A colossal failure of common sense: the inside story of the collapse of Lehman Brothers by Lawrence G. McDonald & Patrick Robinson

Author:Lawrence G. McDonald & Patrick Robinson [Lawrence G. McDonald & Patrick Robinson]
Language: eng
Format: epub
Tags: History, Politics
ISBN: 9780307588333
Publisher: Random House, Inc.
Published: 2009-07-21T17:21:39.964000+00:00

8

The Mortgage Bonanza Blows Out

These were people who, in the five thousand years of recorded human house construction, never would have been granted a mortgage to purchase even a dwelling of mud, reeds, or palm leaves. And they were very, very frightened.

WE DID NOT linger very long outside the New Century parking lot. We drove maybe half a mile back toward the freeway and parked on a side street. We then walked back to New Century and took a long look around the outside of the building.

There was plainly no point in even contemplating entering, since we had no appointment and in any event had no right to be snooping around asking questions. It would have taken someone mere moments to call the mortgage department back in New York and demand to know who the hell we were and what we wanted, at which time the game would be up and Dave Sherr would want some embarrassing answers.

“We’d never get in there,” said Dave Gross. “Not under any guise.”

“I wouldn’t be absolutely sure about that,” I replied. “Gimme a couple of big pizza boxes, I’ll be through that door and in the president’s office in about three minutes—‘Brad Morrice insisted, real hot with extra cheese.’”

Grossy looked at me, plainly considering whether I’d completely lost it. I decided not to elaborate on my misspent youth, and instead outlined our strategy. We needed a restaurant close to the building, where we could locate a few bodybuilders on their break.

We found a place that was almost perfect—snazzy, pricey lunch, nice bar, expensive décor, glamorous waitresses—just a few hundred yards from the New Century building, and made it our HQ for a couple of hours. Sitting at a corner table, we assessed the events of the last few days.

First off, Merrill Lynch, according to a fast phone call from Ashish, now had $50 billion worth of CDOs filled with mortgages on their books—a whole mass of subprime, scads of them from California, some of them probably sold from this very restaurant. Grossy reminded me of Pete Hammack’s very last words before we left: “If, in just one month, New Century cannot move those subprime mortgages out into the market, they’re dead. Their balance sheet could not stand it.” Pete meant not just New Century but all of us. No one can afford to hold on to the scalding hot potato of subprime mortgages that cannot be sold. “Larry,” he’d told me, “this market right now is like a line of traffic, with everyone moving up to the head of the line and waiting for the green light—get the CDOs sold and keep going forward.” In Pete’s opinion, if that traffic light malfunctioned, and the first two vehicles were somehow stuck, everyone else would back up. There would be a whole line with nothing moving, all jammed up, and the carnage would be indescribable.

New Century was selling $5 billion worth of mortgages every month, and David Einhorn, the founder and president of the multibillion-dollar hedge fund Greenlight Capital, had just joined its board of directors.

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