Steve Eisman – A bigger genius than Paulson

I don’t really feel like writing about Eisman’s strategy in betting against the mortgage market so I charted his strategy below..

he profited from the spread between shorting CMO (trader buys it) and shorting CDS (paulson buys it on the other end of the trade). Shorting CDS is an alternative to borrowing CMO to short. Due to the deficit of subprime mortgages issued compared to the demand for CMOs from the trader, Eisman had to figure out a way to short the CMO without actually borrowing it..so he shorted the CDS on CMO (effect of shorting CDS is that he’s long the CMO)

Eisman may not have made a killing like Paulson did, but his strategy was better hedged and clever.

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