The Big Short (2015)

1. Hiya, Frank. How are the wife and kids?

2. You know, for you, I'm considering

3. treasury bonds and utility stocks. Smoke?

4. In the late '70s, banking wasn't a job

5. you went into to make large sums of money.

6. It was a fucking snooze.

7. How about those Mats'?

8. Filled with losers. Like selling insurance or

9. accounting.

10. And if banking was boring,

11. then the bond department at the bank was straight-up comatose.

12. We all know about bonds.

13. You give them to your snot-nosed kid when he turns 15.

14. Maybe when he's 30 he makes a hundred bucks.

15. Boring.

16. That is, until Lewis Ranieri came on the scene

17. at Salomon Brothers.

18. You might not know who he is, but he changed your life

19. more than Michael Jordan, the iPod and YouTube put together.

20. All right, gentlemen! Let's get some money in here!

21. Let's make some money! What do you say?

22. You see, Lewis didn't know it yet,

23. but he had already changed banking forever

24. with one simple idea.

25. The mortgage-backed security. Or private-label MBS.

26. You've got your average person's mortgage.

27. Fixed rate, 30 years.

28. Boring, safe, small payoff, right? But,

29. when you have thousands of them all bundled together,

30. suddenly the yield goes up but the risk is still small because,

31. well, they're mortgages!

32. And who the hell doesn't pay their mortgage?

33. What exactly is the credit rating on this bond?

34. This bond, gentlemen, is AAA-rated.

35. This is exactly what the Michigan state pension fund has been looking for.

36. I'll buy $20 million.

37. - Oh, come on, live a little. - $25 million.

38. The money came raining down,

39. and for the first time,

40. the banker went from the country club to the strip club.

41. Pretty soon, stocks and savings were almost inconsequential.

42. They were doing $50, $100, $200 billion

43. in mortgage bonds and dozens of other securities a year.

44. And America barely noticed as its number one industry

45. became boring old banking.

46. And then one day, almost 30 years later, in 2008,

47. it all came crashing down.

48. March. Bear Stearns was in a death spiral

49. and the Fed brokered its sale.

50. It's been called the worst financial crisis in modern times.

51. Certainly the largest financial disaster in decades in this country,

52. and perhaps the end of an era in American business.

53. In the end, Lewis Ranieri's mortgage-backed security

54. mutated into a monstrosity that collapsed the whole world economy.

55. And none of the experts or leaders or talking heads

56. had a clue it was coming.

57. I'm guessing most of you still don't really know what happened.

58. Yeah, you got a soundbite you repeat so you don't sound dumb, but come on.

59. Our financial institutions are strong.

60. But there were some who saw it coming.

61. While the whole world was having a big old party,

62. a few outsiders and weirdos saw what no one else could.

63. Not me. I'm not a weirdo. I'm pretty fucking cool.

64. But we'll meet again later.

65. These outsiders saw the giant lie at the heart of the economy.

66. And they saw it by doing something

67. the rest of the suckers never thought to do.

68. They looked.

69. During the 1930s,

70. the housing market collapsed nationwide

71. by roughly 80%.

72. I mean, half of all mortgage debt was in default.

73. And, I mean, there were very

74. specific identifiers, extremely recognizable.

75. I mean, for instance,

76. one of the hallmarks of mania

77. is the rapid rise

78. in complexity and the rates of fraud.

79. And did you know that they're going up?

80. I've always been

81. more comfortable alone.

82. I believe maybe it's because of my glass eye.

83. I lost the eye in a childhood illness.

84. It separates me from people.

85. And did you know that they are going

86. Up?

87. The highest fraud rates since the 1930s.

88. Hey, hey, it's okay. It's okay.

89. No, I didn't know that.

90. In 1933, the fourth year of the Great Depression.

91. Let's wash it off and put it back in.

92. You were playing so great, son.

93. I even heard the coach say it.

94. Can we just go home?

95. Most social interactions are awkward for me and for the person.

96. Even when I try to compliment someone,

97. it comes out wrong.

98. You have a very nice haircut. Did you do it yourself?

99. What?

100. No. No, I...

101. I'm sorry. I'm just...

102. I'm going on and on.

103. My wife told me I need to share more.

104. - That seems healthy. - Yeah.

105. So do I get the job?

106. I really think I could help your fund.

107. Yeah.

108. Yeah, sure. Go on.

109. - You're... - David. Great.

110. I guess I'll go find a desk.

111. Is there anything you want me to work on for start...

112. Yeah.

113. You could let me know later. I could come back.

114. Did you think it was strange when

115. the tech bubble burst in 2001

116. and the housing market in San Jose,

117. the tech capital of the world,

118. Went up?

119. - Wasn't that strange? - No.

120. No, it's housing. Housing is always stable.

121. Low risk. It's solid.

122. That's the idea, yeah.

123. I want you to get me

124. the top 20 selling mortgage bonds.

125. So you want to know what the top 20 selling mortgage bonds are?

126. No, no, no, I want to know what mortgages are in each one.

127. Okay, aren't those mortgages made up of...

128. Wait, aren't those bonds made up

129. of thousands and thousands of mortgages?

130. Yeah.

131. Right away, Dr. Burry.

132. I am a nice guy all day long.

133. Ask anyone, I'm a pleasure to work with.

134. But the second my son screws up, lam...

135. yelling at him just like my dad did to me.

136. I hear the words that are coming out of my mouth and...

137. Sorry I'm late! No cabs.

138. So, get this.

139. I met with this retail banker yesterday.

140. I'm supposed to be getting him to invest in a fund,

141. but instead

142. I start grilling him about overdraft penalties

143. and how his bank will let a customer write 10-12 checks

144. before they tell them they're overdrawn.

145. And this creep is making billions off screwing over people this way.

146. And I'm getting madder and madder.

147. And I ask him, I look him in the face and I say,

148. "How can you sleep at night

149. "knowing that you are ripping off working people?"

150. And you know what he did? He left.

151. He just walks out of the lunch, doesn't say a word.

152. What the fuck is that?

153. Who's fucked up in that scenario? Am I?

154. Or is this douche bag, who leaves me hanging?

155. Is he the fucked up one?

156. We have talked about this numerous times.

157. You can't come in late and hijack the entire session.

158. What do you mean? I didn't hijack the meeting.

159. - Did I hijack the session? - Yeah.

160. - What do you do? - I'm in commodities.

161. Good luck with that.

162. Mark, I know you suffered a terrible loss.

163. Maybe you want to talk about that.

164. I don't talk about that.

165. Hold on.

166. Hold on...

167. Shit, I have to take this. Sorry. Sorry.

168. No... I don't care, Porter.

169. This guy's whole business is built on ripping people off.

170. How long can that last?

171. Bye, everybody!

172. 95...

173. That's 30 days late... Sixty days late...

174. They pay on time...

175. These FICO scores...

176. Late. And they caught up on their payments...

177. Another 30 days late...

178. LTV, 95... LTV, 90... They caught up on their payments...

179. Sixty days late? Jesus!

180. LTV, 110? I've never heard of that!

181. Thirty days late, rate adjusts...

182. In '07 rate adjusts...

183. In '06 rate adjusts...

184. 95“.90“. Jesus!

185. He hasn't moved all day.

186. He does this every few days.

187. He hasn't spoken to me since he hired me.

188. Maybe the LTV's at... High-risk,

189. interest-only... I never heard of that mortgage history,

190. I never heard of that... How?

191. Michael, how are you, guy?

192. Lawrence, I found something really interesting.

193. Great, Michael. Whenever you find something interesting,

194. we all tend to make money.

195. - What stock are you valuing? - No, no, no, no. No stocks.

196. I want to short the housing market.

197. Really? But the housing market is rock solid.

198. Greenspan just said

199. bubbles are regional, defaults are rare.

200. Tell them I'll be there in a minute.

201. - Say again? - Look, look...

202. Greenspan's wrong.

203. I don't think you mean to do this, but sometimes you sound very

204. dismissive and superior.

205. It's a fact. Greenspan's wrong.

206. I don't know how else you want me to say...

207. Look, Michael.

208. Metro Capital backed you four years ago

209. when you were a doctor with a

210. dinky web page and some inheritance money.

211. We've all done very well.

212. Why don't you just stick with stocks?

213. Look. You know me. I, I, I...

214. I look for value wherever it can be found.

215. And the fact is

216. that these mortgage-backed securities are filled

217. with extremely risky sub prime adjustable-rate loans.

218. And when the majority of the adjustable rates

219. kick in, in '07,

220. they will begin to fail.

221. And if they fail above 15%, the whole bond is worthless.

222. Michael, just take a beat.

223. We'll talk about this later, okay?

224. Lawrence, please, don't patronize me. Listen...

225. Mortgage-backed securities.

226. - It, it, it... - Sub prime loans. Tranches.

227. It's pretty confusing, right?

228. Does it make you feel bored? Or stupid?

229. Well, it's supposed to.

230. Wall Street loves to use confusing terms

231. to make you think only they can do what they do.

232. Or, even better,

233. for you to just leave them the fuck alone.

234. So here's Margot Robbie in a bubble bath to explain.

235. Basically, Lewis Ranieri's mortgage bonds

236. were amazingly profitable for the big banks.

237. They made billions and billions on their 2% fee

238. they got for selling each of these bonds.

239. But then they started running out of mortgages

240. to put in them.

241. After all, there are only so many homes

242. and so many people with good enough jobs

243. to buy them, right?

244. So the banks started filling these bonds

245. with riskier and riskier mortgages.

246. Thank you, Benter.

247. That way they can keep that profit machine churning, right?

248. By the way, these risky mortgages are called sub prime.

249. So whenever you hear "sub prime", think

250. "shit".

251. Our friend Michael Burry found out that these mortgage bonds

252. that were supposedly 65% AAA

253. were actually just mostly full of shit.

254. So now he's going to "short" the bonds.

255. Which means to "bet against".

256. Got it?

257. Good.

258. Now fuck off.

259. It's only a matter of time before someone else sees this investment.

260. We have to act now!

261. How do you know the bonds are worthless?

262. Aren't they filled with fucking thousands

263. of pages of mortgages?

264. I read them.

265. - You read them? - I read... Yes.

266. No one reads them. Only the lawyers who put them together read them.

267. Look, I don't think that they even know what they've made.

268. The housing market is propped up on these

269. bad loans, and I'm...

270. It's a time bomb, and I want to short it.

271. Through what instrument, Michael?

272. There are no insurance contracts or options for mortgage bonds.

273. - The bonds are too stable. - Lawrence...

274. This is what I'm gonna do. I am gonna get a bank

275. to make me one.

276. And then

277. I'm gonna buy it.

278. I don't want that kind of business.

279. Money is not money. That's bad money.

280. Hey! Excuse me!

281. Let me ask you this. What company treats its customers

282. that shittily and succeeds?

283. Fine. Okay, Goldman. You're right.

284. Mark Baum had built his career

285. on never assuming anyone or any company

286. was legit without proving it.

287. When he was a kid he excelled at studying

288. the Talmud in Yeshiva. Whatever.

289. But one day his rabbi told his mom why.

290. Paul is a fine boy, and Mark is an excellent student

291. of the Torah and the Talmud.

292. Then what's the problem, rabbi?

293. It's the reason Mark is studying so hard.

294. He's looking for inconsistencies in the word of God!

295. So has he found any?

296. Later, Baum started his own fund on Wall Street.

297. He had an amazing nose for bullshit.

298. And he wasn't afraid to let anyone know when and where

299. the bull had gone number two.

300. But then a tragedy happened to Mark,

301. and it turned his world view dark

302. and ready to believe the whole system was a lie.

303. Hold on.

304. It's Cynthia. I'll be in the office in 20 minutes.

305. Hi, honey.

306. The therapist called. You did it again.

307. There were no cabs. What was I supposed to do?

308. I worry about you, Mark.

309. At least I went.

310. You're running around like you have to right

311. - every wrong in the world. - Okay.

312. You're so angry.

313. Fine. You know what?

314. I'm a mean guy and I'm pissed off.

315. But it is a shit storm out here, sweetie.

316. You have no idea the kind of crap people are pulling.

317. And everyone's walking around like they're in a goddamn Enya video.

318. They're all getting screwed, you know.

319. You know what they care about? They care about the ballgame.

320. Or they care about what actress just went into rehab.

321. I think you should try medication.

322. No, no. We agreed. If it interfered with work.

323. You hate Wall Street. Maybe it's time to quit.

324. - I love my job. - You hate your job.

325. - I love my job. - You're miserable.

326. I love my job. I love my job, honey.

327. Mark...

328. I am sad every day about what happened.

329. I know you must feel the same, but you never show it.

330. I know how close you were to your brother.

331. Paul.

332. Where'd you go, Paul?

333. Paul!

334. Every day I think you're gonna talk about it, but you never do.

335. Will you at least think about the idea of making a change?

336. Fine. Fine. Honey, you know what? I will consider it.

337. But, honestly, Cynthia. I'm okay. I really am.

338. Hey, hey, hey! No, no.

339. My cab. That's my cab. That's my cab. That is my cab.

340. - Schmuck. Fuck you. - Fuck you.

341. - Fuck you. - Fuck you.

342. I'll call you later.

343. I want to buy swaps on mortgage bonds.

344. A credit default swap that will pay off

345. if the underlying bond fails.

346. You want to bet against the housing market?

347. - Yes. - Why?

348. Those bonds only fail

349. if millions of Americans don't pay their mortgages.

350. That's never happened in history.

351. If you'll excuse me, Dr. Burry, it seems like a foolish investment.

352. Well, based on prevailing sentiment

353. of the market and banks in popular culture,

354. yes, it's a foolish investment.

355. But... Everyone's wrong.

356. That's a good one.

357. This is Wall Street, Dr. Burry.

358. If you offer us free money, we are going to take it.

359. My one concern is that when the bonds fail,

360. I want to be certain of payment

361. in case of solvency issues with your bank.

362. I'm sorry, are you for real?

363. You wanna bet against the housing market

364. and you're worried we won't pay you?

365. Yes, that's correct.

366. unless the market crashes.

367. The market on housing's never gonna crash

368. because it's so solid right now.

369. I mean, who doesn't pay their mortgages?

370. Dr. Burry,

371. we could work out a pay-as-we-go structure

372. that would pay out if the bonds fail.

373. But it would also apply to your payments

374. if the value of the mortgage bond goes up.

375. You'd have to pay us monthly premiums.

376. Is that acceptable, Dr. Burry?

377. Yes. Yes.

378. I have prospectuses on six mortgage-backed

379. securities I want to short.

380. Majority of the mortgages...

381. I don't see us losing any money on these at all.

382. Dr. Burry, these should be fine.

383. Yeah. We're prepared to sell you $5 million

384. in credit default swaps on these mortgage bonds.

385. Can we make it $100 million?

386. Absolutely, we can make it $100 million.

387. We'll be in touch, send some paperwork over.

388. I like these cups. Can I take one for my son?

389. Have... Yes. Yes.

390. Thank you.

391. Have two.

392. Is there any way to do $200 million?

393. I mean, we can. But are you sure?

394. Absolutely. Absolutely, we can do that.

395. We do different projects. We do gardening.

396. The bonds I'd like to bet against.

397. It's not bad seeing yourself on the big screen.

398. It's very cool.

399. I ordered the 24-ounce T-bone, which was choice.

400. - I went for volume... - Yeah.

401. rather than prime.

402. I went for sub prime, and the gist was...

403. Can I have like, lettuce, tomato, no onions?

404. So, no onions. Lettuce, tomato, Thousand Island okay?

405. Yeah.

406. Hey, Randall! What's with the Dom?

407. Bonuses aren't for three months.

408. We just sold $200 million in credit swaps for mortgage bonds.

409. Some fund manager from California.

410. It's fucking crazy, right?

411. A whole new way to make money, Doug.

412. Wait, wait. I didn't know there were swaps on mortgages.

413. There are now. We made it for him.

414. He must have gone off his Zoloft or something.

415. I don't know.

416. - Want to join? No? - Just a second.

417. Hey, Jared.

418. Did you hear about the deal that Randall just did

419. with some fund manager?

420. Randall? Bullshit.

421. He's a foot soldier. I'm sure it's a shit deal.

422. No, it's for real.

423. I told you we'd meet later.

424. Unfortunately, it's in a place like this which I would never be.

425. I never hung out with these idiots after work, ever.

426. I had fashion friends.

427. Apparently, this guy wanted $200 mil in credit default swaps.

428. Randall made the sale. Can you believe it?

429. Somebody shorted $200 mil on mortgage bonds?

430. That was just with Deutsche. Word is he hit half the town.

431. How much in total?

432. $1.3 billion.

433. What? That's pretty much all of Salon's liquidity.

434. Michael, this is highly distressing.

435. Lawrence, that is not

436. all of our liquidity.

437. And I'm not certain

438. that you really understand this trade.

439. This is a certainty.

440. Mike, I consider myself a mentor to you.

441. But our company is not comfortable with this investment. Am I being clear?

442. Lawrence, I have full autonomy

443. when it comes to investment strategy.

444. You can read our agreement.

445. Do not throw our inception agreement in my face, Michael.

446. We had an underlying

447. understanding you wouldn't act like a goddamn crazy man.

448. This is not crazy.

449. It's all very logical.

450. So, now we pay up premiums on these swaps

451. against the housing market until the mortgages fail?

452. In other words, we lose millions

453. until something that's never happened before happens?

454. That's correct.

455. Hello, Mark Baum.

456. Oh, hey, Kathy, you busted me.

457. - I had a personal thing this afternoon. - I'm not your babysitter.

458. If FrontPoint makes money for Morgan Stanley, I'm happy.

459. Okay. Hey, did I hear you're expecting?

460. We're expecting to be expecting.

461. IVF's are cleaning us out but we're staying positive...

462. That's exciting!

463. lump on my ball. And I go in for a scan.

464. Turns out that I have a very large thing called an epididymis.

465. Which is a thing that goes around the ball

466. and is like a sac underneath.

467. I have an extremely

468. - pronounced epididymis. - I'm riveted...

469. I'm riveted by this. Do you have any pictures?

470. It's almost as large as another testicle unto itself.

471. So get this. Cynthia...

472. Guys. Cynthia wants me to quit and open a B&B in Vermont.

473. That sounds great. I'd love to see Mark Baum run a bed and breakfast.

474. Like, "Here's your steel-cut oatmeal, asshole."

475. Mark refused to kiss the ring of the people with the checkbooks,

476. so he had to set up his fund under Morgan Stanley's umbrella.

477. His small team reflected his distrust of the system.

478. You guys are sick. You're sick.

479. She says this job is making me unhappy.

480. But you're happy when you're unhappy.

481. I am happy when I'm unhappy.

482. Vinnie Daniel.

483. You know how to make a muffin?

484. - Mark's numbers guy. - Do you even know 'now

485. - to do laundry? Make a bed? - Okay...

486. Vinnie lost his father to a violent crime when he was young.

487. Just like Mark, he didn't talk about it.

488. I don't talk about that.

489. Cynthia's no joke. She could actually make him move to Vermont.

490. I mean, she made me start wearing a seat belt.

491. - Hey, you want me to... - Porter Collins.

492. Former Olympic rower who went to Brown.

493. He worked with Baum at a previous firm

494. and couldn't figure out why no one listened to Baum.

495. The guy with all the good ideas.

496. Sorry. I think you have the wrong FrontPoint.

497. 'Cause there is another FrontPoint in this same building that is bonds.

498. And Danny Moses. The optimist of the bunch.

499. And a hell of a trader.

500. Which is the only reason they put up with his bullshit optimism.

501. That was a weird call.

502. You take longer with a wrong number than anybody else.

503. It was this guy from Deutsche

504. who was talking about shorting housing bonds.

505. And then in the middle of the call I realized he had the wrong FrontPoint.

506. And then... 'Cause he wanted the one on the 8th floor.

507. He wanted to short housing bonds?

508. That happens like five times a day

509. that somebody gets the wrong FrontPoint.

510. - We should change our name. - Wait. Wait.

511. He wanted to short housing bonds?

512. Who bets against housing?

513. - What's the ABX at? - What's ABX?

514. It tracks sub prime mortgage bond value. Go back to sleep.

515. The ABX is at...

516. Wow, it's down! It's down three points since last year.

517. That's weird. I haven't heard a peep about that.

518. What was this guy's name?

519. Jared Vennett. Vennett.

520. That's right. These lucky sons of bitches

521. caught wind of one of the best trades in Wall Street history

522. from a wrong number.

523. They should have paid 10% to my fuckstick assistant.

524. His name was Jared Vennett. Vennett.

525. Jared Vennett from Deutsche. Sounded very sketchy.

526. Sounds like a douche bag.

527. Do you smell that?

528. Do you smell that?

529. I smell money.

530. This is your basic mortgage...

531. Okay, hi. How are you?

532. Have a seat.

533. Okay, Mr. Vennett from Deutsche Bank. What do we have?

534. There you go.

535. So, how many people have you talked to about this trade?

536. A few. There's definitely some interest.

537. - No! - My boss would have my ass...

538. - N.O.! - You crazy, Jared?

539. - Get lost. - Fuck you.

540. Which is why you're here talking to us, a wrong number.

541. Sounds like there's a lot of interest.

542. All right. A few people have invited us in

543. just to laugh at me on this deal. Is that you?

544. Is that what this is?

545. That's not what this is.

546. That's just how Mark is.

547. - Let's see what you got. - I'm sorry.

548. You smell that? What is that?

549. - What? - What's that smell?

550. - Your cologne? - No.

551. - Opportunity. - No. Money.

552. Okay.

553. - I smell money. - Okay.

554. - Chris, God damn it. - Sorry.

555. This is your basic mortgage bond.

556. All right? The originals were simple.

557. They were just thousands of AAA mortgages bundled together,

558. guaranteed by the U.S. government.

559. The modern ones are different.

560. They're private. And they're made up of layers of tranches.

561. The highest level, AAA, is getting paid first.

562. The lowest rated, B, is getting paid last,

563. taking on defaults first.

564. Now, obviously, if you're buying B's, you could make more money.

565. But they're a little risky.

566. Sometimes they fail.

567. Chris?

568. Somewhere along the line, these B's and BB's

569. went from a little risky

570. to dog shit. Where's the trash?

571. It's right behind you.

572. I'm talking rock-bottom FICO scores.

573. No income verification.

574. Adjustable rates. Dog shit!

575. The default rates are already up from 1% to 4%, fellas.

576. And if they rise to 8%, and they will,

577. a lot of these BBB's are going to zero, too.

578. And that... You're too close.

579. - ... is an opportunity. - Okay.

580. You're saying that at 8% the bonds fail and we are already at 4%?

581. That's right.

582. If they go to 8%, it's Armageddon?

583. Yeah. That's right.

584. How come nobody's talking about this?

585. You're completely sure of the math?

586. Look at him. That's my quant.

587. Your what?

588. My quantitative!

589. My math specialist. Look at him.

590. You notice anything different about him? Look at his face.

591. That's pretty racist.

592. Look at his eyes! I'll give you a hint.

593. His name's Yang!

594. He won a national math competition in China!

595. He doesn't even speak English!

596. Yeah, I'm sure of the math.

597. Actually, my name's Jiang and I do speak English.

598. Jared likes to say I don't because he thinks

599. it makes me seem more authentic.

600. And I got second in that national math competition.

601. So you're offering us a chance to short this pile of blocks? How?

602. With something called a credit default swap.

603. It's like insurance on the bond, and if it goes bust

604. you can make 10-to-1, even 20-to-1 return.

605. And it's already slowly going bust!

606. 10-to-1? 20-to-1? No way.

607. And no one's paying attention.

608. No one is paying attention!

609. Because the banks are too busy getting paid obscene fees

610. to sell these bonds.

611. But wait. You are the bank. You work for the bank.

612. I bet your margins are pretty nice and fat.

613. Let's not talk about my margins, by the way.

614. Being nice and fat, that's a nice shirt. Do they make it for men?

615. Aren't you the bank?

616. I work for the bank. I don't think like a bank.

617. Big bank, small bank, I like to make money. All right?

618. Let me put it this way. I'm standing in front of a burning house...

619. And I'm offering you fire insurance on it.

620. How can these underlying bonds be as bad as you say?

621. It wouldn't be legal.

622. Nobody knows what's in them.

623. Nobody knows what's in the bonds.

624. I've seen some that are 65% AAA-rated

625. that I know for a fact are filled with 95%

626. sub prime shit with FICOs below 550!

627. Get the fuck out of here.

628. You want me to really blow your mind?

629. When the market deems a bond too risky to buy,

630. what do you think we do with it?

631. - Take a guess. - I don't know. You tell me.

632. All right. You think we just warehouse it on the books? No.

633. We just repackage it with a bunch of other shit

634. that didn't sell and put it into a CDO.

635. - A CDO? - Yes. A CDO.

636. - What is that? - This is where we take a bunch of B's,

637. BB's and BBB's that haven't sold,

638. and we put them in a pile.

639. And when the pile gets large enough,

640. the whole thing is suddenly considered diversified

641. and the whores at the rating agency give it a 92%-93% AAA rating,

642. no questions asked.

643. Hold it. What? Say that again.

644. A collateralized debt obligation.

645. It's important to understand because it's what allowed

646. a housing crisis to become a nationwide economic disaster.

647. Here's world-famous chef Anthony Bourdain to explain.

648. Okay, I'm a chef on a Sunday afternoon setting the menu at a big restaurant.

649. I ordered my fish on Friday,

650. which is the mortgage bond that Michael Burry shorted.

651. But some of the fresh fish doesn't sell.

652. I don't know why. Maybe it just came out halibut has the intelligence of a dolphin.

653. So, what am I going to do?

654. Throw all this unsold fish, which is the BBB level of the bond,

655. in the garbage and take the loss?

656. No way.

657. Being the crafty and morally onerous chef that I am,

658. whatever crappy levels of the bond I don't sell,

659. I throw into a seafood stew.

660. See, it's not old fish. It's a whole new thing!

661. And the best part is they're eating 3-day-old halibut.

662. That is a CDO.

663. I just need to know, how could these possibly be collated?

664. Somehow you're like Dora the Explorer

665. and you're the first person

666. - who found this thing. - Hold on. Hold on.

667. So mortgage bonds are dog shit,

668. CDOs are dog shit wrapped in cat shit.

669. Yeah, that's right.

670. Institutions treat these CDOs like they're as solid as treasury bonds,

671. and they're going to zero.

672. No. That can't be right. There were $500 billion

673. in housing bonds sold last year alone.

674. The rating agencies, the banks, the fucking government,

675. you're saying they're all asleep at the wheel?

676. Yeah. My whole department's long on this stuff.

677. They call me Chicken Little. They call me Bubble Boy.

678. A's, zero. B's, zero.

679. BB's, zero. BBB's, zero.

680. And then that happens.

681. What is that?

682. That's America's housing market.

683. Thank you.

684. Fuckin' A, Jared.

685. Shut your fucking mouth.

686. - ... hang outwith you. - Good. Okay.

687. Sack up, do the deal. Let's be friends.

688. We will see. Thank you.

689. - Don't bullshit me. - All right.

690. You're gonna say no, aren't you?

691. No. No, I'm just evaluating right now.

692. Thank you. Thank you for coming in.

693. Bye, Jared.

694. I don't like it.

695. He's playing us.

696. He's playing us. He's got too much skin in the game

697. and he's dumping his position.

698. What if he's right?

699. - You want him to be right. - Yes, I do.

700. The banks have given us 25% interest rates on credit cards.

701. They have screwed us on student loans that we can never get out from under.

702. Then this guy walks into my office and says

703. those same banks got greedy, they lost track of the market,

704. and I can profit off of their stupidity?

705. Fuck, yeah, I want him to be right!

706. How come you don't hate this guy?

707. He's everything you taught us not to trust.

708. I can't hate him. He is so transparent

709. in his self-interest that I kind of respect him.

710. Would I buy a car from him? No.

711. Is he right about the mortgage market?

712. - No. - Let's find out. Let's find out.

713. Look. It's two very simple questions.

714. Is there a housing bubble?

715. And if there is, how exposed are the banks?

716. Yeah. Okay.

717. Let's get on this quickly too.

718. Because if he's right,

719. every loser with a couple million bucks and a fund is gonna be jumping on this.

720. Let's go.

721. Just that morning...

722. JPMorgan Chase. JPMorgan Chase.

723. Okay. Stop saying "JPMorgan Chase".

724. I got a good feeling about this.

725. It's just a meeting though, you know?

726. It's just a meeting. It's something like...

727. People have meetings all the time. You know?

728. People drink their coffee, they have a meeting.

729. - Brownfield Fund? - Yes!

730. - Hey. Hello. - Ted.

731. - Chris. I'm on Ted's desk. - Chris. Okay.

732. - I'm Charlie, Charlie Geller. - Charlie.

733. - Jamie Shipley. Hi. - Jamie.

734. We're so excited to get set up on your trading platform.

735. Cool.

736. Here, have a seat a second.

737. All right.

738. So, I... Ted had asked me to do some meeting prep.

739. But I couldn't find any marketing material on you guys.

740. We just moved here from Boulder.

741. - Yeah. - Got it.

742. Could we see some of your offering documents?

743. Well, Brownfield is its own money.

744. - It's our money. - Yeah.

745. Can you tell us how much you manage?

746. Of course. We're doing $30 million right now.

747. But we started

748. - four years ago with $110,000. - Wow.

749. So, as you can see, that's pretty phenomenal returns.

750. We want to get an ISDA agreement with JPMorgan so we can

751. deal in long-term options.

752. - That's really cool. - Yeah.

753. That is so cool.

754. Thank you.

755. But you guys are under the capital requirements for an ISDA.

756. By how much?

757. One billion four hundred seventy million, so...

758. a lot.

759. This makes us look bad, doesn't it,

760. that we didn't know what the capital requirements were?

761. It's not great.

762. But

763. keep up those returns and give us a call

764. way down the line. You know.

765. Okay?

766. - Okay. - Thanks, Chris.

767. - Have a good one, guys. - Thank you, Chris.

768. Shit!

769. Who the fuck schedules a meeting

770. - at 4:50 in the afternoon? - Oh, my, God.

771. That was so painful.

772. Dude, B of A and Bear didn't even return our calls.

773. And even fucking Wachovia

774. - blew us off, man! - I know.

775. Here's the prospectuses of all the other losers

776. who didn't make it past the lobby.

777. I don't think I can do this anymore. You know.

778. I'm young, yet. I can still do something with my life.

779. I miss Colorado anyway. The weed's better.

780. Gentlemen, I need you to leave.

781. Yep, yep, we're going. Let's go.

782. Look at this. Look at this.

783. This guy

784. says that the housing market's a giant bubble.

785. Okay, so this part isn't totally accurate, you know.

786. We didn't find Jared Vennett's housing bubble pitch

787. in the lobby of a bank that rejected us.

788. The truth is

789. a friend had told Charlie about it, and I read about it

790. 'm Grant's Interest Rate Observer.

791. This is crazy.

792. This is crazy stuff.

793. Shit, he's saying that there's 10-to-1 returns

794. on credit default swaps for mortgage-backed securities?

795. And the whole housing market is about to collapse?

796. For Jamie and Charlie, the housing market

797. doomsday prediction was music to their ears.

798. They had started working out of Jamie's garage

799. with $110,000 Jamie had saved

800. taking sailboats up and down the East Coast.

801. Our investment strategy was simple.

802. People hate to think about bad things happening,

803. so they always underestimate their likelihood.

804. Their strategy was simple and brilliant.

805. What he said.

806. Jamie and Charlie found markets will sell options very cheaply

807. on things they think will never happen.

808. So when they were wrong, they were wrong small,

809. but when they were right, they were right big.

810. Within a few years they had turned $110,000 into $30 million.

811. But then it was time to go to New York City.

812. And so far, it wasn't going very well.

813. So what if it does seem interesting. No...

814. No bank will give us our ISDA. We're dead in the water.

815. These kind of trades are totally out of the question.

816. We got to call Ben.

817. Let's call Ben!

818. Ben Rickert was a former trader in Singapore

819. for Chase who quit the whole game in disgust.

820. He happened to be Jamie's neighbor when they were in Colorado

821. and they met walking dogs.

822. But Ben was dark.

823. He didn't just think the whole system would fail.

824. He thought the whole world was going down.

825. Every one of these vegetables is fresh from my garden.

826. You guys should start your own garden.

827. What you got to do is get your soil off the petrochemicals.

828. I used wood ash and urine to help restore the soil.

829. It creates ammonium nitrate.

830. Seeds are gonna be the new currency.

831. And not those Franken-seeds from Monsanto.

832. I'm talking about good, healthy, organic seeds.

833. Make yourself a garden.

834. - Learn to live off the land. - You're a fucking lunatic.

835. Ben had real experience in a big bank.

836. Jamie and Charlie had never even been in a Manhattan bank bathroom.

837. But Ben was done with the banking world.

838. He was very clear.

839. All right, let's crunch some numbers

840. and then maybe we'll talk about calling Ben.

841. We're always crunching numbers.

842. When haven't we crunched the numbers?

843. We're gonna crunch the numbers like harder...

844. I need you out of here.

845. - Of course. One second. - Yes, ma'am. We're going.

846. Oh, God. I hate this. This is a total waste of time.

847. Oh, come on. Would you relax?

848. There's a housing development 45 minutes outside town.

849. Mark wants us to check that out first.

850. Well, I hope there are some Cuban restaurants on the way there.

851. Because I heard the Cuban food is amazing in Miami.

852. Please don't be chipper in the face of me being miserable.

853. It really makes me hate you.

854. How is wanting to eat good food being chipper?

855. Hello?

856. Hello?

857. What do these go for?

858. $425,000 each?

859. What's up, man? What do you want?

860. Hello. I'm surveying mortgage owners who are over 90 days delinquent.

861. I'm looking for a Harvey Humpsey.

862. You want my landlord's dog?

863. Your landlord filled out his mortgage application

864. using his dog's name?

865. I guess so.

866. Wait, has that asshole not been paying his mortgage?

867. 'Cause I've been paying my rent.

868. Well, yeah, he is over 90 days delinquent.

869. Seriously, man,

870. am I gonna have to leave?

871. 'Cause my kid just got settled in school, man.

872. Hey. How are ya?

873. - My name's Ken. - You're Ken?

874. You should talk to your landlord about that.

875. I'm sorry, I don't have any more information.

876. But you...

877. You have a great day. See ya, Ken.

878. There's books everywhere!

879. Books everywhere?

880. Seriously, man, is everything gonna be okay?

881. You should... You should call him.

882. You should give him a call.

883. It's not my fault, dude. I've been paying...

884. Hello!

885. Looks like the Mary Celeste.

886. Look. All they took was the TV.

887. It's weird.

888. They didn't even clean out the cat litter.

889. Oh, God.

890. It's like Chernobyl.

891. There's like a hundred houses. There can't be four people living here.

892. - Oh, fuck that! - Shit!

893. He's been in there for seven hours. Where does he go to the bathroom?

894. I heard he had a breakdown.

895. He's letting the fund tank.

896. My buddy in Manhattan said...

897. Dr. Burry's office.

898. No, he actually prefers that you email him.

899. Excuse me.

900. Mr. Fields, Mr...

901. - Hi, Lawrence. - Holy shit!

902. We have no confidence in your ability to identify

903. macroeconomic trends.

904. You flew here to tell me that? Why?

905. Anyone can see that there is a real estate bubble.

906. Actually, no one can see a bubble.

907. That's what makes it a bubble.

908. That's dumb, Lawrence.

909. There's always markers.

910. Mortgage fraud has

911. quintupled since 2000

912. and the average take-home pay is flat,

913. but home prices are soaring.

914. That means the homes are debt, not assets.

915. So Mike Burry of San Jose, a guy who

916. gets his hair cut at Supercuts and doesn't wear shoes,

917. knows more than Alan Greenspan and Hank Paulson.

918. Well...

919. Dr. Mike Burry, yes, he does.

920. That's cute. That's cute.

921. Are you being sarcastic with us, Mike?

922. Lawrence,

923. I don't know how to be sarcastic.

924. I don't know how to be funny. I don't know how to

925. work people.

926. L.-

927. I just know how to read numbers.

928. How big is your short position right now?

929. Just $1.3 billion.

930. - And the premiums? - Well, we pay

931. roughly $80 to 90 million

932. each year, which is high,

933. but I was the first to do this trade.

934. Watch. It will pay. I may have been early, but I'm not wrong.

935. It's the same thing. It's the same thing, Mike!

936. You're managing a fund of, what, $555 million?

937. In six years, it'll all be gone.

938. On one bet.

939. No, the second quarter of '07 is when the adjustable rates kick in.

940. The defaults will skyrocket.

941. Yeah. Says you.

942. How much is eligible for withdrawal before they do?

943. Say, in the next two quarters.

944. If your investors panic.

945. - $302 million?

946. My God, Mike.

947. No one will pull out. That would be suicide.

948. I mean, I'm down 17% for the year.

949. But if they trust me, and they trust me, because...

950. No one trusts you! No one!

951. I sent several emails to my investors

952. letting them know that the...

953. the second quarter of '07 is when our housing positions show returns and...

954. I've been very clear.

955. People will withdraw their money.

956. Lawrence, that would be so stupid. I mean, the...

957. If the fund's capitals drop too much,

958. then the swaps contracts are voided.

959. And then the banks get to keep all of the collateral.

960. - Wait a minute. Wait. - All of it.

961. The contracts are voided?

962. The contracts are voided?

963. Holy shit!

964. Oh, motherfucker!

965. Michael?

966. Give me my money back.

967. Michael, do you hear me? I want my money back.

968. Give me my fucking money back...

969. you motherfucker.

970. The market's in an itsy-bitsy little gully right now.

971. It's like everybody said, "Okay, that was crazy.

972. "Let's just all calm down."

973. I sold that house for $350,000 the year it was built.

974. Two years later, $480,000.

975. Then $585,000 maybe 18 months ago.

976. This couple bought it for $650,000 last year.

977. He'd let it go for that.

978. Hi, John.

979. No,no, no.

980. It will break his heart, but he'll let it go.

981. Why is he selling?

982. Neither one's working right now.

983. Marlene, you'd say they're motivated, right?

984. As motivated as one can be in this neighborhood.

985. This house on the left, I would say they're probably motivated.

986. Wow, a lot of people seem very motivated.

987. Oh, it's just the gully.

988. That's all. Just...

989. Just nerves.

990. So where do we stand?

991. I need to talk to my wife.

992. This market won't last.

993. Actually, could I talk to a mortgage broker?

994. Anybody you recommend? Anybody you like.

995. Yes, yes, I have someone. Absolutely.

996. Yeah, bitch better like me.

997. Sent her ass to Cabo.

998. So is Morgan Stanley recruiting us? Is that it?

999. Oh, no. No. The bank owns our hedge fund,

1000. but we're not really part of it.

1001. We invest in financial service companies

1002. and we're trying to understand the residential mortgage business.

1003. How many loans do you write each month?

1004. - About 60. - Yeah.

1005. What was it four years ago?

1006. Ten...

1007. Maybe 15.

1008. Yeah, I was a bartender. Now I own a boat.

1009. You own a...

1010. So how many of these are adjustable-rate mortgages?

1011. - Well, most. - Oh, yeah.

1012. Yeah, I'd say about 90%.

1013. The bonuses on those skyrocketed a few years ago.

1014. Adjustable's our bread and honey.

1015. So do applicants ever get rejected?

1016. Seriously?

1017. Look, if they get rejected, I suck at my job.

1018. Even if they have no money?

1019. Well, my firm offers NINJA loans.

1020. - Okay. - "No Income, No Job."

1021. I just leave the income section blank if I want.

1022. Corporate doesn't care.

1023. These people just want homes. And they go with the flow.

1024. - Good for you. - Your companies don't verify?

1025. If I write a loan on Friday afternoon,

1026. a big bank will buy it by Monday lunch.

1027. Yeah. Same here.

1028. - Could you hold on a second? - Yeah.

1029. I don't get it. Why are they confessing?

1030. They're not confessing.

1031. They're bragging.

1032. Do people have any idea what they are buying?

1033. I focus on the immigrants, you know.

1034. Once they find out they're getting a home,

1035. they sign where you tell them to sign.

1036. Don't ask questions. Don't understand the rates.

1037. - Fucking idiots. - Yeah.

1038. And you target immigrants, too?

1039. Well, their credit actually isn't bad enough for him.

1040. Look, I'm a yield guy.

1041. Okay...

1042. I make $2,000 on a fixed-rate prime loan, right?

1043. But I can make $10,000 on a sub prime adjustable.

1044. Trust me, I'm not driving a 7 Series without strippers.

1045. No one on the pole has good credit and they're all cash rich.

1046. I think I read Warren Buffett say something like that.

1047. What? Who's Warren Buffett?

1048. Okay, so strippers. Like exotic dancers?

1049. Yeah, yeah, yeah.

1050. Nude, you know, topless.

1051. - Strippers. - Yeah.

1052. Can you introduce us?

1053. Yes! Yes.

1054. I always get option-pay adjustables. I'm a private contractor.

1055. What? I can't hear you. I'm sorry.

1056. I always get option-pay adjustables.

1057. I'm a private contractor. I need flexibility.

1058. And you tell the mortgage company what you do?

1059. I write "therapist".

1060. - You can touch me. - Always?

1061. Only in V.l.P.

1062. No, no, no, you say you always do adjustables.

1063. And you have more than one loan on a property?

1064. Everybody does. At least down here.

1065. I'm sorry, what?

1066. Everybody does. At least down here.

1067. That way you only put down, like, 5%.

1068. Prices have leveled off, though, right?

1069. Yeah. There's a gully.

1070. Would you mind not moving anymore? I'll still pay you.

1071. Sorry. We're not alone.

1072. Okay, look. If home prices don't go up,

1073. you are not going to be able to refinance.

1074. And you'll be stuck paying whatever your monthly payment is

1075. once it jumps up after your teaser rate expires.

1076. Your monthlies could go up 200%-300%.

1077. James says I can always refinance.

1078. Well, he's a liar.

1079. Actually, in this particular case, James probably is wrong.

1080. 200 percent? On all my loans?

1081. What do you mean "all" your loans?

1082. We're talking about two loans on one house, right?

1083. I have five houses.

1084. And a condo.

1085. Hey, there's a bubble.

1086. How do you know?

1087. Trust me. Call Vennett, buy $50 million in swaps on the MBS.

1088. What do we got? Garibaldi IV, BBB.

1089. Mark, are you sure?

1090. Yeah. Yeah, it's time to call bullshit.

1091. - Bullshit on what? - Every fucking thing.

1092. FrontPoint! FrontPoint!

1093. Is this America's angriest hedge fund?

1094. All right, listen. I got one last question for you.

1095. How are you fucking us?

1096. There's a nicer way to say that, Vinnie.

1097. I'm serious.

1098. We'll buy your swaps, but only if you say how you're fucking us.

1099. I'm not fucking you, Vinnie. I'm kissing you.

1100. I'm looking deep into your eyes as I make love to you, Vinnie.

1101. I'm handing you the deal of the century on a fucking platter.

1102. What do I get out of it? Easy.

1103. I got a $20-million-a-month negative carry.

1104. I got bosses trying to pull the plug

1105. because they think I'm out of my fucking mind.

1106. All right?

1107. We make this trade,

1108. those problems aren't so big anymore.

1109. And sure, swaps are a dark market, so I set the price.

1110. Whatever price I want.

1111. And when you come for the payday,

1112. I'm gonna rip your eyes out, I'm gonna make a fortune.

1113. But the good news is, Vinnie, you're not gonna care

1114. because you're gonna make so much fucking money.

1115. That's what I get out of it.

1116. Want to know what you get out of it?

1117. You get the ice cream, the hot fudge, the banana, and the nuts.

1118. Right now, I get the sprinkles, and, yeah,

1119. if this goes through, I get the cherry.

1120. But you get the sundae, Vinnie.

1121. You get the sundae.

1122. All right, I buy that. Thank you.

1123. So what do you say?

1124. - You want me to make you a market? - Yeah.

1125. We'll take $50 million, Garibaldi IV, BBB.

1126. Sharpen your pencils. I'll get the paperwork ready.

1127. Fuck you, too.

1128. Yes!

1129. That's right.

1130. Oh, man.

1131. He has so many numbers, and I always forget

1132. which one he prefers, because he's very specific.

1133. Start with the first one.

1134. I don't know if it's the first one.

1135. Just try it.

1136. Okay. I... Okay.

1137. - Ben Rickert. - Hey, Ben. It's Jamie.

1138. Jamie, you know you're not supposed to use this line.

1139. Told you.

1140. Okay, let's try number two out of 14.

1141. Ben Rickert.

1142. Ben, why do you do that, man? I mean...

1143. You're a retired trader, okay? No one is listening to your calls.

1144. The NSA has a $52 billion budget and the ability

1145. to monitor tens of millions of calls a second.

1146. You think they're not using it?

1147. Hey, I promise I will refrain from saying

1148. "Ben Rickert" and "dirty bomb" in the same sent...

1149. - Jesus fucking Christ. - I'm sorry, dude.

1150. Ben Rickert.

1151. Did you get a chance to look at what we sent you, Ben?

1152. It's Charlie. I'm here, too.

1153. Hi, Charlie. Yeah, I did. Hold on.

1154. - Ben, you still there? - Yeah.

1155. I'll be honest, gentlemen.

1156. It scared the shit out of me.

1157. But that's a good thing, right?

1158. That means this Vennett guy's not wrong.

1159. No, he's not.

1160. Cool.

1161. Tell me more about these CDOs.

1162. Yeah, yeah. Okay, so, you know, Vennett mentions the CDOs,

1163. but actually, we took a look

1164. and they're way worse than even he realizes.

1165. These things don't make any sense!

1166. We can't even model them.

1167. These are 100 times bigger than the MBS.

1168. And 90% AAA-rated.

1169. - Yes! Exactly! - Over 90%.

1170. It's incredible.

1171. I took a good hard look at the CDOs you want to short.

1172. They're brilliant. Worthless. Total crap.

1173. Jamie. Very good.

1174. What can I say? I'm good at finding shit.

1175. So, Ben, we shorted the BB's and the BBB's,

1176. and the risk is relatively low.

1177. - Payoff is, like, 25-to-1. - Yeah.

1178. Okay, so, why are you calling me? I don't do this anymore.

1179. Look, Ben?

1180. We need you to help us get the ISDA.

1181. If we get a hunting license, we can short this crap.

1182. And we know you hate Wall Street. We're not asking you to do the trading.

1183. We're simply asking you to help us get a seat

1184. at the fucking table.

1185. It's a pretty ugly table, guys.

1186. Look, Ben, the system fucked up in a big, big way here, okay?

1187. And somehow

1188. we know before anyone else.

1189. You know? This is a once-in-a-lifetime deal.

1190. I'm thinking.

1191. Okay. I'll call Deutsche Bank.

1192. Thank you, Ben. Thank you.

1193. And Bear. What about Bear? They have some reprehensible product.

1194. Okay. Bear will trade with anybody.

1195. All right. I'll see if I can push it through.

1196. Thank you, Noah. And thank Jared for us.

1197. - Couldn't we go inside? - Yeah, me, too.

1198. Hi. It's Mark. I need to talk to Vinnie right now.

1199. We're just asking you to explain to us

1200. just how it is that you are fucking us,

1201. because what we are seeing...

1202. Morgan Stanley building, fast.

1203. Are we hooked up to the same computer screen?

1204. It doesn't make any sense.

1205. Vinnie, you there?

1206. - Mark, you there? - Yeah, did you hear?

1207. Mortgage defaults have gone through the roof.

1208. Is anybody jumping off of buildings yet?

1209. Why would they? Sub prime mortgage bond prices are up.

1210. What?

1211. Vennett wants $1.9 million more in collateral by close.

1212. Vennett's asking us to post collateral.

1213. What the hell is going on?

1214. We don't know, but Deutsche's on the phone demanding payment.

1215. Call Vennett. Call that little shit.

1216. Call Vennett. Tell him to get his ass down here.

1217. So sub prime loans go bad,

1218. but sub prime bonds, which are made up of sub prime loans, are more valuable?

1219. I know. They want another $1.9 million by market close.

1220. What about the ratings agencies? Moody's, S&P...

1221. Are they downgrading the CDOs and mortgage bonds?

1222. Where are the ratings agencies at?

1223. - They're the fucking same. - No, they're all still AAA.

1224. What the hell? Are you fucking kidding me?

1225. Those fuckers! Those motherfuckers!

1226. They go public, and all they care about is their bottom line and their shit.

1227. Hey, Mark, that's not all.

1228. The Morgan Stanley risk guys are here.

1229. They called in Kathy Tao.

1230. They're trying to convince her to make us sell our swaps.

1231. Apparently, tying up six years of insurance payments

1232. in hopes of a housing Armageddon

1233. - is not prudent in vesting. - What did Kathy say?

1234. Nothing yet. She keeps asking if this is one of your crusades.

1235. Okay, I want you to walk back in there

1236. and very calmly, very politely, tell the risk assessors to fuck off.

1237. And then meet me over at Standard & Poor's.

1238. We're gonna talk to Georgia.

1239. All right. Okay.

1240. Get that fuck Jared Vennett in this office.

1241. I'm gonna bash his fucking head in.

1242. Gentlemen?

1243. I spoke with Mark Baum. He says to fuck off.

1244. I can't see a damn thing.

1245. My eye doctor's always busy.

1246. I end up taking any appointment they'll give me,

1247. and then the whole morning gets shot to hell!

1248. So...

1249. All righty,

1250. FrontPoint Partners,

1251. how can Standard & Poor's help you?

1252. Well, we don't understand why

1253. the ratings agencies haven't downgraded sub prime bonds

1254. since the underlying loans are clearly deteriorating.

1255. Well, the delinquency rates do have people worried,

1256. but they're actually within our models.

1257. - So. .. - Says you.

1258. you're convinced the underlying mortgages

1259. in these bonds are solid loans.

1260. That is our opinion, yes.

1261. Have you looked at the loan-level data?

1262. I mean, they're giving these loans

1263. to anybody with a credit score and a pulse.

1264. Excuse me, sir. What do you think we do here all day?

1265. We're not sure. That's why we're here.

1266. Here's what I don't understand...

1267. We check, recheck, recheck again.

1268. If these mortgage bonds are so stable...

1269. Perhaps you could check your friend.

1270. have you ever refused to rate...

1271. Ma'am, that's delusional.

1272. We stand behind them.

1273. Georgia, have you ever refused to rate

1274. any of these bonds upper tranches AAA?

1275. Can we see the paperwork on those deals?

1276. I am under no obligation to share that information

1277. with you, whoever you might be.

1278. Just answer the question, Georgia.

1279. Can you name one time in the past year

1280. where you checked the tape

1281. and you didn't give the banks the AAA percentage they wanted?

1282. If we don't give them the ratings,

1283. they'll go to Moody's, right down the block.

1284. If we don't work with them, they will go to our competitors.

1285. Not our fault. Simply the way the world works.

1286. - Holy shit. - Yes, now you see.

1287. And I never said that.

1288. They're selling ratings for fees.

1289. A ratings shop.

1290. You can afford to make less. Make less.

1291. Nobody said that.

1292. And it is not my decision. I have a boss.

1293. - Are you kidding me? - No, I am not "kidding you".

1294. How'd your boss do on the IPO?

1295. Is that the angle you're taking?

1296. So, now, anyone who has a boss can't be held responsible

1297. for doing shitty and illegal things.

1298. What are you, four?

1299. No, lam not four, Mr. Baum. I am not, no.

1300. And I wonder what your incentives might be.

1301. Is it maybe in your best interest

1302. to have the ratings change? Is it, perhaps?

1303. How many credit default swaps do you own?

1304. It doesn't make me wrong.

1305. No.

1306. It just makes you a hypocrite.

1307. Fuck!

1308. Mortgage delinquencies went up

1309. and the CDOs got more valuable. Unbelievable.

1310. - Unbelievable. - We know. It's completely backwards.

1311. I just called an old friend at Bear.

1312. He didn't even know what a CDO is.

1313. Yeah, I just had to wire Bear and Deutsche $70,000.

1314. It's like two plus two equals

1315. fish.

1316. It's rigged. We bought into a rigged game.

1317. We're gonna lose everything.

1318. I'm gonna have to move back in with my mom.

1319. Can't do that.

1320. All right. Well, I got a colonic appointment.

1321. Wait a minute. Hold on, Ben.

1322. Ben, look.

1323. Either the banks are clueless

1324. and they don't know how to value these CDOs,

1325. or they're such crooks that the CDOs are worth shit

1326. and they're hiding it.

1327. I think we should buy more swaps.

1328. What?

1329. Suck it up and pay up, fellas. We made a deal.

1330. No way! No!

1331. Are you fucking kidding me?

1332. Are you serious? You think this is a game?

1333. - No.No.No.No.No. - Yeah. Yeah.

1334. No!No! No!

1335. No, seriously, a colonic once a year.

1336. Ass!

1337. And you got a matching little butler boy, you buttfuck!

1338. - Are you done? - I think so, yeah.

1339. God! I pulled a muscle in my back from yelling.

1340. Mortgage defaults have done nothing but go up.

1341. Yet you quote us a higher price on the bonds.

1342. Please explain that to me. There's no way that makes sense.

1343. There's no way you're marking these swaps appropriately.

1344. Why shouldn't we back out of this trade right now?

1345. Didn't I say when we made this deal that the ratings agencies, the SEC

1346. and the big banks were clueless? Didn't I say that?

1347. - Yes. - Didn't I say it?

1348. Yes, you did. You did.

1349. Shut up.

1350. Now their foot's on fire, they think

1351. their steak is done, and you're surprised?

1352. That's not stupidity. That's fraud.

1353. Tell me the difference between stupid and illegal,

1354. and I'll have my wife's brother arrested.

1355. That was funny.

1356. I guess you just don't realize how clueless the system really is.

1357. Yes, there's some shady shit going down,

1358. but trust me, it's fueled by stupidity!

1359. Look at yourselves.

1360. You know, you pass yourself off as cynical people

1361. but you still have some faith in the system, don't you?

1362. I don't.

1363. Well, except for Vinnie. And who gives a shit?

1364. - No way! - Look...

1365. Either we're right or we're wrong in a giant, giant way.

1366. And if we're wrong, then we got to find someone

1367. to help us get out of this trade.

1368. I'm not feeling remotely confident that we're right.

1369. And if we're wrong, who's gonna tell us?

1370. Who understands this stuff? It makes no sense!

1371. I think we need to go to Vegas.

1372. - What's in Vegas? - Vegas?

1373. What the hell's in Las Vegas?

1374. The American Securitization Forum is there next week.

1375. Every bond and CDO salesman, subprime lender

1376. and swap trader is gonna be there.

1377. I'm telling you, your bet is against dumb money.

1378. It's about time you find out just how dumb that money really is.

1379. God, I hate Vegas.

1380. I hear the food has gotten really good in Vegas.

1381. They have a Nobu now.

1382. Would you fucking stop it?

1383. Any sense?

1384. And if a bond is "rich" it is...

1385. - I don't know, loaded with assets? - "Rich" just means overpriced.

1386. I can't sleep on planes, so I did my homework.

1387. Okay, let's focus. What's our goal?

1388. To figure out if this is a deal of a lifetime

1389. or if everyone here knows something we don't

1390. and we're gonna get royally screwed.

1391. Right. Remember that when you meet with the guys from Bear.

1392. I set you up with a face-to-face.

1393. - Awesome. - Where is that?

1394. Holy shit. Five years ago, Securitization was a loser convention.

1395. 100, maybe 200 people would show.

1396. $500 billion a year later, you get this.

1397. There's a lot of smug-looking people in here, huh?

1398. It's like someone hit a pinata filled with white people who suck at golf.

1399. I mean, who are all these clowns?

1400. Come on. I think it looks fun.

1401. Certainly. Vennett says these are the people we're betting against.

1402. - Yeah, here we go. Here we go. - There he is.

1403. Chris, on my left. Chris, on my left.

1404. Gentlemen.

1405. When do we get a chance to face time with some of these lovely folks?

1406. Chris, give him the key cards.

1407. Do you even know which key cards you're giving out?

1408. - You're just giving them out? - Thank you.

1409. First of all, how was your travel? How are you? Uneventful?

1410. - Uneventful. - Okay.

1411. I've been here for six hours. I've already been to the gym,

1412. I had two poached eggs

1413. and I played blackjack with Harry Dean Stanton.

1414. Thank you for your diary.

1415. Face time. I'd like some face time.

1416. Just remember. We're here to gather information.

1417. We're gathering information, okay?

1418. We're not advertising our short position. All right?

1419. We don't want to spook everybody. Can you do that?

1420. I know you got a big mouth, you like to run it.

1421. Can you just keep it shut for a few days?

1422. Okay. Okay.

1423. Yeah, don't worry. We'll play nice.

1424. Ladies and gentlemen.

1425. Business is good.

1426. Profits are strong

1427. and the mortgage continues to be the bedrock

1428. on which this economy is built.

1429. And, yes, we had to take some losses

1430. in our subprime department last year, but those losses

1431. will be contained at only 5%.

1432. Now, in our residential sector...

1433. Mark, it's not a Q and A.

1434. our roll out of those variable rate packages

1435. were gobbled up by the consumers!

1436. I have a question, please.

1437. Sir, the Q and A is after my statements.

1438. But you know what? You seem anxious. How can I help you?

1439. - Thank you. How are you? - Fine, thank you.

1440. Would you say that it is a possibility

1441. or a probability that subprime losses stop at 5%?

1442. Thank you.

1443. I would say it is a very strong probability, indeed.

1444. So back to the residential sector.

1445. When we rolled out the new variable rates package...

1446. Excuse me.

1447. Yes, sir.

1448. Zero! Zero!

1449. There is a 0% chance

1450. that your subprime losses will stop at 5%.

1451. Zero.

1452. Excuse me.

1453. I have to take this.

1454. He must be from Bank of America.

1455. - Our subprime department is fine. - No, I'm not doing anything right now.

1456. As I was saying, our residential department...

1457. How are the kids?

1458. consumers reacted to our packages...

1459. Mark Baum really did that.

1460. When we were in Vegas, he did that.

1461. He said that, he took the call.

1462. Now you see what I had to deal with?

1463. Yeah, the Beretta... Meh.

1464. But this Uzi is fucking awesome!

1465. I need this CDO machine to run for another two years.

1466. And then I'm rich as fuck and I got my house in Aspen.

1467. But do you have any concerns about the performance

1468. of the underlying securitizations?

1469. It's easy to see that delinquencies

1470. and default rates are on the rise right now.

1471. Could you please stop being such a buzzkill, dude?

1472. We didn't bring you out here to talk about work, bro.

1473. Why did you bring us out here?

1474. Because we need to be able to expense the ammo to a client.

1475. I'm gonna go shoot some terrorists. Watch how it's done, boys!

1476. - These guys are morons. - Fucking tool.

1477. These guys are morons.

1478. - Fuck, yes! Boom! - Yeah, man!

1479. We need to be buying up every swap we can get our hands on here.

1480. Just hold on, okay? Hold on.

1481. My brother's ex-girlfriend works for the SEC.

1482. She just told me she's in town, okay?

1483. So, if we're missing something, maybe she can tell me.

1484. You know, give me some insight.

1485. In the meantime, you go to the main floor

1486. and price some swaps.

1487. Well, actually, we're about to invest in housing bonds, and...

1488. I was wondering if the SEC is worried about them at all.

1489. I know you're not allowed to tell me specifics, but just generally.

1490. We don't investigate mortgage bonds.

1491. Truth is, since we got our budget cut, we don't investigate much.

1492. - Then why are you here? I thought... - I'm not here for the SEC.

1493. I'm here on my own dime.

1494. I'm floating my resume to some big banks.

1495. How's your brother, by the way?

1496. How are you floating your resume to big banks?

1497. I mean, you're supposed to be the ones, you know, policing the big banks.

1498. Grow up, Jamie.

1499. There must be some kind of law against working for a financial institution

1500. right after you've been working in financial regulation, right?

1501. No. No.

1502. Hey! Dougie!

1503. Hey! Come over here. What are you doing at Caesars?

1504. He's at Goldman.

1505. See you.

1506. We can do BBB-level swaps at 500 basis points. Maybe.

1507. You're pricing the swaps like the bond is gonna collapse

1508. even though the bond value's going up? Really?

1509. Sign of the times.

1510. What the hell is going on?

1511. Lewis, can you come in early tomorrow, please?

1512. I need to unload the AIG and Countrywide

1513. and Freddie Mac positions

1514. so that we can afford the premiums on the...

1515. core mortgage shorts on the swaps.

1516. No problem, Dr. Burry.

1517. Dr. Burry?

1518. If the investors withdraw,

1519. what's going to happen here? Are we done?

1520. Honestly, I don't know.

1521. The bonds aren't going down.

1522. They won't move. It's possible

1523. that we are in a completely fraudulent system.

1524. Or... You're wrong.

1525. Sure.

1526. It's possible I'm wrong. I just don't know how.

1527. I guess when someone's wrong, they never...

1528. They never know how.

1529. - See you in the morning. - Yeah.

1530. Even Bear upped their prices.

1531. And they keep calling us Brownhole.

1532. You just don't have the money or the reputation.

1533. Don't take it personally.

1534. I don't think I have the strip club in me tonight.

1535. I'm just gonna get some ginger ale and watch some pay-per-view.

1536. I'll book us some flights out for the morning.

1537. A deal. We need a deal, right? A deal.

1538. We need a deal we can afford.

1539. We need a deal that they're not gonna refuse.

1540. So... What can we do? We can...

1541. The AA tranches. What if we bet against the AA tranches?

1542. Who's not gonna take that bet?

1543. We know they say they're 95% AAA-rated,

1544. but in reality they're more like 25%.

1545. Some of them are 0%!

1546. We also know that if the bottom tranches fail at over 8%,

1547. the upper tranches are affected.

1548. They go to zero.

1549. I'll bet you right now that those AA's are actually like B's.

1550. I rarely ever say these words, but I think Charlie's right.

1551. Look, Ben.

1552. The payoff

1553. is 200 to 1.

1554. But they're all taking the ratings at face value.

1555. So they're charging pennies on the dollar a bet against the AA's.

1556. Just when I start thinking you guys are clowns...

1557. No one on the planet's betting against AA's.

1558. The banks will think we're either high or having a stroke.

1559. They'll take every dime we have to offer.

1560. Kinda brilliant.

1561. This is what we did that no one else thought of.

1562. Not even Baum or Burry thought to short the AA's.

1563. But we did.

1564. Little Brownhole Capital.

1565. We're interested in shorting some of the AA tranche of CDOs.

1566. Come on, guys, what's the angle?

1567. Oh, got no angle. We're new to this. We're just excited.

1568. We want to do $15 million in swaps on the AA tranche.

1569. I don't understand.

1570. You can buy as much AA tranche as you want.

1571. $40 million against the AA.

1572. Brother, I will sell you as much as you want.

1573. You understand perfectly, Bob. You want the deal?

1574. That's cool. That's all right with me.

1575. Pleasure.

1576. Don't do that. Stop. Stop.

1577. - Stop that. - Charlie.

1578. Stop it! Stop.

1579. What?

1580. Do you have any idea what you just did?

1581. Come on. We just made the deal of our lifetimes!

1582. We should celebrate.

1583. You just bet against the American economy.

1584. Fuck, yeah, we did!

1585. - Fuck, yeah! - Which means...

1586. Which means if we're right...

1587. If we're right, people lose homes. People lose jobs.

1588. People lose retirement savings. People lose pensions.

1589. You know what I hate about fucking banking?

1590. It reduces people to numbers. Here's a number.

1591. Every 1% unemployment goes up, 40,000 people die. Did you know that?

1592. - No. - Did you know that?

1593. No, I didn't know that.

1594. We were just excited.

1595. Just don't fucking dance.

1596. - All right. - Where are you going?

1597. Whoa, I just got really scared.

1598. First of all, great show today.

1599. - You were terrific. - Thank you.

1600. Your big mouth was a revelation.

1601. I appreciate that.

1602. You worried you and your swaps are getting played?

1603. Well, this is an opportunity for you to meet who you're betting against.

1604. Try not to get too righteous and listen a little.

1605. Okay, fine. Who is this guy?

1606. A real solid-gold asshole.

1607. - I'm a CDO manager. - A "CDO manager"?

1608. Yeah, at Harding Advisors.

1609. I didn't realize that there was anything to manage with CDOs.

1610. We select the securities that go into the CDO portfolio

1611. and monitor the assets.

1612. I do most of Merrill Lynch's CDOs.

1613. Do you represent the investors or Merrill Lynch?

1614. - The investors. - You do.

1615. - Yeah. - But“

1616. Merrill Lynch isn't gonna send you any customers

1617. unless you put Merrill Lynch's bonds in your CDO.

1618. Good question. Let's just say Merrill and I have...

1619. We have a good relationship.

1620. You have a good relationship with Merrill Lynch.

1621. We've been doing business together for a long time.

1622. And so the CDOs that you create

1623. are of the highest quality and the highest value.

1624. - Absolutely. Yep. - Absolutely.

1625. Are you at all concerned about the rising default rates?

1626. I assume no risk for these products myself, Mark.

1627. Okay.

1628. So let me get this straight. The bank calls you up.

1629. They give you the bonds they want to sell.

1630. They give you clients,

1631. they give you money to run your business.

1632. Give you fat fees for doing so.

1633. But you represent the investors?

1634. - Is that right? - Yeah.

1635. But we're not in the Merrill Lynch building.

1636. - Okay. Where are you? - We're in New Jersey.

1637. You're 20 minutes away.

1638. Well, five if you use a helicopter.

1639. - That's funny, huh? - That's hilarious.

1640. Oh, boy.

1641. Your boss is about to explode.

1642. No, he's too curious to explode.

1643. Hold on. Say that again.

1644. CDO "A" has parts of CDO

1645. And CDO "B" has parts of CDO

1646. But then they both get put inside CDO

1647. Yeah, that one's called CDO squared.

1648. A CDO of a CDO.

1649. All right?

1650. And then there's CDOs made up of the opposite side

1651. of the bet you made with your swaps.

1652. We call them synthetic CDOs.

1653. What did you say? Synthetic CDOs.

1654. - That is fucking crazy. - It's not. It's awesome.

1655. His face is starting to boil. He looks like the bad guy from Dune.

1656. All right, let's say

1657. you have a pool of $50 million in subprime loans.

1658. How much money could be out there betting on it,

1659. in your synthetic CDOs and swaps

1660. right now, tonight?

1661. Let's see, $50 million...

1662. - A billion dollars. - What?

1663. If the mortgage bonds that Michael Burry discovered

1664. were the match...

1665. How much bigger is the market for insuring mortgage bonds

1666. than actual mortgages?

1667. About 20 times.

1668. If the mortgage bonds were the match

1669. and the CDOs were the kerosene-soaked rags,

1670. then the synthetic CDO was the atomic bomb

1671. with the drunk President holding his finger

1672. over the button.

1673. It was at that moment in that dumb restaurant

1674. with that stupid look on his face that Mark Baum realized

1675. that the whole world economy might collapse.

1676. And I know what you're thinking.

1677. "What the fuck is a synthetic CDO?"

1678. Well, here's Dr. Richard Thaler, father of behavioral economics

1679. and Selena Gomez to explain.

1680. Okay. So here's how a synthetic CDO works.

1681. Let's say I bet $10 million on a blackjack hand.

1682. $10 million because this hand is meant to represent

1683. a single mortgage bond.

1684. Okay, Selena has a pretty good hand here, showing 18.

1685. Dealer showing seven.

1686. That's a really good hand for Selena.

1687. Good odds. In fact, her chances of winning

1688. this hand are 87%.

1689. So, my odds are good. I'm on a winning streak.

1690. Everybody in this place wants to get in on the action.

1691. How could I lose, right?

1692. Now, this is a classic error.

1693. In basketball it's called the Hot Hand Fallacy.

1694. A player makes a bunch of shots in a row.

1695. People are sure they're gonna make the next one.

1696. People think that whatever's happening now

1697. is gonna continue to happen into the future.

1698. During the real estate boom, markets were going up and up

1699. and people thought they would never go down.

1700. So people who are watching and think that I won't lose

1701. will make a side bet.

1702. Now, this is the first synthetic CDO.

1703. I love Selena Gomez.

1704. I bet you $50 million she wins.

1705. And I'll give you 3-to-1 odds.

1706. 3-to-1 odds? Okay, I'll take that bet.

1707. Now, somebody else is gonna want to make a bet

1708. - on the outcome of their bet. - Bet you 50 million she wins.

1709. That will lead to synthetic CDO number two.

1710. Hey, I bet you $200 million that lady in the glasses

1711. wins that bet.

1712. She probably will win. So I want a great payoff.

1713. - How about 20-to-1? - Deal.

1714. And this will go on and on with more and more synthetic CDOs.

1715. And we can transform an original $10 million investment

1716. into billions of dollars.

1717. You Okay?

1718. No.

1719. I actually feel pretty sick.

1720. So I'm going to leave.

1721. You think I'm a parasite, don't you, Mr. Baum?

1722. But, apparently, society values me very much.

1723. In fact, let's do this.

1724. I'll tell you how much I'm worth.

1725. You tell me how much you're worth.

1726. God, you are an incredibly big piece of shit.

1727. Short everything that guy has touched.

1728. I want half a billion more in swaps.

1729. You sure about that? The collateral calls could bankrupt you.

1730. - Yeah. Yeah. - Where are you going?

1731. I am going to try to find moral redemption

1732. at the roulette table.

1733. Hey, hey, hey!

1734. Things are worse than I thought.

1735. I honestly think the economy might collapse.

1736. But you've been saying

1737. that the system's broken for years, Mark. So...

1738. Why are you so shocked?

1739. It's more twisted than I could have imagined.

1740. You love to be the virtuous one.

1741. I'm a banker. I'm a part of it.

1742. You always have, Mark. Like you're untainted.

1743. It changed me. It changed me into a person

1744. who is not able to reach out to someone...

1745. He was in pain. My brother was in real pain.

1746. There's no perfect way to help.

1747. It's sad. It's scary.

1748. So stop trying to fix the world.

1749. He told me...

1750. You're not a saint.

1751. Saints don't live on Park Avenue.

1752. that he was having bad thoughts.

1753. Just feel the feelings like the rest of us.

1754. My first response was to offer him some money.

1755. I offered him fucking money!

1756. His face was so smashed.

1757. That's right.

1758. Michael?

1759. - Michael? - Yes. Yes.

1760. - Is everything okay? - Yes, honey.

1761. - You sure? - Yeah, baby.

1762. I'm fine.

1763. To all investors.

1764. As you may know,

1765. our agreement allows me to take extraordinary measures

1766. when markets aren't functioning properly.

1767. I currently have reason to believe the mortgage bond market

1768. is fraudulent.

1769. So, in order to protect investors from this fraudulent market,

1770. I've decided to restrict investors' withdrawals

1771. until further notice.

1772. Sincerely, Dr. Michael J. Burry.

1773. I never would have guessed my life

1774. could change as much as it has since I moved to L.A.

1775. It's not just, like, that easy to, like, not see you.

1776. He lashed out at rumors he used performance enhancing drugs.

1777. This record is not tainted.

1778. Oh, my God, dude.

1779. Will you please stop changing the channels?

1780. - You're driving me crazy. - All right.

1781. - Fine. - Just put the business news on.

1782. - ... and the S&P picked up three points. - Jesus!

1783. Mortgage meltdown continued today.

1784. Subprime mortgage lender New Century Financial,

1785. once the industry leader, by the way, filed for bankruptcy.

1786. - The company immediately... - Whoa, whoa, whoa.

1787. Good time for my voice to go...

1788. Fired 3,200 workers.

1789. The manufacturing index also fell in the month of March...

1790. It's starting.

1791. a warning that economic growth could slow.

1792. The Institute of Supply Management also reported a rise in prices...

1793. I'm gonna call my mom.

1794. The principal source of the slowdown in economic growth...

1795. Time and time and time again,

1796. I have gone to bat for you, Mark!

1797. We've known each other for seven years...

1798. She's got some lungs on her. I'm impressed.

1799. I can't help but enjoy it.

1800. There's no fucking way. There's no fucking way

1801. that the big banks are that stupid.

1802. Bye, Kathy!

1803. Well?

1804. Kathy thinks that it would be a good idea if we sold our shorts.

1805. What else is new?

1806. And she said that Morgan Stanley will buy them.

1807. Holy shit!

1808. What did you say?

1809. I told her we're not selling shit.

1810. If you need the files for 2005...

1811. Mr. Fields' suit is very specific to files from the past year.

1812. Good. Then get out. Say hi to Lawrence for me.

1813. Will do.

1814. You can't call me back for a week?

1815. I am so sorry, Mike.

1816. Goldman had a systems failure. I lost a ton of messages.

1817. Yeah, B of A said they had a power outage,

1818. and Morgan Stanley said their server crashed.

1819. That's weird.

1820. Well, I would call it improbable.

1821. So where do you have our position marked?

1822. I think it's the same, Mike.

1823. What? Can you explain that to me, please,

1824. because how can the value of an insurance contract

1825. not be affected by the demise of the very thing it insures?

1826. They're independent markets. They're not always correlated.

1827. I know it sounds odd,

1828. but these are very complicated products.

1829. They are correlated.

1830. They're gonna lose their houses, they're gonna lose their jobs,

1831. they're gonna lose their...

1832. Will you listen to me?

1833. This is like the end of capitalism.

1834. This is like the Dark Ages all over again.

1835. I don't want to talk to Dad.

1836. Okay, I love you, too. Save your money.

1837. She says I need to be on Xanax and double my dose of Zoloft.

1838. I asked Bear Stearns to price our shorts.

1839. They tell me the CDOs still haven't moved.

1840. This is fucking insane!

1841. You realize that? These people are crooks

1842. and they should be in prison.

1843. Look at the TABX.

1844. You can see that the CDOs are worth zero!

1845. So you know what they're doing, huh? You know what they're doing, right?

1846. Yeah. They're unloading them.

1847. They're selling their dog shit CDOs, then they go to another bank

1848. and short the shit they just fucking sold!

1849. Let's go to the press, man!

1850. This is a massive story. Who wouldn't publish it?

1851. Robert Redford!

1852. No, you don't understand!

1853. I got it, guys. I got it.

1854. What am I supposed to do?

1855. Do you want me to write a piece called "We're All Fucked"?

1856. Yes! That's a perfect title!

1857. Casey, right now every bank in town is unloading these shit bonds

1858. onto unsuspecting customers.

1859. And they won't devalue them until they get them off their books.

1860. This level of criminality is unprecedented,

1861. even on fucking Wall Street.

1862. Jamie... And this is me being honest here, okay?

1863. It took me years to build my relationships on Wall Street.

1864. No bank or ratings agency is going to confirm a story like this

1865. just because it comes from two guys in a...

1866. Sorry, garage band hedge fund that thinks it's the apocalypse.

1867. Wow.

1868. I thought you were for real, Casey. You know, I'll have to say I really did.

1869. Really?

1870. Yeah, Jamie, you try being for real with a three-year-old

1871. and a wife getting her master's degree.

1872. I'm not gonna burn my reputation on your wild hunch.

1873. Wow.

1874. Wow.

1875. Thanks for coming, guys.

1876. Totally fucking awesome to see you.

1877. Yeah, Casey. I've always hated you, because you were a prick in college

1878. and you are a prick today!

1879. Thanks, Charlie. Still living with your mom?

1880. Charlie, come on!

1881. Mark Baum again. Call me.

1882. Subprime bonds fell off a cliff.

1883. Rumor has it the default numbers are huge.

1884. Who got the remittance data early? I bet it's Goldman.

1885. Yeah, fuck you very much.

1886. Jared, it's chaos down here. Where are we?

1887. "And Caesar wept, for there were no more worlds to conquer."

1888. Shane?

1889. Shane?

1890. Well, nobody's buying CDO or mortgage bonds anymore

1891. and everybody wants swaps.

1892. Swaps are now the most popular product on the street.

1893. - That's good for us. - Yes and no.

1894. I heard from somebody who heard from somebody...

1895. No, Alex, no. Sorry.

1896. Bennie Cleager over at Morgan is taking on

1897. some heavy losses in the bond department.

1898. Your ship might be taking on water.

1899. It might be time to get our life jacket and get out.

1900. I'm jacked.

1901. I'm jacked! I'm jacked to the tits!

1902. Good.

1903. - Do you feel it? - No.

1904. What'd you hear, Tommy?

1905. It's happening-

1906. Everybody wants our swaps.

1907. Kathy's office is looking for you.

1908. They're singing a different tune now, aren't they?

1909. That's not good.

1910. Maybe later. Not now.

1911. This is a joke. Never.

1912. Listening.

1913. - Dr. Burry? - Yeah.

1914. Deeb Winston, Goldman Sachs.

1915. Listen, I've been reviewing your position.

1916. I wanted to discuss your marks and make sure they're fair.

1917. Yeah, I think you mean that you've secured a net short position yourselves.

1918. So you're free to mark my swaps accurately for once

1919. because it's now in your interest to do so.

1920. I'm not sure what you want me to say.

1921. I think that...

1922. I think that you've already said it.

1923. You tell Jeff at Goldman that I'm not transferring funds.

1924. This is bullshit!

1925. Okay, we'll talk later.

1926. Thank you.

1927. Thanks for coming so quickly, Mark.

1928. Yeah.

1929. I know you've been hearing rumblings

1930. about some losses Morgan has suffered.

1931. - Congratulations. - On what?

1932. Thanks.

1933. Having fun?

1934. Yes.

1935. Tons.

1936. I just wanted you to know that...

1937. That, yes, Morgan has suffered some losses,

1938. but our liquidity is strong and there's no cause for concern.

1939. Would Bennie Cleager be concerned?

1940. Because word on the street

1941. is that he took some pretty heavy losses.

1942. Kathy, come on. We know each other.

1943. What's going on?

1944. How bad is this?

1945. Okay.

1946. Two years ago, Bennie Cleager in Morgan's bond department

1947. also started shorting subprime housing, $2 billion in BBBs.

1948. Bennie is smarter than I thought.

1949. No, he's not smart at all.

1950. The premiums on the swap ate into his desk's profit.

1951. To cover his BBB shorts,

1952. he sold a lot of A and AA swaps as protection.

1953. A lot.

1954. He believed that there was no way that they could be affected.

1955. Tell me Morgan Stanley doesn't hold the contracts on these swaps.

1956. Holy shit.

1957. All this time I've been trying to figure out who I'm betting against,

1958. and it's Morgan Stanley.

1959. Which is me.

1960. What's your exposure? $3 billion?

1961. Please, don't tell me it's more than four.

1962. I can't answer that. I can't answer that.

1963. Yes, you can answer that, because I walk in here

1964. and people are crying in your hallway.

1965. Kathy,

1966. you bring me in to tell me everything's fine,

1967. and everything's not fine.

1968. What, what is happening?

1969. The long exposure is...

1970. “$19 billion.

1971. Jesus!

1972. He kept saying defaults over 8% were impossible.

1973. Oh, my God.

1974. That there would be a million homeless!

1975. Yeah, but we have nothing to do with Morgan Stanley.

1976. Yeah...

1977. Tell the bankruptcy court.

1978. Morgan fails, all our accounts go on their balance sheet.

1979. It's just crazy.

1980. Morgan makes the sucker's bet

1981. and we pay their fucking gambling debt?

1982. Short the bank stocks. Then we wait.

1983. Or we sell our swaps when the market opens.

1984. We get our bonuses, our investors get their profits, we get...

1985. What, 30 cents on the dollar? It's not bad.

1986. We're three times that.

1987. Not if there's no market left to sell them in.

1988. Forget it. We're not giving out any lifeboats.

1989. If Morgan goes under, we end up with nothing.

1990. Vinnie.

1991. Jesus, come on. I say when we sell.

1992. Look, I get that this is personal for you, but we have a fiduciary responsibility.

1993. No. No, we don't.

1994. Nobody's acting responsible.

1995. Fuck responsibility. Are you kidding me?

1996. The assholes at the big banks will take...

1997. You boys want any appetizers?

1998. We're talking, please!

1999. - Excuse us. - Sorry.

2000. We are going to wait, and we are going to wait,

2001. and we are going to wait

2002. until they feel the pain, until they start to bleed.

2003. - That is what I want. - But what about our clients

2004. who've entrusted us with their savings...

2005. I say when we sell.

2006. This isn't about you.

2007. This isn't about you and your Upper East Side

2008. - mahogany soapbox. - Hey! Hey!

2009. I say when we sell!

2010. Whatever you say, Mark.

2011. Dude, did you hear the news?

2012. Okay. So, not only do two mortgage hedge funds

2013. backed by Bear Stearns go belly up,

2014. but now there's a class-action lawsuit against Bear.

2015. Holy shit!

2016. Let's go! Push! Push!

2017. So, what? Bear could really collapse here.

2018. - This is a risk we really shouldn't take. - Then what?

2019. We bought 80% of our swaps at Bear.

2020. - We 'd lose everything. - So what?

2021. - Hey, sir? - One second!

2022. That's my opinion.

2023. We bought these fucking things. We have no clue how to sell them.

2024. I know. We have to get Ben to do it.

2025. I've been trying to call him and he won't get back to me.

2026. No. He's on vacation with his wife's family.

2027. They're in England.

2028. What?

2029. - Hello, Ben. Hey. Guys'?

2030. Yeah, we're here. Can you hear us?

2031. Guys'? - Yeah, we got you.

2032. Yeah. I hardly got cell phone or Wi-Fi service.

2033. I'm trying to sell $200 million worth of securities.

2034. In a pub. It smells like sheep.

2035. You can do this.

2036. I don't want to pressure you, Ben

2037. but if you don't pull this off, we lose everything.

2038. All right. Let's see what Credit Suisse's appetite is.

2039. This is Brownfield Fund.

2040. I want to unload my credit default swaps.

2041. All right. What you got?

2042. Twenty AA tranches of A.B.S. CDOs.

2043. A.B.S.? Are these... These are pretty bad?

2044. Absolutely. They're complete shit.

2045. What's your notional value?

2046. Face value is 205 million. Dollars.

2047. All right, we could, we could go to forty.

2048. No. We want at least 100 million.

2049. 100 million? Who are you, a drug dealer or a banker?

2050. 'Cause if you're a banker, you can fuck right off!

2051. I don't know if we can make a market.

2052. Just give me your best price?

2053. Yeah. Chuck 100 million in for me, mate.

2054. I think we're far apart.

2055. Look, if you don't want the deal, you can just hang up.

2056. That's what I thought.

2057. - 90 million. - 70.

2058. 85.

2059. - 78. —84.

2060. - 78. —84.

2061. It's Dr. Burry.

2062. Looks like the collapse of the financial sector is imminent.

2063. Let's start to sell my position.

2064. It's $1.3 billion.

2065. Sure, I'll hold.

2066. So, I was right.

2067. I took a rash of shit for two years, but

2068. I was right.

2069. And everyone was wrong.

2070. And, yeah, I got a bonus check for it. Sue me.

2071. You know?

2072. It's a lot of money. I get it. I can feel you judging me.

2073. That's palpable.

2074. But, hey, I never said I was the hero of this story.

2075. Hey, Ben. How are we looking?

2076. Eight... on...

2077. Sorry?

2078. No. Eighty million.

2079. $80 million, $80 million, that's good, right?

2080. - Eighty is great. - Is that good?

2081. - Eighty is great, Ben. - Okay.

2082. Thank you. Thank you so much.

2083. Most of it went to UBS.

2084. You're very lucky. The largest bank

2085. in France froze customer's money market accounts today.

2086. This thing's hitting Europe.

2087. Greece and Iceland are finished.

2088. Spain is teetering.

2089. Are you serious? Fuck.

2090. Ben, call us when you get home.

2091. But, hey, before you go,

2092. I'm just wondering...

2093. Why did you do this with us?

2094. You didn't have to.

2095. Thank you. But, why?

2096. You guys said you wanted to get rich. Now you're rich.

2097. Goal!

2098. Pamplona puts themselves on the scoreboard.

2099. As the housing markets and banks continued to hemorrhage,

2100. only one of the big shorts refused to sell.

2101. Mark Baum.

2102. So it was beyond perfect when he was asked to speak

2103. at a conference opposite Bruce Miller,

2104. the famous bullish investor.

2105. After he and Mark had their debate, Alan Greenspan,

2106. one of the architects of the whole crisis was scheduled to speak.

2107. Everyone in Mark's office showed up, he even invited friends.

2108. This was the Ali vs. Foreman of the financial world.

2109. The realist versus the fools.

2110. And if it seems almost too perfect,

2111. trust me, this happened.

2112. Welcome, everyone. Please give a generous welcome to

2113. Mr. Bruce Miller and Mark Baum.

2114. Strap yourself in.

2115. So as some of you may know, Bear Stearns

2116. has just received a loan from JP Morgan.

2117. Of course, we're gonna have to wait and see how the markets react,

2118. but that should lay to rest any concerns about the bank's health.

2119. Now, I take it you have no plans to sell your $200 million in Bear stock?

2120. No. As a matter of fact, when we're done here,

2121. I'll probably go out and buy some more.

2122. For the opposing view, Mr. Baum.

2123. I got to stand for this.

2124. Okay, hi.

2125. My firm's thesis is pretty simple.

2126. Wall Street took a good idea,

2127. Lewis Ranieri's mortgage bond,

2128. and turned it into an atomic bomb

2129. of fraud and stupidity

2130. that's on its way to decimating the world economy.

2131. How do you really feel?

2132. I'm glad you still have a sense of humor.

2133. I wouldn't if I were you.

2134. Now, anyone who knows me knows that

2135. I have no problem telling someone they're wrong.

2136. Bear Stearns is denying rumors of liquidity problems.

2137. Holy fuck, it's 39 now!

2138. We live in an era of fraud in America.

2139. Not just in banking, but in government,

2140. education, religion, food,

2141. even baseball.

2142. What bothers me isn't that

2143. fraud is not nice or that fraud is mean.

2144. It's that for 15,000 years

2145. fraud and short-sighted thinking

2146. have never, ever worked.

2147. - Jesus, Bear at 37... - Not once.

2148. Eventually, people get caught, things go south.

2149. It's fucking plummeting, man.

2150. When the hell did we forget all that?

2151. I thought we were better than this. I really did.

2152. And the fact that we're not

2153. doesn't make me feel all right and superior.

2154. It makes me feel... Sad.

2155. Every time I fucking hit "refresh" it's dropping, man.

2156. And as fun as it is to watch

2157. pompous, dumb Wall Streeters be wildly wrong,

2158. and you are wrong, sir,

2159. I just know, that at the end of the day

2160. average people are going to be the ones

2161. that are gonna have to pay for all this.

2162. Because they always, always do.

2163. It's 32.

2164. It's fucking tanked, man.

2165. That's my two cents. Thank you.

2166. Let me drop a deuce at Deutsche.

2167. Does our bull have a response?

2168. Only that, in the entire history of Wall Street,

2169. no investment bank has ever failed unless caught in criminal activities.

2170. So, yes, I stand by my Bear Stearns optimism.

2171. Mr. Miller, I'm sorry. Quick question.

2172. From the time you guys started talking,

2173. Bear Stearns stock has fallen more than 38%.

2174. Would you still buy more?

2175. Yeah, sure, of course I'd buy more. Why not?

2176. Boom.

2177. Jesus Christ!

2178. That concludes the first part of our presentation.

2179. Up next, we have the legendary former chairman of the Fed,

2180. Alan Greenspan.

2181. Folks?

2182. employees of Lehman Brothers today,

2183. as the Wall Street giant's stock went to zero.

2184. The collapse of the venerable New York bank

2185. follows a tumultuous few months of market volatility

2186. and fear in the world economy.

2187. I got to see inside.

2188. How?

2189. Come on.

2190. I left my phone in the office. I threw my pass out already.

2191. Do you mind if I take your pass?

2192. I don't give a shit anymore. You can do what you want.

2193. Go directly to your transportation.

2194. Do not talk to the press.

2195. After 18 years, I just leave? That's just fucking great!

2196. I'll talk to whoever the hell I want!

2197. Do not talk to the press.

2198. Go directly to your transportation.

2199. Do not talk to...

2200. Hey, look, you wanna get a bite tonight?

2201. There's this new Cuban place

2202. just opened on the Lower East Side. It's supposed to be good.

2203. - Really? - Yeah.

2204. You and I?

2205. Yeah, or other people.

2206. - That sounds nice. I would like that. - Yeah.

2207. Finally.

2208. Mark, hey.

2209. It's a bloodbath up here.

2210. Morgan stock has lost half its value.

2211. It's down to 23.10. It's in free fall.

2212. Clients want to talk to you about pulling their money.

2213. It's now or never, Mark. We got to sell.

2214. Mark.

2215. Mark, you hear me?

2216. Mailbox one.

2217. You have 15 messages.

2218. Mike, I can't seem to get a hold of you.

2219. Will you please call me at your earliest convenience.

2220. It's Jack. You're buying stocks?

2221. The market's at an all-time low. This is crazy!

2222. I met my wife on Match.com.

2223. My profile said,

2224. "I am a medical student with only one eye,

2225. "an awkward social manner,

2226. "and $145,000 in student loans."

2227. She wrote back,

2228. "You're just what I've been looking for."

2229. She meant honest.

2230. So let me be honest.

2231. The housing crisis represents the greatest financial opportunity of...

2232. Making money is not like I thought it would be.

2233. This business kills the part of life that is essential.

2234. The part that has nothing to do with business.

2235. For the past two years, my insides

2236. have felt like they're eating themselves.

2237. All the people I respected

2238. won't talk to me anymore

2239. except through lawyers.

2240. People

2241. want an authority to tell them how to value things...

2242. but they choose this authority not based on facts or results.

2243. They choose it because it seems authoritative and familiar.

2244. And I am not

2245. and never have been "familiar".

2246. So...

2247. So, I've come to the sullen realization

2248. that I must close down the fund.

2249. Sincerely, Michael J. Burry, M.D.

2250. This isn't how I pictured it.

2251. What did you think we'd find?

2252. I don't know.

2253. Grownups.

2254. Mark, you there?

2255. Mark?

2256. Paulson and Bernanke just left the White House.

2257. There's going to be a bailout.

2258. Well, they had to. Right?

2259. Paper markets would've collapsed.

2260. They knew.

2261. Cash would've stopped coming out of ATMs.

2262. They had to backstop this.

2263. They knew the taxpayers would bail them out.

2264. They weren't being stupid. They just didn't care.

2265. Yeah. 'Cause they're fucking crooks.

2266. But at least we're going to see some of them go to jail.

2267. Right? I mean, they're gonna have to break up the banks.

2268. I mean, the party's over.

2269. I don't know. I don't know, Vinnie.

2270. I have a feeling

2271. that in a few years people are gonna be doing

2272. what they always do when the economy tanks.

2273. They will be blaming immigrants and poor people.

2274. But Mark was wrong.

2275. In the years that followed, hundreds of bankers

2276. and rating agencies executives went to jail.

2277. The SEC was completely overhauled.

2278. And Congress had no choice but to break up the big banks

2279. and regulate the mortgage and derivatives industries.

2280. Just kidding.

2281. The banks took the money the American people gave them

2282. and used it to pay themselves huge bonuses

2283. and lobby Congress to kill big reform.

2284. And then they blamed immigrants and poor people.

2285. And this time, even teachers.

2286. And when all was said and done, only one single banker went to jail.

2287. This poor schmuck.

2288. Kareem Serageldin from Credit Suisse.

2289. He hid a few billion in mortgage bond losses,

2290. something most of the big banks did on a good day during the crisis.

2291. Mark, can we sell now?

2292. The fund will make almost $1 billion.

2293. You'll clear $200 mil, Mark.

2294. You know, once we sell,

2295. we'll be just like the rest of them.

2296. You know that.

2297. No, we're not. We're not the bad guys here.

2298. We didn't defraud the American people and prey on their dreams

2299. of owning a home. All right?

2300. They did.

2301. And now we get to kick them in the teeth.

2302. A billion dollars.

2303. That's right.

2304. But we got to close out our position or it could be zero.

2305. I mean, it's now or never, Mark.

2306. Okay.

2307. Sell it all.