Cornwall Capital Case

Chapter 5 Analysis

Chapter Five was called Accidental Capitalists and it focuses mainly on a company called Cornwall Capital. Cornwall Capital was established by Jamie Mai and Charles Ledley in a garage. It began to grow through their unique perspective on investing and they soon began to generate vast amounts of profit. They later brought in Ben Hockett who further helped their business. Ben Hockett was the type of guy who was business Savvy and knew who to talk to and for what. Ben Hockett came from Deutsche Bank after quitting in order to work with Jamie and Charley.

Their first major business venture that Cornwall Capital participated involved Capital One Financial. Capital One Financial took a different route than the average company issuing loans to customers. Rather than being in the mortgage market or something similar they were a credit card business. Capital One Financial seemed to be fraudulent in the eyes of the public so Charlie and Jamie decided to investigate further. Cornwall Capital decided to capitalize on their stock have a huge price swing. They bought the stock at a certain price and set a contract that allowed them to buy it at a higher price any time in the next year. Their risk paid off when their analysis was correct and it netted them their first half million.

Cornwall Capital eventually wanted to move into the credit default swap market and this proved to be difficult. None of the large firms would ever take them seriously because they did not have the social business savvy or sufficient funds to hang with the larger companies. Ben Hockett worked his magic after Cornwall Capital was denied their ISDA or "Hunting License". After facing rejection they sent Ben to talk to Deutsche Bank and he not only got them the ISDA, but also got Deutsche Bank to put Cornwall Capital onto its institutional platform. This allowed them to finally enter into the credit default swap market to compete with the big firms.

This chapter relates to the financial crisis because it showed the build up to the crisis. All of these investors and companies got too involved into the credit default swap market. These CDO's were too risky, but people took them anyways because they could pass them from person to person in a sense. This chapter presents the kind of inside view on how investors operated while the crisis was developing. The crisis did not just happen out of nowhere, it was a result of the actions of all the banks and investment companies.