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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 EIGHT

Massive Collateral Damage

The market-based system depends on price transparency to maintain the confidence of all parties, but that was undermined by the flood of complex, toxic assets no one could value. Smart firms like Goldman used their trading prowess to their advantage, creating price information that helped them extract huge collateral payments from counterparties like AIG. When plummeting market prices started eroding bank balance sheets, some investors realized that many big banks weren’t properly capitalized and started betting on their collapse. Regulators were helpless as disaster loomed.

“Sorry to Bother You on Vacation . . .”

On July 26, 2007, the day before IKB hit the rocks, Andy Davilman, a Goldman Sachs salesman, ...

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