I'm Rich!

[businessweek.com - May 09]

In his new book, The Richest Man in Town, Worth magazine founder W. Randall Jones writes about his search to identify the richest men or women in 100 towns across the U.S. "Every town has a richest person and I wanted to find out who they were. I started out with the largest cities but wanted to make sure that I included as many states as possible," he says. "The people on my list have a net worth ranging from $40 billion down to $100 million. Of course, for most Americans $100 million would go pretty far in my hometown of Carrollton, Ga., or pretty much anywhere in the U.S." What these people all had in common was that all of them plainly enjoy what they do—and that all of them are self-made. "Everyone needs to find their perfect pitch," Jones says. "These people have found it. These are people who have no concept of retirement and, most important, most of them don't believe in leverage. As the richest man in Wichita, Phil Ruffin, puts it: "There are a lot of people who have a couple of billion in assets, but when you see that cash in the bank every morning, then you know you're really rich." Read on to find out who the richest men or women are from Akron, Ohio, to Woodside, Calif.

Albany, N.Y.
Karthik Bala
With his brother Guha, Bala founded the video gaming company Vicarious Visions, which created such games as Tony Hawk's Downhill Jam, Spider-Man 3, and Nintendo's Guitar Hero III. The studio has created more than 100 software titles selling more than 20 million units and accounting for over $800 million in retail sales. Bala is the CEO and chief creative officer of Vicarious Visions. He holds degrees in computer science and psychology from Rensselaer Polytechnic Institute.

Bernard Marcus
With partner Arthur Blank, Marcus founded Home Depot in 1979 and in 28 years grew it to more than 2,000 stores. In addition to being Atlanta's richest man, with a fortune estimated at around $1.2 billion, he is also the city's greatest philanthropist.

Austin, Tex.
Michael Dell
From humble beginnings in his University of Texas dorm room, Dell has grown his eponymous company into the world's second-largest computer maker. He is today worth more than $12.3 billion. The Michael & Susan Dell Foundation, which has an endowment of more than $1 billion, supports education and health initiatives.

Stephen Bisciotti
Bisciotti founded staffing company Aerotek (now Allegis Group) when he was 23 to provide engineers to the aerospace industry. Today Allegis is the third-largest staffing firm in the U.S. and the sixth-largest in the world. Worth more than $1 billion, he is also the owner and CEO of the Baltimore Ravens football team.

Bangor, Me.
Stephen King
By scaring the bejesus out of people. Since his first book, Carrie, appeared in 1973, King has sold between 300 million and 350 million books and written, under his own name as well as a variety of pen names, more than 70 novels. In addition, his books have spawned dozens of Hollywood hit movies.

Boulder, Colo.
Judi Paul
Paul, co-founder (with husband Terry) and chairman of Renaissance Learning, started in the basement of her family home, where she developed a quiz-based program to help her own kids learn to love reading. Today, it is the nation's leading reading management and progress program, and its Accelerated Reader program is taught in 67,000 schools around the U.S.

Carrollton, Ga.
Robert J. Stone
The former college professor was the only person in town who knew how to program computers, so what started out as a favor to help out the local Family & Children's Services Dept. soon blossomed into Systems & Methods Inc. During the 1980s and the '90s, SMI was the largest private issuance provider of food stamps in the nation. Today the privately held SMI is a $40 million business.

Columbus, Ohio
Leslie Wexner
Wexner has been the Limited's chairman and CEO since founding the company in 1963. In addition to lingerie manufacturer Victoria's Secret, the company also owns Bath & Body Works and New York department store Henri Bendel. His net worth is estimated to be $1.7 billion.

Danbury, Conn.
Fred DeLuca
Starting in 1965, Fred DeLuca turned a $1,000 investment from his friend and partner, Dr. Peter Buck, into Subway, one of the biggest sandwich chains in the world. With more than 31,000 franchisees, DeLuca now has a fortune estimated at $1.6 billion.

Clayton H. Mathile
Mathile was the former owner and CEO of Iams, the premium pet food maker, before selling to Procter & Gamble in 1999 for $2.3 billion. He is passionate about education and has founded the Center for Entrepreneurial Education just outside his hometown.

Charles W. Ergen
Ergen is co-founder, chairman, and CEO of EchoStar Communications and satellite company DISH Network. A keen poker player, Ergen's biggest bet came in 1995 when he launched the first direct-broadcast satellite into orbit on a Chinese rocket. Today, he has an estimated net worth of $3.9 billion.

Fisher Island, Fla., and Troy, Mich.
Bharat Desai
Desai is the co-founder and CEO of Syntel, a multibillion-dollar information technology company headquarted in Troy, Mich. The Kenyan-born, Indian-educated Desai was one of the early technology outsourcing leaders and divides his time between Troy, Fisher Island, Mumbai, and Syntel's new 1,800-acre campus in Pune, India. Desai has a fortune estimated at $1 billion.

Fort Lauderdale
H. Wayne Huizenga
America's most serious serial entrepreneur, the former trash hauler has hauled a $2 billion fortune by building three of the country's biggest companies: Waste Management, Blockbuster, and AutoNation. He is also the owner of the Miami Dolphins.

Harrisburg, Pa.
Alex Hartzler
A triathlon-running, house-renovating, tech-savvy master networker and real estate developer, Hartzler founded Harrisburg Young Professionals. He made his first fortune on the sale of Webclients, which he sold to ValueClick in 2005 for $141 million. He is currently president of WCI Partners, a real estate development company.

Hollis, N.H.
Patrick McGovern
The founder and CEO of International Data Group, the largest technology publishing, research, and event management company in the world. Using $5,000 from the sale of his car, he started the company to provide information to the computer industry. Today the company has grown to more than $3 billion in revenue derived from publishing more than 300 magazines, including its flagship, Computerworld.

Los Angeles
Kirk Kerkorian
Activist investor Kerkorian may be 91, but he is showing no signs of slowing down. With a fortune estimated at around $5 billion, Kerkorian got his start in the airline business after World War II. From there he moved into the casino and film businesses, buying and selling MGM Studios three times. His private investment corporation Tracinda is majority owner of the MGM Mirage resort in Las Vegas and has at various times also owned large stakes in General Motors, Chrysler, and Ford.

Meridian, Miss.
Hartley D. Peavey
The founder and CEO of Peavey Electronics, Peavey got his start making guitar amplifiers after realizing that he was better at making guitars sound louder than he was at playing them. Today, Peavey has more than 2,000 items in its product line, including microphones, mixers, and computer-controlled audio processors. The company does an estimated $271 million in sales annually.

Richard Schulze
Schulze started a modest stereo store called Sound of Music in St. Paul, Minn., in 1966, renaming the store Best Buy in 1983. It went public in 1985 and by 1992 was doing $1 billion a year in sales. Today it is the largest specialty retailer of consumer electronics in the U.S., accounting for 21% of the market. His personal net worth is thought to be as much as $2.3 billion.

New York
Michael Bloomberg
After being fired from investment bank Salomon Brothers in 1981, Bloomberg used his $10 million severance package to set up his own financial software services company, eventually making him the richest man in New York—as well as one of the richest men in the world. Today closely held Bloomberg has more than 150,000 global subscribers for its eponymous terminals, which rent for $1,500 a month and up, as well as a cable network, radio station, Web site, and magazine. Bloomberg stepped down as CEO of his company when he was elected mayor of New York in 2001, and he is now making a bid for a third four-year term in office. In addition to his mayoral duties, Bloomberg, often cited as a potential presidential candidate, is an active though frequently anonymous philanthropist and has given away hundreds of millions.

Palo Alto, Calif.
Sergey Brin
Ever heard of Google? This former Stanford student co-founded the Internet search powerhouse with Larry Page in 1998. Today it is considered to be one of the greatest business success stories of all time. The son of Russian Jewish immigrants—both of whom are professors—he is worth around $12 billion. Google has a market cap of $123.1 billion.

San Francisco
Larry Page
Like his future business partner, Sergey Brin, Page was born the son of professors, but it wasn't until the two brainiacs met at Stanford that their fate was decided. In 1998 they founded Google, which would soon become the dominant Internet search engine and make them both billionaires many times over. Google has a market cap of $123.1 billion, and Page has a personal net worth estimated at $12 billion.

Portland, Ore.
Philip Knight
The founder and chairman of Nike is an accountant-turned-marketing guru who has created the world's leading supplier of athletic shoes and accessories. A former track star at the University of Oregon, Knight worked with his former coach Bill Bowerman to create a waffle-pattern running shoe tread that would provide better traction. He is today worth in excess of $8 billion.

Josh Kopelman
The founder of Infonautics, Half.com, Turn Tide, and First Round Capital, Josh Kopelman's big windfall came in 2000, when he sold Half.com to eBay for $350 million. He then remained with eBay for three years to run Half.com. During that period he expanded eBay's Media marketplace to almost half a billion dollars in annual sales. He has since founded First Round Capital, a seed-stage venture capital fund, and writes a tech blog called Red Eye VC.

Rodeo, N.M.
John McAfee
The founder of McAfee Software, the largest anti-virus software company in the world, John McAfee sold the company in 1999 and now spends his time flying air trikes—contraptions that look like motorcycles with wings. In addition to writing several books on yoga, he has also built a new town in New Mexico, complete with a coffee shop and movie theater.

John McAfee (born September 18, 1945) is a computer programmer and founder of McAfee. He was one of the first people to design anti-virus software and to develop a virus scanner. He was born in England and raised in Salem, Virginia. He received his bachelor's degree in mathematics from Roanoke College in 1967, and he received an honorary doctorate from Roanoke College in 2008.

John was employed as a programmer by NASA's Institute for Space Studies in New York City from 1968 to 1970. From there he went to Univac as a software designer and later to Xerox as an Operating System architect. In 1978 he joined Computer Sciences Corporation as a software consultant. Later, while employed by Lockheed in the 1980s, McAfee received a copy of the Pakistani Brain computer virus and began developing software to combat viruses. He was the first to distribute anti-virus software using the shareware business model. In 1989, he quit Lockheed and began working full time at his anti-virus company McAfee Associates, which he initially operated from his home in Santa Clara, California.

This company later became Network Associates, a name it retained for seven years until it was renamed McAfee, which remains today as one of the largest anti-virus companies in the world. John McAfee teaches yoga and has written several books about yoga.

Other business ventures that he founded included Tribal Voice, which developed one of the first instant messaging programs, PowWow. [Wikipedia]

Jonathan Nelson
Brown University and Harvard B-school grad Nelson is the founder and CEO of Providence Equity Partners, the private equity firm that currently owns movie studio MGM, sports channels Yankees Entertainment and Sports Network, and online streaming video-on-demand service Hulu. He recently completed the largest leveraged buyout in history, purchasing Bell Canada for $50 billion. He also made huge profits selling off Western Wireless (now AllTel) and Voice Stream Wireless, which became T-Mobile.

(l-r) Creamer, Salem and Nelson

[money.cnn.com - May 08]
Bagging Bell Canada put Providence Equity Partners into the top tier of private money firms. Now Jonathan Nelson has to keep it there.

(Fortune Magazine) -- Alarms sounded all over Wall Street in March of last year when word leaked that BCE, parent of phone giant Bell Canada, was in buyout talks with Kohlberg Kravis Roberts. The news that such a rich prize - BCE had a market cap of $25 billion - was in play set KKR competitors like Blackstone, Cerberus, and Carlyle scrambling to get in on the action.

Watching this drama unfold with a measure of both confidence and concern was Jonathan Nelson, CEO of Providence Equity Partners, a smaller and considerably less flashy firm based, yes, in poor little Rhode Island's capital. Providence had been quietly courting BCE, paying friendly visits to the management team since 2004. (Providence had put money into MetroNet, a Bell Canada rival, and had seen firsthand how dominant the larger firm was.) Providence also knew that local law required the company to be majority-held by Canadians, and in 2006 it had started exploring a BCE buyout with the Ontario Teachers' Pension Plan - a longtime Providence investor and also BCE's largest shareholder. The fact that KKR was now in the hunt did not surprise Nelson - naturally BCE was going to shop itself to drive up the price. But he immediately got on the phone with Jim Leech, the head of Ontario Teachers', to review their strategy. "Of course we were concerned," he tells Fortune, in a rare interview. "But we had spent two years studying the company, we had the ideal partner in Teachers', we had three times before invested in a national phone company, and our banks were underwriting all the debt financing. For these reasons we believed that we should come out on top."

Sure enough, most of the other major equity shops soon backed away when they were unable to secure sufficient Canadian backing. And in late June of last year BCE agreed to be acquired by Providence, Ontario Teachers', and a third partner, Madison Dearborn, for a record-setting $33 billion, or $48.5 billion including debt. The decline in the U.S. dollar has raised the total to $51.5 billion (as of May 8).

The deal was a triumph. Not only had Providence pulled off what would be the biggest leveraged buyout in history, it had outmaneuvered KKR to boot. The coup validated Nelson's strategy of focusing on media and communications and cultivating deep, long-term relationships with the industry's key players. And it launched Providence into the top tier of private equity firms.

But don't schedule the victory parade just yet. Just as Providence snagged its prize, the credit markets started to unravel. With the deal slogging through a regulatory review, Providence's partners have had to reassure investors that their newly cautious lenders, folks like Citigroup, Deutsche Bank, and RBS, will honor commitments to finance the huge buyout (The New York Times reported Monday, after press time, that the Wall Street banks are seeking new loan terms, possibly imperiling the deal).

Meanwhile Nelson has his own headaches. Providence had to sue one of its lenders, Wachovia, to ensure financing of its $1 billion acquisition of 56 television stations from Clear Channel Communications. And he has been working overtime on Metro-Goldwyn-Mayer, the movie studio that Providence bought in 2005 with Sony, Comcast, and other partners. MGM has missed financial targets, struggled to find a winning strategy, and released bomb after bomb, a streak that could well continue with the forthcoming Valkyrie, in which Tom Cruise plays an eye-patch-wearing Nazi.

So Jonathan Nelson finds himself at a crossroads. His firm has morphed from boutique to megafund: It now ranks No. 9 on Fortune's private-money power list, ahead of well-known names like Cerberus and Thomas H. Lee. And it's a major player in the media business, with a portfolio of 41 companies, including MGM, television network Univision, and several cable TV and wireless phone companies. Nelson, 51, a mild-mannered man who has enjoyed working in relative obscurity far from the bustle of Wall Street, concedes that he will no longer be able to maintain the low profile and underdog status that was a competitive advantage for so many years. Moreover, Providence's strong track record and mega-investment pool (at $12 billion, its newest fund is three times larger than the previous one) brings intense scrutiny and outsized expectations. Will Nelson thrive under this unaccustomed pressure? One friend, media billionaire (and Univision chairman) Haim Saban, thinks the answer is yes. Don't be fooled by his "gentle, soft-spoken" style, says Saban. "This is a guy who goes helicopter skiing in Greenland, who once dove under his boat because a propeller got caught in seaweed. This is a guy who enjoys a real challenge."

An Unexpected Path
You could call Jonathan M. Nelson the accidental investment banker. He didn't plan on becoming a master of the universe à la KKR's Henry Kravis or Blackstone's Steve Schwarzman. In fact, he says proudly, he didn't plan to do much of anything at all. "You can't at the outset connect the dots," Nelson told a group of students and parents at a Brown University parents' weekend last year. "Life does not and should not work that way." This surely dismayed some parents, who probably had hoped a successful financier would have more practical advice for the young Ivy Leaguers. But the random path certainly worked for him.

The son of an orthodontist, Nelson grew up comfortably middle class in Providence. When it came time for college, he didn't go far, choosing Brown, where he was Mr. Liberal Arts, supplementing his economics studies with music courses and a stint at a local radio station as a jazz deejay. After graduating in 1977, he stumbled into a job at Wellman, a Boston-based specialty-chemical maker. A friend who worked there set him up on a job interview - Nelson claims he just went to practice his interview skills - and he ended up spending about three years helping manage the company's Asian operations.

He left Wellman, lived in Europe for a year, and decided to go back to school. After earning an MBA at Harvard in 1983, Nelson landed at a private equity firm called Narragansett Capital, where his first deal was having Narragansett buy his former employer, Wellman. Founder Bud Wellman was ready to cash out, and the deal was a huge success: Narragansett made 20 times its original investment in about three years.

After several years at Narragansett, during which he focused on local media companies, Nelson decided to strike out on his own - but not too far, of course. In 1991 he and a few Narragansett pals, including Glenn Creamer, formed Providence with a plan to concentrate on telephone and cable companies, which were fragmented at the time and just starting to consolidate.

It was a tough time to raise money. The U.S. economy was in the tank, and while Creamer and Nelson had a strong track record at Narragansett, they nonetheless were asking investors to take a risk on a specialized firm. Most pension funds and institutions were more comfortable with big generalist outfits with diverse portfolios. But the ones that took a chance on Providence - including Ontario Teachers' and Calpers - were well rewarded. Providence would not provide the data and won't comment on returns. But according to documents seen by Fortune, its first four funds notched annual returns of 47%, 111%, 21%, and 56%, respectively, before fees (the typical Providence fund lasts about five years). One fund-of-funds manager says these results put Providence in the top decile of private-money players. "They have some of the best returns of any of the megafunds," this manager says. "It's a damn fine performance."

In its earliest days Providence mostly provided growth capital to growing businesses such as upstart cellular company Western Wireless or Brooks Fiber, a local phone company trying to take on the monopoly operators. Those young companies certainly enriched Providence. For example, it put $63 million into VoiceStream starting in 1992 and reaped more than ten times that amount when Deutsche Telekom bought the company in 2000. But the burgeoning firms also provided inspiration. Watching entrepreneurs like Western Wireless CEO John Stanton as they strove to build a business spurred Nelson and his partners to think about themselves as more than mere financiers. "It isn't just about money; it is about creating an enduring franchise," says Creamer earnestly, as we sit in Providence's modest offices, adorned with nautical paintings, in a downtown high-rise. "We think we've done that."

Uncommon Courtesy
A key part of building that franchise has been maintaining an atmosphere of collegiality. Indeed, politeness seems to be a core value. Providence is only 180 miles from New York City, but it is light-years from the rough-and-tumble mentality of most Wall Street trading floors. Paul Salem, a senior managing director who joined the firm in 1992, tells the story of a CEO who was rude on the phone to one of the office assistants. "That's not a guy we want to do business with," Salem says.

But as the firm grows - it now employs 65 investment professionals in offices in New York, Los Angeles, Hong Kong, London, New Delhi, and of course Providence - Nelson frets openly about maintaining the more-than-moneymen culture he's tried to achieve. During our first meeting, at Providence's New York City offices in Lever House on Park Avenue, the word "institution" keeps coming up. So I ask if he'd be melancholy if, say, he came back 20 years after retirement and found Providence had become a big, faceless institution like a Goldman Sachs or a J.P. Morgan Chase. He thinks for a moment and says, "If I stopped someone in the hallway to ask directions and the person had no idea about my prior role at the firm but was polite and helped me out, I'd say, 'I am absolutely okay with this.'"

Providence's clients certainly seem to be okay with the firm's low-key vibe - indeed, it's something of a competitive advantage. "Those of us in regular business tend to think of private equity as having the mentality, 'What's mine is mine, and what's yours is mine,'" says Howard Stringer, CEO of Sony, which partnered with Providence in the MGM buyout. "The thing about Jonathan is that he maintains relationships, and that's what generates a level of trust for him that others don't enjoy."

Nelson's self-effacing style has won him friendships with media elite such as Stringer and News Corp.'s Peter Chernin. "Jonathan is somebody who is comfortable in his skin," says Dick Parsons, chairman of Time Warner, Fortune's parent. "He doesn't have that mogul or movie star gene that drives him to be the show, the story, the centerpiece." That probably is a competitive advantage too. "These big egos are not looking to partner with another big ego," says James B. Lee Jr., vice chairman of J.P. Morgan Chase. "They are looking to partner with someone who will work well with them." Indeed, Nelson is one of the few outside bankers invited to mingle with the media heavyweights at Allen & Co.'s annual retreat in Sun Valley, Idaho. Of course, controlling companies with combined annual revenue of $55 billion, Providence is arguably as significant a presence on the media landscape as, say, Time Warner or Viacom.

He's a familiar figure in that rarefied orbit, but Nelson is surprisingly anonymous in his hometown; he says he has never once been interviewed by the city's paper, the Providence Journal. "In Providence, among people who follow business, everybody of course knows about the firm and its success and that he's the top guy there, but that's about it," says Ralph Wales, headmaster of the Gordon School, a private school Nelson attended. "Jonathan is a very private man." He declines, for example, to talk about a particularly difficult period in his life when his first wife died and he became the primary caregiver for his three young daughters (he remarried in 2004).

That's not to say Nelson doesn't have any ego, especially where his firm's track record is concerned. "He's not an ostentatious guy who likes having his name on the front page of newspapers," says an executive who knows Nelson well. "But Jonathan flies in a private jet, and he wants you to write an article that says he's the smartest media and telecom investor in the world." Is he? "He's pretty darn good," the executive says.

And he's raising his profile in his hometown. In 2010, Brown University will open the $45 million Jonathan M. Nelson Fitness Center. Nelson, now a Brown trustee (are you surprised?), donated the lead gift for the facility. Nelson, who says he might have been a carpenter or architect if he hadn't become a media investor, also is playing a hands-on role in its design. "This whole area needs to be improved," he says. It is a warm afternoon in Providence, and we are standing in a parking lot in front of the existing athletic complex, which consists of personality-free concrete buildings. "I am confident that you'll come back here and smile," he says. A fitness buff who works out five days a week, Nelson clearly believes a healthy body and a healthy mind go together: Before the Brown fitness center, he helped the Gordon School build a new gymnasium.

Lately, Nelson may have moments when he wishes he'd become a carpenter. While he insists he loves the job, especially the stimulation he gets from working with smart colleagues, he also acknowledges that as Providence Equity has grown, his gig has become much tougher, the problems more public.

Legal Battles
Take the fight with Wachovia. Providence prides itself on maintaining friendly relationships with its partners, so insiders were surprised when Wachovia sued Providence without warning. Providence had renegotiated the price of its Clear Channel television acquisition, and the bank said the price reduction violated the terms of the lending agreement. Providence countersued. The parties eventually dropped the suits and the financing went through, but it seems unlikely that Providence will do business with Wachovia again. "There were three banks involved, and two of them handled this difficult situation very well," Nelson says plainly. "We appreciate that, and we will remember their behavior."

Similarly, three of the four lenders backing the BCE buyout also are trying to renegotiate loans to the parties seeking to buy Clear Channel's radio stations; some analysts suspect the banks might try a similar tactic with the BCE deal. "We are engaging with the company and the banks and expect everyone will honor their commitments," Nelson says.

While the credit crisis is taking a toll, Providence isn't only an LBO shop, and it doesn't rely on debt markets for all its investments. It recently put $100 million into Hulu, the web-video joint venture of News Corp. and GE's NBC Universal. It is pushing deeper into Internet investing, and many of its international investments involve companies seeking growth capital, not buyouts. Indian wireless operator Idea Cellular, for example, sold a 16% stake to Providence last year for $400 million. Neither Hulu nor Idea really needed Providence's money; what the companies sought was external valuation of their business, as well as the expertise and cachet that Providence brings. "It means a lot when someone of Jonathan's stature puts his firm's money into Hulu," says Jason Kilar, CEO of the venture.

Nelson says that the tough times in the markets will not lead him to alter his basic strategy. Providence certainly will do more big deals; after all, it has $12 billion to put to work. But while some peers look for distressed companies to bail out or bad debt to buy, Nelson plans to stick with what he knows best. Asked how he plans to weather the economic slowdown, for example, he trumpets the virtues of BCE: "Bell Canada looks like a great business to us, in part as a defensive position in a possible economic downturn," he says. "People don't shut their phones off." Similarly, Providence has recently been pouring money into one of its original businesses, cable television, albeit in places such as Ukraine. It may not sound all that glamorous, but it makes perfect sense for a guy who built a private equity powerhouse by sticking with what he knows.

Woodside, Calif.
Larry Ellison
The Bronx-born billionaire founder of Oracle, a major enterprise software company, and is reputedly the fourth-richest man in the world. The thrice-divorced Ellison has all the billionaire toys: the yacht, the $200 million Japanese mansion complete with a reproduction 17th century Kyoto teahouse. He is also a passionate sailor and is the second-biggest backer of BMW Oracle Racing in the 2007 America's Cup bid.

Being Larry Ellison
[Business Life - Jul./Aug.01]

In a phone interview the week before the shoot, Ellison was as upbeat as ever. Asked what advice he had for startups going through their first market downturn, he said, "You can't worry about it, you can't panic when you look at the stock market's decline, or you get frozen like a deer in the headlights. All you can do is all you can do." Ellison talks at least twice as fast as the average intelligent person, and his sentences tend to pile up, words bumping into each other as they race out of his mouth. "If your cash is about to run out you have to cut your cash flow. CEOs have to make those decisions and live with them however painful they might be. You have to act and act now, and act in the best interests of the company as a whole, even if that means that some people in the company who are your friends have to work somewhere else."

Ellison is known as a ruthless businessman, firing senior executives days before the last of their stock options is due to mature and, most notably, denigrating Oracle's chief rival Microsoft at every opportunity. Last June, the U.S. press had a field day when it was discovered that Oracle had paid private investigators to snoop through the trash of a supposedly independent research group it suspected of being funded by Microsoft during the antitrust trial. "It's absolutely true we set out to expose Microsoft's covert activities," he said in a press conference. "I feel very good about what we did.… Maybe our investigation organization may have done things unsavory, but it's not illegal. We got the truth out." [...]

Ellison has said on several occasions that he reached where he is today by doing the opposite of what was expected of him. "The most important aspect of my personality, as far as determining my success goes, has been my questioning conventional wisdom, doubting the experts and questioning authority," he said in 1997. "While that can be very painful in relationships with your parents and teachers, it's enormously useful in life." [...]

Ellison deserves most of the credit for the success. But not all. One of his strengths, says Don Lucas, a venture capitalist and Oracle boardmember who has known Ellison since 1979, is that he "delegates almost totally." [...]

True, Ellison does leap at any opportunity to lambast Microsoft. Before the garbage incident, he was one of the rare Silicon Valley CEOs brave enough to testify personally in Microsoft's antitrust trial. He told the U.S. Senate that "consumers are free to choose a Microsoft PC from Dell, a Microsoft PC from Compaq, a Microsoft PC from Gateway...You get the point. Feels to me a little like a Soviet supermarket."

There is another way of looking at his Microsoft obsession. All competition, he has said previously, is just as much about self-exploration as it is about winning: "There's a wonderful saying that's dead wrong. ‘Why did you climb the mountain?' ‘I climbed the mountain because it was there.' That's utter nonsense…You climbed the mountain because you were there, and you were curious if you could do it. You wondered what it would be like." When I asked him if he would be satisfied to see Microsoft's possible punishment for its monopolistic crimes by being broken up into separate companies, he sputtered, "Absolutely not! I don't feel good about Microsoft passing us on the way down. We'd like to pass them on the way up." [...]

There's one more arena that Ellison wants to test himself in: biotechnology. At some point, he says, he will probably retire from Oracle and devote himself full time to Quark Biotechnology Inc., a gene-based drug developer focusing on cancer research, whose board he chairs. This is not a whim. Ellison has been interested in the life sciences for years: in addition to a longtime investment in SuperGen, a developer focusing on drugs for cancer and blood cell disorders, he took a two-week holiday to work in the molecular biology lab of his friend Josh Lederberg, a Nobel laureate. Through the $250 million Ellison Medical Foundation he established in 1997, he has already funded numerous studies into age-related diseases and disabilities; last year the EMF added infectious diseases like malaria and tuberculosis to its focus.

Typically, the U.S. media has been cynical about Ellison's motives for anti-aging research. But "I've never gotten the impression that Larry's interest is in prolonging his own life, rather than in understanding the biological process of aging and improving the world's quality of life," says Richard Sprott, the foundation's executive director. [...]

That is the essence of Larry Ellison, the contradiction that fuels so much of his critics' ire. When he says that he prefers "strategic" philanthropy, the media look at his total wealth and call him parsimonious. But perhaps it's just that like most people, whether billionaires or janitors, he prefers not to be told how to spend his money. He is generous to a fault with friends and family, reportedly buying a house for one ex-wife's ailing parents. When an Acura NSX zooms past you in Silicon Valley, there's a good chance it was paid for by Ellison; he buys several each year as gifts. His personal pilot drives one of the $100,000 cars.
But his friends have learned to keep quiet. Few were willing for their compliments to be on the record, fearing like Ray Lane that they would be twisted out of context. Even Apple CEO Steve Jobs, who Ellison refers to frequently — and touchingly — as his "best friend" and "idol," did not respond to requests for comment.

A clue to Ellison's complicated worldview can be found in his love for the 1984 movie The Natural, in which a middle-aged baseball player (Robert Redford) comes out of nowhere to take a 1930s team to the championship. "It's the one movie I watch over and over. It's an amazing combination of idealism confronted with reality," he says. That theme can be found in another of his favorite films, the Dian Fossey biopic Gorillas in the Mist. (He is also a longtime boardmember of the Dian Fossey Gorilla Fund.) [...]

In spite of his dedication to flouting convention, Ellison admits to at least one universal sentiment. When I jokingly asked him if he would agree with Machiavelli that it is better for a leader to be feared than loved, he answers, "Oh no, it's much better to be loved than feared. Being feared is terrible. Dentists are feared. Everyone, everyone wants to be loved. We kid ourselves and pretend that we don't, but we all do." That can be a problem for a CEO, or, say, a world leader like Bill Clinton, I answered. He laughed: "Well, you can't be prevented from seeking love, but you can be carried away by that, by wanting to be liked and loved by too many people."

Ellison, it is safe to say, will never sacrifice who he is — mercurial, enthusiastic, risk-taking, and occasionally tyrannical — in that pursuit.

What the Hell is Cloud Computing?

Larry Ellison's Fake Blog

Q + A with Larry Ellison


Not Above the Law

Lost luggage and layover blues

Lost luggage

Waiting for lost luggage

Lost luggage art installation__Sacramento Int'l Airport

[ca.travel.yahoo.com - May.09]

A frequent flyer in Winnipeg is claiming a significant victory for fuming air travellers with lost or broken luggage after the Canadian Transportation Agency upheld his complaint about Air Canada's baggage handling policy.

"I see this as a landmark decision in passenger rights. It tells the airlines 'You are not above the law,' " said Gabor Lukacs, 26, an assistant professor of mathematics at the University of Manitoba.

Lukacs filed the complaint over Air Canada's policy that it's not responsible for delayed or damaged baggage after returning to Winnipeg from a trip last fall. He said he was prompted by an airline notice about claims not being accepted for anything from scratches to missing straps, and was reminded of past aggravation over lost and damaged bags.

"I thought that it would give me a kind of moral high ground to be struggling for something where I'm not personally affected by it in any immediate way. It's not that I'm fighting for money. I'm fighting for something which is for everybody," he said.

The CTA - an independent federal agency responsible for dispute resolution and economic regulation in the Canadian transportation industry - ruled May 13 that Air Canada's policy violates both international conventions and Canadian law and must be changed within 90 days.

The airline has 45 days from the ruling to argue why it should not be required to alter its own policies on the issues.

Isabelle Arthur, a spokeswoman for Air Canada, said the airline is currently reviewing the ruling and is not in a position to comment.

Lukacs said airlines have an overwhelming financial advantage because they set the conditions, and individual passengers must go to court to challenge them.

"Who would go through the trouble of actually suing an airline for $50 or even $500 of damage to luggage. It's not worth it because you will have to hire a lawyer and they will probably charge you $5,000 or $10,000," he said.

Lukacs said he would like to see other passengers follow his lead and take their own action on problems facing the air travelling public. "My dream would be to set up some kind of non-governmental organization that deals with providing accurate information and perhaps assistance to passengers who have problems."

He also said he's pleased that Winnipeg NDP MP Jim Maloway is behind an airline passengers' bill of rights.

Lukacs, a native of Hungary, has taken on the airline industry in the past. Three years ago he agreed to a $6,000 settlement in a Nova Scotia court after he missed a conference because of a cancelled Continental Airlines flight.

He recently won a partial victory against Skywest Airlines in Manitoba Court of Queens Bench, but he's not satisfied with the award and has filed a motion for leave to appeal.

"I think there is a major consumer crisis here with what airlines are doing. I think passengers have to get organized and make their voices heard," he said.


My First Million

Sprouting business card

Kevin Mitnick's business card is a break-out lock picking kit


“Three or four years ago, when I spoke to people about LoveFilm.com, they’d look at me in a strange way and wonder what my night-time activities were on the internet!" Simon Calver, boss of DVD rental website LoveFilm.com, explains how he's shaken up the film industry and created a £70m business.

Brands were in the blood.

The moment you find an issue, fix it...issues in business are not like wine: they don't improve with age.

Do you really understand your customers and why they're using your product?

Grow your resources as your business grows.

If you're a small, nimble, light organization you can actually have a bit of fun!


When Hiro Harjani stepped off the plane from India, he had no contacts, no cash and zero business experience. So how on earth did he build a global fashion brand with 5,000 international trade accounts, sales of £25m and celebrity endorsements from Lisa Snowden and Helen Mirren?

There was a hunger and I think that hunger to do, to achieve something is very important.

If I'm going to sell it one store, I might as well sell it in 500 stores or 5,000 stores.

It's not about chasing the buck...everything has to be in balance.

Find a mentor: it'll save you a lot of headaches and mistakes.

Most entrepreneurs don't give up.

You must look after your health. Budding entrepreneurs must look after themselves.

(Re: The credit crisis) The government and bankers are to blame. Go to them (bankers) for a £5k loan and they’ll say, “No, we can’t help you”. But they’ll give billions to subprime people and lose everything in one shot.
And look at the brains of these guys. Instead of helping the individual in the country set up mortgages and businesses, they go and lose in one chunk the wealth of the nation.

The day you decide to stop growing is the time to go.


"We're recession proof. You need glasses – and we deliver them cheaper than anyone else. I'm bullish and so are our investors. We've just raised another £2.5m." James Murray Wells, the young entrepreneur behind Glasses Direct, explains why his start up caused chaos on the high street and how he's beating the downturn.

With the university ecosystem you have all the resources you need: marketing research materials, the computer hardware...

All we were doing was shuffling around data - we'd never even seen the glasses.

I kicked my sister out of her bedroom to make more room for office space.

We'd have a captive audience with our flyers on the train all the way to Bristol International Airport.

On the internet you can see in real time what is happening.

We did anything we could to make people talk about the business.

They (high street sellers) were shocked that we were exposing them...we even had hate mail from opticians.

The industry's beginning to realize that the internet's here to stay and you can't be ostrich-like about it.

Everyone loves giving advice...you can literally go to some big shot and they will support you. They will.

Don't get sentimental about the idea...if it's not good, or proven wrong don't be afraid to abort it.

Look at some of the best businesses out there: Amazon, YouTube, Facebook - these are businesses that came out of garages, university campuses.

The customer is the boss.

Be objective in terms of funding. Your business has a life of its own and you're there to support it as an entrepreneur. We can add to it, we can help it grow, but it will grow and you mustn't reign it back...don't hold back, let your business fly.

We eat credit crunch for breakfast.

Internet businesses can grow a lot more virally than offline ones.

Glasses Direct

"I didn’t have the £2,000 to bottle the first set of oils, so I spent two weeks hand-bottling 9,600. My girlfriend did 500, even her ironing lady did 100!” With sensitive skin and no money, Will King set about competing against Gillette. Hear how the “King of Shaves” took on the industry giants and how he plans to build a £200m-turnover business by 2012.

It was a question of persistence. Phone persistence. Picking up the phone and convincing the buyer.

It's always hard to see the faults in yourself.

You've just got to get on and do it.

Passion, persistence, working hard, timing and good luck's important.

(On how he got where he is today) 15 years of foundation building and getting unique, differentiated, patented, innovative, cool, funky products aligned and then massing them via a conventional piece of market growth: scaling it, advertising it etc.

You've got to be a bit different. You've got to zag where they zig.

King of Shaves

"I didn’t have a lot of money. I didn’t own a house. And I didn’t have any savings. So I went to the bank and tried to convince them to give me a loan. They turned me down."
He's a serial entrepreneur, a venture capitalist and the multi-millionaire star of Dragons' Den – but even the smooth-talking James Caan had trouble funding his first business. Here the CEO of private equity firm Hamilton Bradshaw talks about start-ups, set-backs and success.

Instinctively I always knew I wanted to do my own thing.

Because the product - the service - was quite unique, it took off literally from the word "go".

It was all about having the ability to craft your own journey.

I could have gone to my parents (for money) and I didn't because they wouldn't have understood the business.

That word "unsecured" stuck in my mind...basically I got three credit cards and got £30,000.

As an entrepreneur, I think what drives you is fear, although that's the complete opposite of what you see because when you look at successful entrepreneurs, you think what drives them is their confidence, their optimism, etc., but actually deep down inside every entrepreneur I know is driven by the fear of failure.

In business you must never believe it will last forever, you must never get complacent because any business that becomes complacent and thinks it's arrived, is on its way down.

(Re: the economic downturn of '99) For the first time as an entrepreneur I could see the business collapsing, I could see it actually disappearing...1,500 quid (profit) in a year is not amusing.

Business is a very lonely life: sometimes you're faced with making decisions you've never made before.

Everybody you go to has an agenda.

I don't spot successful businesses, I spot successful people.

You only do things if it makes a difference.

Hamilton Bradshaw

"We went from earning a big, fat corporate salary to cycling everywhere and living off beans on toast." Motorbike fanatic Sarah McVittie and self-confessed “mobile phone tart” Thomas Roberts tell us why they quit their high-flying City jobs to set up question-and-answer SMS service Texperts – and why they still don't flash the cash.

His main advice (on starting a business) was just to do it earlier - the earlier the better, in terms of not having mortgages and dependents and children and very high-paying jobs which make it difficult to want to leave that security and that salary behind for something where you really can't tell what's going to happen 6 months down the line or sometimes even one month down the line.

I'm not scared of failing. I'm very passionate about doing something I believe in.

We only had one bowl in the office so we had to take turns using it to eat the salad.

The first person you see is probably the least likely to give you the money.

With the banks, we didn't really understand what their real criteria were - it wasn't about believing in the strength of the business, it was about ticking the right boxes on the forms they had to fill in internally to make it happen, and it was about what questions they needed to answer on the internal form that we never saw...understanding that internal process was key to getting that (funding) to happen in the end.

If anyone listening to this doesn't know what "trading" and "solvent" is go and look it up before you start a business.

"The only wrong decision is no decision" was very good advice.

Another skill is learning to switch off - if you don't do it ever it can really get you down.

They will invest in you because you have real belief and passion (about what you're doing).

You don't need to invent something that's never been done before or come up with a concept that's brand new - the key thing is to do something really well, or slightly differently or just be passionate about it and put more energy into it.

If you try and fail it's not failure, it's just the next step to how you get there.

You're not carrying anybody because everybody's pulling in the same direction.

If you don't enjoy being at work on a daily basis then it's really going to be difficult.

Textperts Chief Sarah McVittie Answers a Call
Forget your 3Gs, WiFis and what-nots for a minute, Textperts does exactly what its name suggests: text any question you can think of to McVittie's army of experts and they'll text you back with the answer, pronto. It will cost you a pound, charged to your mobile bill, and you'll need a mobile with a UK SIM card.

"One thing you learn very quickly is that the information is never worth a quid, but it's the information in the context of where you are that's worth a quid," says the officer's daughter, words quick-marching at the double. "People's information needs are very different when they are out shopping, say, to when they are at home online." [...]

How much nicer, thought McVittie and her colleague Thomas Roberts, if someone had done the grunt work for them. "Part of our jobs as analysts was to locate information, and we found it very frustrating that we would spend all of our time locating information when we could have been doing more interesting work. We couldn't find a service that could deliver it."

The duo secretly commissioned research from poll company NOP to discover whether there was demand for such a service, one that would provide bespoke information for people when they were out and about. And the survey said yes. [...]

Such is the demand to be a Textpert that, to save trawling through stacks of applications, McVittie has set up "The Text Factor" on the company website, a test that roots out the best candidates. Only 1.5pc of applicants pass.

"These are very, very bright, amazing, awesome people," beams McVittie. "And they are quick. We get lots of PhD students, lots of mums who are very well qualified and don't want to commute, want to work from home and have extra income and they can do from 15 minutes to as much as 15 hours a day. And it's incredibly environmentally friendly." [...]

With a user demographic of cash-rich, time-poor 19 to 35 year olds, McVittie says there are big opportunities for Textperts to evolve. She is coy about exactly how but admits one option could be to offer advertisers so-called sponsored links, displayed alongside Textperts' answers.

Well, it's a model that worked on the fixed-line internet. Ask Google.

Acquisition of Textperts to Accelerate 118118 Text Growth
London - Dec.17, 2008
The Number UK Ltd, subsidiary of kgb (www.thekgb.com), and operator of the nation's most contacted number, 118 118, today announced it will acquire Texperts, the UK text information business.


The End

The End of Wall Street's Boom
by Michael Lewis
[portfolio.com - Dec.08]

The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in "Liar’s Poker", returns to his old haunt to figure out what went wrong.

To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. The essential function of Wall Street is to allocate capital—to decide who should get it and who should not. Believe me when I tell you that I hadn’t the first clue.

I’d never taken an accounting course, never run a business, never even had savings of my own to manage. I stumbled into a job at Salomon Brothers in 1985 and stumbled out much richer three years later, and even though I wrote a book about the experience, the whole thing still strikes me as preposterous—which is one of the reasons the money was so easy to walk away from. I figured the situation was unsustainable. Sooner rather than later, someone was going to identify me, along with a lot of people more or less like me, as a fraud. Sooner rather than later, there would come a Great Reckoning when Wall Street would wake up and hundreds if not thousands of young people like me, who had no business making huge bets with other people’s money, would be expelled from finance.

When I sat down to write my account of the experience in 1989—Liar’s Poker, it was called—it was in the spirit of a young man who thought he was getting out while the getting was good. I was merely scribbling down a message on my way out and stuffing it into a bottle for those who would pass through these parts in the far distant future.

Unless some insider got all of this down on paper, I figured, no future human would believe that it happened.

I thought I was writing a period piece about the 1980s in America. Not for a moment did I suspect that the financial 1980s would last two full decades longer or that the difference in degree between Wall Street and ordinary life would swell into a difference in kind. I expected readers of the future to be outraged that back in 1986, the C.E.O. of Salomon Brothers, John Gutfreund, was paid $3.1 million; I expected them to gape in horror when I reported that one of our traders, Howie Rubin, had moved to Merrill Lynch, where he lost $250 million; I assumed they’d be shocked to learn that a Wall Street C.E.O. had only the vaguest idea of the risks his traders were running. What I didn’t expect was that any future reader would look on my experience and say, “How quaint.”

I had no great agenda, apart from telling what I took to be a remarkable tale, but if you got a few drinks in me and then asked what effect I thought my book would have on the world, I might have said something like, “I hope that college students trying to figure out what to do with their lives will read it and decide that it’s silly to phony it up and abandon their passions to become financiers.” I hoped that some bright kid at, say, Ohio State University who really wanted to be an oceanographer would read my book, spurn the offer from Morgan Stanley, and set out to sea.

Somehow that message failed to come across. Six months after Liar’s Poker was published, I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They’d read my book as a how-to manual.

In the two decades since then, I had been waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened. Why bother to overturn your parents’ world when you can buy it, slice it up into tranches, and sell off the pieces?

At some point, I gave up waiting for the end. There was no scandal or reversal, I assumed, that could sink the system.

Then came Meredith Whitney with news. Whitney was an obscure analyst of financial firms for Oppenheimer Securities who, on October 31, 2007, ceased to be obscure. On that day, she predicted that Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust. It’s never entirely clear on any given day what causes what in the stock market, but it was pretty obvious that on October 31, Meredith Whitney caused the market in financial stocks to crash. By the end of the trading day, a woman whom basically no one had ever heard of had shaved $369 billion off the value of financial firms in the market. Four days later, Citigroup’s C.E.O., Chuck Prince, resigned. In January, Citigroup slashed its dividend.

From that moment, Whitney became E.F. Hutton: When she spoke, people listened. Her message was clear. If you want to know what these Wall Street firms are really worth, take a hard look at the crappy assets they bought with huge sums of ­borrowed money, and imagine what they’d fetch in a fire sale. The vast assemblages of highly paid people inside the firms were essentially worth nothing. For better than a year now, Whitney has responded to the claims by bankers and brokers that they had put their problems behind them with this write-down or that capital raise with a claim of her own: You’re wrong. You’re still not facing up to how badly you have mismanaged your business.

Rivals accused Whitney of being overrated; bloggers accused her of being lucky. What she was, mainly, was right. But it’s true that she was, in part, guessing. There was no way she could have known what was going to happen to these Wall Street firms. The C.E.O.’s themselves didn’t know.

Now, obviously, Meredith Whitney didn’t sink Wall Street. She just expressed most clearly and loudly a view that was, in retrospect, far more seditious to the financial order than, say, Eliot Spitzer’s campaign against Wall Street corruption. If mere scandal could have destroyed the big Wall Street investment banks, they’d have vanished long ago. This woman wasn’t saying that Wall Street bankers were corrupt. She was saying they were stupid. These people whose job it was to allocate capital apparently didn’t even know how to manage their own.

At some point, I could no longer contain myself: I called Whitney. This was back in March, when Wall Street’s fate still hung in the balance. I thought, If she’s right, then this really could be the end of Wall Street as we’ve known it. I was curious to see if she made sense but also to know where this young woman who was crashing the stock market with her every utterance had come from.

It turned out that she made a great deal of sense and that she’d arrived on Wall Street in 1993, from the Brown University history department. “I got to New York, and I didn’t even know research existed,” she says. She’d wound up at Oppenheimer and had the most incredible piece of luck: to be trained by a man who helped her establish not merely a career but a worldview. His name, she says, was Steve Eisman.

Eisman had moved on, but they kept in touch. “After I made the Citi call,” she says, “one of the best things that happened was when Steve called and told me how proud he was of me.”

Having never heard of Eisman, I didn’t think anything of this. But a few months later, I called Whitney again and asked her, as I was asking others, whom she knew who had anticipated the cataclysm and set themselves up to make a fortune from it. There’s a long list of people who now say they saw it coming all along but a far shorter one of people who actually did. Of those, even fewer had the nerve to bet on their vision. It’s not easy to stand apart from mass hysteria—to believe that most of what’s in the financial news is wrong or distorted, to believe that most important financial people are either lying or deluded—without actually being insane. A handful of people had been inside the black box, understood how it worked, and bet on it blowing up. Whitney rattled off a list with a half-dozen names on it. At the top was Steve Eisman.

Steve Eisman entered finance about the time I exited it. He’d grown up in New York City and gone to a Jewish day school, the University of Pennsylvania, and Harvard Law School. In 1991, he was a 30-year-old corporate lawyer. “I hated it,” he says. “I hated being a lawyer. My parents worked as brokers at Oppenheimer. They managed to finagle me a job. It’s not pretty, but that’s what happened.”

He was hired as a junior equity analyst, a helpmate who didn’t actually offer his opinions. That changed in December 1991, less than a year into his new job, when a subprime mortgage lender called Ames Financial went public and no one at Oppenheimer particularly cared to express an opinion about it. One of Oppenheimer’s investment bankers stomped around the research department looking for anyone who knew anything about the mortgage business. Recalls Eisman: “I’m a junior analyst and just trying to figure out which end is up, but I told him that as a lawyer I’d worked on a deal for the Money Store.” He was promptly appointed the lead analyst for Ames Financial. “What I didn’t tell him was that my job had been to proofread the ­documents and that I hadn’t understood a word of the fucking things.”

Ames Financial belonged to a category of firms known as nonbank financial institutions. The category didn’t include J.P. Morgan, but it did encompass many little-known companies that one way or another were involved in the early-1990s boom in subprime mortgage lending—the lower class of American finance.

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. Upbeat and Eisman didn’t occupy the same planet. A hedge fund manager who counts Eisman as a friend set out to explain him to me but quit a minute into it. After describing how Eisman exposed various important people as either liars or idiots, the hedge fund manager started to laugh. “He’s sort of a prick in a way, but he’s smart and honest and fearless.”

“A lot of people don’t get Steve,” Whitney says. “But the people who get him love him.” Eisman stuck to his sell rating on Lomas Financial, even after the company announced that investors needn’t worry about its financial condition, as it had hedged its market risk. “The single greatest line I ever wrote as an analyst,” says Eisman, “was after Lomas said they were hedged.” He recited the line from memory: “ ‘The Lomas Financial Corp. is a perfectly hedged financial institution: It loses money in every conceivable interest-rate environment.’ I enjoyed writing that sentence more than any sentence I ever wrote.” A few months after he’d delivered that line in his report, Lomas Financial returned to bankruptcy.

Eisman wasn’t, in short, an analyst with a sunny disposition who expected the best of his fellow financial man and the companies he created. “You have to understand,” Eisman says in his defense, “I did subprime first. I lived with the worst first. These guys lied to infinity. What I learned from that experience was that Wall Street didn’t give a shit what it sold.”

Harboring suspicions about ­people’s morals and telling investors that companies don’t deserve their capital wasn’t, in the 1990s or at any other time, the fast track to success on Wall Street. Eisman quit Oppenheimer in 2001 to work as an analyst at a hedge fund, but what he really wanted to do was run money. FrontPoint Partners, another hedge fund, hired him in 2004 to invest in financial stocks. Eisman’s brief was to evaluate Wall Street banks, homebuilders, mortgage originators, and any company (General Electric or General Motors, for instance) with a big financial-services division—anyone who touched American finance. An insurance company backed him with $50 million, a paltry sum. “Basically, we tried to raise money and didn't really do it,” Eisman says.

Instead of money, he attracted people whose worldviews were as shaded as his own—Vincent Daniel, for instance, who became a partner and an analyst in charge of the mortgage sector. Now 36, Daniel grew up a lower-middle-class kid in Queens. One of his first jobs, as a junior accountant at Arthur Andersen, was to audit Salomon Brothers’ books. “It was shocking,” he says. “No one could explain to me what they were doing.” He left accounting in the middle of the internet boom to become a research analyst, looking at companies that made subprime loans. “I was the only guy I knew covering companies that were all going to go bust,” he says. “I saw how the sausage was made in the economy, and it was really freaky.”

Danny Moses, who became Eisman’s head trader, was another who shared his perspective. Raised in Georgia, Moses, the son of a finance professor, was a bit less fatalistic than Daniel or Eisman, but he nevertheless shared a general sense that bad things can and do happen. When a Wall Street firm helped him get into a trade that seemed perfect in every way, he said to the salesman, “I appreciate this, but I just want to know one thing: How are you going to screw me?”

Heh heh heh, c’mon. We’d never do that, the trader started to say, but Moses was politely insistent: We both know that unadulterated good things like this trade don’t just happen between little hedge funds and big Wall Street firms. I’ll do it, but only after you explain to me how you are going to screw me. And the salesman explained how he was going to screw him. And Moses did the trade.

Both Daniel and Moses enjoyed, immensely, working with Steve Eisman. He put a fine point on the absurdity they saw everywhere around them. “Steve’s fun to take to any Wall Street meeting,” Daniel says. “Because he’ll say ‘Explain that to me’ 30 different times. Or ‘Could you explain that more, in English?’ Because once you do that, there’s a few things you learn. For a start, you figure out if they even know what they’re talking about. And a lot of times, they don’t!”

At the end of 2004, Eisman, Moses, and Daniel shared a sense that unhealthy things were going on in the U.S. housing market: Lots of firms were lending money to people who shouldn’t have been borrowing it. They thought Alan Greenspan’s decision after the internet bust to lower interest rates to 1 percent was a travesty that would lead to some terrible day of reckoning. Neither of these insights was entirely original. Ivy Zelman, at the time the housing-market analyst at Credit Suisse, had seen the bubble forming very early on. There’s a simple measure of sanity in housing prices: the ratio of median home price to income. Historically, it runs around 3 to 1; by late 2004, it had risen nationally to 4 to 1. “All these people were saying it was nearly as high in some other countries,” Zelman says. “But the problem wasn’t just that it was 4 to 1. In Los Angeles, it was 10 to 1, and in Miami, 8.5 to 1. And then you coupled that with the buyers. They weren’t real buyers. They were speculators.” Zelman alienated clients with her pessimism, but she couldn’t pretend everything was good. “It wasn’t that hard in hindsight to see it,” she says. “It was very hard to know when it would stop.” Zelman spoke occasionally with Eisman and always left these conversations feeling better about her views and worse about the world. “You needed the occasional assurance that you weren’t nuts,” she says. She wasn’t nuts. The world was.

By the spring of 2005, FrontPoint was fairly convinced that something was very screwed up not merely in a handful of companies but in the financial underpinnings of the entire U.S. mortgage market. In 2000, there had been $130 billion in subprime mortgage lending, with $55 billion of that repackaged as mortgage bonds. But in 2005, there was $625 billion in subprime mortgage loans, $507 billion of which found its way into mortgage bonds. Eisman couldn’t understand who was making all these loans or why. He had a from-the-ground-up understanding of both the U.S. housing market and Wall Street. But he’d spent his life in the stock market, and it was clear that the stock market was, in this story, largely irrelevant. “What most people don’t realize is that the fixed-income world dwarfs the equity world,” he says. “The equity world is like a fucking zit compared with the bond market.” He shorted companies that originated subprime loans, like New Century and Indy Mac, and companies that built the houses bought with the loans, such as Toll Brothers. Smart as these trades proved to be, they weren’t entirely satisfying. These companies paid high dividends, and their shares were often expensive to borrow; selling them short was a costly proposition.

Enter Greg Lippman, a mortgage-bond trader at Deutsche Bank. He arrived at FrontPoint bearing a 66-page presentation that described a better way for the fund to put its view of both Wall Street and the U.S. housing market into action. The smart trade, Lippman argued, was to sell short not New Century’s stock but its bonds that were backed by the subprime loans it had made. Eisman hadn’t known this was even possible—because until recently, it hadn’t been. But Lippman, along with traders at other Wall Street investment banks, had created a way to short the subprime bond market with precision.

Here’s where financial technology became suddenly, urgently relevant. The typical mortgage bond was still structured in much the same way it had been when I worked at Salomon Brothers. The loans went into a trust that was designed to pay off its investors not all at once but according to their rankings. The investors in the top tranche, rated AAA, received the first payment from the trust and, because their investment was the least risky, received the lowest interest rate on their money. The investors who held the trusts’ BBB tranche got the last payments—and bore the brunt of the first defaults. Because they were taking the most risk, they received the highest return. Eisman wanted to bet that some subprime borrowers would default, causing the trust to suffer losses. The way to express this view was to short the BBB tranche. The trouble was that the BBB tranche was only a tiny slice of the deal.

But the scarcity of truly crappy subprime-mortgage bonds no longer mattered. The big Wall Street firms had just made it possible to short even the tiniest and most obscure subprime-mortgage-backed bond by creating, in effect, a market of side bets. Instead of shorting the actual BBB bond, you could now enter into an agreement for a credit-default swap with Deutsche Bank or Goldman Sachs. It cost money to make this side bet, but nothing like what it cost to short the stocks, and the upside was far greater.

The arrangement bore the same relation to actual finance as fantasy football bears to the N.F.L. Eisman was perplexed in particular about why Wall Street firms would be coming to him and asking him to sell short. “What Lippman did, to his credit, was he came around several times to me and said, ‘Short this market,’ ” Eisman says. “In my entire life, I never saw a sell-side guy come in and say, ‘Short my market.’”

And short Eisman did—then he tried to get his mind around what he’d just done so he could do it better. He’d call over to a big firm and ask for a list of mortgage bonds from all over the country. The juiciest shorts—the bonds ultimately backed by the mortgages most likely to default—had several characteristics. They’d be in what Wall Street people were now calling the sand states: Arizona, California, Florida, Nevada. The loans would have been made by one of the more dubious mortgage lenders; Long Beach Financial, wholly owned by Washington Mutual, was a great example. Long Beach Financial was moving money out the door as fast as it could, few questions asked, in loans built to self-destruct. It specialized in asking home­owners with bad credit and no proof of income to put no money down and defer interest payments for as long as possible. In Bakersfield, California, a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $720,000.

More generally, the subprime market tapped a tranche of the American public that did not typically have anything to do with Wall Street. Lenders were making loans to people who, based on their credit ratings, were less creditworthy than 71 percent of the population. Eisman knew some of these people. One day, his housekeeper, a South American woman, told him that she was planning to buy a townhouse in Queens. “The price was absurd, and they were giving her a low-down-payment option-ARM,” says Eisman, who talked her into taking out a conventional fixed-rate mortgage. Next, the baby nurse he’d hired back in 1997 to take care of his newborn twin daughters phoned him. “She was this lovely woman from Jamaica,” he says. “One day she calls me and says she and her sister own five townhouses in Queens. I said, ‘How did that happen?’ ” It happened because after they bought the first one and its value rose, the lenders came and suggested they refinance and take out $250,000, which they used to buy another one. Then the price of that one rose too, and they repeated the experiment. “By the time they were done,” Eisman says, “they owned five of them, the market was falling, and they couldn’t make any of the payments.”

In retrospect, pretty much all of the riskiest subprime-backed bonds were worth betting against; they would all one day be worth zero. But at the time Eisman began to do it, in the fall of 2006, that wasn’t clear. He and his team set out to find the smelliest pile of loans they could so that they could make side bets against them with Goldman Sachs or Deutsche Bank. What they were doing, oddly enough, was the analysis of subprime lending that should have been done before the loans were made: Which poor Americans were likely to jump which way with their finances? How much did home prices need to fall for these loans to blow up? (It turned out they didn’t have to fall; they merely needed to stay flat.) The default rate in Georgia was five times higher than that in Florida even though the two states had the same unemployment rate. Why? Indiana had a 25 percent default rate; California’s was only 5 percent. Why?

Moses actually flew down to Miami and wandered around neighborhoods built with subprime loans to see how bad things were. “He’d call me and say, ‘Oh my God, this is a calamity here,’ ” recalls Eisman. All that was required for the BBB bonds to go to zero was for the default rate on the underlying loans to reach 14 percent. Eisman thought that, in certain sections of the country, it would go far, far higher.

The funny thing, looking back on it, is how long it took for even someone who predicted the disaster to grasp its root causes. They were learning about this on the fly, shorting the bonds and then trying to figure out what they had done. Eisman knew subprime lenders could be scumbags. What he underestimated was the total unabashed complicity of the upper class of American capitalism. For instance, he knew that the big Wall Street investment banks took huge piles of loans that in and of themselves might be rated BBB, threw them into a trust, carved the trust into tranches, and wound up with 60 percent of the new total being rated AAA.

But he couldn’t figure out exactly how the rating agencies justified turning BBB loans into AAA-rated bonds. “I didn’t understand how they were turning all this garbage into gold,” he says. He brought some of the bond people from Goldman Sachs, Lehman Brothers, and UBS over for a visit. “We always asked the same question,” says Eisman. “Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.” He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number. “They were just assuming home prices would keep going up,” Eisman says.

As an investor, Eisman was allowed on the quarterly conference calls held by Moody’s but not allowed to ask questions. The people at Moody’s were polite about their brush-off, however. The C.E.O. even invited Eisman and his team to his office for a visit in June 2007. By then, Eisman was so certain that the world had been turned upside down that he just assumed this guy must know it too. “But we’re sitting there,” Daniel recalls, “and he says to us, like he actually means it, ‘I truly believe that our rating will prove accurate.’ And Steve shoots up in his chair and asks, ‘What did you just say?’ as if the guy had just uttered the most preposterous statement in the history of finance. He repeated it. And Eisman just laughed at him.”

“With all due respect, sir,” Daniel told the C.E.O. deferentially as they left the meeting, “you’re delusional.”
This wasn’t Fitch or even S&P. This was Moody’s, the aristocrats of the rating business, 20 percent owned by Warren Buffett. And the company’s C.E.O. was being told he was either a fool or a crook by one Vincent Daniel, from Queens.

A full nine months earlier, Daniel and ­Moses had flown to Orlando for an industry conference. It had a grand title—the American Securitization Forum—but it was essentially a trade show for the ­subprime-mortgage business: the people who originated subprime mortgages, the Wall Street firms that packaged and sold subprime mortgages, the fund managers who invested in nothing but subprime-mortgage-backed bonds, the agencies that rated subprime-­mortgage bonds, the lawyers who did whatever the lawyers did. Daniel and Moses thought they were paying a courtesy call on a cottage industry, but the cottage had become a castle. “There were like 6,000 people there,” Daniel says. “There were so many people being fed by this industry. The entire fixed-income department of each brokerage firm is built on this. Everyone there was the long side of the trade. The wrong side of the trade. And then there was us. That’s when the picture really started to become clearer, and we started to get more cynical, if that was possible. We went back home and said to Steve, ‘You gotta see this.’ ”

Eisman, Daniel, and Moses then flew out to Las Vegas for an even bigger subprime conference. By now, Eisman knew everything he needed to know about the quality of the loans being made. He still didn’t fully understand how the apparatus worked, but he knew that Wall Street had built a doomsday machine. He was at once opportunistic and outraged.

Their first stop was a speech given by the C.E.O. of Option One, the mortgage originator owned by H&R Block. When the guy got to the part of his speech about Option One’s subprime-loan portfolio, he claimed to be expecting a modest default rate of 5 percent. Eisman raised his hand. Moses and Daniel sank into their chairs. “It wasn’t a Q&A,” says Moses. “The guy was giving a speech. He sees Steve’s hand and says, ‘Yes?’”

Would you say that 5 percent is a probability or a possibility?” Eisman asked.

A probability, said the C.E.O., and he continued his speech.

Eisman had his hand up in the air again, waving it around. Oh, no, Moses thought. “The one thing Steve always says,” Daniel explains, “is you must assume they are lying to you. They will always lie to you.” Moses and Daniel both knew what Eisman thought of these subprime lenders but didn’t see the need for him to express it here in this manner. For Eisman wasn’t raising his hand to ask a question. He had his thumb and index finger in a big circle. He was using his fingers to speak on his behalf. Zero! they said.

“Yes?” the C.E.O. said, obviously irritated. “Is that another question?”

“No,” said Eisman. “It’s a zero. There is zero probability that your default rate will be 5 percent.” The losses on subprime loans would be much, much greater. Before the guy could reply, Eisman’s cell phone rang. Instead of shutting it off, Eisman reached into his pocket and answered it. “Excuse me,” he said, standing up. “But I need to take this call.” And with that, he walked out.

Eisman’s willingness to be abrasive in order to get to the heart of the matter was obvious to all; what was harder to see was his credulity: He actually wanted to believe in the system. As quick as he was to cry bullshit when he saw it, he was still shocked by bad behavior. That night in Vegas, he was seated at dinner beside a really nice guy who invested in mortgage C.D.O.’s—collateralized debt obligations. By then, Eisman thought he knew what he needed to know about C.D.O.’s. He didn’t, it turned out.

Later, when I sit down with Eisman, the very first thing he wants to explain is the importance of the mezzanine C.D.O. What you notice first about Eisman is his lips. He holds them pursed, waiting to speak. The second thing you notice is his short, light hair, cropped in a manner that suggests he cut it himself while thinking about something else. “You have to understand this,” he says. “This was the engine of doom.” Then he draws a picture of several towers of debt. The first tower is made of the original subprime loans that had been piled together. At the top of this tower is the AAA tranche, just below it the AA tranche, and so on down to the riskiest, the BBB tranche—the bonds Eisman had shorted. But Wall Street had used these BBB tranches—the worst of the worst—to build yet another tower of bonds: a “particularly egregious” C.D.O. The reason they did this was that the rating agencies, presented with the pile of bonds backed by dubious loans, would pronounce most of them AAA. These bonds could then be sold to investors—pension funds, insurance companies—who were allowed to invest only in highly rated securities. “I cannot fucking believe this is allowed—I must have said that a thousand times in the past two years,” Eisman says.

His dinner companion in Las Vegas ran a fund of about $15 billion and managed C.D.O.’s backed by the BBB tranche of a mortgage bond, or as Eisman puts it, “the equivalent of three levels of dog shit lower than the original bonds.”

FrontPoint had spent a lot of time digging around in the dog shit and knew that the default rates were already sufficient to wipe out this guy’s entire portfolio. “God, you must be having a hard time,” Eisman told his dinner companion.

“No,” the guy said, “I’ve sold everything out.”

After taking a fee, he passed them on to other investors. His job was to be the C.D.O. “expert,” but he actually didn’t spend any time at all thinking about what was in the C.D.O.’s. “He managed the C.D.O.’s,” says Eisman, “but managed what? I was just appalled. People would pay up to have someone manage their C.D.O.’s—as if this moron was helping you. I thought, You prick, you don’t give a fuck about the investors in this thing.”

Whatever rising anger Eisman felt was offset by the man’s genial disposition. Not only did he not mind that Eisman took a dim view of his C.D.O.’s; he saw it as a basis for friendship. “Then he said something that blew my mind,” Eisman tells me. “He says, ‘I love guys like you who short my market. Without you, I don’t have anything to buy.’ ”

That’s when Eisman finally got it. Here he’d been making these side bets with Goldman Sachs and Deutsche Bank on the fate of the BBB tranche without fully understanding why those firms were so eager to make the bets. Now he saw. There weren’t enough Americans with shitty credit taking out loans to satisfy investors’ appetite for the end product. The firms used Eisman’s bet to synthesize more of them. Here, then, was the difference between fantasy finance and fantasy football: When a fantasy player drafts Peyton Manning, he doesn’t create a second Peyton Manning to inflate the league’s stats. But when Eisman bought a credit-default swap, he enabled Deutsche Bank to create another bond identical in every respect but one to the original. The only difference was that there was no actual homebuyer or borrower. The only assets backing the bonds were the side bets Eisman and others made with firms like Goldman Sachs. Eisman, in effect, was paying to Goldman the interest on a subprime mortgage. In fact, there was no mortgage at all. “They weren’t satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn’t afford,” Eisman says. “They were creating them out of whole cloth. One hundred times over! That’s why the losses are so much greater than the loans. But that’s when I realized they needed us to keep the machine running. I was like, This is allowed?”

This particular dinner was hosted by Deutsche Bank, whose head trader, Greg Lippman, was the fellow who had introduced Eisman to the subprime bond market. Eisman went and found Lippman, pointed back to his own dinner companion, and said, “I want to short him.” Lippman thought he was joking; he wasn’t. “Greg, I want to short his paper,” Eisman repeated. “Sight unseen.”

Eisman started out running a $60 million equity fund but was now short around $600 million of various ­subprime-related securities. In the spring of 2007, the market strengthened. But, says Eisman, “credit quality always gets better in March and April. And the reason it always gets better in March and April is that people get their tax refunds. You would think people in the securitization world would know this. We just thought that was moronic.”

He was already short the stocks of mortgage originators and the homebuilders. Now he took short positions in the rating agencies—“they were making 10 times more rating C.D.O.’s than they were rating G.M. bonds, and it was all going to end”—and, finally, the biggest Wall Street firms because of their exposure to C.D.O.’s. He wasn’t allowed to short Morgan Stanley because it owned a stake in his fund. But he shorted UBS, Lehman Brothers, and a few others. Not long after that, 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.

There was only one thing that bothered Eisman, and it continued to trouble him as late as May 2007. “The thing we couldn’t figure out is: It’s so obvious. Why hasn’t everyone else figured out that the machine is done?” Eisman had long subscribed to Grant’s Interest Rate Observer, a newsletter famous in Wall Street circles and obscure outside them. Jim Grant, its editor, had been prophesying doom ever since the great debt cycle began, in the mid-1980s. In late 2006, he decided to investigate these things called C.D.O.’s. Or rather, he had asked his young assistant, Dan Gertner, a chemical engineer with an M.B.A., to see if he could understand them. Gertner went off with the documents that purported to explain C.D.O.’s to potential investors and for several days sweated and groaned and heaved and suffered. “Then he came back,” says Grant, “and said, ‘I can’t figure this thing out.’ And I said, ‘I think we have our story.’ ”

Eisman read Grant’s piece as independent confirmation of what he knew in his bones about the C.D.O.’s he had shorted. “When I read it, I thought, Oh my God. This is like owning a gold mine. When I read that, I was the only guy in the equity world who almost had an orgasm.”

July 19, 2007, the same day that Federal Reserve Chairman Ben Bernanke told the U.S. Senate that he anticipated as much as $100 billion in losses in the subprime-mortgage market, FrontPoint did something unusual: It hosted its own conference call. It had had calls with its tiny population of investors, but this time FrontPoint opened it up. Steve Eisman had become a poorly kept secret. Five hundred people called in to hear what he had to say, and another 500 logged on afterward to listen to a recording of it. He explained the strange alchemy of the C.D.O. and said that he expected losses of up to $300 billion from this sliver of the market alone. To evaluate the situation, he urged his audience to “just throw your model in the garbage can. The models are all backward-looking.

The models don’t have any idea of what this world has become…. For the first time in their lives, people in the asset-backed-securitization world are actually having to think.” He explained that the rating agencies were morally bankrupt and living in fear of becoming actually bankrupt. “The rating agencies are scared to death,” he said. “They’re scared to death about doing nothing because they’ll look like fools if they do nothing.”

On September 18, 2008, Danny Moses came to work as usual at 6:30 a.m. Earlier that week, Lehman Brothers had filed for bankruptcy. The day before, the Dow had fallen 449 points to its lowest level in four years. Overnight, European governments announced a ban on short-selling, but that served as faint warning for what happened next.

At the market opening in the U.S., everything—every financial asset—went into free fall. “All hell was breaking loose in a way I had never seen in my career,” Moses says. FrontPoint was net short the market, so this total collapse should have given Moses pleasure. He might have been forgiven if he stood up and cheered. After all, he’d been betting for two years that this sort of thing could happen, and now it was, more dramatically than he had ever imagined. Instead, he felt this terrifying shudder run through him. He had maybe 100 trades on, and he worked hard to keep a handle on them all. “I spent my morning trying to control all this energy and all this information,” he says, “and I lost control. I looked at the screens. I was staring into the abyss. The end. I felt this shooting pain in my head. I don’t get headaches. At first, I thought I was having an aneurysm.”

Moses stood up, wobbled, then turned to Daniel and said, “I gotta leave. Get out of here. Now.” Daniel thought about calling an ambulance but instead took Moses out for a walk.

Outside it was gorgeous, the blue sky reaching down through the tall buildings and warming the soul. Eisman was at a Goldman Sachs conference for hedge fund managers, raising capital. Moses and Daniel got him on the phone, and he left the conference and met them on the steps of St. Patrick’s Cathedral. “We just sat there,” Moses says. “Watching the people pass.”

This was what they had been waiting for: total collapse. “The investment-banking industry is fucked,” Eisman had told me a few weeks earlier. “These guys are only beginning to understand how fucked they are. It’s like being a Scholastic, prior to Newton. Newton comes along, and one morning you wake up: ‘Holy shit, I’m wrong!’ ” Now Lehman Brothers had vanished, Merrill had surrendered, and Goldman Sachs and Morgan Stanley were just a week away from ceasing to be investment banks. The investment banks were not just fucked; they were extinct.

Not so for hedge fund managers who had seen it coming. “As we sat there, we were weirdly calm,” Moses says. “We felt insulated from the whole market reality. It was an out-of-body experience. We just sat and watched the people pass and talked about what might happen next. How many of these people were going to lose their jobs. Who was going to rent these buildings after all the Wall Street firms collapsed.” Eisman was appalled. “Look,” he said. “I’m short. I don’t want the country to go into a depression. I just want it to fucking deleverage.” He had tried a thousand times in a thousand ways to explain how screwed up the business was, and no one wanted to hear it. “That Wall Street has gone down because of this is justice,” he says. “They fucked people. They built a castle to rip people off. Not once in all these years have I come across a person inside a big Wall Street firm who was having a crisis of conscience.”

Truth to tell, there wasn’t a whole lot of hand-wringing inside FrontPoint either. The only one among them who wrestled a bit with his conscience was Daniel. “Vinny, being from Queens, needs to see the dark side of everything,” Eisman says. To which Daniel replies, “The way we thought about it was, ‘By shorting this market we’re creating the liquidity to keep the market going.’ ”

“It was like feeding the monster,” Eisman says of the market for subprime bonds. “We fed the monster until it blew up.”

About the time they were sitting on the steps of the midtown cathedral, I sat in a booth in a restaurant on the East Side, waiting for John Gutfreund to arrive for lunch, and wondered, among other things, why any restaurant would seat side by side two men without the slightest interest in touching each other.

There was an umbilical cord running from the belly of the exploded beast back to the financial 1980s. A friend of mine created the first mortgage derivative in 1986, a year after we left the Salomon Brothers trading program. (“The problem isn’t the tools,” he likes to say. “It’s who is using the tools. Derivatives are like guns.”)

When I published my book, the 1980s were supposed to be ending. I received a lot of undeserved credit for my timing. The social disruption caused by the collapse of the savings-and-loan industry and the rise of hostile takeovers and leveraged buyouts had given way to a brief period of recriminations. Just as most students at Ohio State read Liar’s Poker as a manual, most TV and radio interviewers regarded me as a whistleblower. (The big exception was Geraldo Rivera. He put me on a show called “People Who Succeed Too Early in Life” along with some child actors who’d gone on to become drug addicts.) Anti-Wall Street feeling ran high—high enough for Rudy Giuliani to float a political career on it—but the result felt more like a witch hunt than an honest reappraisal of the financial order. The public lynchings of Gutfreund and junk-bond king Michael Milken were excuses not to deal with the disturbing forces underpinning their rise. Ditto the cleaning up of Wall Street’s trading culture. The surface rippled, but down below, in the depths, the bonus pool remained undisturbed. Wall Street firms would soon be frowning upon profanity, firing traders for so much as glancing at a stripper, and forcing male employees to treat women almost as equals. Lehman Brothers circa 2008 more closely resembled a normal corporation with solid American values than did any Wall Street firm circa 1985.

The changes were camouflage. They helped distract outsiders from the truly profane event: the growing misalignment of interests between the people who trafficked in financial risk and the wider culture.

I’d not seen Gutfreund since I quit Wall Street. I’d met him, nervously, a couple of times on the trading floor. A few months before I left, my bosses asked me to explain to Gutfreund what at the time seemed like exotic trades in derivatives I’d done with a European hedge fund. I tried. He claimed not to be smart enough to understand any of it, and I assumed that was how a Wall Street C.E.O. showed he was the boss, by rising above the details. There was no reason for him to remember any of these encounters, and he didn’t: When my book came out and became a public-relations nuisance to him, he told reporters we’d never met.

Over the years, I’d heard bits and pieces about Gutfreund. I knew that after he’d been forced to resign from Salomon Brothers he’d fallen on harder times. I heard later that a few years ago he’d sat on a panel about Wall Street at Columbia Business School. When his turn came to speak, he advised students to find something more meaningful to do with their lives. As he began to describe his career, he broke down and wept.

When I emailed him to invite him to lunch, he could not have been more polite or more gracious. That attitude persisted as he was escorted to the table, made chitchat with the owner, and ordered his food. He’d lost a half-step and was more deliberate in his movements, but otherwise he was completely recognizable. The same veneer of denatured courtliness masked the same animal need to see the world as it was, rather than as it should be.

We spent 20 minutes or so determining that our presence at the same lunch table was not going to cause the earth to explode. We discovered we had a mutual acquaintance in New Orleans. We agreed that the Wall Street C.E.O. had no real ability to keep track of the frantic innovation occurring inside his firm. (“I didn’t understand all the product lines, and they don’t either,” he said.) We agreed, further, that the chief of the Wall Street investment bank had little control over his subordinates. (“They’re buttering you up and then doing whatever the fuck they want to do.”) He thought the cause of the financial crisis was “simple. Greed on both sides—greed of investors and the greed of the bankers.” I thought it was more complicated. Greed on Wall Street was a given—almost an obligation. The problem was the system of incentives that channeled the greed.

But I didn’t argue with him. For just as you revert to being about nine years old when you visit your parents, you revert to total subordination when you are in the presence of your former C.E.O. John Gutfreund was still the King of Wall Street, and I was still a geek. He spoke in declarative statements; I spoke in questions.

But as he spoke, my eyes kept drifting to his hands. His alarmingly thick and meaty hands. They weren’t the hands of a soft Wall Street banker but of a boxer. I looked up. The boxer was smiling—though it was less a smile than a placeholder expression. And he was saying, very deliberately, “Your…fucking…book.”

I smiled back, though it wasn’t quite a smile.

“Your fucking book destroyed my career, and it made yours,” he said.

I didn’t think of it that way and said so, sort of.

“Why did you ask me to lunch?” he asked, though pleasantly. He was genuinely curious.

You can’t really tell someone that you asked him to lunch to let him know that you don’t think of him as evil. Nor can you tell him that you asked him to lunch because you thought that you could trace the biggest financial crisis in the history of the world back to a decision he had made. John Gutfreund did violence to the Wall Street social order—and got himself dubbed the King of Wall Street—when he turned Salomon Brothers from a private partnership into Wall Street’s first public corporation. He ignored the outrage of Salomon’s retired partners. (“I was disgusted by his materialism,” William Salomon, the son of the firm’s founder, who had made Gutfreund C.E.O. only after he’d promised never to sell the firm, had told me.) He lifted a giant middle finger at the moral disapproval of his fellow Wall Street C.E.O.’s. And he seized the day. He and the other partners not only made a quick killing; they transferred the ultimate financial risk from themselves to their shareholders. It didn’t, in the end, make a great deal of sense for the shareholders. (A share of Salomon Brothers purchased when I arrived on the trading floor, in 1986, at a then market price of $42, would be worth 2.26 shares of Citigroup today—market value: $27.) But it made fantastic sense for the investment bankers.

From that moment, though, the Wall Street firm became a black box. The shareholders who financed the risks had no real understanding of what the risk takers were doing, and as the risk-taking grew ever more complex, their understanding diminished. The moment Salomon Brothers demonstrated the potential gains to be had by the investment bank as public corporation, the psychological foundations of Wall Street shifted from trust to blind faith.

No investment bank owned by its employees would have levered itself 35 to 1 or bought and held $50 billion in mezzanine C.D.O.’s. I doubt any partnership would have sought to game the rating agencies or leap into bed with loan sharks or even allow mezzanine C.D.O.’s to be sold to its customers. The hoped-for short-term gain would not have justified the long-term hit.

No partnership, for that matter, would have hired me or anyone remotely like me. Was there ever any correlation between the ability to get in and out of Princeton and a talent for taking financial risk?

Now I asked Gutfreund about his biggest decision. “Yes,” he said. “They—the heads of the other Wall Street firms—all said what an awful thing it was to go public and how could you do such a thing. But when the temptation arose, they all gave in to it.” He agreed that the main effect of turning a partnership into a corporation was to transfer the financial risk to the shareholders. “When things go wrong, it’s their problem,” he said—and obviously not theirs alone. When a Wall Street investment bank screwed up badly enough, its risks became the problem of the U.S. government. “It’s laissez-faire until you get in deep shit,” he said, with a half chuckle. He was out of the game.

It was now all someone else’s fault.

He watched me curiously as I scribbled down his words. “What’s this for?” he asked.

I told him I thought it might be worth revisiting the world I’d described in Liar’s Poker, now that it was finally dying. Maybe bring out a 20th-anniversary edition.

“That’s nauseating,” he said.

Hard as it was for him to enjoy my company, it was harder for me not to enjoy his. He was still tough, as straight and blunt as a butcher. He’d helped create a monster, but he still had in him a lot of the old Wall Street, where people said things like “A man’s word is his bond.” On that Wall Street, people didn’t walk out of their firms and cause trouble for their former bosses by writing books about them. “No,” he said, “I think we can agree about this: Your fucking book destroyed my career, and it made yours.” With that, the former king of a former Wall Street lifted the plate that held his appetizer and asked sweetly, “Would you like a deviled egg?”

Until that moment, I hadn’t paid much attention to what he’d been eating. Now I saw he’d ordered the best thing in the house, this gorgeous frothy confection of an earlier age. Who ever dreamed up the deviled egg? Who knew that a simple egg could be made so complicated and yet so appealing? I reached over and took one. Something for nothing. It never loses its charm.

Michael Lewis - bio (1989)
Raised in New Orleans, the son of a lawyer and a charity administrator, Lewis majored in art history at Princeton and botched his senior-year investment-bank job interviews by breaking an industry taboo: He admitted he wanted to make money. His first two jobs—as a stock boy for a New York art gallery and as a cabinetmaker—paid next to nothing, so Lewis followed his girlfriend, Diane de Cordova, to England, where he enrolled at the London School of Economics. While working for his master's, he began writing articles for the Economist and found he loved it. But when connections, and luck, landed him a job at Salomon Brothers on Wall Street, he took it. "I felt a need to demonstrate I could make money, because my father had done well," he says. "I felt if I couldn't, I was somehow inadequate." [...]

By 1987, when he was transferred to London, Lewis was making more than $225,000 a year. Then, to the bewilderment of his colleagues, he quit. "People seemed shocked that I could walk away from the promise of a fortune," he says. "My father thought I was insane. But the job was no longer as thrilling as it had been, and the pull of journalism was very strong for me. I wanted to be a writer." [...]

Still, a trader's instincts die hard. When producers call about buying the movie rights to Liar's Poker, Lewis always has the same response. "I say I'll do it if they let me write the screenplay," he says, "and if they pay me a lot." [...]

Selected Book Reviews