The End Of Wall Streets Boom
From a Naybob of Simian nature... validating one of our assertions, from an insiders view,
why Wall Streets best and brighest are anything but... The End Of Wall Streets Boom
and why things are just starting to get ugly. An absolute must read for all Naybobs. Some choice excerpts follow...
On becoming a stock broker...I’d never taken an accounting course, never run a business, never even had savings of my own to manage.
I stumbled into a job at Salomon Brothers in 1985 and stumbled out much richer three years later, and even though I wrote a book about the experience,
the whole thing still strikes me as preposterous—which is one of the reasons the money was so easy to walk away from. I figured the situation was unsustainable.
On Wall Streets Moral Code... I did subprime first. I lived with the worst first. These guys lied to infinity.
What I learned from that experience was that Wall Street didn’t give a shit what it sold...
Eisman knew subprime lenders could be scumbags. What he underestimated was the total unabashed complicity of the upper class of American capitalism.
On still artifically high real estate prices... There’s a simple measure of sanity in housing prices: the ratio of median home price to income.
Historically, it runs around 3 to 1; by late 2004, it had risen nationally to 4 to 1.
All these people were saying it was nearly as high in some other countries. But the problem wasn’t just that it was 4 to 1.
In Los Angeles, it was 10 to 1, and in Miami, 8.5 to 1. And then you coupled that with the buyers. They weren’t real buyers. They were speculators.
On the massive loan fraud... Long Beach Financial, wholly owned by Washington Mutual,
was moving money out the door as fast as it could, few questions asked, in loans built to self-destruct.
t specialized in asking homeowners with bad credit and no proof of income to put no money down and defer interest payments for as long as possible.
In Bakersfield, California, a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $720,000.
On the ridiculousness of credit default swaps... Instead of shorting the actual BBB bond,
you could now enter into an agreement for a credit-default swap with Deutsche Bank or Goldman Sachs.
It cost money to make this side bet, but nothing like what it cost to short the stocks, and the upside was far greater.
The arrangement bore the same relation to actual finance as fantasy football bears to the N.F.L.
On the quality of CDO based on BBB tranches... C.D.O.’s backed by the BBB tranche of a mortgage bond,
the equivalent of three levels of dog shit lower than the original bonds.
On the reality of CDO... there weren’t enough Americans with shitty credit taking out loans to satisfy investors’ appetite for the end product.
The firms used Eisman’s bet (credit default swap) to synthesize more of them (CDO).
The swap enabled Deutsche Bank to create another bond identical in every respect but one to the original.
The only difference was that there was no actual homebuyer or borrower. The only assets backing the bonds were the side bets (swaps)
Eisman, in effect, was paying to Goldman the interest on a subprime mortgage. In fact, there was no mortgage at all.
They weren’t satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn’t afford.
They were creating them out of whole cloth. One hundred times over! That’s why the losses are so much greater than the loans.
On the recent crash... There’s a long list of people who now say they saw it coming all along but a far shorter one of people who actually did.
Of those, even fewer had the nerve to bet on their vision.
It’s not easy to stand apart from mass hysteria—to believe that most of what’s in the financial news is wrong or distorted,
to believe that most important financial people are either lying or deluded—without actually being insane.
why Wall Streets best and brighest are anything but... The End Of Wall Streets Boom
and why things are just starting to get ugly. An absolute must read for all Naybobs. Some choice excerpts follow...
On becoming a stock broker...I’d never taken an accounting course, never run a business, never even had savings of my own to manage.
I stumbled into a job at Salomon Brothers in 1985 and stumbled out much richer three years later, and even though I wrote a book about the experience,
the whole thing still strikes me as preposterous—which is one of the reasons the money was so easy to walk away from. I figured the situation was unsustainable.
On Wall Streets Moral Code... I did subprime first. I lived with the worst first. These guys lied to infinity.
What I learned from that experience was that Wall Street didn’t give a shit what it sold...
Eisman knew subprime lenders could be scumbags. What he underestimated was the total unabashed complicity of the upper class of American capitalism.
On still artifically high real estate prices... There’s a simple measure of sanity in housing prices: the ratio of median home price to income.
Historically, it runs around 3 to 1; by late 2004, it had risen nationally to 4 to 1.
All these people were saying it was nearly as high in some other countries. But the problem wasn’t just that it was 4 to 1.
In Los Angeles, it was 10 to 1, and in Miami, 8.5 to 1. And then you coupled that with the buyers. They weren’t real buyers. They were speculators.
On the massive loan fraud... Long Beach Financial, wholly owned by Washington Mutual,
was moving money out the door as fast as it could, few questions asked, in loans built to self-destruct.
t specialized in asking homeowners with bad credit and no proof of income to put no money down and defer interest payments for as long as possible.
In Bakersfield, California, a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $720,000.
On the ridiculousness of credit default swaps... Instead of shorting the actual BBB bond,
you could now enter into an agreement for a credit-default swap with Deutsche Bank or Goldman Sachs.
It cost money to make this side bet, but nothing like what it cost to short the stocks, and the upside was far greater.
The arrangement bore the same relation to actual finance as fantasy football bears to the N.F.L.
On the quality of CDO based on BBB tranches... C.D.O.’s backed by the BBB tranche of a mortgage bond,
the equivalent of three levels of dog shit lower than the original bonds.
On the reality of CDO... there weren’t enough Americans with shitty credit taking out loans to satisfy investors’ appetite for the end product.
The firms used Eisman’s bet (credit default swap) to synthesize more of them (CDO).
The swap enabled Deutsche Bank to create another bond identical in every respect but one to the original.
The only difference was that there was no actual homebuyer or borrower. The only assets backing the bonds were the side bets (swaps)
Eisman, in effect, was paying to Goldman the interest on a subprime mortgage. In fact, there was no mortgage at all.
They weren’t satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn’t afford.
They were creating them out of whole cloth. One hundred times over! That’s why the losses are so much greater than the loans.
On the recent crash... There’s a long list of people who now say they saw it coming all along but a far shorter one of people who actually did.
Of those, even fewer had the nerve to bet on their vision.
It’s not easy to stand apart from mass hysteria—to believe that most of what’s in the financial news is wrong or distorted,
to believe that most important financial people are either lying or deluded—without actually being insane.
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