It’s late 2003, and I’m sitting in my rented apartment in Redondo Beach, California thinking I need to buy a house. Why? Because everyone is telling me it’s the best thing to do and throwing money at rent is stupid. So I get a real estate agent to show me around Hermosa and Manhattan Beach and quickly realized I was priced out of the market. But, the agent kept on telling me “Manish, I’m getting waiters and waitresses into houses, I can definitely get you a house.” Also, I had friends that were working for companies like Countrywide and Ameriquest and they were telling me how quickly they were expanding. Back then I couldn’t put my finger on what was happening, but now it’s fairly apparent – subprime loans.
It seems so obvious that they were just throwing money at people to buy homes. I know a couple people that took these type of loans and technically speaking they are screwed. They get to watch their monthly mortgage go up, their home value go down, their blood pressure go up and their disposable income go down. If you like roller coaster rides, this is the one to be on.
So what smart investment decision did I make with my money? I did the worst thing possible I bought a constantly depreciating asset – a car. In hindsight it was the best damn return on fun I’ve ever made.
To learn more about the subprime market and the events that unfolded in March and April 2007, download this pdf (46 pages, 356kb). It was published in May by the EIM Group, which is a fund of hedge funds and supposedly had some exposure to these instruments.