The Magnetar Trade

Former WSJ reporter Jesse Eisinger teamed up with author and reporter Jake Bernstein at They spent 7 months investigating a series of hedge fund trades made against subprime mortgages, CDS, etc.

The result is this thorough detailed analysis of how this took place:  The Magnetar Trade: How One Hedge Fund Helped Keep the Bubble Going (It is available at TBP Mirror)

Here’s an excerpt:

“How Magnetar pulled this off is one of the untold stories of the meltdown. Only a small group of Wall Street insiders was privy to what became known as the Magnetar Trade. Nearly all of those approached by ProPublica declined to talk on the record, fearing their careers would be hurt if they spoke publicly. But interviews with participants, e-mails, thousands of pages of documents and details about the securities that until now have not been publicly disclosed shed light on an arcane, secretive corner of Wall Street.

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.

Along the way, it did something to enhance the chances of that happening, according to several people with direct knowledge of the deals. They say Magnetar pressed to include riskier assets in their CDOs that would make the investments more vulnerable to failure. The hedge fund acknowledges it bet against its own deals but says the majority of its short positions, as they are known on Wall Street, involved similar CDOs that it did not own. Magnetar says it never selected the assets that went into its CDOs”

The full piece is fascinating, and well worth your Sunday morning.

Also noteworthy: This is now how investigative journalism gets done in America. Its no0w about private funding of non-profit news organizations. They are insulated from ratings, news stand sales, and focus group reports.

Thank goodness ProPublica exists. They are the silver lining in the collapse of American journalism . . .


The Magnetar Trade: How One Hedge Fund Helped Keep the Bubble Going
by Jesse Eisinger and Jake Bernstein
ProPublica – April 9, 2010

The Big Picture, April 11, 2010

What's been said:

Discussions found on the web:

Posted Under