“You’d have thought anything with a C in front of it would have been toxic after 2008,” says Bonnie Baha, a fund manager at DoubleLine Capital in Los Angeles, which oversees $50 billion. “But the bid seems to be never-ending. It’s been a nice ride, but it’s not going to go on forever.”
BlueMountain says that in 2011 it bought a portfolio of synthetic CDOs and CDSs from Credit Agricole, based in Moutrouge, France. The sale cut Agricole’s risk-weighted assets — which must be protected by a capital buffer — by $18 billion, the bank says.
“We think there will be more of those types of transactions,” Siderow said.
A law degree helps
For banks such as Credit Agricole, tapping Feldstein is like having a tall, green monster on the rampage and calling in Dr. Frankenstein to deal with it. He was on the JPMorgan team that helped create credit derivatives in the early 1990s.
BlueMountain often exploits tiny, intermittent differences in price among bonds and the swaps that insure them. It uses custom algorithms to arbitrage those swaps and the indexes that London-based Markit Group owns and manages.
Even so, none of the eight men who run BlueMountain are quantitative traders. Michael Liberman, BlueMountain’s chief risk officer, who has a master’s degree in math from Brandeis University, comes closest.
Rather, Feldstein, Siderow and the others are mostly MBAs and lawyers. A law degree helps when you’re dealing with CDO prospectuses, which run to 350 pages and make stock-offering documents read like spy thrillers.
Feldstein grew up far from the world of finance, in Flagstaff, Ariz. His father, Murray, a urologist, was elected to the Flagstaff City Council as a Libertarian in 1980, giving the party, founded in 1971, one of its first victories.
Feldstein went east for school and graduated magna cum laude from Georgetown University. He then worked at consulting firm Bain & Co., where he met Jane Veron, a Yale University graduate — also magna cum laude — whom he married after leaving Bain to attend Harvard Law School, according to a 1989 announcement in the New York Times.
At Harvard, he played pickup basketball with classmate Barack Obama. Feldstein said he can tell a lot about people by how they play the game.
“He was a leader,” he said in a 2008 Financial Times interview. “He could have scored or he could have passed, and he passed.”