Michael Lewis calls the End

That’s when Eisman finally got it. Here he’d been making these side bets with Goldman Sachs and Deutsche Bank on the fate of the BBB tranche without fully understanding why those firms were so eager to make the bets. Now he saw. 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 to synthesize more of them. Here, then, was the difference between fantasy finance and fantasy football: When a fantasy player drafts Peyton Manning, he doesn’t create a second Peyton Manning to inflate the league’s stats. But when Eisman bought a credit-default swap, he 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 Eisman and others made with firms like Goldman Sachs. 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,” Eisman says. “They were creating them out of whole cloth. One hundred times over! That’s why the losses are so much greater than the loans. But that’s when I realized they needed us to keep the machine running. I was like, This is allowed?"

Related posts:

1. The End Of The Road For Ambac and MBIA? This is a non-India post. But it has some significance...
2. Infy Options: Action In The Calls Infy results are out tomorrow and there seems to be...
3. The End Game Begins As I speak, the DOW is 360 points down and...
4. Pakistan now in the deep end It seems there's a problem in our neighbour's economy. Facing...
5. Strangle update: booked some puts, still hold calls I bought a 2850/2900 November strangle on Friday, as per...

This entry was posted on Thursday, November 13th, 2008 at 11:13 AM and is filed under Crisis2008. You can subscribe to any comments to this entry via RSS 2.0. You can leave a response, or trackback from your own site.