Deja Vu

All the Money’s Gone

Tags:

Benjamin Franklin,

commerce,

New York City,

Wall Street

“The End,” by Michael Lewis, Condé Nast Portfolio, December 2008.

“You have to understand this,” Eisman says. “This was the engine of doom.” Then he draws a picture of several towers of debt. The first tower is made of the original subprime loans that had been piled together. At the top of this tower is the AAA tranche, just below it the AA tranche, and so on down to the riskiest, the BBB tranche—the bonds Eisman had shorted. But Wall Street had used these BBB tranches—the worst of the worst—to build yet another tower of bonds: a “particularly egregious” C.D.O. [collateralized debt obligation]. The reason they did this was that the rating agencies, presented with the pile of bonds backed by dubious loans, would pronounce most of them AAA. These bonds could then be sold to investors—pension funds, insurance companies—who were allowed to invest only in highly rated securities. “I cannot f---ing believe this is allowed—I must have said that a thousand times in the past two years,” Eisman says.

His dinner companion in Las Vegas ran a fund of about $15 billion and managed C.D.O.’s backed by the BBB tranche of a mortgage bond, or as Eisman puts it, “the equivalent of three levels of dog s--t lower than the original bonds.”

[Eisman] had spent a lot of time digging around in the dog s--t and knew that the default rates were already sufficient to wipe out this guy’s entire portfolio. “God, you must be having a hard time,” Eisman told his dinner companion.

“No,” the guy said, “I’ve sold everything out.”

After taking a fee, he passed them on to other investors. His job was to be the C.D.O. “expert,” but he actually didn’t spend any time at all thinking about what was in the C.D.O.’s. “He managed the C.D.O.’s,” says Eisman, “but managed what? I was just appalled. People would pay up to have someone manage their C.D.O.’s—as if this moron was helping you. I thought, You prick, you don’t give a f--k about the investors in this thing.”

“Plan of Conduct,” by Benjamin Franklin, 1726.
The new “scene” into which Franklin is about to enter is Philadelphia, where he moved after stints in Boston and London.

Those who write of the art of poetry teach us that if we would write what may be worth the reading, we ought always, before we begin, to form a regular plan and design of our piece: otherwise, we shall be in danger of incongruity. I am apt to think it is the same as to life. I have never fixed a regular design in life; by which means it has been a confused variety of different scenes. I am now entering upon a new one: let me, therefore, make some resolutions, and form some scheme of action, that, henceforth, I may live in all respects like a rational creature.

1. It is necessary for me to be extremely frugal for some time, till I have paid what I owe.

2. To endeavour to speak truth in every instance; to give nobody expectations that are not likely to be answered, but aim at sincerity in every word and action—the most amiable excellence in a rational being.

3. To apply myself industriously to whatever business I take in hand, and not divert my mind from my business by any foolish project of growing suddenly rich; for industry and patience are the surest means of plenty.

4. I resolve to speak ill of no man whatever, not even in a matter of truth; but rather by some means excuse the faults I hear charged upon others, and upon proper occasions speak all the good I know of every body.

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