I've been re-watching Michael Lewis' 60 Minutes interview on the crash. And with that, I've studied various scenes from the very entertaining movie version. I enjoy it but the process also eats away at me, even secluded away on Howell Mountain.
You see, i was one of the 20 or so people Lewis talks about who didn't just talk about the coming crash but bet on it happening. I founded Cronus with the collapse in mind. Our purpose was to short SP futures and buy Ts. My best position was long 9925 Eurodollar calls when rates were posting at 5 and 4.75. My calculations at the time led me to believe a penalty rate would price Libor somewhere between .75 and .5 not a full fledged zirp. We paid a half a basis point for the calls and they ended up 50 ITM -250k/200m.
The most interesting scenes in the movie come when the shorts are finally right but the Street still won't value the securities up. We played on a regulated exchange so didn't have the same problem. We did have serious issues, however. We cleared at EDF Man and with the system failing and guys next door getting wiped out for clearing at Lehman, we were solicited by representatives for GSEC to take on our services. The IB, wanted us to trade 1m for him given our strategy also. We figured being under the GS umbrella would make us safer than EDF.
Little did we know, the IB was deep under water also and had diverted the monies through GSEC into a margin account at CBOE. Both the GSEC back office and our own London accountants were phonying up the daily balances. (when the Feds realized i had pass codes into GSEC clearing the jig was up and they plead guilty and paid $7m in fines) I returned the customer funds and shut the fund. Amazingly, if we had remained open, we would have been embroiled in the Corzine debacle shortly after. Think about that, a couple of nobodies from the floor of the CME bet on the end of the financial system, were right, and the 2 banking institutions they (we) used to do it both stole the money to cover their own losses !
When I returned the investor money, after working with the NFA to ensure it was done properly, all the NFA investigator could say was, "We are really glad for you, no one ever gets the money back." I'm worried why I keep re-watching, something is bugging me again. It's real hard to be early. I'm happy up here, away from it this time.