A Book In Gestation

[trysail]

I'll lay odds that a longer version of this article will shortly make an appearance at the head of the "Best Seller" lists:

http://www.portfolio.com/news-marke...folio/2008/11/11/The-End-of-Wall-Streets-Boom


Hint: a précis of the book is: "son-of Liar's Poker" or "Liar's Poker — The Sequel."

 

[trysail]

I wasn't wrong ( with a doff of the hat in the direction of Winston Churchill— I have always been amused by one of his responses to his many critics: "I have not always been wrong." ).


Michael Lewis' The Big Short: Inside The Doomsday Machine ( http://www.amazon.com/gp/product/03...pf_rd_t=101&pf_rd_p=1259537722&pf_rd_i=549028 ) is now on the New York Times Best Seller list ( non-fiction ):
http://www.amazon.com/Books/b/ref=b...pf_rd_t=101&pf_rd_p=1258527462&pf_rd_i=283155


Like so many modern commercial authors, Lewis is adept at getting multiple uses out of his work. Some of the material used in this book first appeared in the now-defunct magazine "Portfolio" ( a Vanity Fair endeavor ) which is where it caught my attention ( see OP above and my link to the 2008 magazine article below ).

I'll lay odds that a longer version of this article will shortly make an appearance at the head of the "Best Seller" lists:

http://www.portfolio.com/news-marke...folio/2008/11/11/The-End-of-Wall-Streets-Boom


Hint: a précis of the book is: "son-of Liar's Poker" or "Liar's Poker — The Sequel."

Lewis threw me a curveball when he released a book in 2008 that was nothing more than a collection of recycled essays. I was confused and disappointed. Panic: The Story of Modern Financial Insanity was a boring rehash of pedestrian anecdotes. I was almost suckered into buying it but a cursory examination at the bookstore prevented that mistake. Borrowing a copy from the library was sufficient to satisfy my curiosity.


Part of the meat from the new book appeared in Vanity Fair and I commented on it:

Another account of the 2004-2007 madness by Michael Lewis: http://www.vanityfair.com/business/features/2010/04/wall-street-excerpt-201004?printable=true

There is at least one area where Lewis's description could be improved ( the $1,000,000 Gotham/Greenblatt investment was not an investment in the partnership but, apparently, in the managing partner ). Otherwise, it's an amazing account of Michael Burry— an extraordinary fellow.

Over the weekend, I saw an interview of Lewis by Brian Lamb on C-SPAN's Q&A ( http://www.q-and-a.org/ )
Transcript: http://www.q-and-a.org/Transcript/?ProgramID=1277
Lewis c.v.: http://www.q-and-a.org/Program/?ProgramID=1277

I thought Brian Lamb did a good interview ( he usually does ). He asked questions that an intelligent layman would ask and he did not shy away from probing some allegations of hypocrisy on Lewis' part.

 

[sr71plt]

So what? Who cares? There are tons of books in gestation. What does this have to do erotica?

Did you perchance walk in the wrong door?

 

[DeeZire]

... What does this have to do erotica?...

Let's see:

Money is the greatest aphrodisiac?

Rich Wall Street powerbrokers spend a lot of money on hookers?

Some people jack off using $100 bills instead of lube?

Just guessing here.

 

[JackLuis]

It may not be erotica, but a lot of people got screwed, only it's too anal for my taste.

 

[trysail]

It's about time. Sitting next to a Goldman, Sachs cretin on an airplane ride about 30 years ago, I made a vague allusion to the inherent conflicts in their business. His glib response: "There are conflicts in everything we do." He never batted an eye.


SEC accuses Goldman Sachs of civil fraud
http://news.yahoo.com/s/ap/20100416/ap_on_bi_ge/us_sec_goldman_sachs_charged

By MARCY GORDON, AP Business Writer

WASHINGTON – The government has accused Goldman Sachs & Co. of defrauding investors by failing to disclose conflicts of interest in mortgage investments it sold as the housing market was faltering.

The Securities and Exchange Commission said in a civil complaint Friday that Goldman failed to disclose that one of its clients helped create — and then bet against — subprime mortgage securities that Goldman sold to investors.

Investors in the mortgage securities lost more than $1 billion, the SEC said. The agency is seeking to recoup profits reaped on the deal...

 

[LaRocha]

I own Goldman Sachs, I bought more today. They're going to win, the government's going to win, everyone else is going to lose.

 

[trysail]

http://noir.bloomberg.com/apps/news?pid=20601110&sid=ajB_V60ULVkk


The Mystery of Disappearing Proprietary Traders
by Michael Lewis

Sept. 30 (Bloomberg) -- In the run-up to the vote on the financial overhaul bill, the big Wall Street banks squashed an attempt by Senator Carl Levin to pass a simple ban on any form of proprietary trading.

A Senate staffer close to the process told me the amendment was one of Wall Street’s highest priorities, spreading money around to exert as much pressure as possible.

It worked: Levin’s amendment never reached the Senate floor for a vote. The final version of the bill restricts proprietary trading but allows big Wall Street firms to invest as much as 3 percent of their capital in their own internal hedge funds. How exactly the new rules are enforced is left to regulators inside the Federal Reserve, but it’s not hard to see how a wholly owned hedge fund might become a proprietary trading group, with a different name.

The 3 percent loophole amounted to an invitation for the big banks to keep on doing at least some of what they had been doing -- which is why Levin felt compelled to remove it, and the banks fought so hard to keep it.

Yet in just the past few weeks news has leaked that Morgan Stanley, JPMorgan and Goldman Sachs all intend either to close their proprietary trading units or to sell their interests in the hedge funds they control.

Obviously, something is wrong with this picture. Why fight for a right, and win, only to proceed as if you have lost? Why take prisoners only to surrender to them? Having preserved their loophole the big American banks now appear to be freely abandoning any attempt to exploit it. (Credit Suisse, on the other hand, just bought a stake in a hedge fund.)

Shark Watch
To see Wall Street turn its back on money is as unsettling as watching a shark’s fin veer away, and then sink from view. It leaves you wanting to know where the shark has gone, and why.

None of the firms have offered a good explanation for their new and seemingly improved behavior, but it’s not hard to think up several. From least plausible to most:

No. 1 -- Having not merely preserved but bolstered their place at the heart of capitalism -- with little banks failing everywhere, the big keep getting bigger and stronger -- the major Wall Street firms have experienced an epiphany about their relationship to wider society. They don’t need to screw people!

Newly able to raise their prices, they want to return to serving their customers, rather than exploiting them.

Whatever they lose from prop trading they will be more than compensated for through new and more trusting relationships with their clients -- who will now have no reason to suspect they are merely a tool for the firm’s trading desk.

Nice Guys
In a smaller and less competitive financial industry, it will pay to be the nice guy, and so Goldman Sachs now wants to play nice.

The only problem with this explanation is that I don’t believe it. More likely:

No. 2 -- The big Wall Street firms have looked anew at proprietary trading and seen a dying business.

For a start, their proprietary traders, put off by subpoenas and government inquiries and the new internal aversion to short-term pain on big trading positions, are fleeing for the privacy of hedge funds.

But the exodus of trading talent is only part of the problem. A general malaise has come over the world of big time financial risk taking. Everywhere you look hedge funds are either closing or shedding employees or, most shockingly, cutting their fees. At the bottom of this depressing new trend lies a deeper problem: a scarcity of suckers.

Find the Fool
The proprietary trading business turns in part on one’s ability to find the fool -- to find people willing to take the stupid side of the smart bets you are placing. One of the side effects of our seemingly endless financial crisis is to wash a lot of fools, many of them German, out of the game.

It’s as if a casino owner awakened one morning to find the tourists had all gone, and the only remaining patrons are pros counting cards at his blackjack tables. As he looked around his casino, for the first time in his life, he couldn’t find the fool. And the first rule of the casino business is: if you don’t know who the fool is, it’s probably you.

Prop trading isn’t as promising as it used to be. At the same time it’s a far greater nuisance than it ever was: The regulators might actually be paying attention to what your traders get up to; if they screw up the financial press is poised to write a story about them; and so on.

Not Worth It
It’s just not worth the trouble to prop trade, unless you can prop trade in some wholly novel way. Which brings us to a third possible explanation:

No. 3 -- Goldman Sachs, Morgan Stanley and JPMorgan are not in fact abandoning proprietary trading. They are just giving it a different name.

They are dismantling the units called “proprietary trading” and shifting the activity onto trading desks that deal directly with customers. (Which would explain why so few prop traders are being let go.)

After all, you don’t need a proprietary trading desk to engage in the two activities that any proprietary trading ban would seek to prevent: 1) running huge trading risks, and 2) taking the other side of the customers’ stupid trades. Goldman Sachs’ infamous Abacus program -- the one that talked American International Group into selling vast amounts of cheap insurance to offset subprime mortgage risk, and then shorted the instruments they themselves had created -- wasn’t dreamed up by the prop trading desk. It was the brainchild of what customers knew as the “Client Facing Group.”

In short, there are any number of explanations why Wall Street firms are all at once letting it be known they intend simply to walk away from what has been, until very recently, their single most lucrative line of work.

None of the Above
The answer may be none of the above or some mixture of the three. But what’s really striking is how little ability the outside world retains to find out what is going on inside these places -- even after we have learned that what we don’t know about them can kill us.

It would be nice to know, for instance, if the big banks are making these moves with the tacit understanding that the regulators, going forward, won’t be looking too closely at the activities of the “Client Facing Group.”

And yet news of the death of the Wall Street prop trader has been greeted with hardly a peep. And I wonder: is this the nature of our new financial order? Big decisions, in which the public has a clear interest, being made outside public view, with little public discussion or understanding.

If so, it isn’t a future at all. It’s just the past, repeating itself.