The National Archives did a document dump on Friday, releasing transcripts, meeting agendas, and confidentiality agreements from the Financial Crisis Inquiry Commission (FCIC).
The best one we’ve found so far, though, is a memo on a meeting between the FCIC and Steve Eisman, then of FrontPoint.
Eisman was one of the few to call the subprime crash correctly, and he features heavily in Michael Lewis’ book, “The Big Short.”
Steve Carell’s character, Mark Baum, is based on Eisman in the movie adaptation. Eisman left FrontPoint in 2011.
His interview with the FCIC was especially entertaining. I’ve been reading out the highlights to my colleagues and we’ve been in stitches. Eisman said:
- No one the FCIC had spoken to “has a clue.”
- “All of CEOs are clueless,” with the possible exception of Blankfein.
- The financial system’s methods for measuring leverage amount to “some kind of gobbledygook.”
- “Alan Greenspan is the worst Chairman of the Fed in history.”
- Ratings agencies were told in 2003 or 2004 that their models were wrong, or “probably both years.”
- “Nothing here is criminal, it’s just stupid. I think they’re generally just stupid.”
- He did a credit-default-swap (CDS) trade with Goldman Sachs in 2007, and was in contact with Greg Lippmann, a trader who also bet on the housing bust.
- He also met with Citigroup and Bank of America, “but they were pretty incompetent.”
- He was asked if he had documentation of his interactions with a Goldman Sachs executive, and responded, “I don’t do documentation, my friend.”
- He repeatedly said that he would give the FCIC information if it promised he wouldn’t have to testify.
Elsewhere, he was asked to talk about the relationship between monoline insurers and the financial crisis. Here is his response:
My understanding — and it’s just my understanding of what happened — was that AIG was the first great seller of CDS. And when they began that, they didn’t really understand that they were selling CDS on subprime paper. So the whole Street was creating CDOs and laying off the triple-A risk onto AIG. One of the more interesting aspects of the subprime securitization process — Lippman, when we met for the first time, I asked who was long, he said “Dusseldorf.” I said later that it can’t be all Dusseldorf. Then he’d say CDOs — there’s no real buyer.
It is worth nothing that Lippmann was also interviewed, and disputed the scenes in the book “The Big Short,” where he singles out German buyers:
So I think that that comment where it’s attributed to me that I said, “Idiots in Germany buy this,” I think it’s taken way out of context. It’s certainly not something that I led with. I didn’t go into people and say, “Well you should buy protection because idiots in Germany are selling protection.” That’s not how it came about … So what I can remember from the book, that’s the thing I have the most problem with.
Eisman also echoed Warren Buffett on the need for clawback in Wall Street pay. He said:
Forcing people to have equity is not a solution — Dick Fuld owned a billion dollars. Jimmy Cayne owned a billion and smoked doobies the whole time — and that’s a fact. Stock per se is not a solution. I think claw backs from people who manage balance sheet risk is where you need to go. It’s something that needs to be explored.