债券市场与最近的金融危机-The Bond Market And The Latest Financial Crisis
They all are against subprime lending for that that did their best by keeping people away from subprime lending but people thought them drive crazy. Not all the people think like that because the author also against subprime lending. His main focus was Wall Street firm. He wanted to disclose that Wall Street banks steal the techniques of their clients and apply them to their customers. Investment banks in America knew in 2006 that subprime mortgage lending default rate is rising but they hide it from rating agencies and from their investors and the same did the Wall Street investment banks.
Author disclosed the facts about Wall Street and at a point he thought it will be ruined but nothing happened to Wall Street, there is no scandal. But then Meredith Whitney appears, she was an analyst of financial firm from Oppenheimer and co. the first thing she did she busted the CitiGroup by predicted that citigroup is very mismanaged. And after that she said that management of Wall Street is stupid because they don’t know about what are they doing. Michael Lewis called her to know where she came from. She told him that she was in Wall Street in 1994 and then she found a job in Oppenheimer and co. and trained by the Steve eismen. Steve eismen is the first character of this book. He born in New York and he gone to Harvard law school. At 30 years of age he was a corporate lawyer in 1991. Actually he did not want to be a lawyer, he hated it.
His parents worked at Oppenheimer securities as brokers. Oppenheimer was of the last Wall Street partnerships. His parents hired him in Oppenheimer as equity analyst. His first opinion was about the aames financial which was subprime mortgage lender and it was the first subprime mortgage lender which went public. Steve eisman was a guy who made himself as one of the analysts whose opinions could beat the market. People at his company liked him loved him and had respect for him. He had unique knowledge. Meredith Whitney said about him,” a lot of people don’t get him but the people who get him love him”. He had two personalities when he entered into Wall Street.
The Wall Street had extended because of mortgage bond market. The mortgage bonds were different from traditional corporate bonds and government bonds. This mortgage band only repaid by the borrowers when interest rate decreased and borrowers could refinance cheaply. But some people from Salomon brothers made a clever solution they took home loans and made payments in tranches. In 1990, two of the Wall Street analyst devoted their career to understand the effects of extending credit. In which one was Steve eisman. At that time the only untapped assets Americans had that was homes. This new market provides lower middle class Americans low interest rates on their debts.
In the early 1990, many subprime mortgage lenders –the money stores, green tree, aames they sold their shares to public for grow faster. At that time subprime mortgage lending industry was on top and then the Oppenheimer and co. also became one of the leading bankers to the subprime mortgage lending industry. Steve Eisman hired Vincent Daniel in Oppenheimer and co. for the help in numbers. Vinnay was first worked with arther Anderson accounting firm which was bankrupt in Enron scandal, as an accountant. Eisman wanted to write a report on bond market and vinnay was here to help him. Eisman had detected some unpleasant facts about subprime mortgage lending industry. Vinnay found a lot of things and then told eisman that all the subprime companies were growing very fast and follow Ponzi scheme. In September 1997, eisman published this report and after that many companies busted at period of boom. After few years eismen went to a hedge fund called Chilton investment. And in 2002, no subprime lending industry company left in America.
Eisman thought that subprime mortgage loan is a fraud. By taking this loan you can pay your other loans such as credit card loans, auto loans but not the mortgage loan. At a lunch by Wall Street firm eisman viewed his thoughts about free checking model. He did not like it he called it tax on started his own hedge fund which called as front point partners. In 2004 he was in a position that he did not raise his money and also he was in a therapy. In 2005 Steve eisman’s group said about the people who worked with Wall Street that they did not know what are they doing? The subprime lending industry was started again and it was much terrifying than then previous one. In 1990, thirty billion dollars and in 2005 625 billion dollars was the lending in subprime mortgage loans. Subprime mortgage lending was growing even the interest rate was a too high. In 1996. The interest rate was 65 percent and in 2005 it was 75 percent. In early 2005 Wall Street investment banks were go deep in the subprime mortgage industry. Eisman wanted to expose the game of subprime mortgage lending industry in front of lower middle class Americans.
The second character is Michael burry. Michael Burry, a physician turned stock picker with an antisocial personality. He was later diagnosed as Asperger's. Who becomes the first money manager to buy a credit default swap on subprime mortgage bonds He entered himself in bond market in 2004. All he wanted to know how subprime mortgage lending, market worked. He also wanted to know about corporate credit default swaps. Two years earlier, he discovered credit default swaps. A credit default swap was confusing because it was not really a change in any way. It was an insurance policy, characteristically on a corporate bond, with semiannual premium payments and a fixed term. For example, you pay $200,000 a year to buy a ten-year credit default swap on $100 million in General Electric bonds. The most you’d lose was $2 million: $200,000 a year for ten years. The most you’d make was $100 million, if General Electric defaulted on its debt any time in the next ten years and bondholders recovered zero. It was a zero-sum bet: If you made $100 million, the person who had sold you the credit default swap lost $100 million.
He thought himself different from other because of his fake eye. He thought that he can see the world with different angle. He was studying medicine but he had no interest in it. One of His superiors sent him to a psychiatrist, who said Mike Burry is bipolar. He wasn't bipolar. He was just lonely and apart, without feeling lonely or deeply unhappy. He didn't consider himself as a tragedy; he thought that his odd personality enabled him to focus better than other people. All of this followed, in his mind, just because of his fake eye. "That's why I thought people thought I was different," he said. "That's why I thought I was different." Thinking himself different, he didn't stumble on what happened to him when he collided with Wall Street almost as weird as it was. In his spare time he used the hospital computer and wrote blog about investment to help trade investors. People started to know him they read his blog. Firstly investors read his blog then big names also included in his list of followers.
One day he left medicine and opened his hedge fund which was named as scion capital. He bought furniture for his office; make the availability of breakage call possible. And his first call and investment was from Gotham capital it was the one of the leading industry that days. They offer him million doller for investment. And second investment was from an insurance company white mountain. He just kept on going his business and his investors were happy with him. He took decision very cleverly. He wrote letters to his investors. At the time when every company was losing his company making profit. In year, 2001, the S&P 500 fell 11.88 percent. Scion capital was up to 55 percent. The next year 2002, the S&P 500 fell again, by 22.1 percent, and Scion was up again: 16 percent. The year, 2003, the stock market turned around and rose 28.69 percent, but Mike Burry beat it again, his investments rose by 50 percent. By the end of 2004, Mike Burry was managing $600 million. By the end of July he owned credit default swaps on $750 million in subprime mortgage bonds and was confidentially conceited about it.
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