The Swarm

Mix it up with The Bee's editorial board.

November 12, 2008
Michael Lewis strikes again: explaining the crash
Michael Lewis, who first chronicled Wall Street abuses in "Liar's Poker" (and later wrote "Money Ball" among other books), has written a masterful explanation of the end of the boom for Portfolio Magazine. The piece profiles Steve Eisman, a trader who saw the crash coming and profited handsomely from his wisdom:

Lenders were making loans to people who, based on their credit ratings, were less creditworthy than 71 percent of the population. Eisman knew some of these people. One day, his housekeeper, a South American woman, told him that she was planning to buy a townhouse in Queens. "The price was absurd, and they were giving her a low-down-payment option-ARM," says Eisman, who talked her into taking out a conventional fixed-rate mortgage. Next, the baby nurse he'd hired back in 1997 to take care of his newborn twin daughters phoned him. "She was this lovely woman from Jamaica," he says. "One day she calls me and says she and her sister own five townhouses in Queens. I said, 'How did that happen?' " It happened because after they bought the first one and its value rose, the lenders came and suggested they refinance and take out $250,000, which they used to buy another one. Then the price of that one rose too, and they repeated the experiment. "By the time they were done," Eisman says, "they owned five of them, the market was falling, and they couldn't make any of the payments."

The piece is not perfect; he does not quite describe some of the more arcane practices in layman's terms (at least for this layman). But if you can get past that, the gist of the story is crystal clear, and the anecdotes are chilling.

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About The Swarm

The Swarm is written by members of The Sacramento Bee's editorial board. They meet daily and are separate from the newsroom. Views included here are those of individual writers, and do not necessarily reflect those of a majority of the board or the positions expressed in The Bee's editorials.

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