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My Time at Lehman

nickchirls.com

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Re: My Time at Lehman

#181

Post by peteretep »

ced wrote: post #164
michaelochurch wrote: post #89

Earlier quoted context omitted.

I know several people who make a lot of money in trading, and I hear the liquidity argument constantly as the justification for their behavior. They describe the millions that they make as payment for all the 'value' that they've given to everyone; But, as an ignorant, I can't see how those millions could have come from anywhere than other (less informed) peoples' pockets. Trading is a legitimately socially useful bu…

If Bob is a little better than Mark, Bob will get 100% of the business and Mark will get nothing. At this point, to do arbitrage you need to be thinking about microseconds. If Bob can execute in 75 mcs and Mark takes 100 mcs, then Bob is going to get all the trades. If Bob were to be kidnapped by aliens, would society be poorer for it?

No, but the people paying his wages would be, and that's sort of the point.

Re: My Time at Lehman

#182

Post by zoul »

tomkarlo wrote: post #130
mapgrep wrote: post #110

Earlier quoted context omitted.

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.

I don't know that you need to regulate compensation. You just need to not bail them out when they blow up, and it will self-correct. And you shouldn't let them gamble with federally insured (FDIC) money - either be a investment bank or a commercial bank, but not both, so that regular consumers don't get caught in the middle.

But isn’t this scenario impractical for reasons shown by the current problems in Europe? On Cyprus, the banks were considered “too big to fail”, meaning that they would take the whole economy with them if they went down.

Re: My Time at Lehman

#183

Post by michaelochurch »

peteretep wrote: post #181
ced wrote: post #164

Earlier quoted context omitted.

If Bob is a little better than Mark, Bob will get 100% of the business and Mark will get nothing. At this point, to do arbitrage you need to be thinking about microseconds. If Bob can execute in 75 mcs and Mark takes 100 mcs, then Bob is going to get all the trades. If Bob were to be kidnapped by aliens, would society be poorer for it?

No, but the people paying his wages would be, and that's sort of the point.

Bingo.

Re: My Time at Lehman

#184

Post by michaelochurch »

ced wrote: post #164
michaelochurch wrote: post #89

Earlier quoted context omitted.

I know several people who make a lot of money in trading, and I hear the liquidity argument constantly as the justification for their behavior. They describe the millions that they make as payment for all the 'value' that they've given to everyone; But, as an ignorant, I can't see how those millions could have come from anywhere than other (less informed) peoples' pockets. Trading is a legitimately socially useful bu…

If Bob is a little better than Mark, Bob will get 100% of the business and Mark will get nothing. At this point, to do arbitrage you need to be thinking about microseconds. If Bob can execute in 75 mcs and Mark takes 100 mcs, then Bob is going to get all the trades. If Bob were to be kidnapped by aliens, would society be poorer for it?

Not at all, but that's how commodity work works. The provision of the commodity is important, but there's a limited market and superficial or unimportant differences (in traditional marketing, branding; in finance, 75 vs. 100 mcs) determine who gets what share.

What traders do adds a lot of value to society. The difference between 75 and 100 mcs is irrelevant. Ultimately, trading is converging on a circle-jerk of machines throwing numbers at each other, but the world is better off with that circle-jerk, and really doesn't care whether it's Bob or Mark who wins.

Trading is the last commodity job.

However, traders don't make more money than computer programmers or professors because they're more important to society (that's clearly not true) but because of the employer/management filter. For traders, the organization is so sensitive to small differences in individual performance as to justify extreme compensation. Software engineers are worth just as much to the world, but employers still see them as cost centers because, while engineers actually have their employers just as much by the balls, it's not as visceral as it is with traders.

If you think of economic input/output relationships as S-shaped curves (I've dealt with this a lot in exploring convexity and concavity of labor) then trading is an area where the precision/scale parameter has gone to infinity and it looks almost like a step function.

Re: My Time at Lehman

#185

Post by SilasX »

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 other than wealth to flow from less sophisticated people to more sophisticated ones? ...

>Why are we surprised that they disproportionately get the better end of every transaction?

Because normally, competition in the marketplace thins out such "easy" profit margins, and something is keeping that normal process from happening here. After all, you don't see such exploitation of the unsophisticated in, say, sale of breakfast cereal, where excessive profit margins draw in competitors.

Re: My Time at Lehman

#186

Post by SilasX »

michaelochurch wrote: post #184
ced wrote: post #164

Earlier quoted context omitted.

If Bob is a little better than Mark, Bob will get 100% of the business and Mark will get nothing. At this point, to do arbitrage you need to be thinking about microseconds. If Bob can execute in 75 mcs and Mark takes 100 mcs, then Bob is going to get all the trades. If Bob were to be kidnapped by aliens, would society be poorer for it?

Not at all, but that's how commodity work works. The provision of the commodity is important, but there's a limited market and superficial or unimportant differences (in traditional marketing, branding; in finance, 75 vs. 100 mcs) determine who gets what share. What traders do adds a lot of value to society. The difference between 75 and 100 mcs is irrelevant. Ultimately, trading is converging on a circle-jerk of mac…

>Not at all, but that's how commodity work works

Then something needs to change so it stops "working" that way.

Re: My Time at Lehman

#187

Post by maigret »

ced wrote: post #164
michaelochurch wrote: post #89

Earlier quoted context omitted.

I know several people who make a lot of money in trading, and I hear the liquidity argument constantly as the justification for their behavior. They describe the millions that they make as payment for all the 'value' that they've given to everyone; But, as an ignorant, I can't see how those millions could have come from anywhere than other (less informed) peoples' pockets. Trading is a legitimately socially useful bu…

If Bob is a little better than Mark, Bob will get 100% of the business and Mark will get nothing. At this point, to do arbitrage you need to be thinking about microseconds. If Bob can execute in 75 mcs and Mark takes 100 mcs, then Bob is going to get all the trades. If Bob were to be kidnapped by aliens, would society be poorer for it?

Nope, but someone else would get the money instead of his client. Think about you engage a negotiator for buying a house and he only gets 5% bargain when another one could have gotten 10% - the seller gets the money you'd have otherwise.

Re: My Time at Lehman

#188

Post by demallien »

potatolicious wrote: post #47
np422 wrote: post #28

Earlier quoted context omitted.

Have you ever read an eula? Have you ever heard of someone winning a lawsuit against a software vendor? Have you even heard of someone getting any kind of monetary compensation for mishaps caused by software bugs? The suing part is purely fictional.

It's not about the lawsuits, but it is very much about risk reduction. This applies to all consultancies, not just Oracle. If you hand-roll your own solution for (almost) free using open source components, you're the one who gets fired when it goes down. If you buy an enterprise-level solution from Vendor XYZ, with a requisite expensive support contract, they fucked up when it goes down, and you are safe because good…

Yes. Just to finish off the argument for you (I think you already get this, just forgot to explicitly state it), not only would the programmer have to assume the risk in choosing postgres over Oracle, but she would typically also not get any share of the thousands of dollars she saved the company by so doing. It's all downside and no upside, so it's no surprise that many people opt for the vendor solution.

Re: My Time at Lehman

#189

Post by calhoun137 »

jnewell wrote: post #90

I cringed when I read this headline on HN because I too worked for Lehman between 2006 and 2008. I felt the same way Nick did even around the same time (wanting to go back to making "real things"). However, lately I feel like I have come back somewhat full-circle. Many of the issues he complains about is rampant in almost of every industry. For example, Groupon was basically taking advantage of unsophisticated small…

I actually agree about the group-on example, but i strongly disagree with your broader point. First of all, getting someone to click on an ad or pay for a video game is not even in the same dimension as destroying the pensions of millions of hard working people or crashing the economy only to get bailed out by taxpayers, and so on. Second of all, SV and developers in general actually produce something of value, as opposed to the gambling wall street engages in. There is a difference between making a profit by producing something of value, and ripping people off by hustling and gaming the system. Third of all, there is so much interesting computer science happening all the time in the developer community, so while wall street invents new obscure financial products, "SV" invents things like AWS, google maps, smart phones, and so on.

Re: My Time at Lehman

#190

Post by rayiner »

mattmanser wrote: post #140
hkmurakami wrote: post #62

Earlier quoted context omitted.

>Why should retirement accounts get invested in anything but government bonds and index funds? Step 1: Pension return rates get "set" during boom time highs. Step 2: Boom times end, the pension fund is grossly under funded, and the manager needs to find ways to get excess return beyond what the typical fixed income and equity products can offer. Step 3: Pension Managers reach for "alternative investments", hoping for…

What are you babbling about? The dodgy investments were done during the boom, not after it.

What if I told you the economy engages in boom/bust cycles and there was one oh right around the late 1990's that caused everyone to ratchet up pension benefits then wiped out a ton of retirement account value, setting the stage for dodgy investments being made in the 2000's trying to recover?
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