I didn’t get that impression from reading the Big Short. They didn’t create the loose mortgage standards, or the fraudulent triple A ratings. AIG did not have to sell credit default swaps on crappy mortgages (or at least they should have priced them correctly)- when one of the AIG analysts had the gall to point it out to his AIG boss he got screamed at.
The short sellers saw that CDS were underpriced and if one only does the math and sees that when the teaser rates expire and the higher rates come in there will be a string of defaults. While everyone else believed house prices would only go up.
Also they weren’t expecting a systemic failure, for instance if Bear Stearns had been allowed to collapse, they would have been out of luck and their bets would have been worthless.
