"At some point, I gave up waiting for the end. There was no scandal or reversal, I assumed, that could sink the system.
Then came Meredith Whitney with news. Whitney was an obscure analyst of financial firms for Oppenheimer Securities who, on October 31, 2007, ceased to be obscure. On that day, she predicted that Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust. It’s never entirely clear on any given day what causes what in the stock market, but it was pretty obvious that on October 31, Meredith Whitney caused the market in financial stocks to crash. By the end of the trading day, a woman whom basically no one had ever heard of had shaved $369 billion off the value of financial firms in the market. Four days later, Citigroup’s C.E.O., Chuck Prince, resigned."
Very good storytelling, thanks.
"A hedge fund manager who counts Eisman as a friend set out to explain him to me but quit a minute into it."
soros
Great article. Thanks. 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. Unbelievable. Or, sadly, all too believable.
bonfires of the vanity fair
Felix Salmon follows up the original Michael Lewis portfolio article above with some more explaination:
Understanding synthetic bonds
What's a super senior tranche
spitz take
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Then came Meredith Whitney with news. Whitney was an obscure analyst of financial firms for Oppenheimer Securities who, on October 31, 2007, ceased to be obscure. On that day, she predicted that Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust. It’s never entirely clear on any given day what causes what in the stock market, but it was pretty obvious that on October 31, Meredith Whitney caused the market in financial stocks to crash. By the end of the trading day, a woman whom basically no one had ever heard of had shaved $369 billion off the value of financial firms in the market. Four days later, Citigroup’s C.E.O., Chuck Prince, resigned."
- dave 11-12-2008 5:27 am
Very good storytelling, thanks.
"A hedge fund manager who counts Eisman as a friend set out to explain him to me but quit a minute into it."
- tom moody 11-12-2008 8:16 pm
soros
- dave 11-13-2008 1:42 am
Great article. Thanks.
Unbelievable. Or, sadly, all too believable.- jim 11-13-2008 5:18 pm
bonfires of the vanity fair
- dave 11-19-2008 10:07 pm
Felix Salmon follows up the original Michael Lewis portfolio article above with some more explaination:
Understanding synthetic bonds
What's a super senior tranche
- jim 12-03-2008 6:21 pm
spitz take
- dave 12-14-2008 7:58 pm