Saturday, April 17, 2010

Rahm and the subprime scamsters

The big Wall Street trick of the past few years was to create a market that was bound to fail spectacularly while simultaneously placing big bets that it would fail. Goldman Sachs is finally being called to account for it, and will no doubt have to pay a fine that totals a tiny percentage of the profit it made. Of course, the trick wasn't all of Goldman's business, as it is a full-service criminal syndicate. For a hedge fund called Magnetar (named for for the super-magnetic field created by the last moments of a dying star), its entire business was betting against the big doomed-to-fail market it helped create. It made the worst of the subprime derivative securities marketable by buying the worst pieces of them, thus allowing the banks to sell the rest, all the while shorting the entire market (and covering its worst positions with insurance). It even bet that portions of its own deals would fail (Magnetar is trying to defend its conduct).

The CEO of Magnetar is, naturally, a chap named Alec Litowitz. Rahm connection:
"But the sponsors of this toxic trade did bother to make sure they had a powerful friend. The head of the firm in question gave substantial amounts of money by political contribution standards to Rahm Emanuel’s PACs, and only his PACs, over the period when these transactions were in play.

The moving force behind a brilliant and devastating subprime short strategy was a heretofore unknown Chicago hedge fund, Magnetar, headed by Alec Litowitz, formerly of the hedge fund behemoth Citadel. Our studies indicate that Magnetar alone accounted for between 35% and 60% of demand for subprime mortgages in the year 2006."

Don't expect the SEC to come knocking on Litowitz' door for a while. On the other hand, when Obama needs a method to get the undermining Rahm out of his office . . .
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