The Big Short_ Inside the Doomsday Machine - Michael Lewis [106]
The job fell to Ben Hockett. Charlie Ledley had tried a few times to act as their trader and failed miserably. "There are all these little rules," said Charlie. "You have to know exactly what to say, and if you don't, everyone gets pissed off at you. I'd think I'd be saying, like, 'Sell!' and it turned out I was saying, like, 'Buy!' I sort of stumbled into the realization that I should not be doing trades." Ben had traded for a living and was the only one of the three who knew what to say and how to say it. Ben, however, was in the south of England, on vacation with his wife's family.
And so it was that Ben Hockett found himself sitting in a pub called The Powder Monkey, in the city of Exmouth, in the county of Devon, England, seeking a buyer of $205 million in credit default swaps on the double-A tranches of mezzanine subprime CDOs. The Powder Monkey had the town's lone reliable wireless Internet connection, and none of the enthusiastic British drinkers seemed to mind, or even notice, the American in the corner table bashing on his Bloomberg machine and talking into his cell phone from two in the afternoon until eleven at night. Up to that point, only three Wall Street firms had proved willing to deal with Cornwall Capital and give them the ISDA agreements necessary for dealing in credit default swaps: Bear Stearns, Deutsche Bank, and Morgan Stanley. "Ben had always told us that it's possible to do a trade without an ISDA, but it was really not typical," said Charlie. This was not a typical moment. On Friday, August 3, Ben called every major Wall Street firm and said, You don't know me and I know you won't give us an ISDA agreement, but I've got insurance on subprime mortgage-backed CDOs I'm willing to sell. Would you be willing to deal with me without an ISDA agreement? "The stock answer was no," said Ben. "And I'd say, 'Call your head of credit trading and call your head of risk management and see if they feel differently.'" That Friday only one bank seemed eager to deal with him: UBS. And they were very eager. The last man clinging to the helium balloon had just let go of his rope.
On Monday, August 6, Ben returned to The Powder Monkey and began to trade. For insurance policies costing half of 1 percent, UBS was now offering him 30 points up front--that is, Cornwall's $205 million in credit default swaps, which cost about a million bucks to buy, were suddenly worth a bit more than $60 million (30 percent of $205 million). UBS was no longer alone in their interest, however; the people at Citigroup and Merrill Lynch and Lehman Brothers, so dismissive on Friday, were eager on Monday. All of them were sweating and moaning to price the risks of these CDOs their firms had created. "It was easier for me because they had to look at every single deal," said Ben. "And I just wanted money." Cornwall had twenty separate positions to sell. Ben's Internet connection came and went, as did his cell phone reception. Only the ardor of the Wall Street firms, desperate to buy fire insurance on their burning home, remained undimmed. "It's the first time we're seeing any prices that reflect anything close to like what they're really worth," said Charlie. "We had positions that were being valued by Bear Stearns at six hundred grand that went to six million the next day."
By eleven o clock Thursday night Ben was finished. It was August 9, the same day that the French bank BNP announced that investors in their money market funds would be prevented from withdrawing their savings