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Tuesday, November 24, 2015

Did Magnetar create the mortgage crisis?

Intro by Gary Wamsley

Mortgage bankers recently testified before the US Congress that no one saw the impending crisis in sub-prime mortgages and the financial crisis that ensued. That is pretty hard to believe. Either the top financial experts in this country are incredibly stupid or they are lying. Take your pick.

There were people who saw it coming, and perhaps even created the crisis and made hundreds of millions of dollars at what turns out to be taxpayer expense. Two reporters for ProPublica, whose motto is “Journalism in the public interest” recently concluded a seven month investigation into the role of the Magnetar Hedge Fund in this crisis. I listened to the broadcast on KUNC radio. I was shocked and amazed, you will be too. The radio broadcast lasted an hour. The link I am providing to the ProPublica website takes you to the printed article. It is very long, but well worth your reading.

Quotes from the article:

Many of the bankers who worked on these deals personally benefited, earning millions in annual bonuses. The banks booked profits at the outset. But those gains were fleeting. As it turned out, the banks that assembled and marketed the Magnetar CDOs had trouble selling them. And when the crash came, they were among the biggest losers.

Some bankers involved in the Magnetar Trade now regret what they did. We showed one of the many people fired as a result of the CDO collapse a list of unusually risky mortgage bonds included in a Magnetar deal he had worked on. The deal was a disaster. He shook his head at being reminded of the details and said: “After looking at this, I deserved to lose my job.”

The reporters conclude that Magnetar did nothing illegal but had a major role in creating a market for sub-prime loans. The greed of the bankers allowed them to proceed, and in the end we, the taxpayers, workers and small business people suffer while the bankers and the Magnetar principals and investors pocketed millions of dollars.

This may be the most important business article you will ever read. We need to make sure our government officials know about this and hopefully do something about it.

The side bar on ProPublica includes documents and letters relating to the investigation, including a response from Magnetar.

The Magnetar Trade: How One Hedge Fund Helped Keep the Bubble Going

The Huffingtion Post, hear the hedge fund show tune:

“Betting Against the American Dream? with Video


Why Are 25 Hedge Fund Managers Worth 658,000 Teachers?

Quote from this article,

The $1 billion each those 25 hedge fund managers netted (for themselves) was impressive — but doing it in the year 2009 was also slap in the face of struggling Americans. That’s because hedge funds would have earned little or no money at all in 2009 had the government not bailed out the financial sector with trillions in loans, asset guarantees and other forms of financial assistance. It was, in effect, a generous gift from we the taxpayers. Much of that money was “earned” by betting that the government would not let the financial sector collapse. Smart bet.

For another opinion on the Magnetar role see:

A More Innocent Explanation For Betting Against A CDO That You Intentionally Stuffed With Crap Assets

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