The Harder They Fall
Bloomberg's Mark Pittman, Bob Ivry and Kathleen M. Howley have produced an outstanding series on the over-the-top characters behind the rise and fall of the subprime mortgage market. It all started with a Chinese dinner:
Representatives of five of Wall Street's dominant investment banks gathered around a blonde wood conference table on a February night almost three years ago. Their talks over take-out Chinese food led to the perfect formula for a U.S. housing collapse….
As their newly created subprime market took off, however, a few astute investors bet on a crash:
J. Kyle Bass, a hedge fund manager from Dallas, strode into a New York conference room in August 2006 to pitch his theory about a looming housing market meltdown to senior executives of a Wall Street investment bank.
Home prices had been on a five-year tear, rising more than 10 percent annually. Bass conceived a hedge fund that bet on a crash for residential real estate by trading securities based on subprime mortgages to the least credit-worthy borrowers. The investment bank, which Bass declines to identify, owned billions of dollars in mortgage-backed securities.
"Interesting presentation," Bass says the firm's chief risk officer said into his ear, his arm draped across Bass's shoulders. "God, I hope you're wrong."
Within six months, Bass was right….
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