800 above 660 is a prime mortgage, below 660 is a sub prime mortgage. >> but the point i wanted -- it's not -- doesn't mean the prime lending rate. >> no, no, it's the person who's doing the borrowing. >> "when the goldman sachs saleswoman called mike burry and told him that her firm would be happy to sell him credit default swaps in $100 million chunks burry guessed rightly that goldman wasn't ultimately

on the other side of the bets." two things here the credit default swap. >> sure. this is the mechanism that is created in 2005 to bet against the sub prime mortgage market. the credit default swap is a -- essentially an insurance policy on a security. so if i buy a credit default swap on a sub prime mortgage loan and i'm buying it i pay you if you're a seller a premium as you would -- an insurp%7hpì(3 premium, a couple of percent a 16 c1 me the whole value of the sub prime mortgage bond if the bond goes bad. i bought insurance on that bond. and the general idea of it is that people who own sub prime mortgage bonds might like to have the ability to buy insurance on them as a kind of hedge. it's a silly idea because you

mortgage bonds in the first place if you wanted to -- if you were worried about the risk. but that's why these instruments are supposedly created. but they quickly become tools for speculation instead of buying a credit default swap on a sub prime mortgage bond to hedge my risk of owning one i buy just a bet on a sub prime mortgage bond. and so that's what he's buying is an insurance policy on the mortgage bond. >> you refer often in the book to the other side of the bet, the other side of-- >> yes, is a bet. the whole financial system is organized -- at this moment in financial history organizing itself around a bet and the bet is on sub prime mortgage bonds which are essentially just pools of loans. i mean there are a bunch of people who borrowed money to buy a house and are they going to pay off their loans or are they not. and the vast majority of the financial system was betting yes, they're basically going to repay their loans. and some people bet no.

>> let's simplify it even more. i am going to buy a house. i go to a bank -- it usually doesn't happen that way any more but i go to a bank-- >> no, it does happen. >> well, so often your realtor will say well i can get you a mortgage over here with this mortgage company. >> right. >> but you go to a bank and you sign on the dotted-line and you owe them $100,000 just to keep it simple. then the next thing you hear is that bank says that mortgage has been sold. >> yes. >> who does that bank sell the mortgage too? >> they sell it to well there could be lots of steps in the change but the simple step is they sell it to a wall street firm that pools it together with lots of other loans and then issues -- in a trust. and then issues bonds off the trust. so the money coming in from you to pay off your loan is now going to some bondholder and it could be anywhere. it could be in germany. it could be japan. it could be anywhere. so the ultimate -- he's the ultimate lender. so the ultimate lender now is very far removed from the ultimate borrower. >> so it could be somebody like goldman sachs? >> yes. goldman sachs. it's very likely to be goldman sachs. >> but if i originally were going to write checks to the local bank i'm now writing checks to goldman sachs. >> but you don't see that.

you're still writing checks to some servicer of your mortgage who you're writing it who's standing in between -- the wall street doesn't actually go and get your money from you. >> let me go back to your paragraph. "goldman would never be so stupid as to make hug naked bets that millions of insolvent americans would repay their home loans." go to insolvent americans. are you can insolvent american if you're getting these -- were a lot of them -- how many of them were about these sub prime mortgages? >> well, the dollar volume is unbelievable. to put it in perspective. the sub prime mortgage loan business does not exist until the mid '90s. in the mid '90s it has a brief life and it's maybe 10, 20, $30 billion a year of sub prime mortgage loans. >> it came from where, by the way? >> it came from where? >> yes, who promoted it originally? >> it was -- there were -- several companies were born all at once that did -- that existed -- to make the -- to

originate the loans, to go find people to lend to and package them into securities and to bonds and sell them off. it was a company called aims financial, another called the money store, green tree. i mean these companies don't exist any more. but it was small. it was tiny. >> i remember phil rizutto did the money store didn't he? the ad for those. >> i don't know. >> i think so. >> before my time. >> why was there a need for sub prime mortgages? >> well, it was more of an opportunity. well, why was there was a need is a good question and it as to do with just what's happened in the american economy but -- that you -- you had lots of people leaving beyond their means and using their credit cards to do it. that credit became you know one of the big changes in american life in the last 20 to 25 years has been the extension of credit to people who previously had trouble getting it and the credit companies got there first, auto loans and credit companies.

in -- and there was an argument that all right the credit companies are charging some poor guy who can't make ends meet 25 percent interest on his overdrafts -- on his unpaid balances. if we can get that guy -- the same guy -- but that same guy owns a house and he's got equity in the house if we can get that same guy a home equity loan we can get -- we can lend to him -- justify lending him at a much lower rate than the credit card company because our loan is secured by the house as an asset. and so it's good -- it will be for everybody because he's going to pay off his credit card -- his 25 percent per annum credit card debt and instead owe a 10 percent home mortgage. >> who's getting scammed at this point? >> well, nobody should have been. there's a theory -- in theory it could have worked. the problem was the consumers were poorly protected. what -- the minute that the wall street firms were in the

business of harvesting middle class and lower middle class americans for their home equity value and making loans to them against it there was a natural risk of abuse because just generally in financial transactions people are bewildered. the minute they get a little complicated they get a lot complicated in people's minds. >> on the politics of this the -- the conservatives point the finger at bill clinton, liberals point their finger at george bush and others point the finger at barney frank and some point their finger at fannie and freddie and all of that stuff, so where do you point your finger at anybody? >> i mean i think the first -- and this is really the story i've told is the story of what happened in the private markets without a lot of government help. so in this particular case it was not -- these loans were not being made because the government said you've got to make loans to poor people.

that wasn't why they were getting made. they were being made because the lender was lending the money putting them -- packing them in the bonds and selling them off and didn't have any -- didn't bear the risk of the loans of not being repaid. and so it was just -- it was a volume business. it was -- they got paid fees for doing the business. so the trick was persuading people to take out the loans. now, some people didn't take a lot of persuading but there were lots of cases where the nature of the loan was sort of disguised from the person who was borrowing the money. >> you talked about teaser rates? >> well, teaser rates are -- they should be criminal. i mean essentially you talk someone into taking a loan out that has an artificially low rate for the first couple of years so it looks very, very temping. and then it skyrockets after two years. wgç>> now, let's go back to the beginning. so i could go in and they say here's the rate of seven percent for the first three years. and-- >> here's a rate of two percent. >> yes, for the first three years. >> and then it's going to go to

13. >> but the impression is left that you can flip this house within the two years. >> yes. so all of a sudden if they make you that loan what they've done is turned you into a property speculator because you're completely dependent on the price of the property going up to refinance the loan. if the value of your house goes down you're stuck with this loan that's going to eat you alive. so let me just stop you there because you're asking questions that are really -- this pernicious relationships between the high finance and the american borrower is what eisman becomes an expert in. and he starts to become very, very cynical about what wall street does in this situation. so he asks how big were these sub prime loans, well, when we get to 2004 to 2007 period in that period there were something like $1.6 trillion of sub prime loans made an another 1.2 trillion of what's called alt-a loans which are not sub prime but they're loans that for some reason lack the documentation.

so the borrower is not required to file proof of income. so in most cases, in a lot of cases those were sub prime too. so the numbers were -- you're talking about almost $3 trillion of loans that were dubious. >> so eisman is sitting there buying what? >> eisman is first sitting here investing in the stock market with his little hedge fund but then seeing this explosion of lending again in this beast he thought he had slain back in the '90s, the sub prime mortgage lending business and he says, "this is all going to blow up again. this is all going to end badly because i know how this business is done." and it's a sinister business. and so he starts to try to learn about the bond market. the market that's creating this credit. and he and his colleagues essentially starting from almost scratch. they don't know anything about the ratings agencies and they don't know what a credit default swap is, none of this. they learn that you can

actually make bets against these loans. and he thinks the loans are going to bad. and so he ends up making a massive bet against the loans. >> through the credit default swaps. >> right. he buys credit default swaps on the sub prime mortgage bonds. >> let me go back to this paragraph. "he didn't know who or why or how much but he knew that some giant corporate entity with a triple a rating was out there selling credit default swaps on sub prime mortgage bonds." and here's this language the triple a rating. i think one of my biggest shocks in this was when i woke up one day and saw that moody's and s&p and i know nothing about these operations had been slapping these ratings on it and one of it meant anything. >> right. >> why? how could they get away it? who are regulating them? and who are they? and warren buffett owns part of moody's? >> right. moody's is, i think, its biggest shareholder is warren buffett and s&p is owned by mcgraw-hill. so the public -- they're both public corporations. their job has been -- they see themselves now they will tell

you now we're just like auto trend magazine for car buyers. that we're just journalists. we give our views about the relative trustworthiness of these various securities, relative likelihood they're going to repay. these ratings were taken far to seriously. they were just meant as a kind of suggestion about what the like -- not the likelihood they'd default but suggestion of the way you should order them in your mind from riskiest to least risky. and what -- but their place in the world was actually much and is much more serious than that. they are -- they're federally sanctioned enterprises that banks have to reserve capital against their assets. and how much they have to reserve against each asset depends on the rating of the asset. and the rating is bestowed on that asset by moody's and standard and poor. so their ratings have a huge

effect on the ability of the institutions to hold these securities. a triple a rating government is what the federal government has. it's what the u.s. treasury has. so they slapped triple a ratings on piles of sub prime mortgage bonds. and then on derivatives called from these piles and they were triple a ratings priced at hundreds of billions of dollars of bonds that didn't just decline in value that went to zero. so the ratings in this world end up meaning nothing. >> so if i bought that mortgage and it moved to pick your place. >> düsseldorf. >> yes, wherever. >> goldman sachs and they sell it on to ikb in -- a german bank in düsseldorf who thinks that they're being really smart investing in sub prime mortgage bonds. >> and all along i'm starting to not be able to pay at some point. i mean three years into it i go from two percent to 12 percent. >> the teaser rate is over