The Big Short: Key People
One of Wall Street’s most outspoken and insightful analysts, Steve Eisman was among those who profited significantly from the subprime mortgage disaster of 2008. Eisman joined Oppenheimer and Co. in 1991 as a junior equity analyst when his parents—both respected securities brokers who had worked for Oppenheimer for many years—rescued him from a law career. Eisman quickly made a name for himself as a bold, outspoken, and accurate analyst, and he and his team kept a sharp eye on the subprime mortgage bond situation and reaped significant profits in the end. Eisman left Oppenheimer and eventually founded his own hedge fund with his team (now his partners) under the auspices of FrontPoint Partners (owned by Morgan Stanley). He has since split from them to form his own New York based hedge fund, Emrys Partners.
Danny Moses and Porter Collins
In his capacity as FrontPoint’s head trader, Danny Moses’s function was to be the detail man. He had an amazing ability to keep track of huge amounts of information. He would take in 33,000 e-mail messages per month, and throughout the day, he would monitor five computer screens variously dedicated to the latest news, interchanges with investors and colleagues, and any shifts in the FrontPoint portfolio. Lewis calls Danny Moses the “small-picture guy,” the one who alerted the group to important changes. Porter Collins, who sat next to him, was a former Olympic rower, and analyst for FrontPoint. Together with Vinny Daniel, they co-founded Seawolf Capital.
Dr. Michael Burry
Dr. Michael Burry, a neurology resident turned hedge fund manager, was the first to foresee the crisis caused by the subprime mortgage situation. He was also the first to come up with the idea of using credit default swaps to short sell subprime mortgage bonds, and his actions significantly influenced the market. Burry, who had become known through the Internet for his uncanny ability as a part-time value investor, finally left medicine to found Scion Capital. After extraordinary initial returns, Scion went into a slump as the market experienced an irrational, fraudulent period. With investors threatening to withdraw, Burry established a moratorium on the fund, while he waited for the market to show its true colors. His patience and perspicacity paid off, yet despite spectacular returns, he never received the thanks or credit he deserved. In late 2008, he finally shut down the fund. He continues to invest his own money but no longer deals with the public.
Greg Lippmann was Deutsche Bank’s head trader and the first to pick up on Mike Burry’s strategy. He was instrumental in spreading the word through his forty-page presentation “Shorting Home Equity Mezzanine Tranches.” He also orchestrated Eisman’s meeting with Wing Chau, the manager of Harding Advisory, who was taking the other side of the bet. Lippmann has since gone on to co-found the investment firm, LibreMax Capital.
Charlie Ledley, Jamie Mai, and Ben Hockett
Charlie Ledley and Jamie Mai were the “accidental capitalists” who formed the so-called garage hedge fund that they named Cornwall Capital. They were later joined by Ben Hockett, a professional trader who worked for Deutsche Bank from his home in California. From modest financial beginnings, they worked their way up to institutional investing, finishing as multimillionaires. They had in common an impending sense of doom, a mistrust of their own perceptions, and a tendency to question the status quo. All of that, ironically, led them to a new sense of certainty and made them unusually wealthy.
Gene Park and Joe Cassano
Gene Park, a Connecticut-based AIG FP employee, was the first (other than Greg Lippmann) to alert his company to the dangerous situation being created by taking the long side of the significant trades they were making with the Wall Street investment banks. When he alerted his boss, Joe Cassano, to that fact, Cassano initially ripped into Park but eventually saw the need to investigate the situation. Following that, AIG FP wisely stopped making any new credit default swap trades but never dealt sufficiently with the $50 billion in outstanding deals that it still had, with the result that the U.S. government had to bail out the firm with taxpayer money.
Like Burry, Paulson was somewhat of an outsider on Wall Street, though less so; but unlike Burry, he succeeded in selling subprime credit default swaps as a hedge against disaster rather than focusing on the inevitability of impending doom. Paulson was also experienced at short selling overvalued bonds—all of which prepared him to take action when the opportunity arose to place $25 billion in subprime credit default swaps. He, too, has gone on to found his own hedge fund, Paulson & Co.
Howie Hubler, Morgan Stanley’s head bond trader, was first promoted along with his traders to manage the firm’s top group—the Global Proprietary Credit Group—and then retired after losing the company $9 billion from credit default swap trades. Despite Morgan Stanley’s historical trading loss, Hubler, who was paid $25 million the previous year, retired with an even larger sum.
John Gutfreund is the former CEO of Salomon Brothers and Lewis’s former boss. Gutfreund was known for having broken his promise to the original owners, the Salomon brothers, by taking the firm public, to the dismay of other Wall Street firms at the time. But Gutfreund was right in that every one of them followed in his footsteps. He had made a move that would change Wall Street in significant ways. Salomon Brothers’ business shifted from being predominantly customer and enterprise driven to being dominated by strange and incomprehensible new bets that proved so lucrative that their annual profits outdid those of the rest of the firm. Gutfreund’s story was not unlike the stories of other Wall Street CEOs, who admitted to not being fully able to understand or control their firms’ activities. The difference was that he ended up paying for his distance.
In October of 2007, a young, relatively unknown financial analyst who worked for Oppenheimer and Co. had the courage and perspicacity to predict major problems for Citigroup if the company did not slash its dividends. That statement alone caused serious ripples on Wall Street: the financial markets plummeted on the same day, and within a few short weeks, Citigroup witnessed the resignation of its CEO and performed the requisite slashing of its dividends. Whitney, who was trained by Steve Eisman when she joined Oppenheimer in 1994, rapidly became a respected voice on Wall Street and now heads her own company. Her significance in relation to this book is that she advised at least several of the handfuls of people who successfully predicted and profited from the subprime mortgage bond crisis of 2008.