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House prices are crumbling on both sides of the Atlantic, growing numbers of homeowners face repossession, financial markets are yoyo-ing and Britain saw its first run on a bank in living memory.
But for three audacious New York traders it all added up to a US$4 billion ($5.21 billion) profit opportunity and the biggest jackpot in the history of Wall Street.
The young guns at investment bank Goldman Sachs - none of them over 40 - were unmasked yesterday, prompting a wave of adulation and envy among their colleagues, and another bout of handwringing about Wall Street's ability to make multibillion-dollar profits as millions of ordinary people face losing their homes.
Dan Sparks and two underlings, Josh Birnbaum and Michael "Swenny" Swenson, placed what were in effect giant bets against the US mortgage market at the start of the year and watched their winnings tick higher as rising mortgage defaults spiralled into a worldwide financial crisis.
In part because of their success, Goldman Sachs will post record profits next week. It will stand alone on Wall Street, where rivals have suffered huge losses from the credit market meltdown.
The trio are in line for bonuses of about US$10 million apiece from a record bonus pool at Goldman of about US$19 billion.
"They are very embarrassed that their names have come out," said a company source. "Until now, nobody had heard of them, including most of the people on the floor where they work."
The Wall Street Journal revealed yesterday how the three men would forgo lunch breaks, weekend trips with their families, and even sleep, to keep on top of positions - but would always find time to pump themselves up at the gym before heading to the testosterone-fuelled trading desk.
Haunted by the spectre of Nick Leeson, whose unapproved trading racked up the £827 million ($2.2 billion) losses that sank Barings Bank in 1995, investment banks have tried to keep a tight leash on their traders, but Goldman Sachs has led a trend to put more of the bank's own money on the line in the search for bigger profits.
Nonetheless, the trio had to engage in a running battle to keep their bets from being whittled away by more conservative risk managers.
At one point in February, when an angry Birnbaum shouted that it was "the wrong time" to be cutting the bets, he was overruled.
The decision was reversed and the bets ratcheted back up later in the year. Their US$4 billion success more than mitigated other losses on mortgages, and could put the three men into an elite group of legendary traders.
Goldman is trying to play down the scale of the risks taken by the mortgage trading desk, saying most of the trades were designed to reduce the risk of opposite holdings elsewhere in the business.
The bank has also been trying to limit political fallout from revelations that it made giant profits from a financial crisis that could see millions of Americans forced out of their homes and plunge the economy into recession.
- THE INDEPENDENT
