Redployment of Resources

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.