From pension to bond

"The prevailing reasoning in the bond market went like this: stock prices were lower; therefore people were less wealthy; therefore people would consume less; therefore the economy would slow down; therefore the inflation would go down; therefore interest rates would fall; therefore bond prices should rise. So they did."

"My client wanted to take a big risk by wagering a large sum of money on German bonds rising. He was therefore the "buyer" of risk. Alexander and I created a security, called a "warrant", or a "call option", which was a means of transferring risk from one party to another. In buying our warrant, risk-averse investors from around the world would be, in effect, selling us risk...... The difference between what we paid cautious investors for the risk, and what we sold it to my customer for would be our profits."

"The salesmen blamed the traders, and the traders blamed the salesman. Why couldn't we sell their bonds to that many investors, the traders wanted to know. Why could not they find bonds that weren't so embarrassingly awful, the salesmen wanted to know."

Excerpts from Liar's Poker, Michael Lewis