Economies, pools and piss

11 Jan. 2010

My career history

I have been challenged by some friends of mine about my career history with finance and, specifically, the involvement of Bear Stearns in the recent economic turmoil. I was challenged because I was a Vice-President at Bear Stearns at the time Bear collapsed. I have decided to write some thoughts on the topic because I don't want to repeat myself anymore.

I was a software developer and worked on a team building a new derivatives trading system. We were building a system to replace the previous trading system. I started as a developer working in one of the hotter parts of Bear's business. That's essentially what it was to me. I didn't know too much about derivatives themselves but knew a thing or two about Foreign Exchange from my previous job at Calypso Technology. Foreign Exchange generally seems harmless when compared to the infamous Credit Default Swap.

As I asked questions I would get quite reasonable answers. For example: What is a Credit Derivative?. The answer was: It's insurance taken out against people who might not make their bond payments. Hrm... sounds reasonable enough.

Tasks

My daily tasks were somewhat typical of any software developer. I worked on a team that built the middle-office reporting system. We built the report generation tools and the iterated on improving them. We reached some short-comings about the system and eventually built a read-only datastore that the entire firm could access. It was, simply, a SOAP system that would return a CSV with data relevant to the structure of the query. The query was essentially a filter into our stream of daily data. From there I built a testing system, along with a colleague, that could do advanced diffing into CSV's. It could compare CSV's by column or whether one value is less than 5% off the other value and so on...

I suspect my techie friends probably already have questions regarding how we did some of that, which brings me to my next point. It's very easy to lose yourself in an exciting and high-demand environment. Especially one as lean and agile as Bear was. If I wanted to build something that could be useful in two weeks, they'd just let me do it. It was amazing. I suspect many googlers feel this way or most people working at startups. But... please take the time to remember what all of this technology was supporting.

Dang... Kind of a bummer, right?

That is what I eventually walked away from. Each time I tell the story about leaving JPMorgan I can tell there is some uncertainty in the listener as to whether I voluntarily left or was booted. To the shock of my former team and the other teams that offered me positions inside JPMorgan, I just didn't want to be there. It just felt dirty.

I must confess one thing: I lost no money on Bear's collapse. While working there I devoted a fair bit of my time to learning how Bear's business worked. I couldn't properly understand what they were doing. The leverage levels, once I understood them, seemed insane. It wasn't quite as bad as LTCM, but it was bad. I'm not a financial expert but I listen to the advice of Warren Buffet and don't invest in anything I don't actually understand. Some people lost all of their life savings! In the context of capitalism, this is exactly what's supposed to happen, but it's a shame to see people so ruined. It is, however, fitting that some people at the top get ruined as badly as those at the bottom. Currently, this is heavily weighted towards just damaging those at the bottom. And they weren't even involved directly! Ugh...

Kool-Aid

It's hard to make it past the thick clouds of optimism, profiteering and heroism. Even Lloyd Blankfein has come out publicly saying he believes Goldman Sachs is doing God's work. Employees at investment banks, especially the leaders, do this internally just as much as externally. It's called drinking the kool-aid, as we've all heard, but no one ever comments on just how crappy drinking kool-aid actually is. It's basically sugar water. Hardly any substance at all in a typical glass. And did you know the term actually originated with a massacre that killed 918 people? Almost seems fitting that Wall St. would include such a term in it's vernacular.

During my plans to leave I met with a few groups interested in having me on their team. I was even offered a team of 10 people and frequent travel to London. It didn't carry much weight on me though. This is when some of the more Ayn Randian types came out to convince me of the value of our work. I'm not naive enough to think turning humanity against itself in almost every context will somehow yield good results. Wasn't John Nash's nobel prize awarded for something along the lines of saying groups function better when they take each other's interests into account? Anyway...

The thing about Capitalism is that it can turn into theft really easily if it's not checked. That's basically what has happened during the last thirty years. Our former, more-sensible system, was replaced with a climate ripe for disaster. The repeal of Glass-Stegall, the Government backing mortgages made by people who don't care about the quality of the mortgage, the lies from the credit agencies, the incredible greed that ignored the incredible risks... There isn't any single culprit, yet we are left with a new environment that has consolidated power towards many of the people who created this mess. On top of that, many of the folks involved have the audacity to hand out record breaking bonuses. Oh? The bonus isn't cash? It's in stock instead? That doesn't actually make much of a difference unless you think the stock they're receiving will be drying up soon. Frankly, I don't see Goldman, or their stock value, going anywhere...

Upsides of capitalism

Well, to start, it has lifted 2B people out of poverty in the last 30 years. Just look at what's happened in Asia or India. These two places suffered (and still suffer) from incredible poverty. But it's getting much better and doing so quickly! Partly because of capitalism and free markets. In fact, the investment opportunities over there are far more vast than here and we're seeing this in the draught of US investment compared to the still heavy investment over there. In a single generation, a family in the US can go from absolute poverty to the upper echelons of society. That happens here frequently. I personally know many people who've done this and I know many people who immigrated here specifically to try for themselves. How many other nations can you name where this happens as easily?

This system has also created TV's, cell phones, computers, a gigantic entertainment industry and all kinds of things that allow people to find ways to live successful or happy lives. There is a catch, what they do must be worthwhile enough for the rest of the world to pay for it. I think this is a great thing because we have so many like-minded people that I can probably do whatever I want and find other people who will pay for it. I'm fortunate that I love writing software. This would be harder for me if I was a painter. But even painters make wonderful careers for themselves or they can move out of the expensive areas and choose a life that matches their income. They're free to do that. Or they're free to choose a different career that pays more, if they want.

With all that said, let's not forget that the US Government invented the Internet. The Government can help when market forces have no interest. This was understood long before our time too. An example is the constitutional mandate for the Post Office to serve everyone instead of just the market. Or, it can provide balance when market forces have complete control and need to be restrained. Sure, sometimes regulation is bad or not well-considered, but it's rare to find a person that has problems with anti-trust laws. We just don't refer to those as regulation as often so it seems to get overlooked frequently.

The thing that is perhaps the best aspect of capitalism is it's relentless drive to be better. Consider it's approach to handling the distribution of capital. Kings used to hoard the stuff for as long as they could. Today, we have things like venture capital, angel investment, hedge funds, etc, that can make use of idle capital. They can lend it to other people in the hopes that those people figure out how to make more than they borrowed. I can borrow money from a bank or an individual or a group of individuals that believe in me and off I go! Hell, the US will even open up it's borders to foreigners who want to be productive. Got an idea for starting a company? Do it in the US! We'd love to have you. It might even be cheaper (meaning we could pay more people to work) if you stay put and do your work in your home country. That spreads the wealth across the entire globe!

But what about the people who don't have the necessary education? Well... the system can't help everyone and this is tricky topic. I consider myself a liberaltarian precisely because I value all the good points of capitalism and free markets and small government, but I understand the randomness involved with how people are placed and what that means for their advantages. The Government is our best chance at creating a fairer playing field. One where the best ideas and participants truly win, rather than just those who were born lucky. I was born lucky. Hungry kids in Africa were not. The nuances of covering those issues is better done over a beer.

Economies, pools and piss.

Economies are like a pool [1]. Sometimes people piss in them and you gotta clean 'em out a bit. It's a pain in the ass and most people don't like the idea of swimming in piss but no one notices until it's really pissy. The pool gets cleaned and everyone moves on. Some people remember how annoying that is and resolve never to piss in it again. Some are too young to remember. Maybe the pool will even last beyond the generations that were there when everything turned yellow.

We still have to worry about younger generations that still think it's funny or satisfying to pee now rather than later. A tradition of not pissing in the pool might help. It's certainly tempting for people to seek the satisfaction of release right then and there. Especially (!!) with the high probability of not being noticed. The main concern is probably just hiding the hot piss in the cold water quickly.

The thing that's awesome about pools is that in spite of the fact they're tricky to maintain, you still get a lot of fun and enjoyment out of them. I love pools. I can swim on my own or I can get a group together to play a game or maybe make a team to compete in games of some kind. I definitely wouldn't want any piss in my pool if I'm trying to concentrate on getting my speed up. In fact, I want a rule against pissing in the pool!

Hmm... How the do you even detect that? I've heard about chemicals that can turn the pool water a different color when it detects pee. That might lead to a few years or torture for a young kid who didn't know any better... Pool pisser!!

In the end, if the pool is too pissy, you just gotta walk away and find a new place to hang.