

This article is an excerpt from the Shortform summary of "The Big Short" by Michael Lewis. Shortform has the world's best summaries of books you should be reading.
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Who is Steve Eisman, of The Big Short fame? What is his background in finance, and how did he profit from the 2008 financial crisis?
Steve Eisman is an investor best known for having shorted the housing market and profiting from the 2007-2008 financial crisis. In the film The Big Short, Steve Carell’s character Mark Baum was based on Steve Eisman.
We’ll cover Steve Eisman’s background, his brash personality, and how he shorted the housing market.
Steve Eisman: Financial Iconoclast
While the subprime market was growing and coming to cannibalize the wider financial system, an analyst named Steve Eisman was making a name for himself on Wall Street. Eisman had been fascinated by the existence of the subprime market and by the sheer madness of the whole enterprise ever since he’d first become aware of it in the mid-1990s. Originally an attorney, he switched gears relatively early in his career to become an analyst at Oppenheimer, a financial advisement firm.
Steve Eisman rapidly developed a reputation as a brash truth-teller, unwilling to offer up the praise and platitudes that so many financial and banking leaders expected to hear. Wall Street, he saw, was awash in flattery, in which brokers, analysts, and customers told the financial class what it wanted to hear, even when it wasn’t true. Steve Eisman tended to buck conventional wisdom. He was unafraid of telling the truth about the underwhelming performances of the companies he was tasked with analyzing—and telling it loudly.
On one occasion, Steve Eisman delivered a speech at a luncheon in which he lambasted the head of a major U.S. brokerage house (who happened to be in the audience), claiming that this man knew nothing about the business he led. Another time, Eisman crumpled up the financial statements of a Japanese real estate firm and told the CEO that they were “toilet paper.” With his often-unkempt appearance and unrestrained personality, he cut a unique figure among the smartly dressed and cautiously reserved Wall Street set.
Steve Eisman’s Moral Compass
But he was also guided by a strong moral compass and began to realize just how much of Wall Street’s business model was based on deceiving the clients whose interests it supposedly existed to serve while gouging working-class Americans out of their homes and savings. He saw these injustices even more acutely after his infant son, Max, passed away in a tragic accident. He saw that bad things could happen to anyone, anywhere, without any warning. This new ability to imagine a worst-case scenario amid a culture of unbridled (and ultimately, unfounded) optimism was to serve Steve Eisman well as the financial sector began to lose all sense of rationality during the 2000s.
The story of the Household Finance Corporation was an early indication to Eisman of just how rotten the lending business had become. In 2002, he obtained sales documents from Home Finance Corporation that indicating that they were committing fraud and cheating their customers of billions of dollars.
The impunity with which the company had acted was a genuine shock to Eisman. The CEO was being showered with wealth, when, in Eisman’s view, they should have “hung him up by his fucking testicles.” It was a revelation to Steve Eisman. The market had not punished bad actors. The incentives had not worked the way they were supposed to. His political views began to shift too, as he started his transformation from a free-market, Reaganite Republican to a progressive, populist, almost socialist Democrat. He now saw the true ethos of the system: “Fuck the poor.”
Steve Eisman’s Risky Bet
In early 2006, Deutsche employee Greg Lippmann went to Steve Eisman’s office with a proposal to bet against the subprime mortgage market—the Big Short. (Lippmann didn’t have the funds to execute the scheme on his own.) He told Steve Eisman that the underlying loans in the bonds would start to go bad even if housing prices didn’t fall—all they needed to do was stop rising. Borrowers would be unable to refinance using their homes as collateral, which would, in turn, trigger a wave of defaults. Lippmann noted that first-year defaults were already up from one percent to four percent. When the low teaser rates expired, that number would shoot up even more.
Finally, despite his skepticism, Steve Eisman did the trade with Lippmann. The logic was sound. It was spending $2 million to make $100 million. How could he not seize this opportunity?
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Here's what you'll find in our full The Big Short summary :
- How the world's biggest banks contributed to the 2008 financial crisis, greedily and stupidly
- How a group of contrarian traders foresaw the bubble popping, and made millions from their bets
- What we learned from the 2008 crisis - if anything