Wednesday, December 19, 2007

From Chinese to Deli: a short prehistory of the sub-prime crisis

The structure of the financial instruments that led inexorably to the sub-prime crisis that threatens to bring down the entire world banking system was plotted by a handful of men who had weekly meetings.  Dinner was brought in for each meeting.  It started out Chinese, but they eventually switched to deli, as Chinese was deemed not to be kosher.  Note the denials at the end of the Bloomberg article that the derivative structure set up by the planners, which allowed them to bet against the sub-prime loans being good, has anything to do with the ensuing crisis.  It appears that they set the whole system up in anticipation that it would collapse.

If you wanted to be a cutting-edge conspiracy theorist you would correlate the billionaires who made much of their money off derivatives related to sub-prime loans – you’d be looking at ‘real estate’ hedge finds – and donations to the major American political parties, particularly to the Democrats, and particularly to Hillary Clinton.  While some find Wall Street donations to Democrats incongruous (note the code: “Hedge-fund managers tend to live near the top of cosmopolitan, culturally liberal societies.”), it is notable that the ‘tax-and-spend’ Democrats – well, at least Clinton and Schumer  –  have been resisting efforts to raise effective tax rates on hedge fund profits.