Kyle Bass / 2008 / Credit
Small loans. System-wide consequences.
Kyle Bass and the mortgage short in the workbook.
Before the outcome was obvious.
The Hayman case shares the housing-credit setting of Paulson and Burry, but the workbook’s emphasis is bottom-up mortgage analysis. A weak loan is a local problem until leverage and securitisation connect it to a wider chain of claims. The conceptual trade is to buy credit protection where the payment for taking default risk does not reflect the underlying fragility. The workbook’s dollar amounts are modelling inputs, not a verified Hayman performance statement.
What could have gone wrong
The protection must reference the right securities, remain funded and be payable by the counterparty when needed.
Trace how small failures travel through a larger financing structure.
Put the thesis to the test.
Change the assumptions and watch the arithmetic update. These are simplified scenarios; they do not recreate the instrument’s pricing or the path of the trade.
How this model works
Profit ratio = profit ÷ stated position. Exposure ratio = stated position ÷ fund assets. Neither is a measure of maximum loss or a net investor return.
The workbook’s simple annualisation is profit ratio × 365 ÷ duration = 59%. It is linear, not compounded, and is not a repeatable annual return. Fees, financing, collateral, premium carry and changing exposures are not modelled.
What these figures mean.
Source: Legendary Trades Models, Master Comparison!A15:L15; Trade P&L Models, case 12. The following are original workbook inputs, preserved for transparency. They are estimates, not independently audited results.
- Workbook position
- $500m
- Workbook “gross profit”
- $590m
- Workbook duration
- 730 days
- Workbook fund assets
- $110m
- Workbook fund return
- 536%
- Workbook position ROI
- 118%
The fund-return field is a separate source claim, not a calculated result of this trade. Its reporting period and gross/net basis are not independently established here. Model ratios are recalculated from inputs rather than copied from rounded source ROI values.
Historical context: Financial Crisis Inquiry Commission · The madness, chapter 10 ↗. This source supports the context discussed above; it does not validate every workbook input.