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Katie Bruin
Professor Grogan
English 1020
16, October 2011
Rhetorical Analysis: The Big Short: Inside the Doomsday Machine
When you think of the housing market, you usually think of real estate, a new
home, or maybe even homelessness and foreclosure. Even some would think about
the recent housing market crash that happened back in 2007. How could a big
company like Bear Sterns or Goldman Sachs allow something like the crash to even
happen? Are they not big name finance companies that we should be trusting with
our money? In the book “The Big Short; Inside the Doomsday Machine”, author
Michael Lewis argues that the big name finance companies working on Wall Street
falsely advertised mortgage bonds to the American people in order to gain more
money. The book is written like a novel, by letting real life characters speak for
themselves versus Lewis telling his point of view. He uses ethos by taking actual
statements made by these characters to show the reader the situations they were in
from getting involved with the mortgage bond market, the cause in the financial
sector along with the affect it had on the American people, and pathos to show the
emotional effect it had on these Wall Street men and the citizens of this country.
Upon beginning his book, The Big Short Inside the Doomsday Machine, Lewis
chose Steve Eisman as his main character. Not many know Eisman, but Lewis
contacted a woman named Meredith Whitney for inside information. She was an
analyst for Oppenheimer, the cause of the market in financial stocks to crash, and
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was lucky enough to be trained by Eisman himself. The deciding question for
Eisman as the main character was “if she knew anyone who had anticipated the
subprime mortgage cataclysm, thus setting himself up in advance to make a fortune
from it. Who else had noticed…?”(xviii preface) only after Meredith gave him Steve
Eisman’s name was he to be considered the main character in his book.
Steve Eisman is described as an honest man either hated or loved. He does
not intend to be rude, but some people have perceived his words that way. Eisman
came from a well to do family, and was originally a lawyer before he was involved
with the broker company called Oppenheimer. At the time that Eisman entered the
world of mortgage bonds, the mortgage bond was changing to benefit less
creditworthy homeowners by giving them a chance to take out a loan that was not
given by the government. These mortgage bonds were created from subprime (a
loan made to a borrower with a poor credit rating) home loans to help with
payments. Lewis goes on to add more characters to the story like Vinny Daniel,
Michael Burry, and Greg Lippman. Vinny became the man to help Eisman with
numbers as well as someone who paid attention to little details. Michael Burry,
neurologist turned hedge fund manager became involved with the mortgage bond
market in an attempt to short subprime mortgage bonds. Greg Lippman was not an
employee for Eisman, but he soon became a very important person to Oppenheimer.
Lippman started out as a broker for the stock market and ended up in the bond
market. He created the first CDO (collateralized debt obligation) market and was
one of the key players in the creation of the credit default swap market to eventually
make money off of betting against the CDO. Lippman became involved with Eisman
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when he decided to pitch his ‘original idea’ on betting against the subprime
mortgage bond market. The CDS allowed Eisman to know when the subprime
mortgage bond market would crash and “it allowed him to make the bet without
laying cash down upfront, and put him in a position to win many times the sums he
could possibly lose.” (pg. 65) There were few flaws in Lippman’s idea but either way
these men, along with anyone else who was going to agree, were going to make a lot
of money.
The structured loans on citizen houses were fixed loans for a few years and
then would move up to the actual rate. Eisman made it simple by stating “They were
making loans to lower –income people at a teaser rate when they knew they
couldn’t afford to pay the go-to rate; they were doing it so that when the borrowers
get to the end of the teaser rate period, they’d have to refinance, so the lenders can
make more money off them.” (pg. 66) This was considered the beauty of the plan,
and the ticket to making money off of cheating the system. The big name
corporations like Goldman Sachs slowly began to get involved with credit default
swaps and selling them in mass amounts. Burry noticed this and right away realized
that in no way could they be making these sales without someone being behind it.
He was correct, and it happened to be AIG (American International Group, Inc.) AIG
was the one triple-A rated company that decided to take the risk of insuring $100
billion in subprime mortgage loans and were able to get away with it. This needed to
be a corporation that was not a bank, but one that could get away with hiding the
mass amounts of money in their balance sheets without anyone knowing. Eisman
did take the deal with Lippman even though he knew it was wrong. Even though he
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knew that the market was going to crash eventually, and he was going to make
money off it. Men like Burry and Daniel knew too well what was going on with the
scam that was being offered to American citizens and they still continued to watch it
all unfold.
Goldman Sachs was one company that had been able to persuade rating
agencies to work in their favor. The ratings that were set for their lower mortgage
bonds (triple-B-rate) were only going to be sold if they were “re-rated” and sold as a
triple-A. With this rating, it proved that these bonds were a lower risk, but these
bonds were never actually changed. They were being sold under a different name, a
disguise for what they really were and Goldman Sachs along with other Wall Street
firms who were making the same deal paid these rating agencies large amounts of
money just to make the change. This affected Lower Middle Class America in a big
way because they were the ones who ended up with these lower rated bonds and
they did not realize that they were a false advertisement for a ‘well’ rated bond.
People like Eisman and Daniels knew what was happening, and Lippman became
the man who would bet against the CDO market for his own company, Deutsche
Bank. In mind-2005, For Sale signs started showing up left and right, and in 2006
house prices began to fall nationally and they would fall 2 percent for one year. This
should have disrupted the bond market and instead of raising the price of insurance
bonds, it lowered the price. This made things easier for poor immigrants and lower
class Americans and allowed them to use their loan money that they received with
bad credit and without proof of income to be lent a house way above their salary.
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When Bear Stearns collapsed, all other banks and hedge funds refused to
continue business with the company. Things on Wall Street changed, including the
morning commute. Other major companies were so far into the mortgage bond
market that it was no longer a struggle of finding out who owed what money, but
who was going to still be alive after it all? The Dow Jones Average fell 449 points in
2008, and the Reserve Primary Fund “announced that it had lost enough on shortterm loans to Lehman Brothers that its investors were not likely to get all their
money back, and froze redemptions.” (pg. 238) News coverage about the market
was coming in from government officials and corporations were taking all their
money out of market funds. “All hell was breaking loose in a way I had never seen in
my career,” said Danny. Wall Street knew how bad things were going to before the
American people in the coming days after the crash. Porter Collins put it this way: “It
was like the world stopped. We’re looking at all these people and saying, ‘These
people are either ruined or about to be ruined’” The American people had no clue
what had just happened and the worse was yet to come.
In conclusion, I feel that these Wall Street men who were able to see the fall
of the housing market before it happened were genius. Although I do not agree with
what they did and how they stood by and let these loan rates drop, they were still
ahead of the game and were able to cheat the system in order to come out on top. It
ruined the American housing market and we still have not been able to recover from
it. Bear Stearns will never come back again, and other major companies will most
likely never fully recover. He used actual statements from these real life characters
to show their side of the story and how they felt during this crisis even though they
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never actually did anything but protect themselves. He also used their views on how
they saw the housing market crash and what it did to the American people before,
during, and after they bought into the scam of the mortgage bond market.