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The Big Short

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Andrea Markovic

on 31 October 2014

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Transcript of The Big Short

The Big Short: Inside The Doomsday Machine
The Big Short
Inside The Doomsday Machine
Origin of the story
Author, Michael Lewis
Lawyer, Steve Eisman
Dr. Mike Burry
"How Can a Guy Who Can't Speak English Lie?"
A Pit Full of Pythons
"Shorting Home Equity Mezzanine Tranches"
Xu Factor
Enter AIG Financial Products
Goldman Sachs' Financial Wizardry
A Death of Interest
It took several years but the predictions of those who shorted the market began to materialize.
Snowball effect.
Conflict of interest: Hubler and Morgan Stanley.
Cornwall: letting the bond trader deceive itself.
Disproportionate long to short: 2.7 – 1 billion
Two Men in a Boat
The Pope knew all along.
Who Lied?
Risk so big not seen. $240 billion in toxic assets assessed as riskless: who is at fault?
Results in greatest deleveraging in history.
Losers win big and the winners get ignored.
Dear Person, your bond no longer exists.
Biggest lag: reality, and dissipation of conspiracies
Brandon Plemons, Cameron Beall, Barri Buehre,
Tamara Williams, Andrea Markovic
The Great Treasure Hunt
Cornwall Capital – Bear Sterns – HSBC
HSBC & Household Financial
Credit Agencies
CNBC “They weren’t in touch with reality”
“Your models are wrong!”
Grant’s Interest Rate Observer
The Long Quiet
Center for Responsible Lending
2007 2.2M borrowers will lose their homes, 20% subprime mortgages from 2005 & 2006 will fail
Goldman Sachs starts betting against itself
Wall Street panic & scramble

Everything is Correlated
Assumptions were long in the making, therefore understanding and reform long in the making.
Problem: CEO’s have no incentive to win or lose – still get the “Golden Parachute.”
Hubler example!
John Gutfreund started it all: Saloman Bro.s
Geitner & Bernanke: Ignorant yet still making the calls.

Accidental Capitalists
John Paulson
Credit default swaps ("cheap hedge against catastrophe", primary investment
Charlie Ledley and Jamie Mai, Cornwall Capital
Bets against subprime mortgages
Credit default swaps, primary investment
"Key to success were an obsessive way of looking at the markets"
Spider-Man at The Venetian
Investors buying credit default swaps and those holding on to their CDOs
Greg Lippmann, FrontPoint
Eisman, Wing Chau
Charlie Ledley, Jamie Mai, Ben Hockett
Full transcript