Magnetar Letter to Investors About Our Story—And Our Response
On Monday, the hedge fund Magnetar sent a letter to its investors defending its practices and criticizing our story about it. (We received the letter from Bloomberg News.) The letter largely amplifies the statements its representatives made to us during our reporting, and which we included at length with our story. We are happy to link here to the Magnetar letter for those who want to see those arguments in fuller detail.
Magnetar’s letter doesn’t deny that it purchased collateralized debt obligation (CDO) equity, that it bet against many of those CDOs, or that it exercised influence over the construction of the portfolios. In particular, it doesn't deny and in one case admits that it pushed for higher returns and hence greater risk in the portfolios. At root, Magnetar says it did nothing illegal. Our story said that this is probably correct; violations of law or rule, if any, were more likely the responsibility of others. In short, we see nothing in our story to correct.
Enticed by profits and bonuses, Wall Street took advantage of complicated mortgage-based instruments to reap billions, only to exacerbate the eventual crash.
The Story So Far
As the housing market started to fade, bankers and hedge funds scrambled for ways to maintain the lavish bonuses and profits they had become so accustomed to, repackaging mortgages in complex securities called collateralized debt obligations. The booming CDO market masked how weak the housing market was, and exacerbated its collapse.