The Past

Logged in after being away for something like 2 years and did some cleanup. Looked at my old nodes with new eyes and had to laugh. Things have changed so much from even 2 years ago that I have broken a cardinal rule of not day noding (I had this rule?) just so that the future me can come back and read this, and perhaps laugh again.

I left law school. I had wanted many things out of it, and had been inevitably disappointed. I did not agree with most principles behind US patent law, particularly relating to whole damn field of computer software. Strangely enough, I had enjoyed classes that I did not expect to enjoy: antitrust, bankruptcy. I agree with the principles behind both fields (well, with the exception of the 2005 bankruptcy revisions). I chose not to take the bar exam.

After Law School

Spent half a year working in investor relations in shipping. 2007 and early 2008 was the good year for shipping: the Baltic index was soaring above 10,000; the Chinese were demanding more dry bulk, more oil, more commodities; other emerging market economies were pumping out commodities as fast as they could get ships out their ports. Everything from small little Handymaxes to the large Capesize vessels were booked in record numbers, at staggering daily rates; Korea and Japan could not keep up with the demand for more new vessels. Bear Stearns fell, and it was barely a blip on the radar for us. Oil climbed steadily in price; Goldman Sachs analysts called for $200/barrel. BHP Billiton made a bid for Rio Tinto, turning it into a company that would have controlled 1/3 of the world's iron ore supply. I endured a workplace that seemed to thrive on poor attitudes, poor pay, passive-aggressive behavior, and barely concealed insider trading. I left in May 2008.

The Present

The timing could not have been worse. I worked in research and happened to be working on securitization. (I thought about updating those outdated nodes but will leave that up to impartial 3rd party sources. I am hardly impartial when I am a source for others.) There was a credit crisis, but it had not intruded in my work too much. Northern Rock and Indymac came and fell. Even Fannie and Freddie Mac's conservatorship on September 7, 2008, while extremely worrisome (while not technically a default, it triggered settlement of credit default swaps as it was considered a credit event), did not bother me too much.

Then, a week later, Lehman failed to find a buyer and filed for a Chapter 11 bankruptcy. That's when shit hit the fan for me. I suddenly found myself working like I've never worked before, on too many fronts. Barclays bought the North American Lehman assets for a song (and much later, Nomura snapped up the Asian divisions). Merrill Lynch snuck behind Lehman's back to beg for Bank of America's mercy, and received it. Lehman's bankruptcy triggered several credit events. The Primary Reserve money market fund broke the buck, causing the credit market to shut down. The rating agencies downgraded AIG and suddenly AIG found itself needing to post $15 billion in additional collateral due to the downgrade of its senior debt. The market completely went haywire; the TED spread shot through the roof. The Federal Reserve threw an $85 billion line to AIG, ripping out a 79.9% stake (eventually investing $150 billion instead), and established a facility to prop up the money markets; the US SEC and UK FSA announced a short sale ban on all the financials (a crappy idea, in my opinion), which was quickly adopted around the world. It wasn't enough; the market fled from the financials, causing trauma everywhere, infecting the consumer. In the space of 9 days, $16.7 billion was withdrawn from Washington Mutual in the truest form of a bank run; the FDIC went behind the bank's back to arrange a quick sale to JP Morgan, and then asked Congress to open an unlimited line to the Treasury, as nearly all the money withdrawn was by those who had more than the $100,000 insurance limit inside the bank. HBOS was sold to TSB Lloyds, and having worked almost exclusively with European market numbers the last few months, I knew that it was only a matter of time that Europe would be up shitscreek. Goldman Sachs received a $5 billion mercy package from the Oracle of Omaha (who was not very merciful; read the term sheet if you'd like to see how he raped them), while Morgan Stanley went to appeal to their Japanese overlords. The cash wasn't enough and within a matter of days, they became bank holding companies, allowed to tap into the primary dealer facilities at the Federal Reserve (Merrill Lynch was also given this privilege in the meantime.) The Treasury Secretary Paulson pushed through a $700 billion plan through a completely spooked Congress, and then did an aboutface from buying mortgages, instead investing $250 billion into banks large and small.

Then the reports from Europe turned ugly. It had already been known for a while that the United Kingdom was in trouble as early as September 2007, when Victoria Mortgages was taken into administration by the FSA, then Northern Rock in March 2008 (and then Alliance & Leicester, eventually taken over by Banco Santander), but I think people were unprepared at how quickly the banks caved in. Bradford & Bingley was nationalized, and shortly after, the Royal Bank of Scotland, HBOS, and Lloyds; the HM Treasury eventually invested 37 billion pounds to prop them up. Ireland went and did the absolutely unthinkable, guaranteeing all debt of their six banks (senior and subordinated), causing the rest of Europe to panic (the guarantee was easily the quickest way to cause a bank run). Germany threw a cash line to Hypo Real Estate; Belgium, Luxembourg and the Netherlands jointly nationalized Fortis (eventually selling some of the parts to BNP Paribas). Landsbanki of Iceland failed; then Kaupthing and Glitnir, freezing accounts abroad (causing trauma in particular with the UK Icesave accounts, among other Continental accounts). The Netherlands jammed 10 billion euros down ING's throat. Switzerland's central bank poured $54 billion into UBS to parcel out its bad assets and create a bad bank. The European Union quickly passed a 50,000 euro bank guarantee.

The trauma spread to the emerging markets as the carry trade unwound. Investors fled into the yen and the greenback. South Korea's currency dropped precipitously against the greenback, almost overnight. Russia's markets dropped over 30% in a single day, forcing the markets to shutter them. Pakistan, Hungary, Iceland, Latvia, and Ukraine all eventually caved in and applied for IMF loans, even as the IMF moved to strip the arrangements down as simply as possible (having learned a valuable lesson from the disastrous South Korea experiment in 1997-1998). Argentina nears default yet again, and the prime minister seized private pension funds.

The beat still goes on. I wake up every day to more news. Citigroup is bailed out, bank runs occur in the Middle East; banks are shuttered by the FDIC to the tune of nearly 2 per month on average. The list of troubled bank institutions swells from 70 to over 170. American Express is now a bank holding company. There is plenty missing in the summary I have written, but it wasn't meant to be comprehensive; it was done at the top of my head and you can only remember so much.

I worked through all this. I walked past the protesters on Wall Street calling for the heads of "corrupt" bankers. I survived through the first round of layoffs at our firm. I consoled friends being laid off. I fielded questions from reporters. I sat in annual meetings eating steak with other bankers so deep in their delusion that they couldn't see the elephants in the room even if they were trampled upon.

The curse of "May you live in interesting times" rings true. I hope to one day read this node years from now and laugh.