Michael Lewis
American contemporary non-fiction author and financial journalist.
A credit default swap was confusing mainly because it wasn't really a swap at all. It was an insurance policy, typically on a corporate bond, with semiannual premium payments and a fixed term.
Incredibly, at this critical juncture in financial history, after which so much changed so quickly, the only constraint in the subprime mortgage market was a shortage of people willing to bet against it.
Here was a strange but true fact: The closer you were to the market, the harder it was to perceive its folly.
These guys lied to infinity. What I learned from that experience was that Wall Street didn't give a shit what it sold.
Looking into it a bit, Jamie found that the model used by Wall Street to price LEAPs, the Black-Scholes option pricing model, made some strange assumptions.
the more he studied Buffet, the less he thought he could be copied; indeed, the lesson of Buffet was: To succeed in a spectacular fashion you had to be spectacularly unusual.
A thought crossed his mind: How do you make poor people feel wealthy when wages are stagnant? You give them cheap loans.
Spain and France had accumulated debts of more than ten times their annual revenues. Historically, such levels of government indebtedness had led to government default. “Here’s the only way I think things can work out for these countries,” Bass said. “If they start running real budget surpluses. Yeah, and that will happen right after monkeys fly out of your ass.”
Even as late as the summer of 2006, as home prices began to fall, it took a certain kind of person to see the ugly facts and react to them-to discern, in the profile of the beautiful young lady, the face of an old witch.
Each firm held its rope; one by one, they realized that no matter how strongly they pulled, the balloon would eventually lift them off their feet.
The longer-term the option, the sillier the results generated by the Black-Scholes option pricing model, and the greater the opportunity for people who didn't use it.
I confess some part of me thought, If only I'd stuck around, this is the sort of catastrophe I might have created.
I'd stumbled into a job at Salomon Brothers in 1985, and stumbled out, richer, in 1998, and even though I wrote a book about the experience, the whole thing still strikes me me as totally preposterous-which is one reason the money was so easy to walk away from.
Ever since grade school, when his father had shown him the stock tables at the back of the newspaper and told him that the stock market was a crooked place and never to be trusted, let alone invested in, the subject had fascinated him.
All that was clear that the profits to be had from smart people making complicated bets overwhelmed anything that could be had from servicing customers, or allocating capital to productive enterprise.
The big Wall Street firms, seemingly so shrewd and self-interested, had somehow become the dumb money. The people who ran them did not understand their own businesses, and their regulators obviously knew even less.
Yet another hedge fund manager explained Icelandic banking to me this way: you have a dog, and I have a cat. We agree that each is worth a billion dollars. You sell me the dog for a billion, and I sell you the cat for a billion. Now we are no longer pet owners but Icelandic banks, with a billion dollars in new assets.
The fuses had been lit and could not be extinguished. All that remained was to observe the speed of the spark, and the size of the explosions.
Why isn't someone smarter than us doing this?
The CDO was, in effect, a credit laundering service for the residents of Lower Middle Class America. For Wall Street it was a machine that turned lead into gold.