I spent the last 20 or so years working with some of the smartest people I know creating new, spectacular and innovative financial products. And we were good. In the current issue of the New Yorker there is a cutting, but perhaps a little too true, cartoon where the caption reads: "True, a salary cap on Wall Street may limit the talent pool, but, on the other hand, if they get any more talented we'll all be broke." Many of us got sucked into the huge, expanding vortex of real estate finance during those decades. Now we are seeking other outlets for our creativity.
And how creative were we? Well, at the peak, we were able to convince investors that the risk associated with a loan made to a borrower who had no equity, no credit history and no apparent means of repayment was risk that could be managed through creative finance. No single individual can bear the blame for this. As a comedian friend of mine's routine goes: "It seemed like a good idea at the time." And when it comes to real estate loans, it's impossible to make a bad loan in a rising market.
Of course, the days of rising real estate markets covering all sins have been temporarily suspended. Which may be all well and good and in the nature of markets generally for the economists of the world. But leaves the individual finance professional with a difficult puzzle to solve. What do you do with a finance rocket scientist when the space program has been disassembled?
The first thing that seems clear is that Washington not Wall Street will be the stronger influence on the direction of our economy for the next couple of years. Investors are so skittish these days that they are piling en masse into Treasuries and shunning all other opportunities. Yield hogging is passe. Risk avoidance is vogue. With so much money being piled so cheaply into Treasuries of every maturity, the market is actually saying, "We trust government and, pretty much, nobody else with our money."
Well, what is the government going to do with all that money that everyone wants to lend them? Actually, that's not a mystery, but it is a fairly massive list. However, President Obama has been pretty clear about the Cliff Notes version of it: more Infrastructure, more Health Care and in some cases differently directed Health Care (away from pharmaceuticals and toward lifestyle changes and prevention), more Education with an emphasis on both early childhood education and post-secondary education, and more Clean Energy and Home Grown Energy. These are the national priorities that the Obama administration has set and is pursuing.
I'm not sure how securitization professionals can add value and energy to these sweeping societal changes. All I know is that in the next few years, these industries will be where the action is while allegedly slicing and dicing the risk associated with pools of financial assets will be far less in demand.
Saturday, February 28, 2009
Thursday, February 26, 2009
Don't Waste a Crisis!
Don't ever waste a crisis. This nugget of wisdom, in various forms, has been floating around for a while (and seems to be immensely popular lately) but it came to me courtesy of President Obama's Chief of Staff, Rahm Emmanuel who was discussing the American addiction to foreign oil. A crisis is a beautiful opportunity. Faced with drastic circumstances we become willing to take risks that would be too overwhelming or threatening otherwise. Backed into a corner by matters outside our control we summon unimagined resources. Feeling we have nothing left to lose, we launch ourselves on some of the riskiest, and most rewarding, adventures of our lives.
Dozens, maybe hundreds, of times each day we experience little sparks of desire, tiny tugs in the direction of things we would like to do or try. An almost equal number of times during each ordinary day we push back on the desires, reminding ourselves that we have made other choices . . . and need to stick to them. Then a crisis comes along and upends the status quo. This same crisis that scares and threatens so much also gives us the perfect opportunity. It explodes our neat little day to day existence and with it all the unintentional shackles we have forged for ourselves. "If I don't have a job now anyway, maybe this is the time to take that six-month quest through India that I always dreamt about." "Since the entire industry in which I have built my career for the last twenty-five years has been leveled, maybe now is the time to mold a business out of my real passion. I can't do any worse than broke."
One of the most powerfully beneficial social movements of the last century was the tremendous advance in the field of alcoholism made by the group that came to be known as Alcoholics Anonymous. Whether we buy into all their tenets or not, no one can argue the fact that Alcoholics Anonymous and Twelve Step Recovery generally have brought amazing relief to innumerable suffering people all around the globe. What most people don't know, however, is that the AA program likely would never have been created but for the stock market crash of 1929 and the subsequent crushing economic depression. AA's co-founder, Bill Wilson, was a high flying finacier during the jazz age of the 1920s. Crushed by the '29 crash, he struggled to try and rebuild his life on the only basis that he knew -- finance, business and deal making. In the next 5 years he failed so many times, in business and with alcohol, that the only avenue of expression left open to him was to dedicate his life to helping other alcoholics recover. And he did it like he did everything else, to excess, and with excellence. His message of hope and recovery has spread in the decades since and spared millions of the afflicted, not to mention their families, from suffering and tragedies too great to measure. Crushed by a crisis he could no longer evade or avoid, Bill Wilson turned his talents away from business and helped launch a solution for what had been one of the most perplexing and heart breaking problems in history up until that time.
Maybe this economic crisis has come home to you personally. Maybe your position has been eliminated and your industry devastated. That's GREAT! This is a once in a lifetime opportunity. In the face of complete devastation, with nothing left to lose, no one can blame us if we dare to try the big dream and fail. From the looks of things we were pretty much lined up for failure in any event. Why not take a small step in the direction of work that we really love, that we really enjoy and that is really meaningful to us? Wouldn't it be great to wake up in the morning and feel like we just can't wait to get started? What single simple step can we take today that will lead us closer to making the most important contribution we can imagine? Given the situation, it's not like we're doing anything else now anyway. What do we have to lose?
I once asked Nobel Laureate Muhammed Yunus ("Banker to the Poor") what all the lawyers would do in a world where loans do not require contracts, as is the case with his Bengladesh microfinance company Grameen Bank. His reply, "Something much more interesting."
Dozens, maybe hundreds, of times each day we experience little sparks of desire, tiny tugs in the direction of things we would like to do or try. An almost equal number of times during each ordinary day we push back on the desires, reminding ourselves that we have made other choices . . . and need to stick to them. Then a crisis comes along and upends the status quo. This same crisis that scares and threatens so much also gives us the perfect opportunity. It explodes our neat little day to day existence and with it all the unintentional shackles we have forged for ourselves. "If I don't have a job now anyway, maybe this is the time to take that six-month quest through India that I always dreamt about." "Since the entire industry in which I have built my career for the last twenty-five years has been leveled, maybe now is the time to mold a business out of my real passion. I can't do any worse than broke."
One of the most powerfully beneficial social movements of the last century was the tremendous advance in the field of alcoholism made by the group that came to be known as Alcoholics Anonymous. Whether we buy into all their tenets or not, no one can argue the fact that Alcoholics Anonymous and Twelve Step Recovery generally have brought amazing relief to innumerable suffering people all around the globe. What most people don't know, however, is that the AA program likely would never have been created but for the stock market crash of 1929 and the subsequent crushing economic depression. AA's co-founder, Bill Wilson, was a high flying finacier during the jazz age of the 1920s. Crushed by the '29 crash, he struggled to try and rebuild his life on the only basis that he knew -- finance, business and deal making. In the next 5 years he failed so many times, in business and with alcohol, that the only avenue of expression left open to him was to dedicate his life to helping other alcoholics recover. And he did it like he did everything else, to excess, and with excellence. His message of hope and recovery has spread in the decades since and spared millions of the afflicted, not to mention their families, from suffering and tragedies too great to measure. Crushed by a crisis he could no longer evade or avoid, Bill Wilson turned his talents away from business and helped launch a solution for what had been one of the most perplexing and heart breaking problems in history up until that time.
Maybe this economic crisis has come home to you personally. Maybe your position has been eliminated and your industry devastated. That's GREAT! This is a once in a lifetime opportunity. In the face of complete devastation, with nothing left to lose, no one can blame us if we dare to try the big dream and fail. From the looks of things we were pretty much lined up for failure in any event. Why not take a small step in the direction of work that we really love, that we really enjoy and that is really meaningful to us? Wouldn't it be great to wake up in the morning and feel like we just can't wait to get started? What single simple step can we take today that will lead us closer to making the most important contribution we can imagine? Given the situation, it's not like we're doing anything else now anyway. What do we have to lose?
I once asked Nobel Laureate Muhammed Yunus ("Banker to the Poor") what all the lawyers would do in a world where loans do not require contracts, as is the case with his Bengladesh microfinance company Grameen Bank. His reply, "Something much more interesting."
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