Investment banks–primarily Citigroup and Merrill Lynch–took the burden of “placing” the sinking layers of Harding’s mezzanine CDOs, sometimes in other CDOs, sometimes in other off-balance-sheet vehicles, sometimes with a bona fide investor who’d been somehow duped, other times with an investor who’d been somehow bribed. Citigroup lent Harding the millions to buy the equity slice of one of its CDOs and largely convinced pension funds to buy CDO pieces by packaging them with “liquidity puts,” insuring them against certain losses. This scheme alone ended up costing at least $14 billion. Meanwhile, Merrill formed a special “subsidy” unit that paid extra bonuses to traders who agreed to withstand the embarrassment of eating a loss so they might hide CDOs. In early 2007, Merrill commissioned Mr. Chau to create a new CDO called Neo, to house some of its old CDO scraps. It had defaulted by the end of the year.
A few good-faith investors who got stuck with these nothing-backed securities have sued Harding, which is now down to two employees (Mr. Chau and his wife) managing a reported $4 billion in assets from an office in New Jersey. But in an interview with the Financial Crisis Inquiry Commission last fall, he was amiable, articulate and even contemplative without ever wavering from the insistence that it had all been an honest mistake, that he could have never contemplated such dramatic defaults and that he had bui
lt his CDOs according to the specifications of investors.
An effective mortgage relief bill, Mr. Chau suggested, could have avoided many of the losses suffered by investors in his CDOs. He lamented the injustice of a government that bails out its financial system and its commercial real estate sector but leaves behind “mom and pop.” (He also, curiously, went out of his way to cite the Jupiter High Grade Asset CDO, part of which was acquired by taxpayers in the AIG bailout, as his career-making deal.) Contrary to his claim that his infamy, thanks to The Big Short, has ruined him professionally, he is listed having worked a post-crisis stint at a boutique brokerage run by Michael De Giudice, a close family friend and an informal adviser to Andrew Cuomo.
Of course, Mr. Lewis’s caricature of Mr. Chau, as vivid as it is, does not seem as damaging as the extensive reports that have appeared since depicting him as someone who singularly “epitomized the devolution of the business,” in ProPublica’s words. To Mr. Lewis, that devolution was a triumph of stupidity; but upon closer inspection, as one might expect, it was also a conspiracy and a crime (albeit of the decriminalized sort to which we have all grown accustomed when it comes to our banking industry.)
Appropriately, Mr. Chau’s curious complaint seems much more intent on making Mr. Lewis and Mr. Eisman look stupid than making any serious legal case against them. And in this it largely succeeds, leaving readers with a brilliantly cartoonish impression of Mr. Lewis. He is an alternately pathetic and shamelessly exploitative has-been who “saw the world economic crisis–which he acknowledges was ‘a tragedy’–as another opportunity for a bestseller.” Confined to his “family compound” in Berkeley and lacking any firsthand experience with the market since the days when it resembled “the world described by Tom Wolfe in The Bonfire of the Vanities–an elitist environment of Ivy League men in white button-down shirts, talking into telephones while having their shoes shined,” Mr. Lewis finds himself beholden to the likes of Mr. Eisman.
All you need to know about Mr. Eisman is that well into middle age he still indulges in public temper tantrums and weekly trips to the comic-book store to get first dibs on the weekly shipment. “He knew more than any grown man should about the lives of various superheroes. He knew the Green Lantern Oath by heart, for instance, and understood Batman’s inner life better than the Caped Crusader himself. … Spider-Man was his favorite,” the lawsuit tells us of Mr. Eisman, quoting directly from The Big Short and sneering “Eisman was no doubt eager to talk to a famous author writing a book that would glorify him” as the superhuman market deity that could make triple-digit profits vanquishing the credit markets awash in toxic subprime slime.
And so Mr. Lewis allowed himself to become a conspirator in Mr. Eisman’s campaign to make an evil dragon figure out of poor Mr. Chau: “to expose to public hatred, contempt, ridicule or disgrace” the dutiful son of a hardworking Chinese immigrant who waited tables every night in his family’s modest restaurant until, in sincerest hopes of honoring the father who had “fled Chairman Mao’s China in 1953″ to afford him the opportunity, he went to business school. As a result of this conspiracy’s spawn, The Big Short, Mr. Chau, the dutiful son made good, has suffered incalculable “personal humiliation and mental anguish.”
The complaint ends with a demand for a jury trial and an award of damages in excess of $75,000. Considering the tens of billions of dollars that evaporated under Mr. Chau’s well-compensated “management,” this is brash, although hardly on par with the $1 million a month “consulting” retainer demanded by the man who supervised an AIG unit that lost more than a hundred billion dollars on subprime mortgage securities. Joseph Cassano wrangled 12 months’ pay.
And while Mr. Chau’s case has a quaint merit as literary criticism, Mr. Lewis stands to retain a certain advantage before a jury. Not only has he amassed his fortune writing books like The Blind Side, he is, as the blogger “Yves Smith” of Naked Capitalism remarked the day Mr. Chau filed his suit, “undeniably cute.”
“And since they’ll be facing an all-female jury–since obviously, what male who shows up for jury duty in downtown Manhattan hasn’t read The Big Short–that’s actually all that matters,” she said.
Ms. Smith giggled softly and elected to leave this compliment of Mr. Lewis un-couched by any of the customary criticisms of his oversimplified explanations of complex phenomena or his misleading hagiography of short-sellers with which she has been known to consume many thousands of words of text on her blog. Sometimes it doesn’t need to be the source of existential torment, parsing the good and right and cute from the reckless and venal and diabolically corrupt.