A Large Butterfly Flaps Its Wings In Paris: The Early Days Of A Crisis
In 2007, more than a year before the near-collapse of America’s mighty capital markets triggered the worst global economic crisis since the Great Depression, Canada experienced a stunning financial meltdown of its own.
In 2013, I wrote a book about Canada’s forgotten crisis with the help of Eric Ben-Artzi, an expert in quantitative financial modeling who worked for major Wall Street firms including Goldman Sachs and Deutsche Bank.
For now, the book remains an unpublished manuscript. Eric a
Well done H; Enjoyed the tell. Seem fiscally imprudent for any asset manager would place 43.8 of 45.6 of total assets in one place. There is economic poetry in man’s ability to manipulate a dollar in assets into a hundred, mostly faith based it would seem.
Spent 5 years in a re-hab nursing facility recovering from an paralyzing neck injury and gained many friends on the staff in the process. Must have been 2005-6 when one likable gal making $11./hr. told me she was buying her first home.
Having some rudimentary fiscal knowledge offered to review her financial situation and the terms of the mortgage, we had grown quite close. She was buying an 171K home, no money down, on slightly less than 27K/ year income, no other sources. Naturally I pointed out the potential problems, risks, which did little to dissuade the elated youngster.
This was how I became acquainted with the problem, three others approached me within the next six months. I told them that realistically they could not afford the homes and that housing prices do not rise forever and ever, having lived thru a couple of pullbacks.
But out there in the hinterland salesmen were selling them, by the tens of thousands, banks were approving them, all betting prices would keep rising. One of the aforementioned was a refinancing to pull out cash from the sudden price increases, the bank approached them!
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Your book will be a reminder as to how complex finagling of assets posing as solid, bona-fide investments, can have ‘wing flapping’ consequences,. Dr Burry nearly went bust before the sub-prime crisis hit full force, then reaped the reward. His new prediction on the potential ill-liquidity of ETF’s is of interest.
Looking forward to the next chapter!
Good read. Thank you. I look forward to the full publication.
H
You and your friend are quite good at this narrative writing. Spellbinding stuff. I remember back in 2006 and 2007 noticing a small blurb in the WSJ that showed delinquency rates on mortgages. I had a fat six figure position in Fannie and Freddy preferred stocks and started to get nervous as those delinquency rates started to climb … fast. I began watching those charts whenever they showed up. It wasn’t long before I saw that something like half new sub-prime borrowers had never made even one payment on their loans. I never could figure out why the hell these data didn’t impress some grown-up somewhere. Reading your story I’m can’t help being reminded of the Uncle Remus story of the tar baby (sorry, very politically incorrect I know, but a good lesson, nevertheless). More recently, “Fargo” comes to mind. As for me, I couldn’t bring myself to sell those damn preferreds until they went from ~$25 to 1.50 or so in one day. Stupid tar baby.