Wall Street Had ‘No Idea’ What Subprime CDSs Were, Lewis Writes

James Pressley, Bloomberg

Michael Burry, the California hedge-fund manager who figured out how to bet against the subprime bubble, prodded seven Wall Street banks in early 2005 to create credit-default swaps for subprime-mortgage bonds, Michael Lewis writes in his book, “The Big Short.”

Five of them “had no idea what he was talking about,” Lewis says. Only Deutsche Bank AG and Goldman Sachs Group Inc. expressed any interest in the concept, he says.

“Inside of three years, credit-default swaps on subprime- mortgage bonds would become a trillion-dollar market and precipitate hundreds of billions of losses inside big Wall Street firms,” Lewis writes in an excerpt from the book on the Web site of Vanity Fair magazine.

“Yet, when Michael Burry pestered the firms in the beginning of 2005, only Deutsche Bank and Goldman Sachs had any real interest in continuing the conversation. No one on Wall Street, as far as he could tell, saw what he was seeing.”

The book is scheduled to be published later this month by W.W. Norton in the U.S. and by Allen Lane in the U.K.

Burry, the head of Cupertino, California-based Scion Capital Group LLC, had concluded that lending standards had hit bottom, Lewis writes. He had studied subprime mortgage bonds in detail, wading through hundreds of prospectuses, Lewis says, and had figured out that the way to bet against them would be with credit-default swaps, which allow investors to insure against — or bet on — the likelihood that the issuer will default.

At the time, there was no such thing for subprime mortgage bonds, writes Lewis, a Bloomberg News columnist. So Burry had to get Wall Street banks to create one.

http://www.bloomberg.com/apps/news?pid=20601088&sid=ahU3.EVqKSH8

Shadow Housing Inventory in California Cities

For a state like California the real question in 2010 will be how exotic mortgages like Alt-A and option ARMs react to recast dates and a slumping economy.  It may be the case that some other states may be finding bottoms quicker financially but California will be wrestling with another $21 billion budget deficit in a matter of months promising additional gridlock.  California lived and fell by the housing sword.

We have one of the highest unemployment and underemployment rates at 23 percent.This hasn’t changed even though the stock market has been raging. Some states have already washed out a large portion of subprime mortgages but California holds 58 percent of all option ARMs. This is a uniquely California problem. Read more about option ARMs…

Banks, Collection Firms Pursue Claims After Homes Foreclosed

It’s really upsetting to clients,” said Nadine Cohen of Greater Boston Legal Services, which provides free lawyers for the poor and has seen a handful of post-foreclosure cases so far. “People got outrageous subprime loans that they never could have afforded, lost their homes to foreclosure and then the second-mortgage companies come after them.”

Experts say consumers faced with such collections often end up declaring bankruptcy, sullying credit scores that had just begun recovering from the underlying foreclosures. Read more about collection firms…

Are you trying to avoid foreclosure? Contact MFI-Miami for help.

Where are the Subprime Perp Walks?

Where are the perp walks for the subprime mortgage executives that dragged us into this mess?

Three years after the housing bubble popped, federal prosecutors have yet to bring a case against the executives whose firms took part in some of the worst excesses of the subprime mortgage market. Read more about subprime mortgage criminals…

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