Boomerang

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To Doug Stumpf, gifted editor and gentle soul, without whom it never would have occurred to me to tour the ruins

This book began accidentally, while I was at work on another book, about Wall Street and the 2008 U.S. financial disaster. I’d become interested in a tiny handful of investors who had made their fortunes from the collapse of the subprime mortgage market. Back in 2004, the biggest Wall Street investment banks had created the instrument of their own destruction, the credit default swap on the subprime mortgage bond. The credit default swap enabled investors to bet against the price of any given bond—to “short” it. It was an insurance policy, but with a twist: the buyer didn’t need to own the insured asset. No insurance company can legally sell you fire protection on another person’s house, but the financial markets can and will sell you default insurance on another person’s investments. Hundreds of investors had dabbled in the credit default swap market—a lot of people had thought, at least in passing, that the debt-fueled U.S. housing boom was unsustainable—but only fifteen or so had gone all in, and placed enormous bets that vast tracts of American finance would go up in flames. Most of these people ran hedge funds in London or New York; most, usually, avoided journalists. But on this topic, at this moment, they were surprisingly open. All had experienced the strange and isolating sensation of being the sane man in an insane world and, when they talked about their experience, sounded as a person might if he had sat alone and in silence in a small boat and watched the Titanic steam into the iceberg.

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