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It Doesn't Take a Crystal BallIt Doesn't Take a Crystal Ball

The bursting of the subprime mortgage bubble and subsequent market meltdown in the summer of 2007 vividly illustrate Karl Marx's adage that history tends to repeat itself: the first time as tragedy; the second time as farce.1 This summer's farce showcased the collapse of the subprime mortgage market, the failure of overleveraged fixed-income hedge funds, and sharp losses by quantitative hedge funds.

Michael E. Lewitt

January 1, 2008

12 Min Read
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Michael E. Lewitt

The bursting of the subprime mortgage bubble and subsequent market meltdown in the summer of 2007 vividly illustrate Karl Marx's adage that history tends to repeat itself: the first time as tragedy; the second time as farce.1 This summer's farce showcased the collapse of the subprime mortgage market, the failure of overleveraged fixed-income hedge funds, and sharp losses by quantitative hedge funds. The sad part: these debacles were made possible by players, both sophisticated and unsophisticated, who assumed: “This time will be different.” Well, this time wasn't different.

So, just in case someone actually wants to learn from these mistakes, what can the financial markets of 2007 teach?

Answer: the more things change, the...

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About the Author

Michael E. Lewitt

Mr. Lewitt has spent the last 25 years in the securities industry and the last 20 years in the investment business.  Mr. Lewitt co-founded Harch Capital Management, LLC in 1991, where he was the co-lead portfolio manager (1991-2001) and lead manager (2001-2011) for all of the firm’s client assets including separate accounts, hedge funds (long and short), collateralized debt obligations and mutual funds focused on the less-than-investment grade debt markets for U.S. and non-U.S. institutional clients as well as high net worth individuals, family office and foundations and endowments. Since 2001, Mr. Lewitt has edited and authored The Credit Strategist, a newsletter that covers economics, politics and the financial markets and that is widely read around the world.   Mr. Lewitt is recognized as one of the few investors and strategists who accurately forecasted and successfully managed client assets through both the 2001-2 credit crisis and the 2008 financial crisis.  Mr. Lewitt serves as a regular financial columnist for the Spanish newspaper El Mundo and has written for The New York TimesThe New RepublicTrusts & Estates and other publications.  In May 2010, Mr. Lewitt published The Death of Capital:  How Creative Policy Can Restore Stability (John Wiley & Sons). The Spanish edition of the book, La muerta del capital, was published in June 2011. Mr. Lewitt graduated from Brown University (Magna Cum Laude; Honors in Comparative Literature and History); was a PhD candidate in Comparative Literature at Yale University; and graduated from the New York University Law School (J.D.; LLM in Taxation).