National Public Radio, ProPublica, and This American Life teamed up over the weekend to present “Bet Against the American Dream,” a look into the sub-prime mortgage crisis. The segment incorporates investigative reporting about the Magnetar Trade, backed by a song that was written by the writers of the hit Broadway musical Avenue Q.
About the Magnetar Trade
In late 2005, the booming US housing market was slowing down: subprime mortgage companies’ shares were falling, and the historic growth was set to decline, which could’ve offset the economic damages of recent years. Despite the changing tides of the economic climate, Magnetar, a hedge fund ironically (and perhaps purposefully) named for the super-magnetic field created by the last moments of a dying star, was able to earn outsized returns the year the crisis began. Until now, the secrets of the trade were kept safe by the internal workings of Wall Street and employees too scared to speak on the record.
What NPR revealed was that that Magnetar bet against its own deals after stacking them with ultra-risky assets, ensuring they’d fail and prolonging the high-risk behavior that led to the Great Recession of 2008-2009. Had the bubble deflated in 2005, the Recession might still have occurred, but would have likely started earlier and caused less widespread economic devastation.
A Musical Lesson in Sub-prime Mortgage
In the episode of This American Life, Ira Glass enlists the help of Robert Lopez, In a manner similar to his hit Broadway musical Lopez wrote a song for the epsiode of This American Life called “Betting Against the American Dream,” which uncovers and satirizes the recent developments surrounding the Magnetar story. You can view a video of the song and read some comments by Ira Glass, the host of the popular radio show, here.
Whether you are more interested in the reporting from ProPublica or the satire of Robert Lopez, the story surrounding Magnetar’s purported “market neutrality,” is fascinating, as is the fact that nothing Magnetar did was illegal.
For more information about Magnetar, and to listen to the entire episode, go the the This American Life homepage.