“The issue is whether we will continue to elevate, celebrate, and reward so many executives who, however charismatic, remain indifferent to hurting other people. Babiak says that while the first line of defense against psychopaths in the workplace is screening job candidates, the second line is a “culture of openness and trust, especially when the company is undergoing intense, chaotic change.”
— Alan Deutschman, Is Your Boss a Psychopath?, July 2005
The coming years, finance could become (very) stressful for many people. I presume that they will be able to, somehow, keep the system afloat for the coming two years. An unique opportunity to experience and explore Finance in its latter end days. It is historic.
So Gillian Tett received an email from a senior banker:
“Hi Gillian,” the message went. “I have been working in the leveraged credit and distressed debt sector for 20 years . . . and I have never seen anything quite like what is currently going on. Market participants have lost all memory of what risk is and are behaving as if the so-called wall of liquidity will last indefinitely and that volatility is a thing of the past.
“I don’t think there has ever been a time in history when such a large proportion of the riskiest credit assets have been owned by such financially weak institutions . . . with very limited capacity to withstand adverse credit events and market downturns.
“I am not sure what is worse, talking to market players who generally believe that ‘this time it’s different’, or to more seasoned players who . . . privately acknowledge that there is a bubble waiting to burst but . . . hope problems will not arise until after the next bonus round.”
He then relates the case of a typical hedge fund, two times levered. That looks modest until you realise it is partly backed by fund of funds’ money (which is three times levered) and investing in deeply subordinated tranches of collateralised debt obligations, which are nine times levered. “Thus every €1m of CDO bonds [acquired] is effectively supported by less than €20,000 of end investors’ capital – a 2% price decline in the CDO paper wipes out the capital supporting it.
“The degree of leverage at work . . . is quite frankly frightening,” he concludes. “Very few hedge funds I talk to have got a prayer in the next downturn. Even more worryingly, most of them don’t even expect one.”
— Gillian Tett, The unease bubbling.., January 19, 2007
..Just remember the “Thus every €1m of CDO bonds [acquired] is effectively supported by less than €20,000 of end investors’ capital”..
–Warning: The fictional story contains an (empty) airplane which crashes into a building–
***
Dear lady Doc,
__At the trading floor__ (finance, derivatives, digital money.. Oh my)
..So, past Friday, the keyboard did something funny and boom, the millions somehow disappeared again. This time you didn’t compensate the losses.
Monday came. A memo layed on your desk, with a scrawled line, which read; “Please could you visit my office as soon as possible. Thanks — The Boss.”
Your Boss is strange. Lets make it a he. He has certain defects. Like he becomes irritated when he reads ‘you know’ at the end of a sentence. So this: “I warned management, you know, ..you know?’ Makes him somewhat agitated, you know.
He also flatters you way too much, always complementing. While making other people cry. He also makes fun of my Bazaarmodel idea, about openness. His kind likes closed, likes the opaque. Likes risk. He likes to play. He likes to corner people.
And he has always been curious about this package. This good luck charm of yours.
So he thinks: “Now I’ve got her.”
While you think: “Gonna nail his ass for the hurt he has done. He’s gonna make a fool out of himself.”
While walking towards the bosses office you just tell your colleagues; “Don’t worry, all in a days job.”
Just open the door of his office, without knocking, and sit down. Do not forget your tea. He wanted to offer you a drink, but you were on step ahead of him.
There we go.
Thá Boss; “Doctor, your trading performance past Friday was sub-par. We lost a lot of money, we (management) find this unacceptable. What happened?”
“Well, risk got in the way.”
Thá Boss, who expected a kind of excuse, or just an answer with some more ratio, looks surprised; “Risk got in the way? Your job is to manage risk. Not let in stand in the way! DO YOU HAVE ANY IDEA, what kind of effect this has on your carrier. You lost millions of cash lady. You could be toast..” And he just rumbles on.
Let him. When he is finished. Charging up for the next salvo, and finding it strange that you still, aren’t buckling.. You start to talk (he expects an excuse):
“Well, you know. I like to manage real kinds of risk. You know. That’s why I have this package, my good luck charm. It works all the time. You know. Do you want to know whats inside?”
Thá Boss is turning in to something very red, or something very white (heart attack). He is still able to quack; “Whats inside the package?”
If he isn’t able to do that, just help him out by saying; “The package contains a parachute.”
He is flabbergasted.
So you continue; “Well, you know. Some people try to park a whole Boeing aeroplane into the 20th floor. Or was it the 33th? Well, you know. In the first try they didn’t succeed.. Well, you know. I manage real risk in my real life. Never saying that it ain’t gonna (practise the yankee accent) happen. You know. Shit happens (tell this one chic). Blow back. See the history of the CIA.”
He remains quite, so you could ask; “Have you ever jumped from the 20th floor?”
Tilt your beak to the right a little. “You could borrow my parachute..”
..
He will probably fire you. Just tell him; “I leave the chute behind. You gonna need it when the regulators arrive within a couple of years. Someone is gonna kick your ass that time; for all the hurt you have done.. You know?”
Put the empty tea cup on his desk, you could reorder the desk somewhat, Chaos is your middle name, and there you go.
All in a days work.
A nice early holiday (after the third stint?) and of you go to the Dragon.
What kind of boss was he? Well, he was a psycho. They love the Cathedralmodel. They are on the opposite side of the spectrum. Of me. I understand them, but they don’t feel. I don’t like them.
***
But there is a question. What would happen If I would be thá Boss..
So you applied for the job. The meeting was on Monday, 10:00 o’clock in the morning. 20th floor. The escalator openend its doors and somehow, miracle of all miracles, there was someone waiting for you. He tells you, while you try to get out of the escalator. If you where the one who had an appointment with thá Boss.
“Yes.”, you say.
Ok. At 10:00 o’ clock?.”
“Yes.”
“Uhmm. Well. Just take a hot cup of chocolate milk and just wait for 30 minutes. Thá Boss isn’t in you see. He will arrive later. He got this Batman issue.” And he walks away. To the trading room with these desks. Which aren’t cubicles. But rather quite strange. Organic like. Humane.
You sit near my lady secretary, who always makes complements about me. That I’m always late. That the upper management doesn’t like Thá Boss, but can’t fire him, because he knows where the corpses are. So, lots of compliments. But I like her. I only fire psychopaths. Let them jump from the 20th, while saying “Now fly.” in a Lex Luthor fashion (Superman Returns) kind of way. Yes, I know, a strange hobby.
The nice part of this is that, before they jump, they always ask; “So I will get some news coverage?”.. “Sure. Now jump.” And there they go. I lock the window and tell my secretary; “Maybe we should start to buy some call options on the funeral business stuff. You know, this is already the fifth psycho this month who likes to get some attention from the media.” And she tells me; “Nah, its just a hobby. Besides, it could be labelled as insider trading. You don’t want that.”
“Ok.” I listen to her advice and I walk away back to my office. O, don’t worry about psycho, they always land, at 11:00 precisely, in this huge open garbage truck, which cushions there fall enormously. In the garbage, where they belong. Timing is important in this business. Every second, every minute counts.
You look at the clock. The gossipping is nice. But where is Thá Boss.. Ahhh. The doors of the ‘elevator’, which elevated Thá Boss pretty high to the 20th, opens. I walk to my secretary, seeing you both gossipping, and you both start to look towards me, while the secretary just continues blathering, like a sheep. She doesn’t raise her eyebrows for one second. But you do.
“Hello ladies. So, you are the Doctor who has applied for the job?” .. Of course you are. Silly question.
I see this question in your eyes, so I help you out; “Why do I have a rabbit, marmot, a few mouses and a hawk on my shoulder? Well, I thought. I need to diversify, starting a new market. It is already a circus in here, so I thought, I should start a zoo. On the 20th. .. We also run a casino. Just don’t tell this to the customers. They don’t understand that, you know, ‘structured finance’, all that kind of stuff. Now follow me.”
Close your mouth, otherwise your heart gets cold.
We walk to the office, which is located in the middle of the trading floor. It is rather open. Although there is a second office in the basement. I need to pause and reflect. That kind of stuff.
So while we walk to the middle of the trading floor, I put the marmot somewhere, the rabbit also. I tie the hawk down to a wooden post (why is there a wooden post on the trade floor?) and than.. Ai. the mouses. Where do I put the mouses..
“Doctor, just stay put, I will be back in a sec.” I walk towards my secretary, give her the mouses, walk back to you while hollering: “Don’t throw them out of the window!!”
And telling to you; “It are the details. The details matter.”
You looked around when I went to the secretary, and your future colleges aren’t really normal. I see it in your eyes; “I know Doc, you see, they all started out normally, way too seriously, buttum.. change is a constant.. You know.. We must have fun. Now follow me.”
At last we sit. In the middle of the storm. “So Doc, this is the most profitable trading floor of the whole banking branch (which is true) and we only hire the best. Now I liked your mathematical models which you mailed to us. Showing these new kinds of structured finance which are very profitable and easy to understand.”
‘Easy to understand’. Let me tell you the real story. When I had these models on my desk. I looked at it, looked again. The result were terrific. Buttum. So I hollered; “Boys and girls, come. You must see this. I don’t understand it. These models are really, really neatly crafted, but baffling complex. Rather opaque I would say. I like the wickedness of them, but what the hell is happening?” So the whole office crawled around the print outs. Coffee in hand. And we were all puzzling. Integral here, differential there. My oh my. It looks good. But we don’t understand how it.. functions..
The person with the nickname ‘Speedy Gonzales’ notes; “I don’t know how much risk these models ‘manage’. But it seems to be o.k. I have a good feeling about this.” And he is my best mathematician.
The whole Gang agrees with Speedy. Who was on cocaine, but now uses sugar, dextrose that is, a lot. Nicely, very finely milled white dextrose. He even takes the whole glass bowl with him when he is partying. He laughs at cocaine. He only drinks limonades these days. Its crazy.
So the Gang wanted you. And we openend a new pot with candy and dates with honey, chocolate bars, took another cup of hot chocolate milk. We ate some bananas. And I took another glass of limonade.
Lets go back to Monday morning.
“Doc, 20% wage increase it is, plus bonus, and you are hired” (I should have said, you are hired, plus a wage increase.. I messed up the sentence. English.. pfff). “You do know that this is a House of Cards, right?” You grin. “Good. Where do you want to sit? At the window? For a nice view of Heathrow Airport? We have these wooden bats strewn around this place, used also by air taxing men, to taxi an aeroplane on the ground. If you see a big bird flying towards us. Use these bats to taxi it in, as long as it is the 33th floor. That is where the upper-management resides. And I don’t like them. They resemble machines. Ah, well just walk around and pick a spot. The Gang will help you out.”
We even made more profit than before. Maybe it was this good luck charm of yours, which you brought in on the fifth day. We were all curious what was inside of the plastic back. But you never told us what it was. Intriguing.
..I always tried to promote the ideas of; “You all must save, don’t borrow, no mortgage, just rent, be sane. Somehow.” Miracle of all miracles the Gang listened. Wishes do come true. Well, ‘sane’ that was really pushing the risk limit. Not all wishes do come true. Not the ones who spoil humor. There must be fun.
..Five months and a week went by. It was a Monday. I ‘summoned’ you to my office. Which was now relocated, more towards the windows. Waving the bats ones in a while. Sometimes with the whole Gang. But the planes never seemed to respond. And the birds looked at us. Like they saw some monkeys in a Circus. Strange.
So I ‘summoned’ you. You sit in front of me, and I just start to blather.
“Well, the hawk, with the codename ´Eagle’, got the marmot, the rabbit and the mouses, plus the secretary fell in love with Eagle. When she opens the window and lets the hawk out, it always returns. The hawk only allows her to come near him. Strange.”
“Oh, Doc. I looked at the trading records. You seem to have made a biggy.. loss that is. Care to explain why?”
You just try explain to me that two months ago, you implemented the new model that I wanted. That just 10 euro would cover 1 million euro.. And that I swapped keyboards.. And that I do other crazy stuff with commas and dots.. And..
“Do I?”
“Yes” You say.
“O..”, and I pick up a bat and start to wave it, in front of the window. I see a biggy bird flying towards us. It is still a small dot. I also push the alarm bell (although it skips the 33th floor) The Gang stayed cool (already completely screwed up), they pick up some stuff, and they all walk to the elevators. They all leave. Except us that is.
You continue with the talk; “Há, ‘Thá Boss’. I’ve got a good luck charm.”
I’m still waving somewhat while replying; “Yes.. Its that.. ‘The Package’. Whats inside?”
“A pink parachute.”
“A PINK???”
—
So you wrote in your book, that you took the emergency elevator (I gave you the keys), which brought you to the basement. And there was also an office, which contained a dossier for you. Labelled; “Maybe useful for the Dragon.” with some mammals on top. And of you went, outside. To the park. Because up in the sky, was a man, who had jumped from a window (why the hell did he do that?), with a pink parachute on (yikes). And you also saw how the upper-management was completely blown away by a biggy iron bird that is. A remote controlled Airbus aeroplane. Just a machine, but the test flight wasn’t stress-tested enough, with their computer models. The Airbus is much bigger than the hawk. But the hawk doesn’t bump on buildings. So the whole upper management went to hell. And the hawk still flew around. All the other folks in the bank somehow survived. Miracles do happen. This was all on July, 2009. And the Gang went to Europe. Were their savings were. Within the Eurozone. And the battle against injustice and all continued.
While I flew around, the hawk flew around with me, and I just told him; “I love a good party and spectacular fire works, there shall be a huge financial derivatives blow up. You know. ..Uhm. do you understand derivatives? Structured finance is like.. blablabla.”
“..No, I don’t have got any mouses.. No, honestly.. No, you are not an Eagle, you are a hawk with issues. Yes, you do. You really do.. No, I don’t have issues. No, I do not believe I’m Batman.. Nooo, you silly bird. You are completely crazy. Messed up I tell ya. .. ”
“Hey Eagle, which line do I need to pull now, to land safely? This is the first time.. You know. I have never done this before.. Is this, what they mean with, a high risk exposure?”
“See Eagle, there she is, the Doc has the mouses..”