In the early days of the sub-prime collapse, in April of 2007 to be exact, hedge fund managers James Chanos and Paul Singer were asked by Bob Steel, then the Under-Secretary of the Treasury, to make a secret and private presentation to the G7 Finance Ministers in Washington.
Singer and Chanos gave very specific warnings about the massive over-leverage and securitization time bombs that permeated the balance sheets of the world's largest and most well-known financial institutions, going to great lengths in an attempt to get the world's top central bankers to take notice.
They were completely and unabashedly ignored.
We have the transcript and audio inside. Listen
The BBC's Robert Peston had Chanos on his radio show recently explaining what went down in DC. You may skip to the 12:40 mark for the beginning of the illuminating discussion.
This happy band of G7 finance ministers looked perfectly relaxed as they arrived for their gathering in Washington in April 2007.
But it now turns out that they were all given a secret 60-minute presentation which warned of the dangers of toxic US subprime loans infecting banks across the world - and the risk they posed to the entire global financial system.
Jim Chanos, the hedge fund chief who made his name predicting the collapse of Enron, was invited along with fellow hedgie Paul Singer to brief Gordon Brown (then Chancellor) et al. Hedge funds (along with private equity firms) were being targeted by Europeans as the devil incarnate and so were invited by the American govt to put their case.
Chanos has now revealed that the pair of them warned of "radioactive" securitisations held by banks - and even named those his firm was shorting. But they were "officially ignored" by the G7 ministers.
Chanos picks up the story (forgive me quoting at length but it's worth it):
"It was the April 07 G7 Finance ministers meeting in Washington. It was a rotating chair and the Germans were rotating the meetings. And at the time if you recall the Germans were quite concerned about hedge funds and private equity as being a future source of problems in the market place.
"And Bob Steel, who was the Under-Secretary to the Treasury, who was fighting these German efforts at the time, felt that it would be helpful if two hedge fund managers came down and address the finance ministers and central bankers on the last day. So I was invited along with Paul Singer, who has gone public now, he was the other manager.
“Paul got up and proceeded to give a tour de force presentation on the coming crack-up in structured finance, how all these structures were very unstable and triple A [the ratings given to the securities] was not going to be triple A..."
The meeting was just five months before the run on Northern Rock and more than a year before Lehman Brothers collapsed.
Chanos added that he had even named individual banks that were at risk.
“At that meeting I even disclosed that the entities I’m now putting up on the wall are leveraged 30 to one - you should worry about virtually all of them and you should be concerned, but I am betting with my clients’ money that there’s going to be a big problem here. So there was no doubt as to where I stood on the situation.”