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How a Doctor beat Wall Street

vanityfair.com

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Re: How a Doctor beat Wall Street

#51

Post by jsm386 »

smokinn wrote: post #42
flipbrad wrote: post #34

what part did credit rating agencies like Moodys have to play in all this? They seem to have escaped from quite a lot of scrutiny in all of this...

It's pretty obvious the role they played. They're expected to be the arbiters of what the risk is. They were setting the risk value for things they had no clue about. It was simply incompetent negligence and no one should be trusting them anymore.

It's a lot worse than 'setting the risk value of things they had no clue about.' It was, flat out, a conflict of interest:

The AAA ratings given by the agencies proved to be wildly inaccurate and unreasonably high, according to the suit, which also said that the methods used by the rating agencies to assess these packages of securities were seriously flawed in conception and incompetently applied

The ratings agencies no longer played a passive role but would help the arrangers structure their deals so that they could rate them as highly as possible, according to the Calpers suit.

More @ http://www.ritholtz.com/blog/2009/07/calpers-rating-agencies... (this is just but one example of Barry Ritholtz extensive coverage of this issue. McGraw Hill dropped his book b/c of his payola (acurrate) line about S&P's efforts at this in particular.

Re: How a Doctor beat Wall Street

#52

Post by byrneseyeview »

oconnore wrote: post #25
greenlblue wrote: post #7

It's great that this guy has a gift but let's call what he does for what it is: exploitation. Countless pension funds and state budgets are in shambles because of people like him.

I don't think this should be down voted, because it represents a fairly common (and therefore interesting) opinion. Also, the replies are enlightening.

Common and therefore interesting? What's interesting about it, if it's common?

Re: How a Doctor beat Wall Street

#53

Post by nandemo »

jim-greer wrote: post #45
nsoonhui wrote: post #33

Earlier quoted context omitted.

I did; what's the problem with my comment? Just to add: lots of people also bet against bubbles at any point of time of the bubble. But they were forced out of business before the bubbles could even burst( "Market can remain irrational longer than you can remain solvent"). Only a handful survived and we thought that they have special skills or magic formula. You underestimate the element of luck in the world of inves…

Timing is everything, but Burry was careful to find a long-term bet with limited downside. He wasn't shorting stocks - he was buying credit-default swaps which are essentially insurance policies. "For instance, you might pay $200,000 a year to buy a 10-year credit-default swap on $100 million in General Electric bonds. The most you could lose was $2 million: $200,000 a year for 10 years. The most you could make was $…

nsoonhui's comment still applies. For instance, call options also have limited downside, but still the limit is 100% of your investment. And most of the time you do lose 100%.

Apparently, Burry's achievement was that he found a way to "short" something when there was no "off-the-shelf" product to do so. Even so it's not easy to separate skill from luck.

Re: How a Doctor beat Wall Street

#55

Post by asmithmd1 »

philk wrote: post #24
greenlblue wrote: post #7

It's great that this guy has a gift but let's call what he does for what it is: exploitation. Countless pension funds and state budgets are in shambles because of people like him.

Wrong. He was simply betting that subprime loans were a huge risk that was going to go bust. If you need to blame someone, go for the people who made these loans in the first place, or the ratings companies for failing to spot the disaster.

He did more than just place a bet. He carefully read the prospectus of the individual bonds he was shorting. He looked into the underlying loans that the bond was based on. He saw: no income verification, no down payments, and inflated home prices. This is something the people buying the bonds could have and should have done themselves.

Re: How a Doctor beat Wall Street

#56

Post by sireat »

patrickk wrote: post #41

Another superb article from vanity fair. There was another one a week or so ago about a former sniper in Afghanistan. Reading this reminded me of when I read about Jeff Greene about a year ago - another guy who made a mint from the housing/mortgage bubble collapse. See: http://www.forbes.com/forbes/2008/1006/266.html I love these types of stories - an 'outcast' who spots a trend and is either ignored or heavily criti…

Not that Vanity Fair doesn't have high standards, but the author of the article(actually a chapter of his new book) was Michael Lewis, who is quite a good writer by himself. :)

Re: How a Doctor beat Wall Street

#58

Post by Gobiner »

byrneseyeview wrote: post #52
oconnore wrote: post #25

Earlier quoted context omitted.

I don't think this should be down voted, because it represents a fairly common (and therefore interesting) opinion. Also, the replies are enlightening.

Common and therefore interesting? What's interesting about it, if it's common?

Interesting in how common it is, perhaps?

Re: How a Doctor beat Wall Street

#59

Post by anamax »

flipbrad wrote: post #34

what part did credit rating agencies like Moodys have to play in all this? They seem to have escaped from quite a lot of scrutiny in all of this...

> what part did credit rating agencies like Moodys have to play in all this?

Don't forget the SEC. It gave a ratings monopoly to Moodys and two others (whose name escapes me).

Yes - the SEC said that the ratings from Moodys and the other two are the only ones that count for regulatory purposes. What could go wrong....

Regulation is systemic risk.

Re: How a Doctor beat Wall Street

#60

Post by anamax »

nazgulnarsil wrote: post #32
miked wrote: post #30

Earlier quoted context omitted.

George Soros had to hide from Nazis as a child. I hardly blame him for having to hide, but did he have to go out and help confiscate the property of his fellow jews? Couldn't he have stayed home? Not to mention that he's been convicted of insider trading. http://www.google.com/search?client=safari&rls=en&q=... KROFT: (Voiceover) You're a Hungarian Jew... Mr. SOROS: (Voiceover) Mm-hmm. KROFT: (Voiceover) ...who escape…

hey judging people who went through horrific experiences looks like fun! can I play?

> hey judging people who went through horrific experiences looks like fun! can I play?

Those horrific experiences weren't accidents. They happened because enough folks said "it's okay for me to do {bad thing} because {excuse}".

Also, imagine the response if it came out that a Pope or a Republican had done something similar.

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