sheep get $laughtered
you only find out who is swimming naked
when the tide goes out
warren buffett / letter to b.h. shareholders, 2002
has taught
us that wall street
has no institutional memory
leon black / founder apollo management
nyt 11.18.07 "if buyout firms as so smart, why
are they so wrong

in sum long term capital management
was the dress rehearsal for the great
credit crisis of 2008 and a missed
opportunity to prevent the
ongoing tragedy
barry ritholtz / bailout nation 2009
it's hard for us
without being flippant, to even see a scenario
within any kind of realm of rea$on
that would see us losing $1 in
any of these credit default
swap transactions
joseph cassano / frm dir financial products aig [8.07]
aig has accurately identified all
areas of exposure to the u.s. residential
housing market we are confident in our marks
and the reasonablene$$ of our valuation methods
we have a high degree of certainty in what we have
booked to date
martin $ullivan / frm ceo aig [12.5.07]
if we believe
the report is anywhere close to accurate
i think we should close the funds now
if the report is correct then the
entire subprime market
is toa$t
matt tannin / frm portfolio mngr bear stearns [internal email 4.22.07]
those consumers
were beneficiaries of
false wealth and they were
living literally, like
marshal cohen / chief industry analyst npd
nyt 11.16.08 "no more fancy pants"

if the bank lost
money, where
do you get
the money
to pay the bonus?
andrew m cuomo / n.y. attorney general
the mortgage business at
merrill lynch was
an afterthought
they didn't
a strategy
they had found
this huge profit potential
and everybody wanted a piece
but they were pigs about it
william dallas / founder: ownit mortgages
nyt 11.9.08 "the thundering heard that faltered and fell"

so from a
structural point of view
from an asset point of view
from a $urveillance point of view
we're very comfortable with
exactly where we are
tannin [to investors 4.25.07]
no one
╩ the big challenges are
what i do know
is that we have never had
a more highly leveraged economy
than we have today
we have never had a more highly
leveraged household sector and we have
never had a more highly leveraged housing sector
than we have today
paul kasries / director econ research: northern trust
nyt 11.11.07 "there's no superhero in the wings"

our liquidity
and balance $heet are strong
we don't see any pressure on our liquidity
let alone a liquidity
alan $chwartz / frm ceo bear stearns [3.12.08]
an analyst report suggesting that countrywide faced
liquidity problems was totally irresponsible and ba$eless
on the contrary, every one of these crises you come out stronger
better and with less competition
angelo mozillo / frm ceo countrywide [8.23.07]
there are no current plans to go back to the market for capital
because we have all of those other levers that are turned on
producing capital, putting u$ into an increasingly - into a
comfortable position based on where we are in the
market right now
daniel mudd / frm ceo fannie mae [2.27.08]
we will go into the belly of this cycle
with about $48b in core capital
which is about $17b above
our statutory level
mudd [5.6.08]
we are on the right track
to put these last
two quarter$
behind us
richard fuld / frm ceo lehman [9.10.08]
our liquidity pool also remains strong at $42b
through the market volatility of the past six months out
liquidity and funding framework has served us extremely well
we remain focused on increasing the funding available in our bank
entities mitigating liquidity risks to our secured and unsecured positions
ian lowitt / frm cfo lehman [9.10.08]
i'm a jr analyst and just trying to figure out which end is up, but
i told him as a lawyer i'd worked on a deal for the money store
what i didn't tell him was that my job had been to proofread
the documents and that i hadn't understood a word of the
fcking things. and i thought there were three boxes
buy, hold, sell - and you could pick the one you
thought you should - these guys lied to
infinity. what i learned from that
experience is that wall street
didn't give a sht what
it sold
steve eisman / frm lead analyst oppenheimer
conde nast portfoilo 12.2008

i think proactive, aggressive risk management
has put us in an exceptionally good position
we have seen significant reductions in our
expo$ure to lower-rated $egments of
the market
jeffery edwards / frm cfo merrill lynch [7.17.07]
they are obsessed
with conservative underwriting
they have no $ubprime origination
g kennedy thompson / frm ceo wachovia [5.8.06]
our view
regarding the quality
of the golden west underwriting practice$
has just continued to grow stronger
don truslow / frm chief risk officer wachovia [4.16.07]
because the way these
pick-a-payment-option or arm loans
are underwritten, we're not seeing any meaningful
losses in the portfolio, and we don't expect to see any rises
in losses as we look forward over the next few quarters
tru$low [7.20.07]
as you'll recall
i have been pretty pessimistic
on the housing market for the last couple of years
so we've been diversifying our mix of businesses. we tightened
underwriting. we decreased production volume by about half in the subprime
area and we decreased the subprime portfolio. as the housing market has softened
as expected, what i have really seen is a continually very good performance out of most parts
of the portfolio
kerry killinger / frm ceo wamu [1.17.07]
the credit-default market has
operated in the shadows
there is no public
disclosure nor
any legal
for these contracts
to be reported to the sec
or any other agency. because these
instruments have been sold widely, anonymously
they have trapped large financial
institutions in a web
of transactions
christopher cox / ex chair sec
nyt 10.19.09 "swapping secrecy for transparency

we don't know
what they talked about
obviously there was an enormous
amount at stake for goldman in whether or
not the aig contracts would be made whole, so i
think the burden is now on mr paulson to demonstrate
that there was no exchange of information one way
or the other that influenced the ultimate decision
of the government to essentially provide
a blank check for aig's contracts
samuel l hayes / emeritus faculty harvard business
nyt 8.9.09 "during crisis, paulson's calls to goldman sachs posed ethics test"

. .
hedged outcome$
. .
fannie & freddie seized by regulators 9.7.08
after taking $30b writedown, merrill sold to bank of america 9.15.08
after its stock price fell 90% over 8 months, countrywide sold to b of a 1.11.08
wamu seized 9.25.08 by regulators, largest bank failure in history, then sold to jp morgan
lehman filed for chapter11 protection on 9.15.08, the largest bankrupcy in history
wachovia sold its bank units to citigroup backstopped by fdic 11.29.08
. .
trader-plea$ing models
. . .
as we have learned in the past year
those responsible for the grossly irresponsible
credit derivatives trading and the ensuing risk exposure
were not people who had been quantitatively trained
far too often, they rose to their positions on other
criteria, with deal-chasing ability, sales, and
other attention-deficit-promoting activities
ranking high
their typical gut reaction to a
model invested with too much thought
runs along the lines "why doesn't the curve go
through all the points?" or "why does it take so long
to run?"
yet these were effectively the drivers
of the research that led to the dominance of
trader-pleasing models in recent years, the most
notorious being copula-based models of correlated
quants could no more voice
their contempt for copula models to trader$
and keep their jobs, than pentagon staffers could
stand up to the admini$tration with doubts
about weapons of mass destruction
in iraq
rene carmona, ronnie sircar: opre & financial engr faculty princeton [2.2009]
. .
measure of $uccess
. . . .
the downward
trending graphs began
to make sense when the man
i married, a private wealth manager
stopped playing golf, once his passion
one of his best friends told me that my job
is now to keep him calm and keep him
from dying at the age of 35. it's
not what i $igned up for
d davis [1.28.09]
. .
fuld$' last stand
. . . . .
no one realized
the extent and magnitude
of these problems, nor how the
deterioration of mortgage-backed assets
would infect other types of assets and threaten
our entire system. in april 2006 chairman bernanke predicted
that the housing market "will most likely experience a gradual cooling rather
than a sharp slowdown." in march 2007, he stated "the impact on the broader economy and
financial markets of the problems in the subprime market seems likely to be contained"
similarly, secretary paul$on said in june 2007 that the crisis in the mortgage
markets "will not affect the economy overall," echoing the views of the
international monetary fund. and at lehman brothers' annual
shareholder meeting, i too said what i absolutely
believed to be true at the time - that the
worst of the impact of the financial
markets was behind us
fuld [to congress 10.6.08]
you've got
some ball$ to say that
knowing how much i hate that topic
fuld [2007, to budget revw committee member
who questioned the performance of a unit]

. .


. .

. .. / r parloff "wall street, it's payback time" fortune 1.19.09
... / r carmona & r sircar "mathematics and the financial crisis" s.i.a.m news 2.2009
.... / nytimes "it's the economy, stupid" 1.28.09
..... / wheelhouse advisors blog entry 10.7.08
..... / y onaran & j helyar "lehman's last days" bloomberg markets 1.2009