DeepCapture, 18 February 2010
You don’t hear much about it, but the March 2007 bankruptcy of a company called New Century Financial was arguably one of the most important events leading up to the financial crisis that nearly caused a second Great Depression.
It was the demise of New Century, then the nation’s second largest mortgage lender, that triggered the collapse of the market for collateralized debt obligations. And it was the collapse in the value of collateralized debt obligations (a majority of which contained New Century mortgages) that hobbled a number of big financial firms. Once hobbled, the likes of Bear Stearns and Lehman Brothers were ripe targets for unscrupulous hedge fund managers who amplified their problems by spreading exaggerated rumors while bombarding them with illegal naked short selling.