Thread: The End of Wall Street

Anybody read this yet? It's pretty good stuff, if you like insider baseball dirt about the financial markets. It's written by Michael Lewis, who also wrote "Liar's Poker."

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.

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?”

9 pages.

The End of Wall Street's Boom - National Business News - Portfolio.com

Originally Posted by Blueneck

Anybody read this yet? It's pretty good stuff, if you like insider baseball dirt about the financial markets. It's written by Michael Lewis, who also wrote "Liar's Poker."

9 pages.

The End of Wall Street's Boom - National Business News - Portfolio.com

I got to read this in the AM when I have time, but I have a question, is this an analogy or actual betting?

Originally Posted by michaelr

I got to read this in the AM when I have time, but I have a question, is this an analogy or actual betting?

Are you asking if the names were changed to protect the guilty? Because if you are, then no. Is what he says went on illegal? I doubt it.

Originally Posted by Blueneck

Are you asking if the names were changed to protect the guilty? Because if you are, then no. Is what he says went on illegal? I doubt it.

No, it sounds like an analogy for credit default swaps and short selling to cover those swaps. Sort of like...well just like whats going on in the gold market.

Like this here Blue......

Credit Default Swaps: Evolving Financial Meltdown and Derivative Disaster Du Jour

Mayhap I missed my calling....

Thanks for the article, its a good read. Nice to see some inside perspectives of what went on,

A good read for all clowns still thinking the cause of that crisis wasn't unregulated capitalism.