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My Time at Lehman

nickchirls.com

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Re: My Time at Lehman

#171

Post by PKop »

MichaelMoser70 wrote: post #149
crazygringo wrote: post #24

Earlier quoted context omitted.

> simply transferring wealth from the less sophisticated investors often teachers’ pension funds and factory workers’ retirement accounts, to the more sophisticated investors... Exactly. Wall street and investment have wonderful effects -- funneling money towards companies that can use it in amazingly productive ways. It provides an incredibly valuable service. But the flip side is exactly this, that pension funds, o…

>Why should retirement accounts get invested in anything but government bonds and index funds? Here (somewhere near the end) Mr. Blank says that this is what got the silicon valley rolling. When pension funds were allowed to invest, control of the valley switched from the military to the VC funds http://www.youtube.com/watch?v=ZTC_RxWN_xo Probably another reason is that bonds and index funds do not yield enough to ke…

And the Zero Interest Rate Policy (ZIRP) has lowered yields on fixed income to next to nothing. No longer are there less-risky investments that yield anything near the rate of inflation.

Re: My Time at Lehman

#172

Post by waterlesscloud »

rayiner wrote: post #126
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…

Bingo! All the interesting, financially-remunerative jobs these days for ambitious young people are bullshit. Not in the sense of not creating value (because I think there is value created in these industries), but because they are all open to criticism of this sort in one way or another. Are you a rocket scientist? You probably make your money directly or indirectly from the military industrial complex. Are you a do…

Why do people get paid six figures right out of school?

Easy, the people hiring them think they'll make them a lot more money than that.

Re: My Time at Lehman

#173

Post by sseveran »

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…

If we let the banks go down should we have let the counter parties go down as well? Should AIG have gone down? While I agree that it would have been better in the long run to let them fail there would have been tremendous consequences to doing so in the short term.

If a public pension fund went down with it should it have gotten tax payer money? How about GE? Was the intervention in the short term commercial paper market appropriate? Incidentally this is the one intervention that I still feel was absolutely necessary.

While I can hate on the banks as much as the next person there would have been real consequences to letting them fail and I don't think that most people would have gone along with it. If JP Morgan had fallen into bankruptcy and companies (regular ones) that bank there had been unable to make payroll since there cash (and cash convertibles) were frozen there would have been chaos.

This started with small interventions like the latin american debt crisis and now that the genie is out of the bottle its not going back in.

Re: My Time at Lehman

#174

Post by mbesto »

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…

Exactly. Not disagreeing with the OP, but in it's purest sense "free marke"t assumes that these more sophisticated ones have just as much to lose as the unsophisticated (and therefore bear the same risk). This is the problem when you try to mix regulation with deregulation.

Re: My Time at Lehman

#175

Post by a_p »

Investment bankers make money because they are allowed to borrow enormous sums of money (leverage) to invest. In other words, they are allowed to gamble with the money of others with very little consequences. There is no other industry where a company would be allowed to take on that much debt. It's like the old joke: How do you make a million dollars? Start with n million dollars! Even if you do make money in finance, your contribution to shareholders is probably a lot less than it would be in another line of work. Here [1] is an excellent write up about it.

In 2008, Barclays had over 43 times as much assets as they had equity (leverage ratio) while GlaxoSmithKline had a leverage ratio of 5. In 2011, GSK had a return on assets (money made from assets at its disposal) of 15%. Barclays had a ROA of 0.25%. GSK had a return on equity (ROE) of 67.2%, while Barclays had a ROE of 6.1%. In the same year, Barclays Capital (investment bank part of Barclays PLC) had a ROE of 10.3%, but had a leverage ratio of 55 and a ROA of just 0.18%. If you paid Barclays Capital employees the same salary as GSK employees, the pre-tax profits of BarCap would have doubled. That is why bankers pay should be limited — their ROE would be better although their leverage ratios are still way too high.

TL;DR version: If you want to work in a field where you generate real value instead of gambling with someone else's money, find a job where you make things. The world doesn't need more inappropriate math models of finance (no, the market is not always rational and large volatility is more common than you think) — it needs real research.

[1] http://www.moneyweek.com/news-and-charts/economics/uk/banker...

Re: My Time at Lehman

#176

Post by elango »

The government needs them, who else is going to buy the bonds issued by these Governments. For example, in India , only 19(as of Jan 12) fat ass financial companies are authorized to buy Indian Government bonds at primary market, and if few of them had to collapse, who would buy it (less competition -> less demand -> low value)

Re: My Time at Lehman

#177

Post by [deleted] »

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?

[deleted]

Re: My Time at Lehman

#178

Post by rrrrtttt »

a_p wrote: post #175

Investment bankers make money because they are allowed to borrow enormous sums of money (leverage) to invest. In other words, they are allowed to gamble with the money of others with very little consequences. There is no other industry where a company would be allowed to take on that much debt. It's like the old joke: How do you make a million dollars? Start with n million dollars! Even if you do make money in financ…

I don't know the numbers but I'm not sure using 2008 data gives a fair picture. If the ROA of Barclays would have been consistently so much lower than that of GSK, the capital would simply gradually move to GSK. Banks are not allowed to borrow money, their creditors want to lend them money. (Presumably because TBTF lending is perceived to be a safer business than risky development of pharmaceuticals.)

Re: My Time at Lehman

#179

Post by disgruntledphd2 »

pyoung wrote: post #143
penny500 wrote: post #61

Earlier quoted context omitted.

How is "regulation makes us less competitive" a straw man argument? If your Singaporean or European competitors operate under a set of different and less stringent rules, that wouldn't increase your costs to doing business (and in effect making you less competitive relative to foreign competitors)? Even the regulators know about the costs of Dodd-Frank.

I think Singapore does so well because of the low taxes and because it is one of the few Asian countries in that region that isn't hampered by corruption. Europe's economies are way too diverse to group together, some of them are 'business friendly', some of them are not. The 'Celtic Tiger' was largely due to low taxes, and hasn't turned out too well (most of Europe is hurting right now), so I am not sure why we shou…

Just to note, as I always seem to whenever that damn "Celtic Tiger" comes up. It wasn't about low taxes, it was about allowing major US multinationals (Google, Apple, Facebook, Oracle etc) to legally tax dodge on their EU profits. That's where the money came from. Then we all went mental (except for me, as I was dirt poor) on buying and selling property to one another.

Then our last (hopelessly corrupt) government decided to guarentee all of the bank liabilities when the crap hit the fan. The EU decided that one of these banks was never going to pay back the money (Anglo Irish), and so the money the government had given them went on the national debt. The markets panicked, the IMF were called in, and here we are.

Arguing that it was primarily due to low taxes is somewhat incorrect, while if the tax base had been more diverse the current deficit would have been less bad, we were still really screwed by the nationalisation of banking losses.

Re: My Time at Lehman

#180

Post by ig1 »

Evbn wrote: post #161
ig1 wrote: post #37

Earlier quoted context omitted.

Because people are different, if you're 20 year-old healthy female you'll have a completely different risk profile from a 64 year-old male with health problems. If you work in the government you might want to avoid your pension being in your own government bonds because you don't want all your eggs in one basket. If you're an immigrant who plans to retire back to your home country you might want to limit you exposure…

That's not possible with a pension, since members don't direct the investments.

Maybe it's different where you are, but in the UK it's pretty common for people to pick the broad allocations of private pensions.
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