Friday, 19 September 2014

Lehman Brother can you spare a yard?

23:39 Posted by The Thalesians (@thalesians) No comments

It has been six years ago this week, when I could say that green was our colour. It wasn’t a bright green, but a dark, somewhat dignified green, like the shade which adorned British racing cars for much of the twentieth century. It was the green of the leaves of Californian redwoods, standing in the way of the winds for thousands of years. It was the green of the grass, rising up from the rich soils of the prairies of the Midwest and the cotton fields of the Deep South. It permeated all around, carefully threading its way through the carpets, upon the upholstery of the chairs, up the walls of marble meticulously veined with streaks of white, on the booklet covering my business cards.  Maybe green was our colour, because our competitors were envious that we were so good or at least that’s the impression you would have listening to our management.

I never found out for certain, but most likely I suspect green was our colour as a nod to the fabled greenback, the American dollar. Those crisp green banknotes were partially composed of cotton, that commodity we traded over one hundred and fifty years ago. Each one of them emanated from a printing press in Washington DC, telling a story of the American Dream, of great Presidents, from Washington to Lincoln, who built the American nation, through independence and the pain of Civil War, freeing the nation of slavery. They were Uncle Sam's gift to the world: the object of our desire, our raison d'etre and our purpose was to accumulate as much of them as possible. Lose a million of them in a day, then luck could be the only blame for us, but gain fifty million of them in a year, then genius beckoned, along with adulation. You were the rock star whose audience was the trading desk. Together, we could make millions, no billions or as we called billions in the financial market slang: yards. Whilst billions and millions sounded similar, saying yard was unambiguously different and made the amount of money somehow more real. Supposedly the term yard was derived from the French for billion, milliard. Throughout the boom years, like our competitors, we ran through “yards” and “yards” of profits, the alchemists of the early twenty-first century, but we had seemingly found a way to make gold, unlike our predecessors.

Our leader was the man, the man with millions to his name, who signed his e-mails to us with simply, Dick, scrawled in his own hand, his signature forgoing the use of his surname Fuld. He didn't need two names: he was like a rock star, needing simply his first name to make him recognizable, like Elvis. But he was our Elvis, the man who'd been with us since the time when Elvis himself was the cream of Las Vegas and man had first walked on the moon, in 1969. When he eventually left the building, so had we. He was the man who clearly told my graduate class, that one of his proudest moments was overriding his whole board, to bring back smart dress, after a brief experiment with business causal. For him, appearance was paramount: the fine silk ties on our necks, the slick suits carefully tailored, the polished black leather Italian shoes. This carefully crafted image was perhaps designed to set us apart from the rest of Wall Street. We were Goldman's number one rival, or at least that was the notion which was cultivated by management. We were supposedly as good as them, but with a green tint, although our undoing ultimately proved this not to be the case.

As well as explaining his sartorial preferences for us, he also told us that we survived the crisis of 1998, the Russian default, which nearly destroyed us. We overcame the tragedy of 9/11, clocking up one hundred and fifty years of service. We strove to regain our independence from American Express, gaining it in 1994, when we were spun off back into an independent company. In amongst all this, there was always chatter on Wall Street, even in the bull years, that we were too small, that we would ultimately lose our independence once again.

I started working there, my first real job out of university, in the summer of 2005. In less than a month: I had received news that I had attained a first class honours degree from Imperial College whilst on holiday in Boston; heard that my hometown London had been awarded the Olympics on return; been in London during the terror of the bomb attacks, before finally starting on July 14th, which was coincidentally Iraqi Independence Day (and also coincidentally Bastille Day for the French). I’m British and of Iraqi origin, the birth country of my father and mother. Maybe it was a sign that my life was changing on such an auspicious day, in the same way that Iraq had changed that same day in 1958. So the rigours of work began, that July 14th, sweeping away the academic freedom and dreams of university. There were first a couple of weeks of training, a time also for posturing amongst the graduates, to secure a role on the most popular trading desk and also to get to know our fellow graduates, some of whom became good friends.

In our graduate intake, the Holy Grail, the place where we all wanted to work, was the collaterised debt obligations desk or as it was known more succinctly the CDO desk, which had apparently discovered a mystical way of printing greenbacks. I even bought a book all about these new-fangled credit derivatives, hoping it would help me gain the edge. I never ended up reading that rather expensive book. I never even managed to get past the first stage of the interview process: I was never destined to be a hotshot CDO trader. I was disappointed. I continued my rotations around other such fashionable desks, such as the equity derivatives desk. It was always the derivatives desks, which were of interest to our class, for they were the ones making the most money. In the end, I secured a job at the comparatively staid foreign exchange desk, doing research. It was not the most fashionable of areas, dealing mostly with one of the most vanilla of products, foreign exchange spot, simply buying one currency and selling another. In the process, I had turned down a role as a trader on the fund derivatives desk, a role which sounded attractive, having the fabled derivatives postfix. 

However, I had little inkling of what it precisely involved, which looking back on it, explains my reticence in joining that desk. By contrast foreign exchange was more tangible, it was something familiar, at least to anyone who has traveled abroad at some point. After all, even I knew what dollars, pounds and euros were and I had even handled them in my hands. The currency markets had been trading as they do today since the early 1970s, when the dollar was allowed to float by Nixon. The role of currency changers had been around in some form, for many years, as long as man has traveled. So maybe if a market had been around for that long, it served as sufficient proof that it would last throughout my career.

In return for the early 6.30am starts every weekday, waking up in dark in the winter and leaving similarly shrouded in darkness, I was rewarded with those greenbacks. Once a year, I would be called to Jim's office, for a chat, where I would be handed a paper. On it would be my salary, which I already knew, and next to it my discretionary bonus, the figure I had been waiting for, all in dollars, but kindly converted into sterling at some aforementioned exchange rate. I always preferred to read the figure in dollars, because numerically it was always bigger, somehow making me feel I had been paid more. As Jim, my boss, would read the number, in his relatively soft American accent, he would ask what I thought of the figure. I usually didn’t say much, but as the years passed, I would voice more of an opinion during these chats with Jim, which was widely nicknamed the “comp discussion”. Contrary to popular believe, not everyone was paid millions there, although internal documents made available to the public later by the Los Angeles Times, showed that more people than I expected were paid such amounts. Obviously, as a junior I never was one of this group.

The (somewhat less than serious) plan was for my career to evolve towards an apex which was meant to occur around the time of my thirtieth birthday, a time by which I would be able to retire and enjoy my life, swimming in a cascading waterfall of riches, a life that was a fairy tale of joy, enveloped in the love of a beautiful woman, preferably with long deep satin hair, a face like that of Shakira, a smile able wipe anyway any woes, who presumably would not be with me purely for my planned riches, whilst in the background the sounds of laughter would seem omnipresent. 

Today, a few years later, my hairline has receded considerably, somewhat prematurely I feel necessary to add, through a myriad of stress and genetics, although it’s impossible to decipher which of them is more responsible. I’m often told that the lack of hair is a result of an excess of testosterone (ladies, surely that’s an attractive trait, if you can ignore the shiny glow of my balding head beneath lights?). At times, I’ve shaved my hair to create an even feel to my head, which some (overestimate) have deemed as attractive, although admittedly it does give me the look of the famous EastEnders character Phil Mitchell, giving my usual smiley face an edge of seriousness. Grey hairs have also begun to seize their moment to shine in amongst the sea of those black hairs, which have successfully battled against baldness. 

In this state, with my status still very much un-retired, if such a word exists, I have started working full time at the Thalesians, a company I co-founded, still largely doing foreign exchange research, without a terrifyingly seductive woman at my side with a ring encrusted with diamonds grasping her finger, it is difficult to say that my tongue in cheek plan ever succeeded. But maybe that’s not the point, whether or not my plan came to fruition. The point is simply to have a plan or an idea, whether or not it succeeds. Without a plan or some hazy image of a destination in your mind, you are a traveler without a map and accordingly your progress is hampered. In any case, even if my plan did not succeed and years have toiled to whisk away my twenties, I’m still broadly happy, a result most likely to my close-knit family, I’m more knowledgeable than I was those years ago, I’m still yearning to learn, I can call upon close friends both in the good and more importantly in the bad times, so surely these are all things that I should be thankful for?

As the years passed working there, my interest in foreign exchange markets grew, learning mostly from my senior colleagues at Lehman in my team, such as Jim and Alexei, who as the name might suggest, was Russian, and also colleagues on the trading desk. True, reading books can give you insights into the markets, but are a poor second compared to working with willing mentors, whose years of experience are so evident. No one needs to teach you at work. No one needs to share his or her time. But some do and I was lucky to have somehow found myself working with people who did (and also did at Nomura, where I worked for several years after Lehman). For that I shall always be grateful. 

Our research team grew under the thoughtful leadership of Jim and the foreign exchange desk increased its profits in the years that I was there, ironically reaching record levels at the time of our demise in 2008, moving from a peripheral player to one of the major currency dealers. In spite of the success of our desk, in the summer of 2007, we could see problems within the company as a whole. I remember distinctly during that time, we had a meeting, more commonly known as a town hall. Town halls were essentially large-scale presentations, where traditionally, we were told how successful our company was by someone senior, roughly once a month. He (for the speaker was nearly always male) would stand in front of a screen of illuminated PowerPoint, with charts peppered with our trademark green colour, relating to profits, which always seemed to be composed of rising lines.

This town hall was different. The specter of the subprime crash had reared its head and the markets had begun to take note. There was chatter that we would suffer, given we were the ones with massive exposure to the US property market. We were reassured, that we could survive a year, without tapping markets for funding. That proved correct, although not in the way we would like it to be. The company declared bankruptcy just over a year later in the middle of September 2008, so in a way our presenter was right.

In the end, our company collapsed, when we failed to persuade the US Treasury to spare us a couple of “yards”, to bail us out. I do not wish to enter into the debate of whether this decision not to bail us out was right or wrong, even though many other institutions were bailed out during the financial crisis. It has now happened. It is far more important to acknowledge, that our institution failed because of the actions of some of those people who worked there, rather than complaining that we were not bailed out.

The cause of our failure was excessive leverage, a deliberately fancy way, of saying our company borrowed too much to gain exposure to a US property market which collapsed.  Strangely, the experience of our failure, although shocking, didn’t seem to hurt me, most likely, because of other issues at home, which illustrated what really is important in life: the loss of a job, a salary, a few company stocks weren't those important facets of life. I also managed to find a job relatively quickly afterwards, another important reason for me to avoid complaining. 

I remember my last day there at the end of September 2008. On the address system, a loud message was delivered to the members of the fixed income division, which included the foreign exchange desk, to assemble in the auditorium. We knew what was coming, given the company had already filed for bankruptcy two weeks earlier and there hadn’t been any agreement for the purchase of our division by another company. Upon arrival, in the auditorium, the bankruptcy receivers announced that we were fired and we should vacate the building by the end of the working day. I wondered how many times the team of receivers had delivered this news to employees of a bankrupt institution. For them, it was a regular occurrence I presumed, a necessary consequence of working in the field of bankruptcy. For us, that was it, a clear change in our lives, rather than some purely administrative process. We all left the building, carrying white plastic bags or boxes, filled with the detritus of years of employment there, including peculiarly, in my case, an emergency evacuation kit, emblazoned in that green colour. I still have it somewhere, some place; a memory stored in a dusty box, in a cupboard, its contents decaying with the passing of time. It was as though taking it was somehow compensating me for what had happened.

One strange side effect of the bankruptcy was that I started to go to the gym regularly, rather than halfheartedly. This seems to suggest that if you want to lose weight, work for a company, which will want to go bankrupt, although as mentioned earlier, you might also lose your hair at the same time.
The bankruptcy did also have another effect, apart from conditioning my weight and what can be optimistically termed as toning my muscles via a sojourn at the gym. I remember whilst working there, people outside the banking industry never knew the name of my company. But after the bankruptcy they did. After all, we were the biggest bankruptcy of all time, which tipped the world into financial crisis, which has lurched ever since, becoming superseded by the Eurozone crisis. But clearly, whatever, weird positives I draw from the bankruptcy, they were massively outweighed by the negative impact of the whole episode on the market and more importantly the subsequent follow through into the wider economy, on people who had nothing to do with Wall Street.

On a personal level, I made many friends there, who to this day are some of my best friends and as such I don’t regret choosing to work there. I shall always look back fondly on my time working there, as a Brother, one of the Lehman Brothers, even if it ended in a way I had never wanted. 
A mistake is only a mistake, if you regret making it, otherwise it’s called an experience. Has my plan changed now? Yes, now the plan is to create the perfect burger, they taste better than greenbacks.

My book Trading Thalesians - What the ancient world can teach us about trading today is out in late October on Palgrave Macmillan, also has some colour on this topic (mixed in with a bit of ancient history).

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