Nobody coulda foreseen the subprime mortgage meltdown—except for a lot a people who blew the whistle years ago.
Tuesday, November 25, 2008 at 10:57AM
Skeptic in Sub-prime Mortgage Melt-down

This is an absolutely riveting account of the inflating subprime bubble told mainly from the perspective of industry insiders who understood there was no there there and bet heavily against these securities and the equities of firms that created, rated, and owned them. It describes how the volume of credit default swaps exploded because they were the "side bets" that allowed speculators to short mortgage backed securities and other collateralized debt obligations at much lower cost than borrowing and shorting the actual securities. Then the sellers of credit insurance packaged and subdivided the swap contracts to mirror the "shorted" securities. Normally the longs hate the shorts, but in this case people who were long on the MBSs and CDOs loved the short sellers because it increased the volume of activity on which they earned large fees while their clients were being walked over a cliff. Not only is the piece informative, it's a fun read by the author of Liar's Poker and has names and dialogs of knaves and fools as well as truth-tellers.

Update on Tuesday, November 25, 2008 at 11:06AM by Registered CommenterSkeptic

Here's another fun fact:  At least one company's MBS risk model did not have the flexibility to allow the entry of a negative number for the rate of housing price increases. 

Article originally appeared on realitybase (http://www.realitybase.org/).
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