The enemy was Wing Chau, a pudgy but well-dressed man who specialized in packaging and "managing" the infamous subprime-mortgage-backed collateralized debt obligations on the verge of nuking the financial system. Mr. Eisman, like Mr. Lewis' other heroes, was accumulating credit default swaps betting on an epidemic of foreclosures that were in the process of destroying such CDOs. Mr. Chau, whose CDO manager Harding Advisory had then been in business for only six months, effusively explained to his dinner companion that they were actually rooting for the same team. "I love guys like you who short my market," he said, to Mr. Eisman's self-professed horror. "Without you, I don't have anything to buy."

It has been 12 months since The Big Short first appeared in stores, embedding the episode in the collective consciousness of the moderately finance-minded. Like the real estate crash itself, it happened in Vegas but did not stay in Vegas. As Mr. Lewis tells it, Mr. Chau was the embodiment of the "sucker": a new money "moron" with a mid-tier education who had spent the years prior to the subprime gravy train toiling at an insurance company for $140,000 a year.

It is unclear why it took until last week for Mr. Chau to formally strike back at Mr. Lewis and Mr. Eisman with an acerbic double character assassination disguised as an audaciously flimsy defamation lawsuit. (Sample transition: "7. Lewis admits that he was so unqualified [for his job as a junior bond salesman during the 1980s] that he feared that 'someone was going to identify me, along with a lot of other people more or less like me, as a fraud.' 8. Lewis escaped any charges of fraud and went on to write Liar's Poker concerning his brief experience at Salomon Brothers, which became a bestseller and made him rich.") Neither Mr. Chau nor his formidable attorney, Steven Molo, who now represents, among others, two of Bernard Madoff's oldest investors in his bankruptcy case, returned calls from The Observer.

"I was really surprised to hear about the lawsuit, because I didn't think anything [Mr. Lewis] wrote was that bad," said Tony Huang, a Cornell physics Ph.D. and derivatives veteran who worked for Mr. Chau for three years at Harding, reached at his new job at a Princeton, N.J., wealth management firm.

"Although the book did get one thing wrong" about his old boss, Mr. Huang said. "He is not stupid."

One of the more exotic characteristics of the subprime mortgage crisis was the unprecedented opportunity it afforded a few curious-minded money managers like the paladins of The Big Short to become ludicrously rich, practically overnight, without having to get their hands dirty. So Mr. Eisman manages a multibillion-dollar hedge fund and fancies himself, in Lewis' phrase "Wall Street's socialist." Michael Burry has a glass eye and Asperger's syndrome and doesn't believe in charging investors a management fee. Mr. Lewis' big shorts are all a bit socially displaced and somehow honorable, except in the cases in which he fails to mention their dishonorable qualities.

Mr. Chau's is not that kind of story. In the summer of 2006, barely a year after he founded Harding, he was personally "overseeing" more than $20 billion (theoretical) worth of the most dubious deals in the history of Wall Street. Through a diversified regimen of fees, bonuses and "incentive" payments, he made $26 million in 2006 alone, according to Mr. Lewis.

Harding specialized in "mezzanine CDOs," notorious scams in which pools of unsellable BBB-rated slices of mortgage-backed securities were somehow spun into a more complex vehicle that could by the magical math of decorrelation upgrade its ratings to triple-A. Since a foundational delusion of this and all mortgage-based financial "innovation" was the assumption that housing prices would rise every year in perpetuity, this sort of madness should have ground to a halt in late 2005, when the housing market began its descent. Instead, the CDO market surged. At least $500 billion in mostly subprime-backed CDOs were issued in 2006 and 2007--as delinquencies were rocketing, prices were falling and panic took hold.

This was the result of an invention called the "synthetic" mortgage security, a derivative pegged to the value of an underlying mortgage bond, with the crucial distinction that interest payments were made not by homeowners but by speculators investing in credit default swaps that increase in value once those homeowners start to default. By 2006, just as Mr. Chau pointed out at the dinner, "demand" for mortgage-backed financial products was effectively being "driven" by pessimists, like Mr. Eisman, betting on collapse, although the market was too opaque for almost anyone to grasp this. But Mr. Chau understood because the mezzanine CDOs that were Harding's specialty were a vehicle for creating discount-priced credit protection.

In one of Harding's first transactions, the $1.5 billion Octans I, the Illinois hedge fund Magnetar agreed to buy the lowest "toxic waste" slice of the deal in exchange for the right to choose which bonds and "synthetics" Octans would comprise. Octans also contained a slice of another CDO called TABS--and TABS in turn "invested" in a slice of Octans--that closed the same month, October 2006. TABS was the invention of the hedge fund Tricadia, which like Magnetar "sponsored" CDO deals by footing the bill for the untouchable "toxic waste" of the lowest tranche, in order to lay claim to the credit default swaps that would pay out when the deal fell apart.

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.

editorial@observer.com

The firm had been pulled into the gargantuan insider trading investigations because of the charming Joseph F. "Chip" Skowron III, FrontPoint's health-care funds co-head. Mr. Skowron, a strongly chinned former Harvard surgeon who left for Wall Street, is said to carry a photo of himself in a Kosovo operating room with a sick child. He allegedly saved FrontPoint $30 million thanks to illegal information from a man named Yves M. Benhamou. He also drove a blue Ferrari 458.

"If I get even a whiff of an investigation, I want to get out before the next guy, especially if I know they have illiquid stuff or I don’t know what they have," the head of a fund of funds told the FT, which reports senior FrontPoint staffers "are interviewing for jobs with other firms."

Mr. Eisman did not immediately respond to an email. Nor did a spokesperson for Morgan Stanley, which announced it was selling its stake in FrontPoint earlier this year.

It has not been a good holiday for hedge fund moguls. Besides those investigations, Blackstone and Goldman Sachs have recently pulled money quite angrily from Phil Falcone.

Update: "As part of our effort to keep our investors informed, we would like to provide you with a business update," a memo today to investors from FrontPoint co-CEOs Dan Waters and Mike Kelly begins. The memo, obtained by the Observer, plays it cool: It says that about $1.5 billion of the $3 billion withdrawal requests are for the scandalized health care funds, and that, better yet, "we are working with several clients who have indicated that they may rescind their redemption requests." Some of the withdrawal requests, in other words, have been withdrawn; but FrontPoint doesn't say exactly how many. "We would like to emphasize," the memo's continues, "that FrontPoint remains stable operationally and financially."

Frankly, the only accomplishment that this management team can truly point to is the survival of this Company, which I don't mean to minimize, but otherwise, this management team has overseen a massive destruction of shareholder value. [...] I want you to understand that my patience and the patience of your shareholders is not infinite and my patience is just about done. And I would like a response to my comments. And one other thing, at the beginning of this conference call, Mr. Fraizer said that they might do bolt-on acquisitions. Do not do that. Your stock is selling at less than 40% of book value. You do a bolt-on acquisition and I will wager a proxy battle immediately to throw you out of here. And I would like a response.

Notorious rude boy Steve Eisman is not taking any guff from any CEO of any Virginia-based financial firm. The dressing-down doesn't end there:

Frazier: You can also see the path to not only earning your cost of capital in International, but in fact exceeding
that cost of capital. And we will reinforce that as we lay out both where we are and where we are going in that as we walk
through the Investor Day. But I think you can see that in the numbers.

Eisman: Actually, I can't. But go ahead.

Nothing like a little passive-aggressive undermining on a conference call to send a company into conniptions. Shares of Genworth were lately down 8.7 percent in midafternoon trading on the New York Stock Exchange.

mtaylor [at] observer.com | @mbrookstaylor

What the second Wall Street wants to do, to the surprise of moviegoers expecting a rollicking pinstriped adventure, is tell the sludgy story of the financial crisis. But it doesn't know how. Oliver Stone's opus is a strangely fictionalized version of the death of Bear Stearns and Lehman Brothers, but also the rise of short sellers and Goldman Sachs. That makes it, two years after the climax of the subprime debacle, the first big pop-culture meditation on Lloyd Blankfein, Jamie Dimon and Ace Greenberg, with some Steve Eisman, Maria Bartiromo and Matt Taibbi thrown in, too. Figuring out what is supposed to be what, and who is really who, should be one of the fall's great parlor games.

But the real surprise is that the Oliver Stone film, as it's called on the beautiful poster, is gentle and forgiving. Greed is bad, and then--consider this a spoiler alert--it isn't. Our heroes are Shia LaBeouf's trader, Jake Moore, more or less a conniving liar, and Michael Douglas' Gordon Gekko, introduced as a sage, revealed to be a cackling supervillain, and then given a chance to make good at midnight. The movie doesn't seem to mind that the men win because of theft, irresponsibility, avarice and old-fashioned treachery.

The new Wall Street is a love song to 21st-century traders, disguised as a diatribe.

"WE DIDN'T MAKE it too complex," Oliver Stone said last week, during an interview at noon on Rosh Hashanah. "It's just so fucking difficult." But there are a lot of details packed into the film that ring true. In its best speech, Gekko warns a college audience about the upcoming mortgage collapse. "You don't know it yet, but you're the NINJA generation--no income, no job, no assets," he says, using the nickname for the subprime loans that brokers pushed on unemployed homeowners, which became securities that were traded back and forth.

"Like cancer, it's a disease, and we have to fight back," he says, growing more furious when he describes how his bartender bought three houses he couldn't afford. That's a reference to Steve Eisman, one hedge fund manager who railed against the subprime mortgage bubble, and who realized that his nanny had bought up five townhouses in Queens. (His housekeeper was even going to buy a townhouse with an adjustable rate mortgage and a low down payment, until he convinced her otherwise.)

The film's smart connections to the real-life story of the bubble are as subtle as the high-thread Bowery Hotel sheets that Jake wakes up in when we meet him, nuzzled by Carey Mulligan's Winnie, his girlfriend and Gekko's estranged daughter. But there are bigger links. "We did have scenes with AIG, by the way," Mr. Stone said. "We had the chairman, [Maurice] Greenberg, but I ended up cutting it out because, frankly, it was too complex for the average viewer."

Others made it in. Keller-Zabel, the doomed firm Jake works for, is Bear Stearns, complete with a "bald guy wearing a bow tie," as Bear chairman Ace Greenberg once called himself, at the helm. It's Frank Langella's kindly Lew Zabel, a father figure to Jake, who gets a warm kiss on his pate after awarding him an early million-dollar bonus. There's even a reference to the resentment that lingered on Wall Street ten years after Bear Stearns refused to participate in the 1998 bailout of the hedge fund Long-Term Capital Management.

Bear ended up needing the kind of help it had refused to give, which, of course, is Zabel's fate, too. "Two bucks? Jesus, you're out of your mind," he spits when Churchill Schwartz's Brolin makes an offer to save the firm, the same as JPMorgan's bid for Bear Stearns. The sum goes up after haggling, which is what happened in 2008, sort of, although reality was more sinister. JPMorgan chief Jamie Dimon actually wanted to pay more so that Bear Stearns' shareholders wouldn't get in the way, but Treasury Secretary Hank Paulson reportedly asked him to keep the price low, so the government-backed deal wouldn't look like a bailout.

SEE ALSO: 10 WALL STREET SUPERSTITIONS

Indeed, Mr. Brolin looks like Mr. Dimon, only without the gray hair. But Churchill Schwartz doesn't look like JPMorgan for long. By the time we see a black helicopter with its CS logo, just a line of paint away from GS, the firm has morphed into the great Goldman. "Talk about an evil empire," one character sighs. In the interview last week, Mr. Stone even claimed that Eliot Spitzer was the one who told him that Goldman Sachs was betting against the housing market at the same time it was creating mortgage deals. "This was before it made the news!" he said. "That woke me up, and I said, 'My God, that's some story.'"

By the finale, there isn't any doubt about the firm's inspiration. "The first thing you need to know about Churchill Schwartz is that it's everywhere," the opening line of a bombshell exposé posted to Winnie's Web site says. Her site is called Frozen Truth, which will be a boon to the real-life Canadian named Apollo Lemmon who writes a blog with that name. But her article, of course, is Matt Taibbi's Rolling Stone classic, which begins, "The first thing you need to know about Goldman Sachs is that it's everywhere."

"THE ARTICLE CAME out after the movie was shot," Mr. Stone protested. "Come on! Please." In fact, he's been strange about most of the film's inspirations. Telling The Hollywood Reporter about one bank they shot in, he said it "gave us the right feeling that we needed for Goldman--I don't want to say Goldman, I want to say 'from The Bank' in the film." Mr. LaBeouf is less self-conscious. "I was able to get into the Goldman Sachs office, which is like the Illuminati. Nobody gets to go in there," he recently bragged on camera. "Basically the trade-off was you get me in there, I'll introduce you to Gekko."

Asked in May by Reuters whether the material would be a lightening rod, Mr. Stone sidestepped the question by saying the film was really based on the "solid relationships" between the characters. "We didn't make it about 2008, that was background for me," he said last week. "And it is a serious background, but it's not the movie. It could have been done in another era."

It's not that he's afraid of a lawsuit: At a lunch that The Times wrote about recently, the filmmaker even tried to say there was "a little bit" of Robert Rubin, the former Citigroup chairman, in Brolin's executive.

So is Lew Zabel Ace Greenberg? "I would say he's a combination of tough, hardened Jewish traders who have been in Wall Street over the years," Mr. Stone said last week. Is the shot of the Lipstick Building outside of Zabel's headquarters a nod to Madoff, who ran his scheme there? "It was a happy coincidence," he said. Does Mr. Brolin's banker resemble Jamie Dimon in the first half of the film? "Don't do that to me! You can say there's an archetype of handsome, slick and relatively unscathed by time," Mr. Stone said.

Maybe there's so much slipperiness because his movie's mixed message about its characters and their dishonesty is not what its director would want to say about the real people behind the financial crisis. The sweet Zabel turns out to be psychotically negligent; Gekko gets evil not long after his inspiring speech; and even his daughter is hiding something awfully large. One character complains that CNBC's stars sell fear and panic, but a gaggle of them get cameos. And it's our young hero who spreads a false rumor through a network of short sellers (which earns him a great new job), lies to his fiancé, scares her into doing something awful with Swiss money and is even slightly dishonest when he comes clean at the end.

Even Jake's abiding passion for green technology investments can't help but seem suspect by the end. "I'm doing it to make money," the playboy Vincent Tchenguiz once told a reporter who asked about the conflict between his environmental investments and six SUVs. "The numbers are colossal." The producers talked to him for inspiration.

TWO YEARS AFTER the death of Lehman, and 30 months since Bear's demise, we've had a few great books about the crisis, a nine-volume autopsy of Lehman from its bankruptcy court, a half-billion-dollar Goldman fine with no admission of guilt, Congressional hearings featuring calm non-apologies and now a huge Hollywood film. What we don't have is a way to talk seriously or consistently about the people and companies responsible for the worst financial collapse in a century.

The best the second Wall Street does is present powerful people who are, mostly, good but bad. "That's what it's about," Mr. Stone said. "How money makes you compromised these days. How money taints all our behavior."

If money corrupts, then maybe it's unfair to expect too much from a $70 million Hollywood thriller that features Bvlgari rings (Jake wants to know about the extra-special private Bvlgari collection in the back); the original Wall Street's Charlie Sheen, who had his own makeup artist on set for his brief cameo; and a beer advertisement. "Heineken?" Gekko asks his future son-in-law at a Shun Lee dinner. "Yeah," he answers, before we got a shot of him with the bottle, like Mike Myers jokingly smiling with a Pepsi can in Wayne's World.

They're at Shun Lee for a dinner with Winnie, who, after her father interrupts their conversation to sweet-talk Vanity Fair's Graydon Carter, gets up and leaves. She's back by the end of the film, where the credits roll over a happy outdoor party for a 1-year-old, featuring a live band. "Guys like that, having birthday parties," Mr. Stone told The Times in the Four Seasons, nodding at Steve Schwarzman, "it's not my deal."

mabelson@observer.com

SEE ALSO: THE CAREY-MULLIGAN-MATT TAIBBI HYBRID SPEAKS!

According to his company's Web site, Mr. Halloran has resided in Moscow since 1995, so we can only infer his recent Park Avenue purchase will serve as a pied-à-terre for the enterprising Putin-ite. Due to the time difference, Mr. Halloran could not immediately be reached for comment.

The past 18 months have proven a rocky real estate ride for Mr. Eisman, who in pre-Lehman 2008, bought a three-bedroom apartment in the same building for $6.995 million. Soon after the purchase, the banking buccaneer decided the apartment wasn't big enough for him, his wife and three children, and promptly put it on the market unlived in. It sold last August for $5.2 million, at a 26 percent loss. But Mr. Eisman had the last laugh when he purchased a $7.4 million, four-bedroom, penthouse duplex across the street at 1120 Park Avenue—originally listed for $11.5 million! (He told The Times then of the transfer, "Just say that we are very happy.")

The 1125 Park apartment sold in this most recent transaction is the original Eisman home that the family of five lived in throughout the buying and selling bonanza. The Web site Streeteasy has no record of the apartment being listed, suggesting a quiet listing. Stribling agent Jo Parrish Hardin, who is one of the top listing agents in the building but who was not affiliated with this deal, agreed. "It's very possible he sold it to a friend, and, clearly, no broker was involved since it wasn't listed. It must have been a private transaction; people do that all the time."

Mr. Eisman's previous transactions have been handled by Gumley Haft Kleier president Michele Kleier, who could not comment on this sale. Mr. Eisman, mythologized in Michael Lewis' doomsday finance expose in Portfolio, also declined to comment.

cmalle@observer.com