Dear Mr. Buffett_ What an Investor Learns 1,269 Miles From Wall Street Part 11

15 Neil Unmack, "CPDO Investors May Lose 90% as ABN Funds Unwind," Neil Unmack, "CPDO Investors May Lose 90% as ABN Funds Unwind," Bloomberg News, Bloomberg News, 25 January 2008. 25 January 2008.

16 Aline van Duyn and Joanna Chung, "S&P Discloses Errors in Rating Models," Aline van Duyn and Joanna Chung, "S&P Discloses Errors in Rating Models," Financial Times, Financial Times, 13 June 2008. 13 June 2008.

17 Gyan Sinha and Karan Chabba, "Sell on the Rumor, Buy on the News," Bear Stearns, 12 February 2007. Gyan Sinha and Karan Chabba, "Sell on the Rumor, Buy on the News," Bear Stearns, 12 February 2007.

18 Janet Tavakoli, "Comments on SEC Proposed Rules on Rating Agencies," 13 February 2007. Janet Tavakoli, "Comments on SEC Proposed Rules on Rating Agencies," 13 February 2007.

19 "Fed & Sub-Prime Loans," CNBC, 20 February, 2007. Segement with Susan Bies, Steve Liesman, and Gyan Sinha. "Fed & Sub-Prime Loans," CNBC, 20 February, 2007. Segement with Susan Bies, Steve Liesman, and Gyan Sinha.

20 Bethany McLean, "The Dangers of Investing in Subprime Debt," Bethany McLean, "The Dangers of Investing in Subprime Debt," Fortune, Fortune, 19 March 2008. 19 March 2008.

21 Ibid. Ibid.

22 Mark Pittman, "Moody's, S&P Defer Cuts on AAA Subprime, Hiding Loss," Mark Pittman, "Moody's, S&P Defer Cuts on AAA Subprime, Hiding Loss," Bloomberg News, Bloomberg News, 11 March 2008. 11 March 2008.

23 Eric Gelman, "Fear of a Black Swan," Eric Gelman, "Fear of a Black Swan," Fortune, Fortune, 14 April 2008. 14 April 2008.

24 Benjamin Graham, Benjamin Graham, The Intelligent Investor The Intelligent Investor (New York: Harper & Row, 1973), 110. (New York: Harper & Row, 1973), 110.

25 Ibid. 98. Ibid. 98.

26 Craig Karmin, "Springfield, Ma.s.s., Takes Aim at Merrill over Subprime Losses," Craig Karmin, "Springfield, Ma.s.s., Takes Aim at Merrill over Subprime Losses," Wall Street Journal, Wall Street Journal, 19 January 2008. 19 January 2008.

27 Vickie Tillman, "The Truth about Triple-A Ratings," Vickie Tillman, "The Truth about Triple-A Ratings," Financial Times, Financial Times, 20 March 2008. 20 March 2008.

28 Aaron Lucchetti, "S&P Email: 'We Should Not Be Rating It'," Aaron Lucchetti, "S&P Email: 'We Should Not Be Rating It'," Wall Street Journal, Wall Street Journal, 2 August 2008. 2 August 2008.

29 David Scheer and Karen Freifeld, "Citigroup to Unfreeze $29.5 Billion of Auction Debt," David Scheer and Karen Freifeld, "Citigroup to Unfreeze $29.5 Billion of Auction Debt," Bloomberg News, Bloomberg News, 7 August 2008. 7 August 2008.

30 Karen Freifeld and Michael McDonald, "Morgan, JPMorgan Settle Auction-Rate Probe, Pay Fines," Karen Freifeld and Michael McDonald, "Morgan, JPMorgan Settle Auction-Rate Probe, Pay Fines," Bloomberg News Bloomberg News 14 August, 2008. 14 August, 2008.

31 Robert Frank and Liz Rappaport, "Big Boys Face 'Auction' Monster Alone: Settlement Excludes 4Kids, Other firms; Battle with Lehman" 29 August 2008. Robert Frank and Liz Rappaport, "Big Boys Face 'Auction' Monster Alone: Settlement Excludes 4Kids, Other firms; Battle with Lehman" 29 August 2008.

32 Karen Richardson, Kara Scannell, and Aaron Lucchetti, "The Hits Keep on Coming at Moody's." Karen Richardson, Kara Scannell, and Aaron Lucchetti, "The Hits Keep on Coming at Moody's."

Chapter 8: Bear Market (I'd Like a Review of the Bidding).

1 "U.S. Housing and the Gamble of Subprime Loans," CNBC 30 January 2007. Segment with Diana Olick, Jim Melcher, and Janet Tavakoli. "U.S. Housing and the Gamble of Subprime Loans," CNBC 30 January 2007. Segment with Diana Olick, Jim Melcher, and Janet Tavakoli.

2 David Evans, "Florida Got Lehman Help Before Run on School's Funds," David Evans, "Florida Got Lehman Help Before Run on School's Funds," Bloomberg News, Bloomberg News, 18 December 2007. This article gives a subprime chronicle of events in 2007 including information on New Century and HSBC. 18 December 2007. This article gives a subprime chronicle of events in 2007 including information on New Century and HSBC.

3 Gyan Sinha and Karan Chabba, "Sell on the Rumor, Buy on the News," Bear Stearns, 12 February 2007. Gyan Sinha and Karan Chabba, "Sell on the Rumor, Buy on the News," Bear Stearns, 12 February 2007.

4 Steven Church and Bradley Keoun, "ResMae Collapse May Signal More Subprime Bankruptcies," Steven Church and Bradley Keoun, "ResMae Collapse May Signal More Subprime Bankruptcies," Bloomberg News, Bloomberg News, 23 February 2007. 23 February 2007.

5 Gretchen Morgenson, "Crisis Looms in Mortgages," Gretchen Morgenson, "Crisis Looms in Mortgages," New York Times, New York Times, 11 March 2007. 11 March 2007.

6 Randall Smith and Susan Pulliam, "As Funds Leverage Up, Fears of Reckoning Rise," Randall Smith and Susan Pulliam, "As Funds Leverage Up, Fears of Reckoning Rise," Wall Street Journal, Wall Street Journal, 30 April 2007. 30 April 2007.

7 Ibid. Ibid.

8 Richard Beales, "NY Fed Warns on Hedge Fund Risk," Richard Beales, "NY Fed Warns on Hedge Fund Risk," Financial Times, Financial Times, 3 May 2007. 3 May 2007.

9 James Mackintosh, "Hedge Funds Survey Reveals Lower Gearing," James Mackintosh, "Hedge Funds Survey Reveals Lower Gearing," Financial Times, Financial Times, 1 May 2007. 1 May 2007.

10 Janet Tavakoli, "Letter: Greater Global Risk Now than at Time of LTCM," Janet Tavakoli, "Letter: Greater Global Risk Now than at Time of LTCM," Financial Times, Financial Times, 7 May 2007. 7 May 2007.

11 Serena Ng and Emily Barrett, "Fed Turns Focus to Derivatives Market,Wants Improved Infrastructure Soon," Serena Ng and Emily Barrett, "Fed Turns Focus to Derivatives Market,Wants Improved Infrastructure Soon," Wall Street Journal, Wall Street Journal, 10 June 2008. 10 June 2008.

12 Everquest Financial Ltd., Form S-1 Registration Statement under the Securities Act of 1933, 9 May 2007. Everquest Financial Ltd., Form S-1 Registration Statement under the Securities Act of 1933, 9 May 2007.

13 Offering Circular for Octonion I CDO, Ltc. Octonion I CDO Corp., March 16, 2007. Most of Everquest's a.s.sets were priced as of December 31, 2006, but there were some 2007 additions to the portfolio. For example, it owned some of the "first loss" equity risk of a CDO named Octonion I CDO (Octonion), a deal underwritten by Citigroup in March 2007. If the IPO came to market, some of the proceeds from Everquest would pay down Citigroup's $200 million credit line. Octonion's prospectus disclosed an inexperienced CDO manager with conflicts of interest with the CDO investors. It used 95 percent credit default swaps referencing BBB rated a.s.set-backed securities including subprime a.s.sets.This CDO appeared to be a very risky investment for investors in the AAA or AA rated tranches. The equity, 48 percent of which was owned by Everquest, may have been ent.i.tled to the residual cash flow of the deal. Even if they did not, the tranches looked high risk, undeserving of an investment grade rating.Time proved my concerns warranted since Octonion triggered an event of default in February 2008, at which time even the original seniormost AAA tranche was downgraded to CCC by S&P (it was still AAA by Moody's). By the summer of 2008, the seniormost AAA had been downgraded to Caa3 by Moody's and CCC- by S&P. Offering Circular for Octonion I CDO, Ltc. Octonion I CDO Corp., March 16, 2007. Most of Everquest's a.s.sets were priced as of December 31, 2006, but there were some 2007 additions to the portfolio. For example, it owned some of the "first loss" equity risk of a CDO named Octonion I CDO (Octonion), a deal underwritten by Citigroup in March 2007. If the IPO came to market, some of the proceeds from Everquest would pay down Citigroup's $200 million credit line. Octonion's prospectus disclosed an inexperienced CDO manager with conflicts of interest with the CDO investors. It used 95 percent credit default swaps referencing BBB rated a.s.set-backed securities including subprime a.s.sets.This CDO appeared to be a very risky investment for investors in the AAA or AA rated tranches. The equity, 48 percent of which was owned by Everquest, may have been ent.i.tled to the residual cash flow of the deal. Even if they did not, the tranches looked high risk, undeserving of an investment grade rating.Time proved my concerns warranted since Octonion triggered an event of default in February 2008, at which time even the original seniormost AAA tranche was downgraded to CCC by S&P (it was still AAA by Moody's). By the summer of 2008, the seniormost AAA had been downgraded to Caa3 by Moody's and CCC- by S&P.

14 The information about the underwriters (UBS, Citigroup, Merrill and others) is not listed in the registration statement, but can be found by cross referencing the listed CDO with the information in each of the prospectuses. Everquest also invested in mezzanine tranches that were problematic as well since the amount of protection underneath them can be too slender for a.s.sets backed by risky mortgage loans. These tranches were already trading at wide spreads-lower prices-in the secondary market. The information about the underwriters (UBS, Citigroup, Merrill and others) is not listed in the registration statement, but can be found by cross referencing the listed CDO with the information in each of the prospectuses. Everquest also invested in mezzanine tranches that were problematic as well since the amount of protection underneath them can be too slender for a.s.sets backed by risky mortgage loans. These tranches were already trading at wide spreads-lower prices-in the secondary market.

15 Everquest Financial Ltd., Form S-1, p. 48. It is impossible to calculate a precise number without more information, but it can be ball-parked from the S-1. It showed 16.2 percent of non-Parapet (a CDO-squared) a.s.sets were ABS/CDOs. There was more subprime exposure in a CDO-squared called Parapet, the initial deal backed by a.s.sets coming from the two hedge funds managed by BSAM. Parapet accounted for 53 percent of the CDO a.s.sets. Included in Parapet were mezzanine tranches that were 38.6 percent of the CDO a.s.sets, of which it appeared that a high percentage were subprime. Furthermore, 42.8 percent of the Parapet equity was backed by ABS/CDOs, most of which according to the S-1 was subprime. As a rough estimation subprime exposure was 40 percent to 50 percent of the collateral. That seemed substantial to me. As for the hedges, the doc.u.ment said that on May 8, 2007, the two hedge funds had transferred their interest on credit default swaps that referenced 48 tranches of ABS securities held by the CDOs with a notional amount of $201 million and stated: "The hedges will not cover all our exposure to RMBS held by our CDOs that are backed primarily by subprime residential mortgage loans. Our CDOs may experience negative credit events relating to RMBS tranches that are not hedged." The hedges may or may not have done the trick. There was no indication of when the hedges were actually put on, only that they were transferred on May 8, 2007. Single name ABS/CDO credit derivatives had become very expensive and were no longer very good hedges, so the timing was important. Everquest Financial Ltd., Form S-1, p. 48. It is impossible to calculate a precise number without more information, but it can be ball-parked from the S-1. It showed 16.2 percent of non-Parapet (a CDO-squared) a.s.sets were ABS/CDOs. There was more subprime exposure in a CDO-squared called Parapet, the initial deal backed by a.s.sets coming from the two hedge funds managed by BSAM. Parapet accounted for 53 percent of the CDO a.s.sets. Included in Parapet were mezzanine tranches that were 38.6 percent of the CDO a.s.sets, of which it appeared that a high percentage were subprime. Furthermore, 42.8 percent of the Parapet equity was backed by ABS/CDOs, most of which according to the S-1 was subprime. As a rough estimation subprime exposure was 40 percent to 50 percent of the collateral. That seemed substantial to me. As for the hedges, the doc.u.ment said that on May 8, 2007, the two hedge funds had transferred their interest on credit default swaps that referenced 48 tranches of ABS securities held by the CDOs with a notional amount of $201 million and stated: "The hedges will not cover all our exposure to RMBS held by our CDOs that are backed primarily by subprime residential mortgage loans. Our CDOs may experience negative credit events relating to RMBS tranches that are not hedged." The hedges may or may not have done the trick. There was no indication of when the hedges were actually put on, only that they were transferred on May 8, 2007. Single name ABS/CDO credit derivatives had become very expensive and were no longer very good hedges, so the timing was important.

16 Peter Eavis, "Freddie Mac Report Soft-Pedals Th.o.r.n.y Case," Peter Eavis, "Freddie Mac Report Soft-Pedals Th.o.r.n.y Case," The The Street. com, Street. com, Real Money, Real Money, 24 July 2003. According to a report by Freddie Mac's then regulator, the Office of Federal Housing Enterprise Oversight (OFHEO), Freddie Mac's officers decided that volatility calculated based on the then current market prices did not reflect fair value. Instead, Freddie Mac used historic prices as the basis on which to calculate volatility when it revalued its options. This one a.s.sumption change alone eliminated $731 million from Freddie's 2001 accounting transition adjustment gain (through adoption of a new accounting rule, SFAS133). 24 July 2003. According to a report by Freddie Mac's then regulator, the Office of Federal Housing Enterprise Oversight (OFHEO), Freddie Mac's officers decided that volatility calculated based on the then current market prices did not reflect fair value. Instead, Freddie Mac used historic prices as the basis on which to calculate volatility when it revalued its options. This one a.s.sumption change alone eliminated $731 million from Freddie's 2001 accounting transition adjustment gain (through adoption of a new accounting rule, SFAS133).

17 Office of Federal Housing Enterprise Oversight, Office of Federal Housing Enterprise Oversight, Report of the Special Examination of Freddie Mac, Report of the Special Examination of Freddie Mac, December 2003, 134-135. December 2003, 134-135.

18 Everquest IPO. Everquest's managers would get an annualized base fee of 1.75 percent of the company's net a.s.sets up to $2 billion decreasing on a sliding scale until they reached only 1 percent on net a.s.sets over $4 billion. If Everquest returned more than 8 percent, as computed by the managers that stood to benefit, the managers would get 25 percent of the upside, and that seemed high by industry standards for a fund that managed a.s.sets originally transferred by funds already managed by BSAM. Cioffi later said Everquest's employees had an a.s.set management agreement with BSAM and Stone Tower and that a.s.set management fees that BSAM received for managing Everquest were rebated back to the hedge funds. Everquest IPO. Everquest's managers would get an annualized base fee of 1.75 percent of the company's net a.s.sets up to $2 billion decreasing on a sliding scale until they reached only 1 percent on net a.s.sets over $4 billion. If Everquest returned more than 8 percent, as computed by the managers that stood to benefit, the managers would get 25 percent of the upside, and that seemed high by industry standards for a fund that managed a.s.sets originally transferred by funds already managed by BSAM. Cioffi later said Everquest's employees had an a.s.set management agreement with BSAM and Stone Tower and that a.s.set management fees that BSAM received for managing Everquest were rebated back to the hedge funds.

19 Everquest IPO,"Table of Contents." ii. Everquest IPO,"Table of Contents." ii.

20 Matthew Goldstein: "The Everquest IPO: Buyer Beware," revised t.i.tle "Bear Stearns' Subprime IPO," Matthew Goldstein: "The Everquest IPO: Buyer Beware," revised t.i.tle "Bear Stearns' Subprime IPO," BusinessWeek, BusinessWeek, 11 May 2007. The article quoted me as saying there was moral hazard with BSAM providing the valuations and surveillance on the CDO equity, and why would a customer want to buy "if it is trying to get CDO equity off of its balance sheet, incur the costs of securitization, and sell the risk without arm's length valuation." I had been clear that the a.s.sets were coming from the hedge funds, not Bear Stearns's balance sheet, but the quote seemed to imply otherwise, and elsewhere in the article, it implied the a.s.sets were coming from Bear Stearns, instead of the hedge funds managed by BSAM, an affiliate of Bear Stearns, although the conflicts with the a.s.sets coming from the BSAM managed hedge funds seemed worse. 11 May 2007. The article quoted me as saying there was moral hazard with BSAM providing the valuations and surveillance on the CDO equity, and why would a customer want to buy "if it is trying to get CDO equity off of its balance sheet, incur the costs of securitization, and sell the risk without arm's length valuation." I had been clear that the a.s.sets were coming from the hedge funds, not Bear Stearns's balance sheet, but the quote seemed to imply otherwise, and elsewhere in the article, it implied the a.s.sets were coming from Bear Stearns, instead of the hedge funds managed by BSAM, an affiliate of Bear Stearns, although the conflicts with the a.s.sets coming from the BSAM managed hedge funds seemed worse.

21 Jody Shenn, "Bear Stearns Funds to Transfer Subprime-Mortgage Risk with IPO," Jody Shenn, "Bear Stearns Funds to Transfer Subprime-Mortgage Risk with IPO," Bloomberg News, Bloomberg News, 11 May 2007. 11 May 2007.

22 Cioffi had said he was "short sub prime thru the ABS CDS market . . . the 2006 vintage exposure the market value totals only about $70M, against which I have shorted $340M Baa2 and Baa3 sub prime names thru the single name ABS CDS market. We determined these to be the weakest of the 2006 deals."The Everquest IPO states: "The hedges will not cover all our exposure to RMBS held by our CDOs that are backed primarily by sub-prime residential mortgage loans" (p. 55). Cioffi had said he was "short sub prime thru the ABS CDS market . . . the 2006 vintage exposure the market value totals only about $70M, against which I have shorted $340M Baa2 and Baa3 sub prime names thru the single name ABS CDS market. We determined these to be the weakest of the 2006 deals."The Everquest IPO states: "The hedges will not cover all our exposure to RMBS held by our CDOs that are backed primarily by sub-prime residential mortgage loans" (p. 55).

23 Kurdas, Chidem, Levered Bear Funds: A Peek into the Black Box," Kurdas, Chidem, Levered Bear Funds: A Peek into the Black Box," HedgeWorld, HedgeWorld, 26 June 2007. 26 June 2007.

24 Matthew Goldstein, "Bear's Big Loss Arouses SEC Interest," Matthew Goldstein, "Bear's Big Loss Arouses SEC Interest," BusinessWeek, BusinessWeek, 25 June, 2007. 25 June, 2007.

25 Kate Kelly and Serena Ng, "Bear Stearns Bails out Fund with Capital Injection," Kate Kelly and Serena Ng, "Bear Stearns Bails out Fund with Capital Injection," Wall Street Journal, Wall Street Journal, 23 June 2007. 23 June 2007.

26 Kate Kelly, and Serena Ng, "The Sure Bet Turns Bad," Kate Kelly, and Serena Ng, "The Sure Bet Turns Bad," Wall Street Journal, Wall Street Journal, 7 June 2007. 7 June 2007.

27 Kate Kelly and Serena Ng, "Bear Stearns Bails out Fund with Capital Injection." Kate Kelly and Serena Ng, "Bear Stearns Bails out Fund with Capital Injection."

28 Janet Tavakoli, Janet Tavakoli, Credit Derivatives & Synthetic Structures Credit Derivatives & Synthetic Structures (New York: John Wiley & Sons, 1998). I wrote about Askin's problems: "The investment banks were eager to extend financing because they wanted to get rid of the "nuclear waste" tranches of collateralized mortgage obligations ("CMO's"). Once the risky piece was sold, investment banks could underwrite more transactions and book attractive underwriting fees. When liquidity for these instruments dried up, risk managers started asking tough questions, but much too late (New York: John Wiley & Sons, 1998). I wrote about Askin's problems: "The investment banks were eager to extend financing because they wanted to get rid of the "nuclear waste" tranches of collateralized mortgage obligations ("CMO's"). Once the risky piece was sold, investment banks could underwrite more transactions and book attractive underwriting fees. When liquidity for these instruments dried up, risk managers started asking tough questions, but much too late 29 Laura Jereski, "Wall Street Firms Profited by Ravaging Askin's Holdings," Laura Jereski, "Wall Street Firms Profited by Ravaging Askin's Holdings," Wall Street Journal, Wall Street Journal, 22 April 1996. In 1995, Askin settled charges with the SEC that he mismarked bonds at misled investors. He paid a $50,000 fine and agreed to a two-year ban from a.s.sociation with any investment advisor. 22 April 1996. In 1995, Askin settled charges with the SEC that he mismarked bonds at misled investors. He paid a $50,000 fine and agreed to a two-year ban from a.s.sociation with any investment advisor.

30 Ibid. Ibid.

31 Ibid. Ibid.

32 Jeffrey B. Lane left JPMorgan/Bear Stearns and became CEO of Modern Bank on July 1, 2008. (PR Newswire, "Modern Bank Appoints Jeffrey B. Lane as CEO," June 24, 2008.) Jeffrey B. Lane left JPMorgan/Bear Stearns and became CEO of Modern Bank on July 1, 2008. (PR Newswire, "Modern Bank Appoints Jeffrey B. Lane as CEO," June 24, 2008.) 33 Jody Shenn, "FGIC Sees No Need to Honor Agreement with IKB, Calyon," Jody Shenn, "FGIC Sees No Need to Honor Agreement with IKB, Calyon," Bloomberg News, Bloomberg News, 26 March 2008. 26 March 2008.

34 Kate Kelly and Serena Ng, "Bear Stearns Fund Hurt by Subprime Loans," Kate Kelly and Serena Ng, "Bear Stearns Fund Hurt by Subprime Loans," Wall Street Journal, Wall Street Journal, 12 June 2007. 12 June 2007.

35 "Bear CDO Lists Total at Least $1.44 Bln - Sources," "Bear CDO Lists Total at Least $1.44 Bln - Sources," Reuters, Reuters, 20 June 2007. 20 June 2007.

36 Michael Mackenzie, "Credit Vehicle Defaults Reach $170 billion," Michael Mackenzie, "Credit Vehicle Defaults Reach $170 billion," Financial Times, Financial Times, 24 April, 2008. 24 April, 2008.

37 Kara Scannell, Siobhan Hughes, and David Reilly, "SEC Probes CDOs and Bear Funds, Kara Scannell, Siobhan Hughes, and David Reilly, "SEC Probes CDOs and Bear Funds, Wall Street Journal, Wall Street Journal, 27 June 2007. 27 June 2007.

38 Kate Kelly and Serena Ng, "Bear Stearns Bails out Fund with Capital Injection." Kate Kelly and Serena Ng, "Bear Stearns Bails out Fund with Capital Injection."

39 Kate Kelly, Serena Ng, and David Reilly, "Two Big Funds at Bear Stearns Face Shutdown," Kate Kelly, Serena Ng, and David Reilly, "Two Big Funds at Bear Stearns Face Shutdown," Wall Street Journal, Wall Street Journal, 20 June 2007. 20 June 2007.

40 Eric Martin, "U.S. Stocks Retreat, Led by Financials; Bear Stearns Tumbles" Eric Martin, "U.S. Stocks Retreat, Led by Financials; Bear Stearns Tumbles" Bloomberg News, Bloomberg News, 10 March 2008. 10 March 2008.

41 Charlie Corbett, "Bear Stearns Lied To Us, Fund Says Sub-prime Exposure Underplayed," Charlie Corbett, "Bear Stearns Lied To Us, Fund Says Sub-prime Exposure Underplayed," Investor Daily, Investor Daily, 8 October 2007. 8 October 2007.

42 Yalman Onaran, "Spector Ousted by Cayne Over Too Much Bridge, Money," Yalman Onaran, "Spector Ousted by Cayne Over Too Much Bridge, Money," Bloomberg News, Bloomberg News, 3 October 2007. 3 October 2007.

43 United States of America against Ralph Cioffi and Matthew Tannin, United States of America against Ralph Cioffi and Matthew Tannin, CR 08 415. f.#2007R01328, filed June 18, 2008. CR 08 415. f.#2007R01328, filed June 18, 2008.

44 Patricia Hurtado and David Scheer, "Former Bear Stearns Fund Managers Arrested by FBI," Patricia Hurtado and David Scheer, "Former Bear Stearns Fund Managers Arrested by FBI," Bloomberg News, Bloomberg News, 19 June 2008. 19 June 2008.

45 Landon Thomas Jr., "Prosecutors Build Bear Stearns Case on E-Mails," Landon Thomas Jr., "Prosecutors Build Bear Stearns Case on E-Mails," New York Times, New York Times, 20 June 2008. 20 June 2008.

Chapter 9: Dead Man's Curve.

1 Benjamin Graham, Benjamin Graham, The Intelligent Investor The Intelligent Investor (New York: Harper & Row, 1973), 95. (New York: Harper & Row, 1973), 95.

2 Ibid. Ibid.

3 Nikki Tait, "The Joyti De-Laurey Case: Queen of Deceit Duped City High-Flyers," Nikki Tait, "The Joyti De-Laurey Case: Queen of Deceit Duped City High-Flyers," Financial Times, Financial Times, 21 April 2004. 21 April 2004.

4 James Mackintosh "Wheels Come Off as Crunch Hits Peloton," James Mackintosh "Wheels Come Off as Crunch Hits Peloton," FT.com [ [Financial Times], 29 February 2008.

5 Ca.s.sell Bryan-Low, Carrick Mollenkamp, and Gregory Zuckerman, "Peloton Few High, Fell Fast," Ca.s.sell Bryan-Low, Carrick Mollenkamp, and Gregory Zuckerman, "Peloton Few High, Fell Fast," Wall Street Journal, Wall Street Journal, 12 May 2008. 12 May 2008.

6 Emiliya Mychasuk and Emiko Terazono, "Hedgie Heroes," Emiliya Mychasuk and Emiko Terazono, "Hedgie Heroes," Financial Times, Financial Times, 29 January 2008. 29 January 2008.

7 Ca.s.sell Bryan-Low, Carrick Mollenkamp, and Gregory Zuckerman, "Peloton Few High, Fell Fast." Ca.s.sell Bryan-Low, Carrick Mollenkamp, and Gregory Zuckerman, "Peloton Few High, Fell Fast."

8 James Mackintosh, "Peloton Partners in $2 billion a.s.sets Sale, James Mackintosh, "Peloton Partners in $2 billion a.s.sets Sale, Financial Times, Financial Times, 28 February 2008. 28 February 2008.

9 Ca.s.sell Bryan-Low, Carrick Mollenkamp, and Gregory Zuckerman, "Peloton Few High, Fell Fast." Ca.s.sell Bryan-Low, Carrick Mollenkamp, and Gregory Zuckerman, "Peloton Few High, Fell Fast."

10 Ibid. Ibid.

11 James Mackintosh, and Daniel Thomas, "Peloton Puts Office on Market," James Mackintosh, and Daniel Thomas, "Peloton Puts Office on Market," FT.com [ [Financial Times], 9 March 2008.

12 Ca.s.sell Bryan-Low, Carrick Mollenkamp, and Gregory Zuckerman, "Peloton Few High, Fell Fast." Ca.s.sell Bryan-Low, Carrick Mollenkamp, and Gregory Zuckerman, "Peloton Few High, Fell Fast."

13 James Mackintosh and Gillian Tett, "Peloton Fund Fall Highlights Danger of Overreaching, James Mackintosh and Gillian Tett, "Peloton Fund Fall Highlights Danger of Overreaching, Financial Times, Financial Times, 4 March 2008. 4 March 2008.

14 The Carlyle Group,"Firm Profile," The Carlyle Group,"Firm Profile," www.carlyle.com/company (14 June 2008). (14 June 2008).

15 "Carlyle's Debt Team Is a Secret Weapon" "Carlyle's Debt Team Is a Secret Weapon" Investment Dealers' Digest, Investment Dealers' Digest, 29 September 2003. 29 September 2003.

16 Ed Vulliamy, "Dark Heart of the American Dream" Ed Vulliamy, "Dark Heart of the American Dream" The Observer, The Observer, 16 June 2002. 16 June 2002.

17 "Carlyle Capital's Troubles Since IPO: Timeline," "Carlyle Capital's Troubles Since IPO: Timeline," CNBC.com, 13 March 2008. 13 March 2008.

18 Peter Lattman, Randall Smith, and Jenny Strasburg, "Carlyle Fund on Ropes as Banks Get Nervous" Peter Lattman, Randall Smith, and Jenny Strasburg, "Carlyle Fund on Ropes as Banks Get Nervous" Wall Street Journal, Wall Street Journal, 17 March 2008. 17 March 2008.

19 "Carlyle Capital's Troubles Since IPO:Timeline." "Carlyle Capital's Troubles Since IPO:Timeline."

20 Ibid. Ibid.

21 Edward Evans,"Carlyle Capital Nears Collapse as Rescue Talks Fail, Edward Evans,"Carlyle Capital Nears Collapse as Rescue Talks Fail, Bloomberg News, Bloomberg News, 13 March 2008. 13 March 2008.

22 Roddy Boyd,"The Last Days of Bear Stearns" Roddy Boyd,"The Last Days of Bear Stearns" Fortune, Fortune, 28 March 2008. 28 March 2008.

23 Kate Kelly, "Fear, Rumors Touched Off Fatal Run on Bear Stearns," Kate Kelly, "Fear, Rumors Touched Off Fatal Run on Bear Stearns," Wall Street Journal, Wall Street Journal, 28 May 2008. Alan Schwartz left Bear Stearns two months after the sale of Bear Stearns to JPMorgan Chase was completed. 28 May 2008. Alan Schwartz left Bear Stearns two months after the sale of Bear Stearns to JPMorgan Chase was completed.

24 Mark Pittman, "Moody's, S&P Defer Cuts on AAA Subprime, Hiding Loss," Mark Pittman, "Moody's, S&P Defer Cuts on AAA Subprime, Hiding Loss," Bloomberg News, Bloomberg News, 11 March 2008. 11 March 2008.

25 Kate Kelly and Serena Ng, "The Sure Bet Turns Bad," Kate Kelly and Serena Ng, "The Sure Bet Turns Bad," Wall Street Journal, Wall Street Journal, 7 June 2007. 7 June 2007.

26 "Testimony, Ben S. Bernanke, "Testimony, Ben S. Bernanke, Developments in the financial markets: Developments in the financial markets: Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, April 3, 2008, Federal Reserve press release. See Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, April 3, 2008, Federal Reserve press release. See http://www.federalreserve.gov/newsevents/testimony/bernanke20080403a.htm.

27 "Financials Lead Sell-Off After Carlyle News," "Financials Lead Sell-Off After Carlyle News," CNBC.com, 13 March 2008. 13 March 2008.

28 Ibid. Ibid.

29 Carlyle Group, "The Carlyle Group Issues Additional Statement on CCC," Carlyle Group Press Release #2008-025, March 13, 2008. Carlyle Group, "The Carlyle Group Issues Additional Statement on CCC," Carlyle Group Press Release #2008-025, March 13, 2008.

30 James Tyson, "Freddie Mac has 1st-Quarter Net Loss of $211 Million," James Tyson, "Freddie Mac has 1st-Quarter Net Loss of $211 Million," Bloomberg News, Bloomberg News, 14 June 2008. This article referenced remarks made on June 11, 2008 by James Lockhart, director of the Office of Federal Housing Enterprise Oversight, in which he said Freddie Mac and Fannie Mae owned $170 billion in subprime mortgage-backed securities rated AAA. 14 June 2008. This article referenced remarks made on June 11, 2008 by James Lockhart, director of the Office of Federal Housing Enterprise Oversight, in which he said Freddie Mac and Fannie Mae owned $170 billion in subprime mortgage-backed securities rated AAA.

31 Peter Lattman, Randall Smith, and Jenny Strasburg, "Carlyle Fund on Ropes As Banks Get Nervous." Peter Lattman, Randall Smith, and Jenny Strasburg, "Carlyle Fund on Ropes As Banks Get Nervous."