Something was wrong with the time frame. Hamanaka was arrested in 1996 but the fight with Soros was supposed to occur in 2006. Maybe just a typo...
It's like running drugs.. the money is good and risk is high. It's addictive and typically like steroids people revert to it because psychological they can't be disciplined enough to trade with good risk Management
That he sold insurance and then had to pony up when the house burned down...no? in the end he lost a lot of money on shit paper.
Close but not really. Just for educational purposes, here is the general idea in less than a hundred words. Prior to the financial crisis, banks really liked to issue CDO. CDO is just a repackaged pool of bonds where different tranches have different credit ratings (usually there would be a senior tranche, mezzanine and an equity one). Any defaults in the pool first hit the lowest rated equity tranche and only after spill over onto more senior tranches. When the credit crisis was just starting, MS management wanted to put up a firm-wide hedge trade. So they structured the following - they shorted 2 billion of the equity tranche and went long 16 billion of the senior to offset the carry. The result, as you know, was that both equity and senior went to zero (well, the actual bit was that once the losses were revealed, they marked the senior tranches low and sold them internally). I think one leg was done as a TRS and the other as CDS so it's somewhat possible to think of it as insurance, yes. Now, the reality was that HH was a relatively junior guy. The trade was approved by JM himself and Zoe was on that desk almost daily. Somehow, when the dust settled, Howie was pictured as the guy that came up with the idea and thrown under the bus ahead of everyone else. Not to say that I liked the guy (anyone arriving to MD level at MS has a prerequisite of being a dick), but he certainly was made a patsy in this story.
I think the development of compliance and risk management rules has limited a lot of the space traders had to do this type of thing over prolonged periods (big gains and losses from over speculation both). But having worked in the industry and seeing where the rules Have been broken there are a lot of people that suddenly look the other way. In reality it ends up being magically ok if they made money the questioning dries up.