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epresent<strong>in</strong>g a bank consider<strong>in</strong>g buy<strong>in</strong>ga portfolio <strong>of</strong> subprime mortgage loansmade by other lenders. My job was toperform due diligence—to review thedocumentation to see whether the loanshad been made with the proper paperwork.Had the borrowers been notified<strong>of</strong> the <strong>in</strong>terest rates they were slated topay? <strong>That</strong> the rates would go up overtime?<strong>The</strong> papers turned out to be chockfull<strong>of</strong> irregularities. If I’d been <strong>in</strong> thebankers’ shoes, this would have mademe nervous, very nervous. But whenour legal team summarized the risks <strong>in</strong>a caution-filled conference call, thebankers seemed utterly untroubled.<strong>The</strong>y saw the potential pr<strong>of</strong>its <strong>of</strong> buy<strong>in</strong>gthose loans at a discount, and theywanted to go ahead with the deal. Yetit was just this k<strong>in</strong>d <strong>of</strong> risk-reward miscalculationthat contributed to the470/929

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