Explaining Southern California's economy

Was Crowell Weedon's misadventure with credit default swaps really that big a deal?

To go with India-society-books-politics,

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Ayn Rand is a heroine to some libertarians — and at least one former bond investor in L.A.

The L.A. Times has an interesting story today about Crowell, Weedon & Co., which reporter E. Scott Reckard characterizes as a "regional brokerage based in Los Angeles" that "has preached old-fashioned stock and bond picking to its clients since the depths of the Great Depression." The impression at the paper that Crowell Weedon is seriously old-school goes back a ways: Tom Petruno wrote about the firm in 2007, under the headline "They make money the old-fashioned way," a reference that anyone who paid attention to investment marketing in the late 1970s will get.

Here's what happened: In 2008, the firm's head of bond trading, Robert Gore, set up a sideline operation to play the housing downturn. Gore was a housing bear as early as 2006, and the LAT points to his website as proof. The trades he was running were proprietary, meaning the firm basically set him up with funds drawn from Crowell Weedon's own accounts to establish his positions — positions that used the now infamous derivatives known as credit default swaps to short mortgage-backed securities. 

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