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The Devil's Derivatives: The Untold Story of the Slick Traders and Hapless Regulators Who Almost Blew Up Wall Street . . . an by Nicholas Dunbar

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CHAPTER SEVEN

The Eyes of Satan

Having flooded the market with seemingly safe investments larded with subprime money, the traders created zombie banks to buy them. Brick-and-mortar banks liked these zombies, because they evaded accounting rules and bank regulations, and increased profits. Hungry for higher fees, ratings agencies encouraged the growth of this new market and undermined governance. Wall Street saw the zombie structured investment vehicles (SIVs) as ideal “dumb money” customers for buying subprime CDOs and began setting them up specifically for this purpose. But at the first whiff of trouble in 2007, investors fled this market, causing the zombies to collapse almost overnight. Banks were forced to bail them out, which increased their ...

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