A Tale of Two Hedge Funds Magnetar and Peloton

PageNors Investments was originated by Sally Page and Jackson Norstern in 2006 as a premier investment firm serving the needs of individuals living in the Madison, WI. Madison is located in Dane county in South-Central Wisconsin, 77 miles West of Milwaukee and 122 miles Northwest of Chicago. Madison is also home to the University of Wisconsin-Madison. The Madison Metropolitan statistical area has an estimated population of 570,000 people and is one of the fastest growing regions in the state.

Accordingly, the firm had more mortgage-backed safes than any other company in the U.S; in fact, the mortgage-backed securities were four times as many as its value of shared equity to its shareholders. In the early parts 2007, the company had a total of $86 billion worth of mortgage-backed securities; the credit crisis of the U.S saw the stock value fall drastically (Pontell, 2014). The business was affected by the miscalculation; in the year to follow the company would eliminate mortgage-related employee positions and close its offices in the BNC unit and the Alt-A lender Aurora in some states.

1. According to the case, it shows that management of M determined that a loss would be “probable” and the estimate range would be $15 million to $20 million. However, they determined $17 million would be the “most likely” amount of loss.

The financial industry had gone to several crises through the decades. Around 2008, Alex Preston notice that the investments banking industry was in a crisis. Big banks were closing its doors or selling out to other companies. As it was the case of the National City Corp.; the first ever American’s mortgage maker had to close its doors after taking a large amount of proprietary risk. Other big financial companies like Goldman Sachs and Morgan Stanley, to avoid having to go down the same way, became bank holding companies, which means that these companies could receive emergency federal funds.

who had a bank account before the failures. To understand better, page 469, the textbook says, “

When the housing bubble came tumbling down, there were high defaults rates on the electorate and this led to the emergence of high risk borrowers (Bianco, 2008). These were people with a questionable financial history and may have lacked the sufficient means to sustain their mortgage payments and hence, went under. This occasioned massive loses to all the players in the housing sector. The worst hit was the lenders and the various investors.

The insolvency seen in the Housing Market manifested in the large number of stagnant foreclosures caused a dramatic decline in housing prices, which resulted in many homeowners owing more money on their houses than they are worth. Market-level insolvency is caused by capital flight in a specific market in response to a scare during a decrease in solvency. During the scope of this recession, the initial, progressive decrease in solvency was caused by a negative Net Capital Outflow in conjunction with the cash-vacuum produced by the US Budget Deficit, and the scare was caused primarily by the failure of several significantly-sized corporations and a rapid increase in foreclosures caused by the loss of a large number of jobs.

The enormous amount of unsecured consumer debt created by this speculation left the stock market essentially off-balance. Many investors, caught up in the race to make a killing, invested their life savings, mortgaged their homes, and cashed in

In 2008 the United States economy faced it most serious economic downturn since the great depression. This crisis began in 2006 when the subprime mortgage market showed an increase in mortgage defaults. This would lead to the decline of the U.S. housing market after a decade of high growth. The problems in the mortgage market where able to spread to other sectors of the economy especially in financial markets because of Collateralized Mortgage Obligations or CMOs. CMOs where mortgage backed securities that where given out by investment banks and where not regulated by the government. These securities fell as did mortgages due to increasing default rates. Because of CMOs companies bought Credit Default swaps or CDSs. These CDSs where nominally

There are believed to be key people to blame for the crash of 2008. One of them being, Angelo Mozilo, for CEO of Countrywide Financial Corp. Countrywide sold millions of mortgages to people questionable credit history. They reigned as the largest sub-prime mortgage lender at that time. Mozilo, along with selling millions of loans, he created “VIP programs” where certain politicians were offered special rates on their mortgages bringing home $470 million. He cashed out his shares of the company prior to its

Bernard Madoff founded Bernard L. Madoff Investment Securities in 1960, with an investmento of only $5,000 earned as a beach lifeguard and a lawn sprinkler installer. He was seen as a genius and the most sympathetic and friendly broker in the country. Madoff became the responsible for the largest financial scam in history after applying the most jaded of financial scheme. A stroke of billions of dollars and harmed many customers. But after 20 years of this scam, he admitted having ridden a giant pyramid scheme type after being arrested. The scheme is to pay older clients with money from new investors, without producing real income. Madoff even became chairman of Nasdaq, the

Momentum is the phenomenon that stocks which have performed well in the past will continue to perform well in the future, and that stocks which have performed poorly will continue to perform poorly. Therefore a momentum investment strategy is to invest in short term portfolios that have high returns in the past, and to short those with low returns over the same period.

When the financial crisis during 2008 hit the economy, people panicked. In an attempt to stabilize the market, the government took action. The various actions taken in 2008 by the Department of the Treasury and the Federal Reserve Bank, as well as the new regulations proposed and implemented by the Securities and Exchange Commission, were generated to reduce and mitigate the systemic risk created by the Money Market Mutual Funds. These actions and regulations, as well as the systemic risk created, will be addressed during the upcoming paragraphs.

In relation to the increase in house’s price, the rise of financial agreements such as mortgage-backed securities (MBS) and collateralized debt obligations (CDO) encouraged investors to invest in the U.S housing market (Krugman, 2009). When housing price declined in the U.S, many financial institutions that borrowed and invested in subprime mortgage reported losses. In addition, the fall of housing price resulted in default and foreclosure and that began to exhaust consumer’s wealth and

Another key event described in “The Big Short,” was when American International Group found a way to insure subprime mortgage loans while being able to bury these risks on its balance sheet. This was made possible by the fact that AIG was a triple-A-rated corporation with an enormous