This woman wasn’t saying that Wall Street bankers were corrupt. She was saying that they were stupid.
What he couldn’t understand was who was buying the bonds from this second wave of subprime mortgage lending. “The very first day, we said, ‘There’s going to come a time when we’re going to make a fortune shorting this stuff. It’s going to blow up. We just don’t know how or when.’”
Subprime mortgages almost always bore floating interest rates, but most of them came with a fixed, two-year “teaser” rate. A mortgage created in early 2005 might have a two-year “fixed” rate of 6 percent that, in 2007, would jump to 11 percent and provoke a wave of defaults.
You didn’t buy insurance on the entire subprime mortgage bond market but on a particular bond, and Burry had devoted himself to finding exactly the right ones to bet against.