The Real Eisman Playbook Steve Eisman's Masterclass on the 2008 Financial Crisis (Part One) | The Real Eisman Playbook Ep 38
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Dec 16, 2025 Dive into the complexities of the 2008 financial crisis as Steve Eisman explains the crucial role of leverage in banking profitability. He breaks down four key causes and examines the risks posed by risk-weighted assets. Discover how securitization played a pivotal role in subprime mortgage growth, and learn about loosening underwriting standards amidst rising home prices. Eisman also shares insights from his research that led him to short subprime securities, setting the stage for a market unraveling.
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How Leverage Multiplies Bank Returns
- Banks need leverage to generate acceptable returns because ROE equals ROA times leverage.
- Excess leverage magnifies profits when loans perform and destroys equity quickly when losses rise.
Leverage As A Profit Incentive
- Higher leverage raises ROE even if ROA stays constant by expanding assets funded with deposits.
- That incentive pushed banks to borrow more to boost executive pay and reported profitability.
The Fragility Of Excessive Leverage
- Too much leverage wipes out equity when loans incur losses.
- A small negative ROA can fully erase highly levered banks' capital.
