Hat tip to Aaron Edelheit for linking to this essay in Portfolio by Michael Lewis, "The End of Wall Street's Boom". The essay is worth reading in full, and is an entertaining read, as Lewis's essays usually are, but below are a couple of brief excerpts. To set the stage: Lewis had asked the ubiquitous analyst Meredith Whitney if she knew of anyone that anticipated the subprime collapse and managed to profit from it; the first name Whitney gave him was that of her former mentor, Steve Eisman.
Lewis on Eisman as a securities analyst in the early 1990s:
The second company for which Eisman was given sole responsibility was Lomas Financial, which had just emerged from bankruptcy. “I put a sell rating on the thing because it was a piece of shit,” Eisman says. “I didn’t know that you weren’t supposed to put a sell rating on companies. I thought there were three boxes—buy, hold, sell—and you could pick the one you thought you should.” He was pressured generally to be a bit more upbeat, but upbeat wasn’t Steve Eisman’s style.
In 2007, Eisman was managing a hedge fund called FrontPoint. Lewis on Eisman's decision to short Merrill Lynch then:
...FrontPoint had a visit from Sanford C. Bernstein’s Brad Hintz, a prominent analyst who covered Wall Street firms. Hintz wanted to know what Eisman was up to. “We just shorted Merrill Lynch,” Eisman told him.
“Why?” asked Hintz.
“We have a simple thesis,” Eisman explained. “There is going to be a calamity, and whenever there is a calamity, Merrill is there.” When it came time to bankrupt Orange County with bad advice, Merrill was there. When the internet went bust, Merrill was there. Way back in the 1980s, when the first bond trader was let off his leash and lost hundreds of millions of dollars, Merrill was there to take the hit. That was Eisman’s logic—the logic of Wall Street’s pecking order. Goldman Sachs was the big kid who ran the games in this neighborhood. Merrill Lynch was the little fat kid assigned the least pleasant roles, just happy to be a part of things. The game, as Eisman saw it, was Crack the Whip. He assumed Merrill Lynch had taken its assigned place at the end of the chain.
The clever photo illustration above is from the article and was credited to Ji Lee. It is of course based on the iconic statue on Lower Broadway in Manhattan's Financial District.