EUROCATALYST returned in 2007 to Madrid, where it all started five years earlier. The theme that year was “Quemando La Casa” (Burning Down the House). On July 29, 2007, President George W. Bush stated, “the fundamentals of our economy are strong…I’m told there is enough liquidity in the system to enable markets to correct”. In Europe, two weeks later the Deutsche Bundesbank (the German Central Bank) assembled a $10.8 billion emergency rescue fund for IKB Deutsche Industriebank, Europe’s first large casualty of the U.S. subprime debacle. The following week, due to massive losses in MBS and derivatives, the collapsing regional German bank Sachsen LB was rapidly sold to the largest regional bank. This signaled the beginning of the global liquidity crisis which, in turn, drove the global mortgage market implosion. By early September, banks and mortgage originators in the U.S. and Europe began to fall like dominoes.

The opening video montage of the event featured the trailer from the film “Chicken Little”, which builds up Chicken Little as a hero: “He tried to warn us…and now, in our darkest hour, he’s got a plan to save us all”. At that point, Chicken Little yells “ruuuuuun!” and smashes into the camera. In the opening session, “After the Deluge”, Pat Butler, the Head of the Global Financial Services Practice at McKinsey, delivered an aptly titled presentation, “From the Subprime to the Ridiculous: What the F*ck Happened?”

The most provocative session of the event, “The Shadow Banking System and Financial Dislocation of the New Non-bank World” made a deep dive into the “shadow banking” system that operated beyond the reach of regulators. In the session description, which was written in June of that year, I wrote: “This ‘non-bank’ world is comprised of alpha-hungry investors driving highly complex and levered investment conduits, vehicles and structures that have risen in conjunction with the global housing boom. The return/yield formula has led to an appetite for risk that the traditional financial system cannot digest. The result is a gradual loss of control by central banks, and panic-driven chaos…The speed at which the contagion has spread has equally shocked market participants and the regulatory sector, proving once again that the new world of financial innovation is no more than grand experiments of trial and error that lead to uncertain and severe consequences on a global scale. If evolution provides no other options than to evolve or die, the choice is clear. The question is, what are we evolving toward?”

When I announced that this would be the last time that EUROCATALYST would be held in Europe, there were a lot of tears both onstage and in the audience. The emotional scene prompted one very senior, legendary and notoriously egocentric investment banker to remark, “No wonder Fanny Borgstrom called EUROCATALYST a cult. I just got hugged seven times. What the hell is that about?”

Two months after the final event, in the November 2007 issue of Mortgage Strategy, a UK publication, I was interviewed for a story titled, “Shadow World of Global Banking”. In it, I made a prediction that in retrospect, surprised even me. The interviewer wrote, “Moss foresees a surge of nationalism as the next reaction to the volatility that the shadow banking system and SWFs are having on the global economy.”

When asked about the many skeptics who believed that what was happening in the U.S. and UK subprime market(s) would not affect them, I said, “There will always be people who are drawn to the low tide and run down to the seashore to pick up the pretty shells just before a tsunami hits.”

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