Cheat Sheet

Michael Lewis wrote Liar’s Poker in 1985. “In the two decades since then,” he writes in the new issue of Portfolio, “I had been waiting for the end of Wall Street.” This year, it arrived. Lewis profiles Steve Eisman in his article, a hedge-fund manager who was among the first to detect the weakness of the subprime mortgage market, and who has made a fortune from shorting it and everyone with a hand in it: first, the lenders; then the ratings agencies; finally, the big banks. The subprime market was actually too small to feed investors’ appetites, so they created side bets. “The arrangement bore the same relation to actual finance as fantasy football bears to the N.F.L.” Lewis writes. He continues: “In retrospect, pretty much all of the riskiest subprime-backed bonds were worth betting against; they would all one day be worth zero. What [Eisman and his team] were doing, oddly enough, was the analysis of subprime lending that should have been done before the loans were made.”