I have been reading a book by Michael Lewis called “The Big Short” and have thoroughly enjoyed it. It is all about the collapse in the sub-prime mortgage bond market in America and it really goes into the people who thought that this was going to happen, and took big bets that it would happen and as a result became very wealthy. We always focus on all the people who have lost millions and billions every time there is a disaster, but what we forget is that there is always, especially in stock market terms, a winner on the other side and so of course, the collapse of the sub-prime mortgage market in America has made some individuals particularly wealthy.

They were largely guys who spotted the signs that money was being loaned to the wrong people, especially in terms of mortgage bonds in America where some bonds were even granted on the basis that you don’t have to make payments for the first two years and you don’t have to disclose any source of income – which led to people who had no jobs at all, applying for bonds and once the two years were up, they could not start making payments. The guys essentially took bets against this and much of the collapse of the market is to do with their winning bets, as opposed to the poor bonds. In other words, there was a much bigger amount of money involved in the actual bets on the sub-prime bonds than there was involved in the bonds themselves. You really come away with a sense that most of the big banks and stockbroking firms were led by idiots, and the guys who made the money basically make comments like that all of the time. For example, they think the rating agencies, and we are talking about companies like Moody’s, are generally staffed by people equivalent to those that work for the government.