Chapters 2-3 Summary and Analysis

Chapter 2. In the Land of the Blind.

In 2004, money manager Michael Burry became interested in bonds. Burry had previously only invested in stocks, but became interested in bonds after reading a great deal about them and studying their prospectuses. As Burry became knowledgeable about mortgage bonds, he became aware that he had a tactical investment problem. Burry could not bet against mortgage bonds in the same way he could other bonds because he could not short houses, only house builders, but this was a risky investment. That is why Burry became interested in credit default swaps. These swaps were like an insurance policy with semiannual premium payments and a fixed term. In buying these swaps, Burry was guaranteed to only lose only the amount of the premium payments. However, if the credit went bad for some reason, Burry would...