you smell that what is that what what's that smell the cologne no opportunity no money oh okay i smell money okay chris god damn it i'm sorry this is your basic mortgage bond all right the originals were simple they were just thousands of aaa mortgages bundled together guaranteed by the u.s government the modern ones are different they're private and they're made up of layers of tranches the highest level triple a's getting paid first the lowest rated b is getting paid last taking on defaults first now obviously if you're buying bees you can make more money but they're a little risky sometimes they fail chris somewhere along the line these bees and double bees went from a little risky to dog [ __ ] where's the trash i'm talking rock bottom fico scores no income verification adjustable rates dog [ __ ] the default rates are already up from one to four percent fellas and if they rise to eight percent and they will a lot of these triple b's are going to zero too and that you're too close is an opportunity okay you're saying that at eight percent the bonds fail and we are already at four percent that's right if they go to eight it's armageddon yeah that's right how come nobody's talking about this you're completely sure of the math look at him that's my quant your what my quantitative my math specialist look at him you notice anything different about him look at his face that's pretty racist look at his eyes i'll give you a hint his name's yang he won a national math competition in china he doesn't even speak english yeah i'm sure of the math actually my name's jung and i do speak english jared likes to say i don't because he thinks it makes me seem more authentic and i got second in that national math competition so you're offering us a chance to short this pile of blocks how with something called a credit default swap it's like insurance on the bond and if it goes bust you can make 10 to 1 even 20 to 1 return and it's already slowly going bust ten to one twenty to one no way and no one's paying attention no one is paying attention because the banks are too busy getting paid obscene fees to sell these bonds but wait you are the bank when you work for the bank i bet your margins are pretty nice and fat let's not talk about my margins by the way being nice and fat that's a nice shirt do they make it for men aren't you the bank i work for the bank i don't think like a bank big bank small bank i like to make money all right let me put it this way i'm standing in front of a burning house and i'm offering you fire insurance on it how can these underlying bonds be as bad as you say it wouldn't be legal nobody knows what's in them nobody knows what's in the bonds i've seen some that are 65 aaa rated that i know for a fact are filled with 95 subprime [ __ ] with ficos below 550. get the [ __ ] out of here you want me to really blow your mind when the market deems a bond too risky to buy what do you think we do with it take a guess i don't know you tell me all right you think we just warehouse it on the books no we just repackage it with a bunch of other [ __ ] that didn't sell and put it into a cdo a cdo yes a cdo what is that this is where we take a bunch of bees double b's and triple b's that haven't sold and we put them in a pile and when the pile gets large enough the whole thing is suddenly considered diversified and then the [ __ ] at the rating agency give it a 92 93 aaa rating no questions asked say that again i collateralized that obligation it's important to understand because this would allow the housing crisis to become a nationwide economic disaster here's world-famous chef anthony bourdain to explain okay i'm a chef on a sunday afternoon setting the menu at a big restaurant i ordered my fish on friday which is the mortgage bond that michael blurry shorted but some of the fresh fish doesn't sell i don't know why maybe it just came out halibut has the intelligence the dolphin so what am i gonna do throw all this unsold fish which is the triple b level of the bond in the garbage and take the loss no way being the crafty and morally onerous chef that i am whatever crappy levels of the bond i don't sell i throw into a seafood stew see it's not old fish it's a whole new thing the best part is they're eating three-day-old halibut that is the cdo well i just need to know how these could possibly be collated you're the first person who has found this thing hold on so mortgage bonds are dark [ __ ] cdos are dog [ __ ] wrapped in cat [ __ ] yeah that's right okay institutions treat these cdos like they're as solid as treasury bonds and they're going to zero no it can't be right there there are 500 billion in housing bonds sold last year alone the ratings agencies the banks the [ __ ] government you're saying they're all asleep at the wheel yeah my whole department's long on this stuff they call me chicken little they call me bubble boy a's zero b zero double b's zero triple b's zero and then that happens what is that that's america's housing market thank you [ __ ] hey jared shut your [ __ ] mouth you