It started as displacement activity, my immersion in the market mayhem of the summer of 2007. I was at home looking after my wife Sian Busby and our youngest child. Sian had just been diagnosed with a horrible cancer, and was recovering from radical surgery.
She did not want a fuss. And did not want our friends to know the seriousness of what had happened. So in the absence of being able to talk about it, I needed a distraction. So in the study across the hall from where Sian was convalescing, I tried to work out what the hell was happening in global debt markets.
What I needed to understand was the mounting mistrust of investors for all manner of what were called asset-backed securities, especially those manufactured from low quality loans to US home buyers, or subprime loans.
Gradually the penny dropped – well rather more than a penny – that investors and banks had been participating in mass delusion on a historic scale: for years they had been kidding themselves that unlimited loans could be made to Americans with inadequate and insecure incomes, and that clever financial engineering could magically eliminate the risks of those loans never being repaid.
The conceit was that total garbage could be transformed into wonderful safe investments via the alchemy of investment banking.
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