Monkeys, I was going through this interview of Alexis Stenfors, a rogue trader at Merill Lynch who over-valued the books by $100 million.
The bizarre thing, or what I found scary as well, was at the time I didn’t find that $100 million was a lot of money, which was how detached I was from the environment or the society as a whole. When I had the conversation with my boss in which I admitted it, I was in India and he was in Switzerland. He said, “You should have told me earlier.” I apologized, and he just said, “have a good holiday.”
He says that the governments and industry learned from it and the regulation has become strict. Governments, companies and markets aside, I wanted to know what individuals on this forum learned from it.
It can be ranging from personal finances to relationships to your career choices- is there anything which defined the crisis for you?
I learned to be more conservative in my personal finances. I was hit hard from the great recession as it was my first year working and people were making 150k in sleepy industries of the financial sector. Good times do not always last, so be prepared.
Going back to the first part, more conservative in personal finances, my grandfather and grandmother were products of (grew up in) the great depression. I heard an anecdote upon occasion that my grandmother would drive to several different grocery stores to get the cheapest item at each but would take her more than triple the time in her day. Upon hearing this my grandfather would loving chastise her in a more playful manner than serious, "dammit Eleanor, I'm the Vice President of a bank, I think we can afford 30 cents extra a pound for chicken!" Now this was before there was 5 banks in the U.S. and each bank has 15,000 VPs. But the moral of the story is 60 years after the start of the great depression my grandmother was still trying save 30 cents where she could.
I get the moral of the story ,but wouldn't she end up spending more on gas?
in the early 90's gas was around 80/90 cents a gallon. And she was old and took her time at each supermarket.
I hear the best stories...need explaining ;) If that doesn't work chalk it up to hyperbole.
What are sleepy industries?
something like mutual fund wholesale. You shouldnt be making 150 all in your first year.
I learned some pretty profound lessons about exactly how stupid people can be. I was a college freshman in 2007/2008 and left school right around 2011/2012, and I majored in Economics and took some grad courses in monetary theory, micro, and trade. The news was a backdrop to my learning, and every day more and more stupidity would emerge. People talking about how they put all their savings into shitty investments, company owners who mismanaged funds and expected to get away with it, not to mention the European crisis (though that's less stupidity and more structural issues). The European crisis seemed, at the time, a problem of laziness and cultural inflexibility. Lastly, my father owned a tiny retail business that he poured all his money into in 2005 after saving for 20+ years to afford it, stupidly took loans out against it to buy a luxury car (because he's an idiot) against everyone's advice, then when business dried up in 2007 he had to sell the car and the business and still was in debt up to his ass.
You learn over time that the world isn't that simple, and that the mere fact I could have "learned" people can be stupid was simply because I had the luxury of having done so (this is to say that if those same 30/40 year olds getting clobbered during the crisis were in my shoes, they'd probably think the same). But it doesn't negate the lesson: people can be unreasonably stupid in given economic prosperity and also in the face of economic uncertainty. People love to trust things they don't understand so that they can have peace of mind. In this way, it can be said that people really are simple.
It's stupid in hindsight, but you have to remember the 90's and 00's. Owning a house was printing money. Taking out a home equity loan, or a business equity loan in your dad's case, was seen as a smart way to achieve the American dream.
Of course it is hilarious in hindsight, but every adult I knew - and I'm talking successful, educated people - not only were doing it but advising others to do it. I'm sure it was incredibly difficult at the time to fight that groupthink.
Bill Clinton had the "National Homeownership Strategy"
https://blogs.wsj.com/economics/2015/06/08/they-put-a-face-on-the-90s-h…
I'd agree with you, but we didn't even get to home ownership, we were renting. This is generational stupidity, passed down from many idiots before him. I do get your point however, and groupthink is definitely difficult not only to break free from, but to even admit to being victim to. The business was definitely his idea of having "made it."
recessions are great buying opportunities I was not in a position to be a buyer at the time, unfortunately
all things in life work in cycles, politics and economics included, and the very moment people start forgetting about the previous cycle (good or bad), because it seems so far removed, detached,, and impossible - that is the moment it reappears
Don't let the crony government bail out pigs on Wall Street.
It's funny, Republicans who cheer capitalism and Democrats who cheer equality agreed for the bailout. But libertarians who believe in the free market stuck to their guns.
Be vary when someone says you can get something (of value) for nothing. A $220k house with a ninja loan sure! $15hr for no skills sure!
Velocity (the change) of what is cutting edge has picked up significantly in many industries, being a programmer that builds apps may have been great several years ago but now its outdated and you may need to re-tool your skill-set to be competitive in today's world.
SB'd I wanted to post something similar to this. I was only a freshman/sophomore in high school in 08 so I really wasn't too aware of what was happening, and my parents held gov. jobs so they worked through 2008. Kind of sucks when the economy is shit that a lot of government employees can still count on their jobs and paychecks, while everyone else is fighting for a job.
To add: Anyone that worked through '08; What were some of the tough decisions you had to make? Change careers, change locations etc?...
Anyone from Lehman on here? Mind walking us through those last weeks/days? I met a guy from compliance at Lehman a few years ago, he had incredibly vivid memories of 2008.
DickFuld IlliniProgrammer could probably chime in
pretty much everyone who worked in the private sector in my family got laid off, and everyone who was public sector was fine. interesting dichotomy. a few years back, I was clearing out my inbox, and found a note I'd written in spring 2009 to some of my fraternity brothers when the Dow was below 10k, saying I thought it was a buying opportunity. if I only had money back then...
I learned a lot about greed back then, and I often ponder how much government intervention is warranted to prevent the reckoning of greedy people. now, I'm not going to sit here and tell you that the people who profited from the bubble are saints (like MBS sales guys, rating agencies, loan officers, etc.), I'm just saying it's an interesting philosophical question.
in addition to that, obviously I learned not to get greedy, don't count on others for employment (which kinda led me to PWM), have a war chest for tough times, and live below your means. the people who got permanently fucked from the crisis are the ones who took out balloon mortgages on houses they thought they could flip in 4 years for a 50% profit, not the ones whose 30y fixed mortgage was 2x their AGI
The one thing that I remember was that up until the very end, everyone thought the firm was going to be fine. People were putting on brave faces and out enjoying cocktails and listening to the music until the Titanic hit a 30 degree angle. All the way through the middle of August, everything looked fine.
Dick Fuld even sent out a video stating that the firm's cash position and liquidity had never been stronger. That there was a short attack on the firm by a bunch of hedge funds and Goldman Sachs. Of course there were a few whispers in the firm that we were in bad shape, but the consensus was first that we were going to be fine and then (in the last week) that we'd get bought by B of A and everything would be OK.
The other part that I remember was the CNBC news truck parked outside as well as the huge crowds of people snapping photos of workers going in, walking out, etc. Some of us wanted to throw a mannakin out of a window on the 28th floor as a prank on all of the media sensationalism going on.
The fed gathered all of the banks together to sort out the Lehman situation, but by Sunday it was becoming apparent that the firm would be filing for bankruptcy. My Dad called me at 6 PM that evening and told me I needed to go into the office and collect my stuff because if Chapter 7 (liquidation) was filed, the building would be immediately locked up.
So I came in to collect my stuff. Security guards were making the rounds on every floor to make sure nobody ran out of the building with a printer. Oh and then I got paged because the system crashed (I worked in corporate bonds risk/pricing/analytics at the time) so I was there until 2 AM fixing a bunch of bugs.
Well it turned out they were filing chapter 11, so we got to come into work the next morning. It was a huge going away party until Barclays announced that they were buying the firm's "intellectual capital". We still had jobs! Bob Diamond flew out to NYC the next day and announced from the 3rd floor that it was back to business as usual and "get back to work". The equities traders played "God Save the Queen" over the hoot.
More on the Barclays merger, later. But September 15th 2008 was a very sad day for finance.
It was not fun. The firm held a certain amount of your total pay in RSUs (up to 50%) which you could not sell for 5 years. So, in addition to your normal investments declining in value, you lost a year or two of pay when Lehman went bankrupt. Fortunately for me, I had sold every penny I could of LEH when the stock vested, but not all of my colleagues did. Additionally, some people had LEH in their 401k as well. That is something you should never do, as far as I'm concerned.
Other than that, it didn't really have a big impact on me.
every employee should abide by this, yet I still see it over and over again.
even some of my PWM colleagues have 100% of their 401k in their company stock. morons
Debt explosion is fun, with a shitty hangover. My dad was getting into investing in turn around rental projects. He ended up getting wiped out and took a job afterwards.
I learned that I should learn about finance and management on paper before I put my eggs into any basket. I'm currently into the process of getting an LLC going in the next few years, but I'm starting it on paper first and this is largely influenced by what I saw from him and others.
Personally? It taught me to be a minimalist. I was so worried that I'd lose my job that I cut my expenses to the bone-to the point that people who visited my apartment would always ask if I'd just moved in. Today, I only own a car, a bed, my clothes, a flatscreen, a laptop, and a Kindle. I also avoid long term commitments of any kind, and aggressively paid down all my debt and built up my savings while living like a pauper. It also taught me to appreciate the hell out of a job I hated that most people at the time would have killed to get. I don't take stuff like that for granted anymore. I'm in ops/portfolio mgmt at a PE megafund now and do not mind the brutal hours one bit!
Probably the saddest thing I saw during the initial months was the bevy of suddenly unemployed 50 years old execs and middle managers with mortgages and kids in college scavenging for any work they could find. I interviewed a few of them and it was brutal to see these overqualified people selling themselves to a 20 something year old. That's the fate I most want to avoid.
When I'm 50 and deemed too expensive, I'll have enough to happily take the buyout and go fuck off to Ecuador.
This happened to my dad, he was a construction aggregates mining exec, lost his job in '08 and had a difficult time finding work because he was in his late 40s and way overqualified for anything out there. It was wild
I had a similar reaction to what TheGind posted here, and personally find it to be the best advise as well as best thing I read pertaining to the financial crisis from the inside.
It happened to me when I was 25, and what I saw hardworking, great grown men guys with true obligations/responsibilities ... to have it all shattered and their life F*d by golden parachute CEOs.
I can't imagine. There was at least one direct suicide in our region.
I would prefer to keep my needs low and save, invest, hope for the best ... the rest of life is all cherries on top to me. Too many people work too hard and put too much on their plate in terms of providing for others. I say, keep life simple.
If you have a good job that you like, that is the most important thing in life. Respect the heck out of it. I do thanks to end of the great MER, and my professional walk through the valley of death.
(By the way I am Wall Street obsessed since the age of 16, I read all the books and love the life...what I write is real and not melodramatic)
A couple of things stood out that are now obvious (no particular order):
1.) Every business is cyclical and its often difficult to know how long a cycle has before the inevitable downfall. Given this its ALWAYS important to remain prudent and shore up loose ends. The smallest leak could sink a mighty ship and I can only imagine the snowball that was forming but was ignored because the $$$$$ was too good to pass up.
Within the O&G industry the amount of waste that occurred (and still does) is incredible and I secretly am happy we're going through a rough patch because its woken people up to the harsh mistress known as reality. We used to blow money on the dumbest things (i.e. Cell phones for every employee -- intern, contractor, full time, etc.). When the downturn hit and management begin to look at the costs they were stunned at how much Verizon and AT&T were making off of us.
2.) "Never bet against America" or something to that effect is the advice given to JP Morgan by his father. I still remember the backlash that Warren Buffett received for his Op Ed article on buying American. Looking back I'm sure a lot of people wished they would've bought into Goldman Sachs, Ford, and other blue chip stocks and held for a few years (granted hindsight is 20/20).
3.) When an XYZ market becomes crowded and it looks like the gravy train has no end in sight - RUN! I imagine crypto currencies will face a similar reality one day.
4.) This was never in doubt but the fact that no matter how hard a punch we as a nation take, we ALWAYS bounce back in one way, shape, or form. Go Long America...Always!
Patience.
I was in high school at the time and had around $30,000 invested in the market that I had saved through gifts, part time jobs, etc. There was one day where I lost $5,000. I was obviously lucky that I did not need the money and could afford to wait 40+ more years before I retired, but my father who works as a financial adviser saw so many clients pull their money out when the market bottomed.
Wtf how could you have that much money?! I just graduated HS with $11k, any tips on how I should invest?
I have about 40-50k and I just graduated, if you save all your money and work 3 years 4 days a week after school, it's not too hard.
Biggest lesson:
Drive a rusty honda, drink PBR, live in Jersey City, and do everything you can to lengthen your financial runway. Because you never know when you might need it.
To not spend all my change on juicy pops and dirty hoes. I was 8 or 9 at the time....
All jokes aside, the financial crisis was one of the things that initially sparked my interest in finance several years after the crisis. I wanted to know what happened, how it happened, and who was involved.
Yeah, I was in my 20s and while I saw a few friends on the wrong side, my one friend was working at Harbinger Capital as a pretty recent UVA grad and they shorted ABX and he made 7 figures (his boss Phil Falcone made over a billion).
The whole industry went from interesting to even more interesting to me.
What a crazy year.
My dad was with Lehman, we living overseas 06-08 when I was in 3rd & 4th grade, got moved back to NY in August. We rented out our house upstate while we were gone, which was a mistake. We came back to find out the people were just renting to use the basement as a grow-house for weed which was obvious the first time my parents went in. This ruined the house, and it would've been better for them to keep renting it to them and not ask questions.
Know when you are not in the need-to-know and be okay with it.
Bonuses may not be paid in a crisis (mine was postponed, then cut in half). Nobody expected the magnitude of the crisis. People think anything related to muni's is safe. There's big money to be made as soon as the writedowns occur. Almost nobody has good workout/bankruptcy experience.
My biggest takeaway: when you have people that are dumber than rocks telling you they are making boatloads of "risk-free" cash, you're probably in a bubble.
I learned a bunch from the two crashes I've lived through professionally. Here are a few market related lessons I've learned:
I graduated into the tech bust, which taught me that even with a good resume coming out of undergrad sometimes luck is against you.
After a few months of grinding/living on a buddy's couch I was able to land a temp role at a top BB in back office (literally filing paper trade tickets into physical filing cabinets). I worked hard and took every volunteer project that I could. They were paying me a ton of overtime because of all of the extra projects I was taking, and I became the fastest temp to full-time conversion in the banks's history, at least that's what they told me. From there I continued to work hard and get more responsibility and ended up in a FO role. Take any opportunity to get your foot in the door, and do what it takes to impress people.
No job is guaranteed. While I was moving up as a temp, I saw a lot of offices of respected people getting emptied out.
After a couple of years the market improved (no cycle lasts forever), and I lateraled to IB at another bank. I started back over as a first year to get the experience that I wanted. It felt a bit like going in reverse, but you have to be humble enough to step backwards if it will help you in the long run, which it did.
Because of my experience graduating into a tanking market I saved every bonus I ever got and only lived off of my salary. This was hard to do as I had a tighter budget than most of my friends, but I figured out ways to save around the edges (like on rent by having a ton of roommates, clothing, eating at less expensive restaurants) without impacting my quality of life/holding me back from hanging out with my friends. The nest egg I built over a decade of saving bonuses allowed me to eventually pursue #8.
I took a risk after finishing 3 years as a BB IB analyst and decided to stay in banking so I could move to Denver, which is where I wanted to live. My friends reamed me about ruining my career by going to a small opportunity in a small market. Most of them were looking for jobs ~1 year later while I was relatively safe during the 08/09 crash.
Even bad markets create opportunities. In 2009 most banks ground to a halt. We realized that VCs (I was a tech banker at that time, hence my user name) were only going to continue funding about 1/3 of their portfolios, another 1/3 they were going to allow to ride and fail/succeed but not further support and another 1/3 they figured they would wind down. My bank started pitching VCs we knew to bring us in as consultants to do a portfolio review and then for companies in the second two categories we'd try to sell them for whatever we could get with no retainer and a high minimum success fee. This worked fantastically, and we closed a bunch of relatively small, high fee deals in a short period of time. We didn't lay anyone off and actually got paid pretty well through the trough of the market. Get creative based on whatever market dynamics you are dealing with.
Five years ago I left IB to found my current company in healthcare technology. Main lesson there is despite things going well, starting a company, particularly in healthcare, is really freaking hard.
Tech Banking, way to go! congratulations for going into founding, which I recall from our previous conversations.
I can only agree to the general comment from those ("fortunate enough") to have lived through one or more crises. A few personal opinions and part of my story. After post-grad in 2003, in the middle of the hang-over after dot-com, Enron & et al. the job market for entry levels (my case) was tight. Started with a big 4 before graduating (living abroad and needed funding quickly!), while managing to get interviews at a few BB/IBs, but did not get the offers after lasts rounds. Tough luck, I guess partly due to only a few open positions at that time.
First conclusions: 1) Keep looking, but be realistic about the situations and conditions 2) Be thankful for the job you have, work at the maximum, learn, network and prepare for the next window of opportunity 3) Save money, don't over spend, as you may need to muddle through longer than expected
Later joined a large FI (Corp. Dev. M&A) in the middle of the 2007-2008 crisis. The bank was well capitalised and being a global player with a significant IB franchise, we had a lot of work looking into all possible banks/AM running into difficulties, either to buy them, bail them out or pick-up assets. A lot of intense work, very close to BoD/CEO/CFO, as decisions (catching falling knives) were to be made in days, if not hours. Saw many friends, analysts, associates, but also VPs and MDs fired overnight and experienced the eeriest feeling: Huge trading floors, formerly buzzing and pulsing with energy, empty... silent! still with all the equipment and even personal items (the flags, the papers, the stress balls), but completely empty (except for a few desks) ... wow, that hurt! still does!
Being privy to conversations/analyses internally (CFO, Treasurer, head risk, but also all IB heads), I had quite a first-hand glimpse into the big trouble the industry was in, the damage to the economy, but specially the devastating impact a potential melt-down would bring... just imagine, all interbank transactions halted/simultaneous resolution of many distressed system-relevant banks... there were scenarios where banks needed to be shut down over night, leaving people without access to cash or even their safe-boxes. Went long on physical gold (good bet) and stashed some cash and food/water at home (which eventually landed in the trash).
Further conclusions: 1) It can always get worse, no harm in preparing ahead. Most of the time it won't be as bad as it looks like, but that 0.001% probability looks ugly. 2) save money, don't over-spent. You never know who’s next 3) Be open to yourself and your career, you may need inner flexibility to swim and accommodate 4) Network in both ways.. you may need some help, so why don’t you start by helping others 5) The most valuable things in life are your time, your peace of mind, your family and your health (not necessarily in that order). Take good care of them. 6) Yes, a crisis is a time of opportunities, but it is also a question of right timing. Thinking we were through the worst after Bear, I bought a bank index (since I did not have the time to follow individual positions)… needless to say that the 3Q08 wiped out a big chunk of its value!
I guess we all agree that crises make you more resilient, a bit more risk adverse (careful?), less complacent, but indeed a more conscious person/professional. Perhaps, human beings and society as a whole, drive into crises (as normal cycles) and hopefully learns something… until the next crisis hit us again, with our shorts just over our knees.
TL/DR: save money, help people, take care of yourself (health, family, etc.)
No mater how awesome the job market is, things can change in just months. Before the crash, I could find 1000-1200 jobs for my profession. One year after, that number had shrunk to around 50. Changes in the job market can take a 180 degree turn in months.
Always, always do worst-case estimates for your mortgage. If you can't afford a 5-10 point hike in the interest rates for a couple of years, you can't afford the house.
Use the level of indebtedness as a measure for where things are going. It all needs to be paid back.
Have capital stashed away for the crash. Some people get rich when others go bust.
Following 1) Be ready to re-locate. Don't get overly attached to one place...I learned that lots of people found it extremely hard to re-locate, even for a couple of years. It's better to live somewhere else for a couple of years, than to have a huge gape in your resume, simply because you refused to move.
I learned that one way you can keep yourself safe in a crisis is to acquire knowledge/expertise of an area that was important enough [to your firm] and most people didn't know much about
Yeah- In March of 2009, I was finishing up undergrad. I didn't have any money to my name, but I had a tuition payment due on a Friday and the money was in my account CoB the Friday before. Put it all down long AIG at like $.35/share. It was an odd lot size but I actually saw it tick across CNBC (that was almost better than the profits).
My dad has been handling Class Action/Complex/MDL Litigation for Insurance Co.s most of his life, so I knew the Property & Casualty Insurers better than I knew investment theory and basically rationalized the trade that the stock was so low the book value of the P&C business alone was worth more even if the lending went Lehman. Had to sell it four days later (again, I had no money, and my parents were unwilling to lend me the tuition payment to keep the trade on) Think it was around $2.88/share then. I encouraged them to put 100K on it when the stock hit $1.50, no dice. Whenever my parents piss me off I like to remind them that if they had actually listened to me, we could have all been Millionaires and I would have had grad school and a house covered by '13.
I did successfully convince my mother to buy shares of Ford at like $2.11 or something (don't remember her exact entry) and got her into BofA and GM, but she didn't want to keep holding it all and sold most of it off in '10/'11 at like the worst exit points for small profits. The only real profit I remember her making was when she sold Ford at ~$14.
I got into Ford around $2 as well. I got into Citi as well at that time. The Ford trade alone paid for my wife's engagement ring, which wasn't cheap.
I was finishing up high school around that time, had similar thoughts...wanted to go long Ford, AIG and at least one of the banks. Unfortunately all my mind was in a jointly-held account with my parents, and they didn't think this was a good idea no matter how many ways I tried to explain it to them. To this day...still think about that. Could have paid for a lot of things, and had some money in the bank to boot.
I was out of banking and trading my own book. I was short the market in 2007 and ended up making no money (a combinations of the characteristics of option and Fed "free market" intervention. Some positions I kept on as markers showed 600, 800% profit). Lesson? U tell me
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