Subscriber Account active since. When nobody seems to be losing money, nobody cares. If a corrupt scheme is "making money," everyone involved--from the culprits to the dupes--viciously attacks anyone who tries to expose it. In , Ackman used credit derivatives and shorted stock to place a "short" bet against MBIA, the largest of the municipal bond insurers.
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Subscriber Account active since. When nobody seems to be losing money, nobody cares. If a corrupt scheme is "making money," everyone involved--from the culprits to the dupes--viciously attacks anyone who tries to expose it. In , Ackman used credit derivatives and shorted stock to place a "short" bet against MBIA, the largest of the municipal bond insurers. Ackman later bet against other bond insurers.
You should think long and hard before issuing the report. In fact, we're the largest guarantor of municipal debt in the country. Let's put it this way: We have friends in high places. Here's some ironic background you won't find in Confidence Game. Never in the history of finance has this warning been more appropriate.
With the development of esoteric structured finance techniques, the savvy as well as the novice are exposed to a bewildering array. An outstanding mixture of exposition, mathematics and skepticism.
Ackman's concern was reasonable. Structured finance is easily gamed, and fraud was common. Ackman's early bet didn't pay-off, and he was not just ignored, the financial media raked him over the coals. Moreover, Ackman was correct about several other accounting issues unrelated to synthetic CDOs. Ackman didn't stop. He hired a top forensic accounting expert and several times brought evidence of fraudulent accounting to Moody's, the leading credit rating agency.
Meanwhile, MBIA restated its numbers twice. At the end of , Ackman wrote Moody's board of directors:. Every day that Moody's incorrectly maintains an Aaa rating on MBIA, these extremely risk-averse investors unwittingly buy bonds that are not deserving of Moody's Aaa rating. Wiley, MBIA escalated its risk. It didn't matter how much "confidence" Wall Street, rating agencies, bond insurers, and regulators had in maintaining a collective financial lie, MBIA was unstable. Ackman's shorts weren't the problem.
MBIA could have used some shorts of its own, since it was long with too little coverage. MBIA had insured rotting mortgage risk with too little capital to maintain even an investment grade rating. A housing bubble fueled by corrupt finance damaged the U. Those with "friends in high places" did the most damage to the nation's economy and personally profited the most.
It's also noteworthy that Ackman's outrage was not directed at investment banks with whom he traded and that underwrote fraudulent value-destroying CDOs, fed him internal CDO data, internal CDO models, and information on MBIA's and Ambac's positions, all of which bolstered his confidence to continue with his short positions. The high pay of Wall Street and its cronies doesn't reflect efficient markets or individual brilliance; it's a market failure.
The Great Bailout protected debt holders and some shareholders in corrupt financial institutions. Culprits involved in phony securitizations that damaged the economy have windfall gains and are now heavily subsidized with taxpayer dollars.
Bill Ackman's ordeal shows us how much endurance will be required to reverse these mistakes and reform the financial system. In the interest of full disclosure, I attended Bill Ackman's book launch party and am quoted in the book. Business Insider logo The words "Business Insider". Close icon Two crossed lines that form an 'X'. It indicates a way to close an interaction, or dismiss a notification. Account icon An icon in the shape of a person's head and shoulders. It often indicates a user profile.
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Fight Club: Ackman's Hedge Fund Vs. Wall Street's Ponzi Machine
You are currently using the site but have requested a page in the site. Would you like to change to the site? The rating companies had determined that the firm could weather another Great Depression and still meet all of its claims. The high leverage meant MBIA had virtually no margin of safety. Confidence Game is a real-world "Emperor's New Clothes," a tale of widespread delusion and one dissenting voice in the era leading up to the worst financial disaster since the Great Depression. Wiley and its acquired companies have published the works of more than Nobel laureates in all categories: Literature, Economics, Physiology or Medicine, Physics, Chemistry, and Peace. Wiley's global headquarters are located in Hoboken, New Jersey, with operations in the U.
Ackman's Letter to Moody's: A Must Read
Ackman had begun to look at the bond insurance company MBIA after a friend suggested he invest in it. When he discovered that the company was engaged in financial engineering far removed from the traditional business of insuring municipal bonds, he decided that it would be a good short trade. According to Ackman, what happened next is that Brown threatened him. You should think long and hard before issuing the report.