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in fact the federal reserve having acquired new powers of regulation has insisted specifically that nothing in the field of economics or finance was of any help in predicting the crisis period no more comment it's a worthless conclusion it guarantees we'll make the same mistake again and again so seeing the economy on the verge of collapse i did the logical thing i sought to profit from it specifically i set out to buy credit default swaps on subordinated tranches of subprime residential mortgage-backed securities and that's where i lost my investors too in fact in doing so i gained a new level of insight into how wall street really works i called different wall street firms banks with which i had prior relationships due to my trading of distressed debt i asked them to i tried to convince them to trade in this market with me initially i initially i found no takers this was march of 2005.
the whole effort was complicated because it was important to me that the security this instrument that i'd like to use to short the market would be standardized such that if i bought a credit default swap from one dealer counter party i could easily trade that credit default swap to another dealer counter party bespoke one-off contracts were full of contract and counterparty risk that i would not tolerate nevertheless by may of 2005 standardized contracts were on the cusp of becoming reality in may of 2005 may 19th of 2005 we agreed to our first trades shorting the subprime mortgage market with deutsche bank we worked with the soon we worked on these soon to be standardized contracts a bit and in the first days of juno five the first trades that officially went through we would ultimately use nine different wall street dealer counterparties to be clear well first i'd say lehman and bear i avoided for obvious reasons even back then goldman sachs featured very prominently early on they were a very anxious crew to be clear these credit default swaps that i'm buying would rise in value as mortgages were written off and the value of these tranches fell goldman sachs in the spring of 07 appeared to us to want to make its trade bigger they wanted a bigger piece of the big short a lower price therefore it would benefit goldman sachs and that's how wall street works in late of june of 2007 credit spreads started marching higher and then they just took off for once once goldman was on the same side as my trade then it was aig's turn to complain about goldman's marks incredibly it would later be reported that more than 60 trillion dollars 60 trillion dollars in credit derivatives were in effect at the peak now hyperbole would say that is more than the gross product of the world but it's roughly equal and who really knows what gross product the world is how could that be how could it even get close to the gross product of the world credit derivatives on an underlying asset could be worth multiple orders of magnitude more than the asset itself is worth because all all asset-backed securities all asset-backed derivative securities settled in cash pay as you go that was the secret sauce of the doomed disney machine and so the crisis unfolded with the market providing a signal far too late even so fed chairman ben bernanke treasury secretary hank paulson continued to underestimate the situation i was able to i was just like that apoplectic secretary secretary paulson now claims that even if he knew what was going to happen he couldn't have done anything about it maybe true after all he would say i just joined the treasury in the summer of 2006 but he came from the top ceo job at goldman sachs and once treasury secretary he wasn't so impotent he orchestra orchestrated the once unthinkable government takeovers of aig fannie mae freddie mac absolutely unthinkable just a few years ago the bailouts of wall street he was anything but an impotent tool and he had he had a running start unlike any other but if he truly felt that way this is an absolutely devastating commentary on how our government works in fact as books and articles on the crisis proliferate it becomes clear that at nearly every failed institution and every relevant department of government there was someone whose insight was every bit as good as mine and in many cases better however none zero zero were in the top job that our ceos our governors our presidents and our chairmen did not see this company coming did not adequately prepare their constituencies is an indictment of the manner in which we choose and enable our leaders but such would not be the conclusions in 2008 broadly speaking it's the hedge fund's fault by the second half of the year with the government targeting commodity hedge fund managers with punitive subpoenas the global attack on so-called speculators and evil hedge funds the nationalizations of fannie freddie aog etc and their liabilities very importantly their liabilities which are now a special purpose vehicle of the government i worried about the future of a nation that would refuse to acknowledge the true causes of the crisis in my view an historic opportunity was lost america had instead chosen its poison as its cure and the second greatest generation would never be born today i expect the us government to attempt to continue easy money policies into the next presidential term pass the meat of the foreclosure crisis and pass the corporate and public refinancing humps that are upcoming with junk bonds junk bonds incredibly are again at all time highs quantitative easing seems to be working for now but this is an invalid validation of what america is doing this is in fact a pyrrhic gamble as we continue to debase our currency bernanke says he is not printing money again again i disagree as it stands i get an email every single day from the fed saying we just bought another 7 8 billion of treasuries monetizing the debt i don't know that's pretty clear to me in fact this program qe2 not queen elizabeth quantitative easing qe2 its scope and breath raises the severe a severe question of the treasury's needs the government's borrowing of money for the purpose of injecting cash into society bailing out banks brokers and consumers is a short-sighted easy decision for a population that has not yet learned that short-sighted easy strategies are the route to long-term ruin we never quite achieve the catharsis necessary to stoke a deep reevaluation of our wants needs and fears importantly the toxic twins fiat currency and an activist fed remained firmly entrenched even more so with the financial reforms last year in fact the federal reserve having acquired new powers of regulation has insisted specifically that nothing in the field of economics or finance was of any help in predicting the crisis period no more comment it's a worthless conclusion it guarantees we'll make the same mistake again and again so i have a problem with leaders i should note yes i've been very overwhelmed by these mistakes they've made we need better leaders but very frankly this isn't going to happen a problem cannot be solved if it can never be acknowledged and i don't see acknowledgement happening taxes need to be raised spending needs to be cut loopholes need to be shut if we already have any hope returning to a stable base certainly home ownership should not be a policy of the us government and the banking system needs substantial reform and even bank breakups glass-steagall needs a second run in a strong form and those 22 and a half million public workers have no business unionizing against the taxpayer the list of things that won't happen but should happen goes on and on as citizens of these united states we should carefully consider what one trillion means all personal income taxes collected in the u.s in a year do not add up to 1 trillion by 2020 interest expense on our national debt could very well very well exceed 1 trillion when you consider our 1.7 trillion dollar deficit consider we really only take in a little over the treasury's inlays are only a little over 2 trillion it's quite a loss margin 2 trillion also happens to be a little less than the amount of bank and government debt now held at our overly bloated fed 2 trillion seconds is 64 000 years and what's minimum wage again our country's math is scary big but even more scary is that it simply does not work speaking of math not working how many of you are checking that math pretty sure 64 000 years so arguments on blooming economic recovery must be considered alongside the fact that all this debt and all the money being printed is very much a real bill a real tax on our future it's debtors pro chil debtors prison for our children it has not yet come due today except for savers and those on a fixed income as such i recommend sober analysis on the part of the individual this is paramount we must remember that entire societies can and do follow the wrong path for a very long time they do run aground and there's nothing wrong with breaking from the social norm to ensure good outcomes legacies are a terrible and sometimes fatal burden in a rapidly changing world and common sense must rule when it comes to career paths and life choices though the situation seems to call for it it is not a time for a responsible individual to tolerate any level of blind faith in toward directed toward any man or woman it is absolutely not a time to follow so all that said i might recommend opening a bank account in canada
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