Wall Street’s Demise

Michael Lewis of Liar’s Poker fame has a great article about the end of the era of greed (30 years long!) in Portfolio. An excerpt:

For instance, he knew that the big Wall Street investment banks took huge piles of loans that in and of themselves might be rated BBB, threw them into a trust, carved the trust into tranches, and wound up with 60 percent of the new total being rated AAA.

But he couldn’t figure out exactly how the rating agencies justified turning BBB loans into AAA-rated bonds. “I didn’t understand how they were turning all this garbage into gold,” he says. He brought some of the bond people from Goldman Sachs, Lehman Brothers, and UBS over for a visit. “We always asked the same question,” says Eisman. “Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.” He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number. “They were just assuming home prices would keep going up,” Eisman says.

If you want to get good and pissed, if you want understand just how clueless (and remorseless) the people running these get rich quick schemes are, read this article. After this, you might just stick all your money under the mattress (or, maybe, in CDs) and stop paying your taxes (so these assholes won’t get a bonus for failure.)


One Response to Wall Street’s Demise

  1. dave says:

    Saw this. I think it makes a really good point about these ibanks all going public. That was when the short-term became a priority over the long-term. The quarter to quarter mentality. Everyone gets rich by cashing out stock. A lot of people are going to go to jail.

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