en

Michael Lewis

    Ana Laura Pérezhas quoted2 years ago
    The long answer was that there were huge sums of money to be made, if you could somehow get them re-rated as triple-A, thereby lowering their perceived risk, however dishonestly and artificially. This is what Goldman Sachs had cleverly done. Their--soon to be everyone's--nifty solution to the problem of selling the lower floors appears, in retrospect, almost magical. Having gathered 100 ground floors from 100 different subprime mortgage buildings (100 different triple-B-rated bonds), they persuaded the rating agencies that these weren't, as they might appear, all exactly the same things. They were another diversified portfolio of assets! This was absurd.
    Ana Laura Pérezhas quoted2 years ago
    Paulson had never encountered a market in which an investor could sell short 25 billion dollars' worth of a stock or bond without causing its price to move, even crash.
    Ana Laura Pérezhas quoted2 years ago
    Bond market terminology was designed less to convey meaning than to bewilder outsiders.
    Ana Laura Pérezhas quoted2 years ago
    They shorted Bank of America, along with UBS, Citigroup, Lehman Brothers, and a few others. They weren't allowed to short Morgan Stanley because they were owned by Morgan Stanley, but if they could have, they would have.
    Ana Laura Pérezhas quoted2 years ago
    "It feels like my insides are digesting themselves," he wrote to his wife in mid-September. The source of his unhappiness was, as usual, other people. The other people who bothered him the most were his own investors.
    Ana Laura Pérezhas quoted2 years ago
    "I'd come home at midnight and try to talk to my brother-in-law about our children's future," said Ben. "I asked everyone in the house to make sure their accounts at HSBC were insured. I told them to keep some cash on hand, as we might face some disruptions. But it was hard to explain." How do you explain to an innocent citizen of the free world the importance of a credit default swap on a double-A tranche of a subprime-backed collateralized debt obligation?
    Ilia Lotarevhas quoted9 months ago
    These cash flows were always problematic, as the borrowers had the right to pay off any time they pleased. This was the single biggest reason that bond investors initially had been reluctant to invest in home mortgage loans: Mortgage borrowers typically repaid their loans only when interest rates fell, and they could refinance more cheaply, leaving the owner of a mortgage bond holding a pile of cash, to invest at lower interest rates.
    Ilia Lotarevhas quoted9 months ago
    The loans carried, in effect, government guarantees; if the homeowners defaulted, the government paid off their debts. When Steve Eisman stumbled into this new, rapidly growing industry of specialty finance, the mortgage bond was about to be put to a new use: making loans that did not qualify for government guarantees. The purpose was to extend credit to less and less creditworthy homeowners, not so that they might buy a house but so that they could cash out whatever equity they had in the house they already owned.
    Ilia Lotarevhas quoted9 months ago
    To invent a new market was only a matter of finding a new asset to hock. The most obvious untapped asset in America was still the home. People with first mortgages had vast amounts of equity locked up in their houses; why shouldn't this untapped equity, too, be securitized? "The thinking in subprime," says Jacobs, "was there was this social stigma to being a second mortgage borrower and there really shouldn't be. If your credit rating was a little worse, you paid a lot more--and a lot more than you really should. If we can mass market the bonds, we can drive down the cost to borrowers. They can replace high interest rate credit card debt with lower interest rate mortgage debt. And it will become a self-fulfilling prophecy."
    Ilia Lotarevhas quoted9 months ago
    Eisman was paid to see the sense in subprime lending: Oppenheimer quickly became one of the leading bankers to the new industry, in no small part because Eisman was one of its leading proponents. "I took a lot of subprime companies public," says Eisman. "And the story they liked to tell was that 'we're helping the consumer. Because we're taking him out of his high interest rate credit card debt and putting him into lower interest rate mortgage debt.' And I believed that story." Then something changed.
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