The hedge-fund world’s survivors, meanwhile, include some of those who were most ahead of the curve on Wall Street—like Paul Singer of Elliott Associates, who in an extraordinarily prescient analysis in September 2006 declared that the subprime mortgage securitization market was a historic scam. He correctly identified the ratings agencies as chief culprits. Singer—known for his acerbic wit—declared facetiously: “Through the ages humans have tried to spin gold from lead. To make silk purses out of sows’ ears. To take dung and call it roses. But the time has finally arrived when this has been accomplished.” A number of his fellow hedge-fund managers promptly bet on a downturn.
Hedge-fund managers—the good ones, that is—have often served as invaluable early-warning systems. Before Enron collapsed it was Jim Chanos, president of Kynikos Associates, that gave the story to Bethany McLean of Fortune magazine. Her story, “Is Enron Overpriced?” was the first major sign that the company was an out-and-out fraud.