Even the men who were virtually worshipped as economic gods didn't see this coming. Just ask Alan Greenspan. All I did was marvel at the ingenuities of MBSes and CDSes when I was in class. I was never taught that it was all a house of cards that would come crashing down any minute. There were plenty of market technicians that saw it coming though. I wish I had learned how to be a technician earlier than I did, because I'd be laughing all the way to the bank with them
I don't think it took a genius to figure out subprime was going to collapse. I mean when stock are trading a 100 p/e it is time to sell. When guys with no income is getting a 500k loan something bad is going to happen. What I didn't understand is the derivatives market and how companies could make such large bets without any regulation.
I was a broke guy working at a mortgage company. I saw it coming, last fall, but I had no cash to short. Lehman, Countrywide and Wamu were our biggest customers of Alt-A arm loans. I would have shorted all three of them. I couldn't get my head around stated income loans. Wouldn't you want to verify the income carefully? They had the belief that the market would bail them out if they forclosed on it and auction it. Prices got too high, so people stopped buying because they couldn't afford the mortgage payments.
I guess it didn't take a genius to run Fanny and Freddie 06-07. I think there was some attempt at derivatives regulation early on but Greenspan was dead set against it. After the killing the market made, the movement to regulate stopped as many were convinced that this was a new age of finance.
I didn't really "see it coming", but I knew enought to avoid it. I had friends making money hand over fist on MBSs and REITs, and I stayed out, because I didn't trust their balance sheet numbers or their long-term viability. I have an inherent distrust of anything that seems to make too much money too fast. They say the best capitalists have perfectly balanced emotions of greed and fear. My fear outweighs my greed enough to keep me from enjoying the biggest booms, but it lets me avoid the busts.
^Yeah, timing is everything. If I was really greedy, I likely would've shorted MBS early 07 and lost my pants.
