Tina K. Russell

November 27, 2008

Funny money

Filed under: Uncategorized — Tags: , , , , , — Tina Russell @ 11:36 am

The End of Wall Street’s Boom – National Business News – Portfolio.com
The funny thing, looking back on it, is how long it took for even someone who predicted the disaster to grasp its root causes. They were learning about this on the fly, shorting the bonds and then trying to figure out what they had done. Eisman knew subprime lenders could be scumbags. What he underestimated was the total unabashed complicity of the upper class of American capitalism. For instance, he knew that the big Wall Street investment banks took huge piles of loans that in and of themselves might be rated BBB, threw them into a trust, carved the trust into tranches, and wound up with 60 percent of the new total being rated AAA.

But he couldn’t figure out exactly how the rating agencies justified turning BBB loans into AAA-rated bonds. “I didn’t understand how they were turning all this garbage into gold,” he says. He brought some of the bond people from Goldman Sachs, Lehman Brothers, and UBS over for a visit. “We always asked the same question,” says Eisman. “Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.” He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number. “They were just assuming home prices would keep going up,” Eisman says.

I read this article after Thomas Friedman recommended it in a column. Anyway, I highly recommend the article. It’s a portrait of financial Cassandras, people who warned of and betted on doom and gloom and wouldn’t have minded being wrong. Moreover, by the end, these valiant wet blankets discover something horrifying: in a way that could only work in the surreal parallel universe of Wall Street, their very skepticism, their bets against the market, provided the money to fuel its downfall. It’s a story of gain and loss, of easy money, of repentance, of forgiveness, of survivors’ guilt, of wondering if you’re the crazy one and realizing it really was everybody else. It’s a story of taking a walk on Wall Street the day after the Apocalypse, and seeing the damage that you, in a perverse, roundabout way, helped wreak.

Four stars! A plus! That crazy GamePro excited head thing! Besides, the last time I read a cynical feature article about Wall Street in Condé Nast Portfolio, about a year ago, it was awesome. This is similarly awesome. It’s a must-read if you have time to kill.

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