Zach Grenier (8:36)
It had been four days since Lehman Brothers had been allowed to fail, but the most powerful effects of the collapse were being felt right now. The stocks of Morgan Stanley and Goldman Sachs were tanking, and it was clear that nothing short of of the US Government could save them. It was the equivalent of the earthquake going off, danny said. And then, much later, the tsunami arrived. Danny's trading life was man versus man, but this felt more like man versus nature. The synthetic CDO had become a synthetic natural disaster. Usually you feel you have the ability to control your environment, said Danny. You're good because you know what's going on now. It didn't matter what I knew. Feel went out the window. Frontpoint had maybe 70 different bets on various stock markets around the world. All of them were on financial institutions. He scrambled to keep a handle on them all, but couldn't. They owned shares in KeyBank and were short the shares of bank of America, both of which were doing things they had never done before. There were no bids in the market for anything, said Danny. There was no market. It was really only then I realized there was a bigger issue than just our portfolio. Fundamentals didn't matter. Stocks were going to move up and down on pure emotion and speculation of what the government would do. The most unsettling, loose thought rattling around in his mind was that Morgan Stanley was about to go under. Their fund was owned by Morgan Stanley. They had almost nothing to do with Morgan Stanley and felt little kinship with the place. They did not act or feel like Morgan Stanley employees. Eisman often said how much he wished he was allowed to short Morgan Stanley stock. They acted and felt like the managers of their own fund. If Morgan Stanley failed, however, its share in their fund wound up as an asset in a bankruptcy proceeding. I'm thinking we got the world by the fucking balls. And the company we work for is going bankrupt. Then Danny sensed something seriously wrong with himself. Just before 11 in the morning, wavy black lines appeared in the space between his eyes and his computer screen. The screen appeared to be fading in and out. I felt this shooting pain in my head, he said. I don't get headaches. I thought I was having an aneurysm. Now he became aware of his heart. He looked down and he could actually see it banging against his chest. I spent my morning trying to control all this energy and all this information, he said, and I lost control. He rose up from his desk and looked for someone. Isman normally sat across from him, but Eisen was out at some conference trying to raise money, which showed you how unprepared they all were at the arrival of the moment for which they thought themselves perfectly prepared. Danny turned to the colleague beside him. Porter, I think I'm having a heart attack, he said. Porter Collins laughed and said, no, you're not. An Olympic rowing career had left Porter Collins a bit inured to the pain of others, as he assumed that they didn't know what pain was. No, danny said. I need to go to the hospital. His face had gone pale, but he was still able to stand on his own two feet. How bad could it be? Danny was always a little jumpy. That's why he's good at his job, said Border. I kept saying, you're not having a heart attack. And then he stopped talking and I said, all right, maybe you are. This actually wasn't all that helpful. Unsteadily, Danny turned to Vinnie, who had been watching everything from the far end of the long trading desk and was thinking about calling an ambulance. I got to get out of here now, he said. By the time Eisman got the call from Danny Moses saying that he might be having a heart attack and that he and Vinnie and Porter were sitting on the steps of St Patrick's Cathedral, he was in the midst of a slow, almost menopausal change. He had been unprepared for his first hot flash in the late fall of 2007. By then it was clear to many that he had been right and they had been wrong, and that he had gotten rich to boot. He'd gone to a conference put on by Merrill lynch right after they'd fired their CEO, Stan O', Neill, and disclosed $20 billion or so of their 52 billion in subprime related losses. There he had settled up to Merrill's chief financial officer, Jeff Edwards, the same Jeff Edwards Eisman had taunted some months earlier about Merrill Lynch's risk models. You remember what I said about those risk models of yours that Eisman now said, I guess I was right, huh? Instantly and amazingly, he regretted having said it. I felt bad about it, said Eisman. It was obnoxious. He was a lovely guy. He was just wrong. I was no longer the underdog, and I had to conduct myself in a different way. Valerie Fagan watched in near bewilderment as her husband acquired haltingly, in fits and starts, a trait resembling tact. There was a void after everything happened, she said. Once he was proved right, all this anxiety and anger and energy went away, and that left this big void he wanted on an ego thing for a while. He was really kind of full of himself. Eisman had been so vocal about the inevitable doom that all sorts of unlikely people wanted to hear what he now had to say. After the conference in Las Vegas, he had come down with a parasite. He told the doctor who treated him that the financial world as we knew it was about to end. A year later, he went back to the same doctor for a colonoscopy. Stretched out on the table, he hears the doctor say, here's the guy who predicted the crisis. Come in and listen to this. And in the middle of Eisman's colonoscopy, a room full of doctors and nurses retold the story of Eisman's genius. The story of Eisman's genius quickly grew old to his wife. Long ago, she had established a sort of Eisman social emergency task force with her husband's therapist. We beat him up and said, you really just have to knock this shit off. And he got it, and he started to be nice, and he liked being nice. It was a new experience for him all around, she and others found circumstantial evidence of a changed man. At the Christmas party at the building next door, for example, she wasn't planning to even let Eisman know about it, as she never knew what he might do or say. I was just trying to kind of sneak out of our apartment, she said. And he stops me and said, how will it look if I don't go? The sincerity of his concern shocked her into giving him a chance. You can go, but you have to behave, she said, to which Eisman replied, well, I know how to behave now. And so she took him to the Christmas party, and he was as sweet as he could be. He's become a pleasure, said Valerie. Go figure. That afternoon of September 18, 2008, the new and possibly improving Eisman ambled toward his partners on the steps of St. Patrick's Cathedral. Getting to places on foot always took him too long. Steve's such a fucking slow walker, said Danny. He walks like an elephant would walk, if an elephant could only take human size step steps. The weather was gorgeous. One of those rare days where the blue sky reaches down through the forest to tall buildings and warms the soul. We just sat there, says Danny, watching the people pass. They sat together on the cathedral steps for an hour or so. As we sat there, we were weirdly calm, said Danny. We felt insulated from the whole market reality. It was an out of body experience. We just sat and watched the people pass and talked about what might happen next. How many of these people were going to lose their jobs? Who was going to rent these buildings after all the Wall street firms had collapsed? Peter Collins thought that, well, it was like the world stopped. We were looking at all these people and saying, these people are either ruined or about to be ruined. And apart from that, there wasn't a whole lot of hanging inside frontpoint. This is what they had been waiting for. Total collapse. The investment banking industry is fucked, Eisman had said six weeks earlier. These guys are only beginning to understand how fucked they are. It's like being a scholastic prior to Newton. Newton comes along and one morning you wake up, holy shit, I'm wrong. Lehman Brothers had vanished, Merrill had surrendered, and Goldman Sachs and Morgan Stanley were just a week away from ceasing to be investment banks. Investment bankers were not just fucked, they were extinct. That Wall street has gone down because of this is justice, Eisman said. The only one of them who wrestled a bit with their role as the guys who made a fortune betting against their own society was Vincent Daniel. Well, Vinny's being from Queens needs to see the dark side of everything, Eisman said. To which Vinnie replied, well, the way we thought about it, which we didn't like, was by shorting this market, we're creating the liquidity to. To keep the market going. It was like feeding the monster, Eisman said. We fed the monster until it blew up. The monster was exploding. Yet on the streets of Manhattan, there was no sign anything important had just happened. The force that would affect all their lives was hidden from their view. That was the problem with money. What people did with it had consequences. But they were so remote from the original action that the mind never connected the one with the other. The teaser rate loans you make to people who will never be able to repay them will go bad. Not immediately, but in two years when their interest rates rise, the various bonds you make from those loans will go bad. Not as the loans go bad, but months later, after a lot of tedious foreclosures and bankruptcies. And for sales, the various CDOs you make from the bonds will not go bad right then. But after some trustees sort out whether there will ever be enough cash to pay them off. Whereupon the end owner of the CDO receives a little note. Dear sir, we regret to inform you that your bond no longer exists. But the biggest lag of all was right here on the streets. How long would it take before the people walking back and forth in front of St. Patrick's Cathedral figure out what had just happened to them?
