Copyright © 2015 by Richard Teitelbaum. All rights reserved.
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Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Teitelbaum, Richard, 1961–
The most dangerous trade: how short sellers uncover fraud, keep markets honest, and make and lose billions / Richard Teitelbaum.
pages cm
Includes index.
ISBN 978-1-118-50521-2 (cloth) – ISBN 978-1-118-77424-3 (epdf) – ISBN 978-1-118-61614-7 (epub)
1. Short selling (Securities) 2. Fraud. 3. Investments. 4. Speculation. I. Title.
HG6041.T43 2015
332.64′5–dc23
2015017857
Cover Design: Wiley
Cover Images: businessman walking ©iStock.com/4×6;
background ©iStock.com/delirium
At its crux, short selling is about failure. Things break down. Whereas most of mankind basks in a natural optimism, there are those who navigate the darker side of events – the miscalculations, fraud, and follies that spur us onward toward disaster. Catastrophe's natural handmaidens are greed and, yes, plain evil.
The natural state of a collapsing universe is the breaking down of order. Short sellers understand this and seek to profit from it.
I knew these dynamics before starting this project in 2012. After all, I quoted the pessimist philosopher Arthur Schopenhauer in college and still enthuse over Samuel Beckett plays. In hindsight, I'm embarrassed to say, my effort was more about careerism than anything else. Colleagues and rivals were churning out acclaimed books in the wake of the 2008–2009 financial crisis. I was toiling for Bloomberg News, at a sparsely read monthly magazine under the yoke of a petulant editor. Yes, I was proud of a good portion of my work – racking up a record 23 cover stories. Some of it explored the underside of the financial crisis. But my peers were on Charlie Rose or, worse, had even penned movie deals.
John Wiley & Sons approached me, suggesting I write a book profiling short sellers – something I suspect they soon came to regret. Short sellers, a misfit breed of investor tilting against the relentless onslaught of hype emanating from Wall Street's powerful marketing machinary, make a colorful cast of characters – an assortment of loners, firebrands, cynics, liars, and losers. What could go wrong?
My paranoid suspicion – evidence for which is utterly circumstantial – is that the wheels began to fall off the project before it began, with an investigative story I wrote for the January 2012 issue of the magazine. In July 2008, U.S. Treasury Secretary Henry Paulson met at the offices of Eton Park Capital Management with a group of hedge fund managers and other Wall Street types, many of them alumni of Goldman Sachs, where he was CEO from 1999 to 2006. According to a source at the meeting, the secretary disclosed material nonpublic information – that the government was planning to put mortgage guarantors Fannie Mae and Freddie Mac into conservatorship – wiping out equity holders in those state-sponsored companies. Disclosing this was not illegal, as I reported, citing legal experts. Yet Paulson had recently said such a move was unlikely.
