ladelfina
Thinks s/he gets paid by the post
- Joined
- Oct 18, 2005
- Messages
- 2,713
http://www.nplusonemag.com/interview-hedge-fund-manager
http://www.nplusonemag.com/financial-meltdown
People have made fun of my ideas about debt and the financial system. These interviews are worth reading for a variety of reasons, but I would like to highlight phrases from both articles:
I told you all I thought there was a VORTEX of debt created at the top of the system that sucked retail-level people in from below. The debt engine has not been not created by Joe Sixpack "demanding" this or that loose credit, as you may have been led to believe.
Anonymous HFM confirms this.
http://www.nplusonemag.com/financial-meltdown
People have made fun of my ideas about debt and the financial system. These interviews are worth reading for a variety of reasons, but I would like to highlight phrases from both articles:
[HFM:] It's kind of an interesting interaction in the sense that a lot of this mortgage project was almost created by the bid for the CDO paper rather than the reverse. I mean, the traditional way to think about financing is "OK, I find an investment opportunity, that on its face, I think, is a good opportunity. I want to deploy capital on that opportunity. Now I go look for funding. So I think that making mortgage loans is a good investment, so I will make mortgage loans. Then I will seek to fund those, to fund that activity, by perhaps issuing CDO paper, issuing the triple-A, double-A, A, and down the chain." But what happened is, you had the creation of so many vehicles designed to buy that paper, the triple-A, the double-A, all the CDO paper... that the dynamic flipped around. It was almost as if the demand for that paper created the mortgages.
n+1: Created the loans?
HFM: Called forth the loans, because it became a really profitable business. You saw where you could issue these liabilities.
[HFM:]...what happened is this machine—let's call it, it's a big machine that wanted to gobble up, you know, rated paper—needed to be fed. So there were people who could make a lot of money feeding the machine, and they were like, you know, "We need to keep originating mortgages, and feeding them to the machine," and if you have a robot bid, you tend to get a bubble. Someone is hungry for paper, paper will be created.
And that's almost never a good thing that lending decisions are being driven by the fact that many, many steps down the chain there's just someone who wants to buy paper.
I told you all I thought there was a VORTEX of debt created at the top of the system that sucked retail-level people in from below. The debt engine has not been not created by Joe Sixpack "demanding" this or that loose credit, as you may have been led to believe.
Anonymous HFM confirms this.