The Magnetar Trade


bicycle in airplane hangar
Feb 2, 2007
Riding the baggage carousel.

According to bankers and others involved, the Magnetar Trade worked this way: The hedge fund bought the riskiest portion of a kind of securities known as collateralized debt obligations -- CDOs. If housing prices kept rising, this would provide a solid return for many years. But that's not what hedge funds are after. They want outsized gains, the sooner the better, and Magnetar set itself up for a huge win: It placed bets that portions of its own deals would fail.
A long read, but very interesting. If there is anything the teahadists should be pissed about its this. It certainly irks my inner populist. Especially in light of the following graphs:



Nov 23, 2009
I actually listened to a story about this on NPR one day. Basically from what I understood of it, it was just a bunch of sketchy dealings that no one caught before it was too late. I think its crazy that they were able to pull it off.


Expert on blowing
Feb 12, 2003
this is what i love about being a conservative minimalist: my contentment keeps me from being on either side of the equation.


Feb 13, 2004
looking for classic NE singletrack

JPMorgan's sales force fanned out across the globe. It sold parts of the CDO to 17 institutional investors, according to a person familiar with the transaction. The deal closed in May 2007, nearly a year after housing prices had peaked. Within eight months, Squared dropped to a fraction of its initial value.
I've read news stories (can't find them) on the end-buyer of these, anyone from school districts in Norway (Sweden?) to teacher's funds in WI, who invested in these "safe" securities and watched their investments go to zero... very, very interesting to see the other side of the sale, the development of these products whose sole purpose was to implode.