My Time at Lehman • Hacker News Board

Re: My Time at Lehman

#41

Post by nissimk » Fri, Apr 12, 2013, 5:57 PM UTC

harryh wrote: post #30

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…

If you're investing over the long term and can afford to ride out the shocks then historically speaking stocks have always out performed bonds. That's not gambling. It's not a zero sum game between you & Goldman. In a growing economy everyone can win by investing.

While cash securities markets (i.e. stocks and bonds) are not a zero sum game, derivatives markets (i.e. futures, options and all kinds of swaps) are zero or negative sum by definition. Also, derivatives markets are far larger in size [1]. There are always 2 parties to each transaction and one makes the money that the other one loses. The additional transaction fees that go to the banks and various other operations providers make it negative sum.

[1] http://www.isda.org/statistics/recent.html#2010mid

Also see:

http://www.nakedcapitalism.com/2013/03/worldwide-derivatives...

Re: My Time at Lehman

#42

Post by pyoung » Fri, Apr 12, 2013, 5:57 PM UTC

jwb119 wrote: post #16

cadlin wrote: post #13

Earlier quoted context omitted.

I think American public policy has a hard time grappling with Wall Street because the financial sector has disproportionate lobbying power. Also, I don't think most Americans care about how free from regulation the financial sector is. Most people have a feeling that Wall Street is screwing over everybody and there's nothing they can do about it. I'm not exactly sure who you mean by "we," either. Hacker News commente…

> the financial sector has disproportionate lobbying power. I'm not sure that's true. If Wall Street really had some super lobbying power Dodd-Frank and Sarbanes-Oxley wouldn't have passed in their current forms. Regulating Wall Street is a pretty easy position to take if you're a politician.

The reaction to SOX by Wall Street was fairly mixed, some liked it because it meant the could put more trust in corporate financial statements. Some did not support the bill because of the usual straw man argument that 'regulation makes us less competitive'. Regardless, the passage of the bill does not say anything about the lobbying power of Wall Street, because WS was fairly mixed on it to begin with.

Regarding Dodd-Frank, many people, myself included, believe that that bill was watered down considerably, largely due to the pressure of Wall Street lobbyists. In fact, in the end, a number of Wall Street groups ended up supporting the legislation, largely because they were concerned that if Dodd-Frank didn't pass, then new, more strict regulations would be proposed in the future.

Wall Street contributes gobs of money to campaigns and has some of the most powerful lobbyists in Washington. Considering how unpopular they were in the recession fallout, the fact that the only major retribution was Dodd-Frank is a testament to how much influence the wield.

Re: My Time at Lehman

#43

Post by ig1 » Fri, Apr 12, 2013, 5:57 PM UTC

ap22213 wrote: post #29

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…

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. To me, the worst part (again, as an ignorant…

It's vastly testable, there are thousands of different markets with different sets of regulations.

But your talking about two different issues, the liquidity issue mainly applies to exchange traded assets while more complex instruments tend to be OTC (i.e. custom agreements).

With liquidity you can be a sophisticated buyer and still be willing to pay for it. For example look at when MtGox was lagging by 600 seconds when bitcoin was in freefall, many buyers would happily have paid a hefty fee to be able to trade out of their position instantly without having to worry about what the price would be when the transaction was finally able to get through.

Re: My Time at Lehman

#44

Post by fyi80 » Fri, Apr 12, 2013, 5:59 PM UTC

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…

When do we blame the pension fund managers for taking on risks they don't understand?

Re: My Time at Lehman

#45

Post by harryh » Fri, Apr 12, 2013, 5:59 PM UTC

nissimk wrote: post #41

harryh wrote: post #30

Earlier quoted context omitted.

If you're investing over the long term and can afford to ride out the shocks then historically speaking stocks have always out performed bonds. That's not gambling. It's not a zero sum game between you & Goldman. In a growing economy everyone can win by investing.

While cash securities markets (i.e. stocks and bonds) are not a zero sum game, derivatives markets (i.e. futures, options and all kinds of swaps) are zero or negative sum by definition. Also, derivatives markets are far larger in size [1]. There are always 2 parties to each transaction and one makes the money that the other one loses. The additional transaction fees that go to the banks and various other operations p…

That's a reasonable point. Obviously it's hard to talk about a term as broad as "investment" without running into exceptions.

Re: My Time at Lehman

#46

Post by fyi80 » Fri, Apr 12, 2013, 6:00 PM UTC

ap22213 wrote: post #29

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…

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. To me, the worst part (again, as an ignorant…

If your pension fund doesn't day-trade, you never pay those fees for liquidity.

Liquidity isn't free, and no one is forced to buy liquidity (unless your money is managed by an incompetent/corrupt manager due layers and layers of your employer-sponsored pension contracted to a bank....)

Re: My Time at Lehman

#47

Post by potatolicious » Fri, Apr 12, 2013, 6:01 PM UTC

np422 wrote: post #28

edw519 wrote: post #14

Earlier quoted context omitted.

Just because Oracle sells into companies that could just as well have used postgres that doesn't mean that Oracle aren't producing anything of value,.. Oracle doesn't sell software. They sell risk reduction. Someone to sue or blame. Once you understand that, you see how brilliantly they've achieved product/market fit in a way many people here can only dream of.

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 goodness, who'd have thought an internationally renowned firm like Vendor XYZ would ever break? Besides, thanks to our expensive support contract, they're on top of it.

Microsoft, Oracle, Accenture, they all share one thing in common: their product more CYA for middle managers than anything else.

I have similar thoughts about management consulting - it's CYA for high-level execs. You rubber-stamp a risky move with a respected firm so that if the shit hits the fan the firm (and yourself) are insulated from the backlash.

Re: My Time at Lehman

#48

Post by ig1 » Fri, Apr 12, 2013, 6:05 PM UTC

fyi80 wrote: post #44

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…

When do we blame the pension fund managers for taking on risks they don't understand?

Well you need to ask why don't pension funds hire more talented people ?

It's because those people are expensive and that means having to charge a higher management fee.

And what do consumers tend to base investment choices on ? - management fees. High management fees mean that consumers won't pick that fund.

Consumers can't tell how sophisticated their pension fund managers are so they'll just pick a cheap upfront cost which (potentially) because of poor management will cost them a lot more in the long term.

Re: My Time at Lehman

#49

Post by rayiner » Fri, Apr 12, 2013, 6:08 PM UTC

samstave wrote: post #40

rayiner wrote: post #22

Earlier quoted context omitted.

But it's not just fraud, corruption, and exploitation. It's probably not even mostly that. It's about being able to just run the numbers a little bit better, aggregated over millions of repeat transactions. That's part of the narrative I'm talking about. We tell ourselves: "It's only because of fraud, corruption, and exploitation" that all this money is flowing from main street to wall street.

I think you're misinterpreting my comment. The statement was that "We like the idea of letting everyone transact freely, but we are uncomfortable with the "winner take all" implication of that policy" But this is not true. We are not uncomfortable with free transactions resulting in winning - we are uncomfortable with "free" being the state of the system whereby the winner is able to do so because there is no oversig…

Is having superior information and data not consistent with a level playing field? What about hiring up a significant portion of all the top college graduates and having them work around the clock to give you every possible advantage? Is that consistent with a level playing field?

My point is that there are a lot of things short of fraud that we consider "meritocracy" (and having superior information and superior analysis usually falls into that category), but those things systematically stack transactions in favor of the parties that can afford to buy them. Even if you have zero fraud, zero lobbying, etc, you'd still see wealth flowing to Wall Street from Main Street.

Re: My Time at Lehman

#50

Post by penny500 » Fri, Apr 12, 2013, 6:08 PM UTC

ap22213 wrote: post #29

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…

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. To me, the worst part (again, as an ignorant…

Wealth is not fixed. Both parties can benefit from a trade, and often do. A party that wants cash now and another who wants more cash in the future both benefit from a trade (e.g. buying and selling a bond).