"Eisman started out running a $60 million equity fund but was now short around $600 million of various _subprime-related securities. In the spring of 2007, the market strengthened. But, says Eisman, âcredit quality always gets better in March and April. And the reason it always gets better in March and April is that people get their tax refunds. You would think people in the securitization world would know this. We just thought that was moronic.â " All eyes on March. Very good article. Thanks for posting
What a read, thanks for the link... "He called Standard & Poorâs and asked what would happen to default rates if real estate prices fell. The man at S&P couldnât say; its model for home prices had no ability to accept a negative number. âThey were just assuming home prices would keep going up,â Eisman says. " I'm not a white guy, I'm a half amerind half jew that looks somewhat like a white guy and went to white guys public schools, not much college. I have always been looking around at what these people do and thinking "can they all really be this fucking stupid??" The answer is really a big yes. I have a buddy that hangs around a coffee place I frequent. We sit around and talk about 15th century penny universities and digital photography and psychology and nutrition of the brain and strategies to succeed and wrestle with computer bafflement and the problem of predicting a price from a price series of data and all sorts of wonderful things... I was telling him a couple of years back that this thing was HUGE.. it took a while to sort out what the hell was going on but it helped when another guy entered the conversation, he was placing subprime loans as fast as he could.. he had people scour the hoods and bring him documents with no numbers in them, he would fill in the numbers because he knew what would work and he got 8 large per loan.. the guy was a coke head, he probably would have knifed the people for that kind of money.... I just extrapolated what he was doing all the way up the chain and yes... I could see what was happening.. now even the Democrats are getting a handle on how big it is, LOL...
Kind of sounds like he was levered to the moon. And non diversified. And with opm. Other people's money. His was a carried interest. Keep in mind that much of this story is about people levering up with opm. If you use other people's money and lever up and win, you're the good guy. If you lever up with opm and lose, you go down in history as a loathsome jerk, as wall street's titans have. I have a much less jaundiced view of wall street than the people in this article. There was a bubble and a mania and it was fed by a lot of different sources. The ratings agencies, the fed, wall street, congress wanting these loans made. Don't forget that the subprime lenders that originated the most of this stuff were honored by many political types for doing a superb job of bringing about a higher level of home ownership. Yes, the whole thing is abysmal, but why single out wall street for feeding the ducks that were quacking. It was a mania and to expect wall street to stop the whole thing in it's tracks instead of feed it is just so silly. "Wall street's job is to allocate capital". Yes, it is. A home purchaser's job is to not buy a home foolishly, too. So why didn't the home purchaser do their jobs properly? The whole thing was a bubble and bubbles end badly. Capitalism has bubbles. It's still better than socialism or communism. Which really is the whole point of this article, isn't it. How bad capitalism is?
Yep, Eisman was smart and had pretty good timing. But as others have noted, he also was levered up betting against the whole mess. If they had mananged to keep all the plates spinning in the air for a year or two longer, Eisman might have blown out too. Great article. And anybody that hasn't, should read "Liar's Poker".
What's sadder is that the people in the article, and in this thread, are acting like everything's over when the starting pitchers haven't even been pulled for the middle relief yet. Still, it was and is a must, great read...
Hey, you can read the whole book there???!! Cool. I'm going to have to try that out on a few more... EDIT: just noticed some pages were kept out of the preview. Still, a nice service if you are thinking about getting a book.
I'm having trouble seeing the connection your trying to make. Perhaps it is true that the particular kind of fraudulent activity this article is about is more likely to flourish in a capitalist environment than some other "ism", but what does this "ism" or that have to do with Lewis' article?
I do not think the article shows how bad capitalism is instead it shows how a large group of people went about creating a massive problem while showing no reguard for the borrower or the end user of the product. It highlights the problem of wallstreet in general not capitalism, and that is the pushing of advice and products only to collect those fees and not for the best interest of a client. The guy who bought a home that was beyond his means does deserve blame but the leeches who exaserbated the problem deserve alot of it also. There is a large amount of people on Wallstreet who just want their cut and could give a rats ass about their clients and this is what needs to change.
Excellent piece. Thanks for posting. Excerpt: "This woman wasnât saying that Wall Street bankers were corrupt. She was saying they were stupid. These people whose job it was to allocate capital apparently didnât even know how to manage their own."