Meet the Bialystock & Bloom of the Mortgage Meltdown

This is an incredible story.  I recommend you find the time this weekend to read the entire article (Pro Publica) about how hedge fund Magnetar figured out a way to invest in and even help create some of the most horrid debt bombs of the credit bubble era.

Like Broadway’s scheming Bialystock & Bloom (The Producers), Magnetar figured out a way to ensure the collapse of their own product – and to profit immensely from these failures in a self-funded, diabolical way.

The slant of the article is that had they been stopped, the bubble/ crisis would’ve been over and done with earlier and easier – but that’s debatable.

Have at it and prepare to lose a bit more of your innocence…

In late 2005, the booming U.S. housing market seemed to be slowing. The Federal Reserve had begun raising interest rates. Subprime mortgage company shares were falling. Investors began to balk at buying complex mortgage securities. The housing bubble, which had propelled a historic growth in home prices, seemed poised to deflate. And if it had, the great financial crisis of 2008, which produced the Great Recession of 2008-09, might have come sooner and been less severe.

At just that moment, a few savvy financial engineers at a suburban Chicago hedge fund helped revive the Wall Street money machine, spawning billions of dollars of securities ultimately backed by home mortgages.

Read on below:

The Magnetar Trade: How One Hedge Fund Helped Keep the Bubble Going by Jesse Eisinger and Jake Bernstein (ProPublica)