HAVING A PROBLEM WITH THE MARKET?

Some of the Masters of the Universe were running into problems because they were getting pounded in the "free market." Their attempted solution was to change the rules!

Trader Made Billions on Subprime
John Paulson Bet Big on Drop in Housing Values;
Greenspan Gets a New Gig, Soros Does Lunch
By GREGORY ZUCKERMAN
January 15, 2008; Page A1
WALL STREET JOURNAL

But as his gains piled up, Mr. Paulson fretted that his trades might yet go bad. Based on accounts of barroom talk and other chatter by a Bear Stearns trader, he became convinced that Bear Stearns and some other firms planned to try to prop the market for mortgage-backed securities by buying individual mortgages.

Adding to his suspicions, he heard that Bear Stearns had asked an industry group to codify the right of an underwriter to modify or buy out a faltering pool of loans on which a mortgage security was based. Mr. Paulson claimed this would "give cover to market manipulation." He hired former Securities and Exchange Commission Chairman Harvey Pitt to spread the word about this alleged threat.

In the end, Bear Stearns withdrew the proposal. It was merely about clarifying "our right to continue to service loans -- whether that be modifying loans when people can't pay their mortgage or buying out loans when rep and warranty issues are involved in the underwriting process," says a Bear Stearns spokesman.