Originally written August 23, 2005, a John Q Treasury reprint:

She is slight and crisply grey suit clad, her hair pinned into a bun and her lip bitten. The office is large, with only one window letting in dusk’s strained light. Three walls are covered with maps and graphs, each pinned neatly in place. In one corner, a muted television changes channels each minute and the final wall is nothing but crisp LCD screens. Some display stock tickers, others charts, still others a blur of words or news tickers. The woman sits cross legged in her chair at the center of this, completely motionless. She is looking in the direction of a series of charts whose titles all relate to housing and credit risk derivatives, but her eyes are unfocused…

When the man says her name, “Libby”, she doesn’t so much as twitch until long seconds have gone by. Slowly, with a shift of her weight, she swivels the chair to face the silver haired man.


He smiles faintly, “Libby.”

“Credit derivatives.”

“Offloading default risk from banks onto investors. The chairman says they make the market much… stronger.”

“Who’s buying these derivatives?”

“Hedge funds are big. Those boys need big profits. No one parks their money in a hedge fund to get mutual fund returns.”

“Lot of them are getting mutual fund returns.” She nods towards one of the charts

“I’m guessing their risk profile isn’t the same as a mutual fund’s.” It’s not a question but Libby nods to another chart.

“Nope. Lots of refi exposure too. ‘Cause the risk of someone defaulting on a second mortgate is no big deal.” She gestures with her chin to a series of charts pinned to one wall and he turns to look at them.

“Time to sale of housing. Seems to be going up in a lot of markets.”

“When a market hits a sharp discontinuity who gets hurt worst, first?”

“People who expect it to continue trend.”

“How do many hedge funds make their money?”

“Buy on variations from trend expecting a return to trend.” The silver haired man turns back to Libby. His voice is weary, “are we going to hit a discontinuity?”

“Ever blow bubbles as a kid?” One corner of her mouth tilts up. “Any of them ever not burst?”

John shakes his head, but says, “well, not that I know of. But maybe one’s still blowing on the wind somewhere.”