Alistair Lumsden and Steven Swallow realized in December 2005 that they had a problem with their asset-backed investment strategy: Their employer, Dutch bank Rabobank Group, didn’t allow them to buy protection on any of their long positions.
But Lumsden and Swallow, who are longtime friends and colleagues, knew full well that the mortgage market that was underpinning the $10 billion in structured-finance assets they were managing for Rabobank was teetering.
