I’ve heard the technical details of this article before, from a wallstreet insider I know. He didn’t go into a gloom-and-doom scenario, but our conversations were from November(2005). He did mention a couple of other items of interest.
He said that the big boys ($100M+) saw the derivative market as a place for them to trade amongst themselves, without having to deal with the riff-raff online traders and SEC disclosure rules.
They saw (or see) the fat 401k pile as a target for making money, not just through fees, but leveraging off and in some cases, siphoning off these funds–we’ve seen the first two, will the third be revealed soon?
Lastly, he said that as technically smart as the analysts are, and as savvy as the big money managers are, nobody really had a clue what was the big picture–obvious today, it seems.
BTW, this same guy was bitching about an anonymous brokerage, who was also acting as a commercial lender and ignoring the supposed firewall–basically pushing bad bonds to 401ks to fund industrial partners. About a year later they got nailed, thus prompting that great commercial with the brokers saying “Let’s put lipstick on this pig”. The house got a slap on the wrists, which was surprising to me–I guess times were good and nobody cared. With an election year and the housing bust, I think if these guys get nailed this time, they’ll be the next Enron story.
