Betting against the housing market?

Betting against the housing market?

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Discussion

geeks

9,184 posts

139 months

Friday 18th January 2019
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clubsport said:
I appreciate Baum was portrayed as having other things on his mind, but I feel he probably had more understanding of events than was portrayed, it was the escalation that could not have been believed and I get that!
If you read the book he goes into him in a lot more detail, to say he had other things on his mind would be an understatement! He and his team also understand alot more than the film portrays and the lads who trade with Brad Pitts character are hilarious in the book and the film.

Derek Chevalier

3,942 posts

173 months

Friday 18th January 2019
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walm said:
Derek Chevalier said:
But if the bank were the seller of protection they would be posting the collateral.
No, that's the whole point. It's asymmetric when the bank takes a position.
So if the HF is out of the money it posts collateral.
But if the bank is out of the money it doesn't post collateral back to the HF. The HF just trusts that the bank will pay out when the time comes because one "tiny" bet won't bankrupt the bank... in theory!

Also the banks avoided even marking their bad bets to market - remember when Burry is complaining that the valuation he is getting is completely wrong... the bank was hiding the deterioration of their position by simply lying about what the bet was really worth.
That's when Burry said, "OK sell me some more at that price then..." and they had to scurry off.
I think we may both be right. For the CDS governed by ISDA agreements (the majority), collateral was required to be posted. I guess for the non-vanilla products this wasn't required. Felix Salmon (who did a fair bit of posting around the time) seems to agree.


http://www.felixsalmon.com/2008/12/how-does-postin...


walm

10,609 posts

202 months

Friday 18th January 2019
quotequote all
Derek Chevalier said:
I think we may both be right. For the CDS governed by ISDA agreements (the majority), collateral was required to be posted. I guess for the non-vanilla products this wasn't required. Felix Salmon (who did a fair bit of posting around the time) seems to agree.


http://www.felixsalmon.com/2008/12/how-does-postin...
Love Felix - and yes I was thinking of the less vanilla! Hence why there was counterparty risk. If your nominated account had real-time MTM collateral in there every day from Goldman, then you wouldn't care if they went bust because you would still have access to all the money. (I think!)

anonymous-user

54 months

Sunday 20th January 2019
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aww999 said:
I thought they had got into a position which was "houses go up, bank A wins: houses go down, our hedge fund wins".

At the point they sold, it wasn't the belief that houses had reached their lowest price which was their trigger. Instead it was the realisation that, because house prices were tanking so badly, bank A might lose so much on their bet (with the hedgefund) that it may not exist any more and thus could not pay the HF anything.

So in effect Mark Baums was letting the bank escape their position by buying it back from him. He was tortured because he wanted to make them suffer as much as possible, but realised he didn't want them to be destroyed completely.
I don’t understand all this stuff, be grateful if you could educate me on these points...

1 - so mark baums was betting with bank A house prices would go down. Why did bank A pay him at a time of his choosing? Why not just wait ten years til prices go up?

2 - was it common back then that banks would accept bets that their core business was about to crash? Why would they do that?

I watched the film but was still clueless at the end.

p1stonhead

25,545 posts

167 months

Sunday 20th January 2019
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MikeStroud said:
aww999 said:
I thought they had got into a position which was "houses go up, bank A wins: houses go down, our hedge fund wins".

At the point they sold, it wasn't the belief that houses had reached their lowest price which was their trigger. Instead it was the realisation that, because house prices were tanking so badly, bank A might lose so much on their bet (with the hedgefund) that it may not exist any more and thus could not pay the HF anything.

So in effect Mark Baums was letting the bank escape their position by buying it back from him. He was tortured because he wanted to make them suffer as much as possible, but realised he didn't want them to be destroyed completely.
I don’t understand all this stuff, be grateful if you could educate me on these points...

1 - so mark baums was betting with bank A house prices would go down. Why did bank A pay him at a time of his choosing? Why not just wait ten years til prices go up?

2 - was it common back then that banks would accept bets that their core business was about to crash? Why would they do that?

I watched the film but was still clueless at the end.
1. The bank didn’t pay him. He sold his position (‘bet’ as you called it) to someone else. They paid him.

2. They thought that it would never happen.

Btlguru

54 posts

63 months

Sunday 20th January 2019
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p1stonhead said:
1. The bank didn’t pay him. He sold his position (‘bet’ as you called it) to someone else. They paid him.

2. They thought that it would never happen.
1. Investment banks often don’t take the other side of deals, in the main they are the middle man between two third parties.

2. In reality it didn’t.

anonymous-user

54 months

Sunday 20th January 2019
quotequote all
p1stonhead said:
MikeStroud said:
aww999 said:
I thought they had got into a position which was "houses go up, bank A wins: houses go down, our hedge fund wins".

At the point they sold, it wasn't the belief that houses had reached their lowest price which was their trigger. Instead it was the realisation that, because house prices were tanking so badly, bank A might lose so much on their bet (with the hedgefund) that it may not exist any more and thus could not pay the HF anything.

So in effect Mark Baums was letting the bank escape their position by buying it back from him. He was tortured because he wanted to make them suffer as much as possible, but realised he didn't want them to be destroyed completely.
I don’t understand all this stuff, be grateful if you could educate me on these points...

1 - so mark baums was betting with bank A house prices would go down. Why did bank A pay him at a time of his choosing? Why not just wait ten years til prices go up?

2 - was it common back then that banks would accept bets that their core business was about to crash? Why would they do that?

I watched the film but was still clueless at the end.
1. The bank didn’t pay him. He sold his position (‘bet’ as you called it) to someone else. They paid him.
.
Ok that makes more sense ( previous poster said the bank bought it off him to escape their position which is different to what you said). But ( and sorry for another dumb question) at that time when the mortgage market was clearly in massive trouble why would someone buy that position for $1bn? It seems very high risk if not stupid?

Derek Chevalier

3,942 posts

173 months

Tuesday 26th February 2019
quotequote all
walm said:
Derek Chevalier said:
I think we may both be right. For the CDS governed by ISDA agreements (the majority), collateral was required to be posted. I guess for the non-vanilla products this wasn't required. Felix Salmon (who did a fair bit of posting around the time) seems to agree.


http://www.felixsalmon.com/2008/12/how-does-postin...
Love Felix - and yes I was thinking of the less vanilla! Hence why there was counterparty risk. If your nominated account had real-time MTM collateral in there every day from Goldman, then you wouldn't care if they went bust because you would still have access to all the money. (I think!)
What could go wrong? smile

https://www.investmenteurope.net/news/4001084/axio...

tigerkoi

2,927 posts

198 months

Tuesday 26th February 2019
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Quickmoose said:
On a side note, Mark Baum was interviewed on Radio 4 yesterday morning...
He's shorting 3 British banks in lieu of the Brexit mess......3 banks.


The interview continued, whereby he repeated..."Dude...no-one knows what will happen, both sides projecting stuff whereby this will happen or won't happen are talking out of their hats...no-one knows"


"And if Corbyn becomes Prime Minister?...do you have a plan for that?"

"I have a list of probable British companies to short"
"A list? how many?"

"Around thirty"

30!

sorry...thread digression.... very interesting bloke though...shooting from the hip.
Apologies, but am I missing something? “Mark Baum” doesn’t exist. Steve Eisman however does.

Others have given a really good view on what the market and the game is all about, CDOs, CDS, synthetics...

At the time (in NYC) I remembered being primed on the market and how things were set up. Quietly I thought it was nuts, but there we go. I got to know some senior Lehman guys a few years later. The massive unravelling of positions between the banks was the really hairy part.



loafer123

15,440 posts

215 months

Wednesday 27th February 2019
quotequote all
tigerkoi said:
At the time (in NYC) I remembered being primed on the market and how things were set up. Quietly I thought it was nuts, but there we go. I got to know some senior Lehman guys a few years later. The massive unravelling of positions between the banks was the really hairy part.
I was chatting with someone involved in the unwind of Lehmans Europe and they ended up in profit after doing it all.

tigerkoi

2,927 posts

198 months

Wednesday 27th February 2019
quotequote all
loafer123 said:
tigerkoi said:
At the time (in NYC) I remembered being primed on the market and how things were set up. Quietly I thought it was nuts, but there we go. I got to know some senior Lehman guys a few years later. The massive unravelling of positions between the banks was the really hairy part.
I was chatting with someone involved in the unwind of Lehmans Europe and they ended up in profit after doing it all.
Yep, everyone, creditors eventually got their money back. Issues with Repo 105 and the $7bn in an account and the perceived behaviour of JPMC in relation to that was an intense time.

The unwind was immense work, and a case study in itself. The actual bankruptcy proceedings were momentous. Prior to that, over a beer, one senior guy told me in those first few days, he didn’t know if NYPD would suddenly appear at the office and arrest him and others. He’d be calling his wife and PA alternately like every 30 mins to see if anything was happening when he was away from both places. People at the heart of it literally had no idea of how it would play out.