Skip to main content

The Secret Story Behind the Infamous Magnetar Trade

Jesse Eisinger and Jake Bernstein of ProPublica just published an exhaustive narrative on what has become known on Wall Street as the Magnetar trade.

We won’t ruin it for you, but basically the giant Chicago hedge fund, started by former Citadel trader Alec Litowitz (left), helped create $40 billion worth of extremely toxic CDOs after housing prices began to slide in late 2006. With the help of nearly every bank of Wall Street those CDOs were sold to other investors.

But, at the same time, Magnetar was betting the CDOs would default, and they ended up reaping a fortune.

From what we've learned, there was nothing illegal in what Magnetar did; it was playing by the rules in place at the time. And the hedge fund didn't cause the housing bubble or the financial crisis. But the Magnetar Trade does illustrate the perverse incentives and reckless behavior that characterized the last days of the boom.

As far as Magnetar is concerned, they did nothing wrong and their bets against the CDOs were mere hedges.


Inside George Soros' Famed Currency Trade

Inside George Soros' Famed Currency Trade

Behind the Massive Conspiracy to Rig the Muni Bond Market

If you thought the SEC’s charges against Goldman Sachs poured fuel on an already-raging populace fire, Wall Street’s involvement in a massive bid rigging scandal in the $2.8 trillion municipal bond market will fan the flames even more.

Regulators Focus on Waddell Trade in Market Plunge

We thought Waddell & Reed was swallowed up ages ago by some big bank. But apparently the money management firm is still around. . .and helping to trigger massive slide in the market last week.

Disney Duo Arrested in Insider Trading Scheme

A former Walt Disney employee and her boyfriend have been arrested for allegedly trying to sell tips about the media giant to a bunch of hedge funds for $15,000 each.