Authors: David Einhorn
Tags: #General, #Investments & Securities, #Business & Economics
Securitization
The process of putting loans into groups (known as pools) and converting the pools into securities. This often includes carving the securities into different pieces (known as tranches) to be sold to investors of varying risk appetites.
Securitization facility
A short-term lending arrangement to finance loans while they are being assembled into pools pending securitization.
Sell short (shorting)
The opposite of owning, or being long; an investment that profits from a decline in a security value.
“Sell side”
Shorthand for the “sell side of Wall Street.” Firms, such as investment banks, that create and sell investments to investors or the “buy side.”
Senior debt
A bond that takes priority over other debt securities in case of default.
Shareholder distributions
A company’s distributions to its shareholders, usually in cash or stock.
Short squeeze
When the price of a stock rises quickly and investors who sold short cover their position by buying the stock to prevent further losses. This covering causes an additional rise in the price creating additional losses for any remaining short sellers.
Specialist
A member of a stock exchange who is responsible for the trading of a stock or several stocks. Specialists make a market in their stocks by displaying their best bid and asked prices and must maintain a fair and orderly market in those stocks.
Stock dividends
Distributions to shareholders in additional stock, rather than cash.
Stock split
Where a company’s stock is divided into multiple shares. For example, a 2-for-1 split of a $100 stock results in two shares worth $50 each.
Subordinated debt investment
Investment made in a debt instrument that is junior to senior debt.
Tax distribution
Taxable earnings that are distributed to shareholders.
Taxable income
The part of a company’s earnings that are subject to federal and state taxation.
Transparency
Refers to a company conducting its business out in the open with good disclosure so investors have a clear idea of its operations and performance.
Underwriting loans
The act of determining whether and on what terms to issue a loan to a prospective borrower, often based on analysis of the prospects creditworthiness.
Unrealized depreciation
The excess of the basis of an investment over its fair market value.
Walton’s birthday
I don’t know, but I would recommend a copy of
Fooling Some of the People All of the Time
as a gift.
Write-down
Decrease in the stated value of an asset.
Write-up
Increase in the stated value of an asset.
Year of origination
The date when a loan was issued.
Yield to maturity
A loan’s total return, stated as an interest rate, if it is held until it matures.
Acknowledgments
I am sure that many books benefit from help beyond the author’s own ability.
Fooling Some of the People All of the Time
is an extreme example. I have had so much help from so many people, it is impossible to remember who did what. This book is truly a group effort.
First, I want to thank my family. My wife, Cheryl, has been a tremendous helper and supporter both in a literary and an emotional sense. My parents, Nancy and Stephen; brother, Danny; uncle Robbie; mother-in-law, Judie; and sister-in-law Marcy have all helped out on many iterations and made many fantastic suggestions. Finally, I want to thank my children, Rachel, Naomi, and Mitchell, who have allowed me to spend some of our precious family time to work on this book. I hope that when they are older, they will appreciate why I felt telling this story is so important.
Next, I want to thank the entire Greenlight Capital team. My partner, James Lin, has done an incredible job helping me research, follow, and catalog the story. My other partners, Vinit Sethi, Daniel Roitman, Bruce Gutkin, and Harry Brandler, have each made enormous contributions that include everything from suggesting language, improving my memory, helping control the tone, and hunting for typos. Justin Lepone helped with a lot of suggestions and in educating our investors to keep them informed and supportive of this project. Andy Weinfeld coordinated the legal and fact-checking effort. Helen Gorgoni kept track of the various drafts and collated the comments from the many readers. Thank you all.
Thank you, James Schembari for all your hard work and writing. I really appreciate your sharp eye and help in capturing my voice. David Breskin’s efforts to polish the manuscript have been truly heroic. Thank you for playing through pain and even putting your wife’s book aside to help mine. I give thanks to Kim Scheinberg, a gem of an editor who believes that all wars are fought between the good guys and the good guys. Bless her soul. I want to thank Rich Zabel, Hyongsoon Kim, Mike Kenny, and Rex Heinke for your excellent advice. I owe thanks to Kelly O’Connor and David Pugh at John Wiley & Sons and from Sandy Dijkstra, my literary agent. Joel Greenblatt has my enormous gratitude—first for introducing me to John Wiley & Sons and second for writing a three-hundred-word Foreword that so perfectly encapsulates the point of this hundred-thousand-word book.
One of the best parts of this experience has been meeting Jim Brickman. I am inspired by his incredible dedication, persistence, research capabilities, and discoveries. Also, thanks to my friend Curtis Schenker. You really had nothing to do with this book, but you got so little credit for building Scoggin in
Hedge Hunters
that I thought you should get a shout out here.
Finally, I need to thank my personal and business friends who took time to read various drafts and give me feedback: Bill Ackman, Steve Bruce, Jim Carruthers, Claire Davis, Lenny Goldberg, Brian Goldman, Adam Goldsmith, Mary Beth Grover, Ian and Neil Isaacs, Daniel Loeb, Robert Medway, Mark Roberts, Jerome Simon, Leonard Tannenbaum, Whitney Tilson, Glenn Tongue, and Rob Usdan. I have taken many of your suggestions, and I hope you smile when you see them in the final book.
About the Author
David Einhorn
is the President and founder of Greenlight Capital, a long-short value-oriented hedge fund. David is the Chairman of Greenlight Capital Re., Ltd. (Nasdaq: GLRE) and serves on the boards of the Michael J. Fox Foundation for Parkinson’s Research, Hillel: The Foundation for Jewish Campus Life, and the Robin Hood Foundation. David graduated
summa cum laude
with distinction in all subjects from Cornell University in 1991, where he earned a B.A. from the College of Arts and Sciences.
Index
A
Abernathy McGregor
Absolute return
“Absolute-return” investors
Accounting
aggressive
fair-value
fire-sale
fraud
gain-on-sale
government procedures
hold-to-maturity
leniency in
methods
portfolio lending
pyramid-scheme
SEC rules
Small Business Administration (SBA)
ACE Products
Ackman, Bill
ACME Paging
debt and equity investments
Adelphia
Advantage Sales & Marketing
Agribrands, recovery of
Akin, Gump, Strauss, Hauer & Feld, LLP
Al-Jufairi, Abdulla
Allied and advisers, list of
Allied and BLX customers, list of
Allied Capital
accounting practices
aggressive accounting by
Ares Capital’s acquisition of
assets
attacks on
Audit Committee
Audit Guide and
audit letter (2008)
BLX and
campaign against critics
class-action suit and
conference call, third-quarter earnings (2008)
credit agreement with banks
CRM as largest shareholder
dissecting
equity offerings by
Fooling Some of the People,
objections to
fraud at
Goldman Sachs and
government investigations into
Lehman Brothers compared to
loans originated by
operating results of
qui tam
case against
resembling Enron
SEC investigation of
shareholder meetings
stock collapse
stock options for management
stock ownership initiative
testimony at SEC about
third-party valuation assistance and
write-downs by
Alpert, Mark
American Capital Strategies
American Institute of Certified Public Accountants (AICPA)
American Physicians Services (APS)
debt and equity investments
America Online
Analysis
loss
portfolio
risk
security
sharing by investors
of Sirrom
statistical
Analysts
diggers
Merrill Lynch
Wall Street
Anti-hedge fund series,
Wall Street Journal
Appreciated investments
Aquamarine Fund
Ares Capital
Armstrong, David
Arthur Andersen
prosecution
Asian market exposure
Assets
Allied Capital and
fire-sales of
growth
non-performing
Atkins, Paul
AT&T
Audit Guide
Allied Capital and
B
Back-office services
Balance sheet
BancLab
report
Bank of America
investor conference
stock price weakness and
Bank regulators
Bankruptcy
of Best Products
BLX loans and
bonds and
of Boston Chicken
court
of Fairchild Industries
of Garden Ridge
of Startec
of Sweet Traditions
of Sydran Foods
Trilogy Conifer
of WorldCom
Bear market
Bear Stearns
Berkowitz, David
Bernanke, Ben
Berne, Amy
Best Products, bankruptcy of
Bill Russell Oil
audit photographs
debt
Biotech company
“Black box” funds
Blended return
Bonander, Laura
Bonds
bankruptcy and
high-yield
investment-grade
prices
purchasing
risky
Startec
Treasury
Booker, Rene
Book value
Borrowable shares
Boston Chicken
bankruptcy of
Braswell, Mark
Brawn, Darius
Brickman, Jim
Brockovich, Erin
Browne, Brooks
Bruce, Steve
Buffett, Warren
Bull market
Bush, George W.
Business and Industry Loan (B&I)
program
Business development companies (BDC)
Business Loan Center
Business Loan Express (BLX)
bankruptcy of
borrowings of
business operations
cash flow
delinquent loans
fraud at
liquidity of
loan fraud
loans originated by
management
name change to Ciena Capital
noncash revenue
origination volumes
politics and
preferred lender status of
qui tam
case against
securitizations
Special Asset Group
status in January 2008
valuation comparison
valuation of
Business model
Business plan
Business-to-business (B2B) networks
Byrne, Patrick
C
Callan, Erin
Callidus
Campaign contributions
Capital
initial
in portfolios
preserving in investments
risking
structure
surplus of
Capital gains
dependency on
Capital Research and Management (CRM)
Capital structure arbitrage
Carruthers, Jim