My Time at Lehman • Hacker News Board

Re: My Time at Lehman

#101

Post by mgkimsal » Fri, Apr 12, 2013, 7:57 PM UTC

mapgrep wrote: post #93

rayiner wrote: post #9

"Which, it turns out, is a trader’s field day. What this meant, in its simplest form, is that these traders (or salespeople) could buy bonds at the "market" price from intelligent hedge fund managers in NYC and sell this same crap at much higher levels to unsophisticated (but legally considered "sophisticated") pension funds and insurance companies in middle America. What I discovered, quite starkly, is that the part…

>what do you expect in a free market system that rewards every marginal advantage I expect the government to allow so-called free market capitalists to fail when they fail. Lehman was emphatically NOT staffed by the best and brightest -- it collapsed. All the other big banks should have been allowed to collapse as well, rather than be bailed out by a staggering infusion of free government money and hidden bailouts li…

I could swear I'd read somewhere a couple years ago that a lot of the TARP money - especially from smaller banks - was repaid by them refinancing into SBA loans. So, yes, technically TARP funds were repaid, but often by borrowing from some other govt program at a lower rate.

I might refinance my house to a lower rate, but I would be lying if I said I "paid off" my house. I paid back one lender by borrowing from another, that's all.

But... I can't find the info I thought I had bookmarked some time ago outlining if/when this happened.

EDIT: http://online.wsj.com/article/SB1000142405297020413820457660...

"More than half of $4 billion in federal funds disbursed this year to spur small-business lending by community banks was used to repay bailout funds that the banks received under the government's Troubled Asset Relief Program.

The Small Business Lending Fund was meant to raise capital at smaller banks, which tend to lend more heavily to small businesses, in the hopes of jump-starting growth and employment. But instead of directly lending to small businesses, many of the banks used the money to rid themselves of higher-cost TARP debt and tougher restrictions."

Re: My Time at Lehman

#102

Post by tomkarlo » Fri, Apr 12, 2013, 8:01 PM UTC

mapgrep wrote: post #93

rayiner wrote: post #9

"Which, it turns out, is a trader’s field day. What this meant, in its simplest form, is that these traders (or salespeople) could buy bonds at the "market" price from intelligent hedge fund managers in NYC and sell this same crap at much higher levels to unsophisticated (but legally considered "sophisticated") pension funds and insurance companies in middle America. What I discovered, quite starkly, is that the part…

>what do you expect in a free market system that rewards every marginal advantage I expect the government to allow so-called free market capitalists to fail when they fail. Lehman was emphatically NOT staffed by the best and brightest -- it collapsed. All the other big banks should have been allowed to collapse as well, rather than be bailed out by a staggering infusion of free government money and hidden bailouts li…

You're assuming that the occasional gigantic bankruptcy isn't a natural outcome of the smartest strategy as a bank. But when you're comped on this year's profits, and a large chunk of your comp is cash, it makes sense to take huge risks that result in near-term profit, or immense long-term profit, and largely ignore the potential for a total collapse. (Not to mention most of the employees found jobs at other banks, or even just stayed at Barclays after the bankruptcy.)

If you're making $1M-$10M a year, the downside to a 5% or 10% chance of your employer going bankrupt is not so large that you're going to reduce your income to prevent that. And if you are, they'll just replace you with someone who is less "risk averse."

Re: My Time at Lehman

#103

Post by lifeisstillgood » Fri, Apr 12, 2013, 8:04 PM UTC

nchirls wrote: post #56

lifeisstillgood wrote: post #10

The experience reminded me of one as a child when I unfairly sold some worthless items to neighbors at a stoop sale in front of our house in Brooklyn. When my parents found out that night, they made me go from home to home on our block returning the money. I think I like his parents :-)

Indeed, they're quite wonderful and I'm very lucky :-)

:-)

I remember living in Wood Green, a vaguely rough area of London, where people put the sofas they no longer wanted out in the front garden in case someone else did.

Anyway, we were getting rid of an Ikea box-case-thing, and stuck it outside, and a kid of say 11 asked if he could have it, and took it off on a toy truck.

He came back and pushed a card through the door saying thank you (it would be "just right to keep all my toys in"). I am pretty sure his mum made him write it, (long story) but we kept that card in the back of various drawers through maybe two house moves because it was an unexpected example of politeness and parental guidance.

One of the crazy things that social media might sort out one day is that i would strongly consider recommending that kid for a job, or university, simply on the strength of that one act. No idea who or where he is of course but there we go.

Re: My Time at Lehman

#104

Post by binxbolling » Fri, Apr 12, 2013, 8:04 PM UTC

jdross wrote: post #53

orangethirty wrote: post #18

Earlier quoted context omitted.

What are your plans to deal with this?

There's a whole lot we don't discuss on the website, which is focused towards current target customers of the tool we've built vs. our broader goals to bring transparency to the financial world. First we've built a (we've been told) very powerful tool to quickly group, filter, sort, and compute standard financial metrics on a portfolio. Importantly, we don't care where you own your securities. It can be holdings from…

Damn, I'm in the wrong business. This sounds fascinating, thanks for sharing some details.

Re: My Time at Lehman

#105

Post by mgkimsal » Fri, Apr 12, 2013, 8:11 PM UTC

"In what possible reality can someone receive a million dollars and feel as though they got fucked?"

It's all relative. I've got friends living in $500k homes, and they still feel the need to keep up with the neighbors, at great expense. Keeping up with the Joneses is a sure way to be perpetually on edge.

But more to the point, a person in a company like that might get $1m, but knows the people around them got more for doing less, because they had a better boss, or knew someone who knew someone. I don't think the dollar amount specifically was what pissed that person off as much as knowing how much of a political game the whole thing is.

Re: My Time at Lehman

#106

Post by lifeisstillgood » Fri, Apr 12, 2013, 8:11 PM UTC

tomkarlo wrote: post #102

mapgrep wrote: post #93

Earlier quoted context omitted.

>what do you expect in a free market system that rewards every marginal advantage I expect the government to allow so-called free market capitalists to fail when they fail. Lehman was emphatically NOT staffed by the best and brightest -- it collapsed. All the other big banks should have been allowed to collapse as well, rather than be bailed out by a staggering infusion of free government money and hidden bailouts li…

You're assuming that the occasional gigantic bankruptcy isn't a natural outcome of the smartest strategy as a bank. But when you're comped on this year's profits, and a large chunk of your comp is cash, it makes sense to take huge risks that result in near-term profit, or immense long-term profit, and largely ignore the potential for a total collapse. (Not to mention most of the employees found jobs at other banks, o…

Ironically for the great-grandparent post, both the grandparent and parent post are "both completely true" as well.

We quite correctly should expect governments to (have) ensured that these corporations could be allowed to collapse, indeed they (bravely) did with Lehman, just AIG was worse.

We also should expect that if you give someone 10-40 years salary each year, then that bonus really really should be well aligned with the stockholders own goals, or they will act in their own best interest (correctly).

The only thing that turned a disaster into a once in a century clusterfk was being unable to let them collapse.

So thats surely the public policy takeaway here.

Re: My Time at Lehman

#107

Post by zpconn » Fri, Apr 12, 2013, 8:13 PM UTC

pc86 wrote: post #23

nilkn wrote: post #20

Earlier quoted context omitted.

> wouldn't you feel shorted if you made the company 10x that in profit on your trades That guy didn't make the company all that money entirely on his own. Lehman supplied the capital, they get the bulk of the profit. That's how it works. If he wants the truly big bucks (as if a million isn't), then he should trade his OWN money. But of course he probably didn't have anywhere close to enough to do so.

What likely happened is the guy in question pissed off a Senior VP and he and all his friends made the first ~$10-15 million. His friends get $2 million and he gets half. I'd be mad, too. Just because it's a lot of money doesn't mean he should be happy with getting a less proportionate amount.

Rule #1 for anybody who only cares about their bonus: don't anger the person who decides your bonus.

Re: My Time at Lehman

#108

Post by pc86 » Fri, Apr 12, 2013, 8:14 PM UTC

nilkn wrote: post #25

pc86 wrote: post #23

Earlier quoted context omitted.

What likely happened is the guy in question pissed off a Senior VP and he and all his friends made the first ~$10-15 million. His friends get $2 million and he gets half. I'd be mad, too. Just because it's a lot of money doesn't mean he should be happy with getting a less proportionate amount.

Then maybe he shouldn't have pissed off a Senior VP? Sounds pretty simple to me.

You seem to be pretty angry in your responses in this thread.

Re: My Time at Lehman

#109

Post by retube » Fri, Apr 12, 2013, 8:14 PM UTC

I was at Lehman in 2007-08 and saw first-hand the firm implode. But what interests me was this statement:

"I would spend days attempting to understand the intrinsic value on structured bonds collateralized with physical jet engines or commercial real-estate scattered across various regions of the country."

Everybody bangs on about how complicated and opaque products like derivatives and asset-backed securities are... yet the most complex product of all no one bats an eyelid at: the share (or stock). The pay-off of a derivative can be modelled by a mathematical formula (and if not a closed-form solution than via a Monte Carlo distribution) but the pay-off of a stock - that's quite different. Modelling future company cash flows is not trivial.

Re: My Time at Lehman

#110

Post by mapgrep » Fri, Apr 12, 2013, 8:15 PM UTC

tomkarlo wrote: post #102

mapgrep wrote: post #93

Earlier quoted context omitted.

>what do you expect in a free market system that rewards every marginal advantage I expect the government to allow so-called free market capitalists to fail when they fail. Lehman was emphatically NOT staffed by the best and brightest -- it collapsed. All the other big banks should have been allowed to collapse as well, rather than be bailed out by a staggering infusion of free government money and hidden bailouts li…

You're assuming that the occasional gigantic bankruptcy isn't a natural outcome of the smartest strategy as a bank. But when you're comped on this year's profits, and a large chunk of your comp is cash, it makes sense to take huge risks that result in near-term profit, or immense long-term profit, and largely ignore the potential for a total collapse. (Not to mention most of the employees found jobs at other banks, o…

You bring up a great point, which is actually an excellent alternative answer to OP's question, "what do you expect?"

What we should expect is for banks to protect themselves as businesses by changing compensation to account for long term risk. And if they fail to do that organically, we should acknowledge that the market is failing in a dangerous way and more regulation around compensation is needed.