The Big Short

Eisman doesn’t golf the way most other people on Wall Street do. He doesn’t wear a collared shirt, and when he doesn’t like where his ball lands, he just picks it up and drops it somewhere else.

After golf, Eisman, Vinny and Danny go to a dinner hosted by Deutsche Bank—an idea suggested to them by Lippmann. Lippmann has arranged it so that investors who are shorting bonds will be seated at tables with investors who are long on bonds.

Eisman ends up at a table with an investor named Wing Chau, who is a CDO manager (meaning he is long on bonds). Chau is “newly, obviously rich” and keeps smirking the whole time. Vinny and Danny think Chau is a fool, but they worry that Eisman will talk too much and scare him out of holding his investments.

Eisman keeps asking Wing Chau to repeat statements, as he learns more about how a CDO works. Since AIG left the market, most CDOs are now bought by managers like Chau. Chau doesn’t worry about what’s in his CDOs—he passes the risk on to investors who have, theoretically, hired him to vet the bonds, and he takes money off the top and bottom of all deals.

Wing Chau tells Eisman, “I love guys like you who short my market. Without you I don’t have anything to buy.” Eisman finally gets it. As Lewis puts it: “The credit default swaps, filtered through the CDOs, were being used to replicate bonds backed by actual home loans.” In short, people like Chau need people like Eisman to keep the whole system running.

The dinner seems to go well, but immediately afterwards, Eisman grabs Lippmann, points to Chau and says, “whatever that guy is buying, I want to short it.” Eisman isn’t joking, and he ends up buying credit default swaps specifically on Wing Chau’s CDOs.

Meanwhile, at a Las Vegas shooting range called The Gun Store, Charlie is the first to arrive for the Bear Stearns event. It later becomes clear to him that he was only invited so that the other Bear Stearns guys would have an excuse to spend some time at the range and expense it to their business accounts, but he doesn’t realize this at the time.

The next morning, Ben and Charlie walk around in The Venetian, the hotel where the event is being held. They try to get information from the subprime mortgage bond buyers and sellers in attendance, without revealing much about themselves. None of the people they meet impress them. They still have a hard time getting Wall Street firms to take them seriously. At one point, a man from Wachovia gives a speech about how sound the subprime mortgage bond market is; Charlie ambushes him and says if he believes in the market so much, why not sell some credit default swaps?

Eisman and his team are also at the Venetian hotel. They have no interest in the public speeches and so try to get meetings with industry insiders, but in order to do so, they have to pretend they are interested in buying bonds instead of shorting them. Deutsche Bank, who arranged the meetings, is keeping an eye on Eisman.

Monitoring Eisman proves futile, however. He sees himself as a champion for underdogs. As his wife, Valerie puts it, “my husband thinks he and Spider-Man are living the same life.” Eisman starts causing trouble at speeches around the convention, asking pointed questions when it isn’t even Q&A time. Vinny and Danny agree with him but wish he would keep to himself, to avoid letting everyone else know what they’re thinking.

Eventually, Eisman calms down and sets out to learn more. He figures that the ratings agencies, which theoretically wield a lot of power in the industry, are mostly staffed by largely incompetent people who don’t have the connections to make it on Wall Street. His opinions toward the bond market begin to solidify. Vinny describes this as the moment where the group realizes the whole market is basically a Ponzi scheme. They realize the people in Las Vegas don’t know anything they don’t know. Danny thinks they’re blinded by their own self-interest; Vinny thinks some are “morons,” but that the higher-ups are mostly “crooks.”

After leaving Las Vegas, Eisman, Danny, and Vinny increase their subprime short position from $300 million to $550 million, overwhelming their portfolio of $500 million that they manage. They decide to look for even more deals against people like Wing Chau.