By Sean Goldsmith in the S&A Digest:

News came out today claiming the greatest short seller in the world warned the G7 about toxic subprime mortgages in April 2007 - five months before the run on Northern Rock and more than a year before Lehman's collapse.

More than two years ago, the G7 finance ministers invited Jim Chanos, who called Enron's collapse, to Washington to address Germany's fear that hedge funds and private-equity firms would be a source of future problems.

Says Chanos...

Paul [Singer, of hedge fund behemoth Elliott Associates] 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...

Both managers pointed to a January announcement by HSBC that its U.S. subprime loans were defaulting at "an alarming rate."

Chanos then added the problems wouldn't be with hedge funds, but with "the regulated banks and brokers who were leveraged 30-1, many of which held glowing, toxic radioactive pieces of securitisation which they could never sell."

The German finance minister immediately shifted the focus back to hedge funds, Chanos said. "We were completely and officially ignored."

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