The Big Short_ Inside the Doomsday Machine - Michael Lewis [129]
* A spokesman for S&P later doubted that any S&P employee would ever have said such a thing, as their model was capable of handling negative numbers.
* On October 22, 2008, a former S&P subprime mortgage bond analyst named Frank Raiter would testify before the Committee on Oversight and Government Reform that the S&P managing director in charge of the surveillance of subprime mortgage bonds "did not believe loan-level data was necessary and that had the effect of quashing all requests for funds to build in-house data bases." Raiter introduced an e-mail from S&P's managing director of CDO ratings, Richard Gugliada, in which Gugliada said: "Any request for loan-level tapes is TOTALLY UNREASONABLE!! Most originators don't have it and can't provide it. Nevertheless we MUST produce a credit estimate.... It is your responsibility to provide those credit estimates and your responsibility to devise some method to do so."
* A Connecticut-based hedge fund that lost $6.8 billion in bets on natural gas in early 2006 and blew up in spectacular fashion.
* The distinction had become superficial. Alt-A borrowers had FICO credit scores above 680; subprime borrowers had FICO scores below 680. Alt-A loans were poorly documented, however; the borrower would fail to provide proof of income, for instance. In practice, Alt-A mortgage loans made in the United States between 2004 and 2008 totaling $1.2 trillion were as likely to default as subprime loans totaling $1.8 trillion.
* A silent second is a second mortgage used, in the purchase of a house, to supplement a first mortgage. It is silent only to the guy who made the first loan, and who is less likely to be repaid, as the borrower is less likely to have any financial stake at all in his own home.
* Just about everyone involved in the financial crisis stands to lose money if he is caught talking about what he saw and did. Obviously those still employed at the big Wall Street firms, but even those who have moved on, as they have typically signed some nondisclosure agreement. Morgan Stanley's former employees are not quite as spooked as those who worked at Goldman Sachs, but they're close.
* Of all the conflicts of interests inside a Wall Street bond trading firm, here was both the most pernicious and least discussed. When a firm makes bets on stocks and bonds for its own account at the same time that it brokers them to customers, it faces great pressure to use its customers for the purposes of its own account. Wall Street firms like to say they build Chinese walls to keep information about customer trading from leaking to their own proprietary traders. Vincent Daniel of FrontPoint Partners offered the most succinct response to this pretense: "When I hear 'Chinese wall,' I think, You're a fucking liar."
* Here it's useful to remember that selling a credit default swap on a thing leaves you with the same financial risk as if you owned it. If the triple-A CDO ends up being worth zero, you lose the same amount whether you bought it outright or sold a credit default swap on it.
* The timing of Goldman's departure from the subprime market is interesting. Long after the fact, Goldman would claim it had made that move in December 2006. Traders at big Wall Street firms who dealt with Goldman felt certain that the firm did not reverse itself until the spring and early summer of 2007, after New Century, the nation's biggest subprime lender, filed for bankruptcy. If this is indeed when Goldman "got short," it would explain the chaos in both the subprime market and Goldman Sachs, perceived by Mike Burry and others, in late June. Goldman Sachs did not leave the house before it began to burn; it