Annals of fictional market manipulation, cont.

July 17, 2009

Rick Bookstaber, after mentioning that “we have no clue” how Goldman is making all that money, then adds:

I am in the middle of writing a novel that begins in the midst of the 2008 crisis. In the novel there is an investment bank where one of the trading units gets requests from its clients to price their illiquid inventory. (This is an exercise that occurs in real life, because the clients have to mark to market, and for some assets there is no market. So they go out and get bids from a couple of banks, and then mark at the average of these two prices). This trader puts in incredibly low-ball prices. One bank prices a security at $92. He prices it at $50, leading to a mark to market price of $71. The trader knows that with such a low price, the client will be forced into liquidation mode. The trader positions his book for the forced sale that he helped precipitate, generating big profits from his scheme. This is fiction.

I just can’t wait for the movie. Any chance of getting Dan Aykroyd and Eddie Murphy back together?


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