Things Aren't Always What They Seem

Take a look at this picture. It was reportedly drawn by a Maryland child for a school assignment.



Probably fake, but amusing anyway. Read the short article here.

Sad State of Affairs

Do you want to know how bad things are on Wall Street? Okay, that's rhetorical because I know most people really don't care and the rest are enjoying the schadenfreude. I'm going to answer the question anyway.

Here is how bad things are on Wall Street:





That is the basket of bananas put out this morning on my floor.

Seriously people, I know my firm has lost more than one hundred and thirty billion dollars of market capitalization and has thus far avoided going down the bowl along with some of our peers only by clinging to whatever dubious refuse floats past us, but COME ON. When fruit like that is the best we can offer in these troubled times the terrorists have won.

Yet Another Reason to Fly First Class

Cheapskates #2

Years ago, my firm underwrote the initial public offering of a regional airline. As usual, the company’s senior management team came to our offices to present their story and answer questions. (These presentations are theorectically meant to educate the sales force so they can help asset managers decide whether to purchase shares. The reality is that it’s good for management egos and gives the bankers one last chance to correct errors before taking the company on the road.) I was in sales at the time and drew the short straw on my team, landing me at the conference room table with a few dozen other people facing an hour of boredom.

Each attendee received a sleeve of golf balls, a golf towel, and a fairly nice hat courtesy of the airline whose shares we were preparing to sell. It was a thoughtful gesture and immediately raised the attendees' interest. In the middle of the conference room table was all the extra stuff -- probably a couple dozen sleeves of balls, a small stack of towels and ten or so hats. The pain of the presentation was dulled slightly by the giveaways, but I would have counted the hour a waste if not for what happened as the CEO concluded his remarks.

One of the bank's top salesmen was sitting opposite me at the table. Not that it matters for real life, but important to the story, is the fact that he made at least a million and a half dollars annually. That number is probably low (it was a very different time). Suffice it to say that his financial worries were more about bringing a large enough bag on bonus day to haul his winnings home than about whether he could make the car payment on his Dodge Viper.* This fellow golfed a great deal and, based on how much he talked about it, seemed to enjoy the sport. He looked pretty pleased to have scored $50 worth of free golf stuff.

As the CEO thanked everyone for attending, signalling the end of the meeting, this salesman literally climbed up on the table and swept all the remaining sleeves of golf balls into his arms. The management team was still in the room. Most people hadn't even pushed back their chairs from the table yet. He was so focused on scooping up a few hundred dollars in golf balls that he didn't notice the questioning looks from every eye in the room. It may be my imagination that he chortled gleefully while shuffling, Igor-like, out of the room craddling his treasure.

Somehow, my firm was not selected for the airline's three subsequent securities transactions...

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* I have no idea what he drove, but I like the image of a short Wall Street guy exercising his Napoleon complex behind the wheel of a needlessly expensive de classe vehicle.

It's Too Late for Me, Save Yourselves

I first consciously felt like a New Yorker when my reaction to a clump of innocent tourists loitering on a Manhattan sidewalk was a barely suppressed exclamation of, "Move it you needlessly plodding herd. Yes the buildings are tall. Yes the cabbies really do drive like that. Yes there are lots of people here AND YOUR PHOTO OPPORTUNITY IS IMPEDING ALL OF US. NOW MOVE!" Charity has never been among my stronger traits. I'm working on it.

Slightly less salvation impeding was my latest New Yorker moment, which occurred Friday evening on my way to the train. This was served up as the first song on my randomized music list. (Incidentally, that was followed by Depeche Mode's Enjoy the Silence, Cowboy Junkies' Dreaming My Dreams with You, Sting's Fortress Around Your Heart, and U2's Running to Stand Still. It was like an excerpt from the soundtrack to the yet-to-be-produced 1980s retrospective film, Daniel's Melancholy Stroll to Grand Central.). I don't recall when I first heard Pretty Fly for a Rabbi, but I'm certain that only the most obvious Jewish cultural references made sense to my western-US Mormon mind. I just enjoyed the song, in part because my favorite uncle could easily pass for Weird Al. This time, I realized halfway through that I understood all the common Yiddish. Somehow, working in Salt Lake City never led to such important cultural epiphanies.

Is there any chance I'd be able to enjoy living in the mountain west again if that became necessary?

Neither Delicious Nor Animal; Important Nonetheless

This New York Times op-ed piece has generated considerable interest in the financial and government communities since it appeared over the weekend. Michael Lewis and David Einhorn* collaborated to write it, so it's in a style (snark and pith) that won't suit everyone. Take a few minutes to read it -- the implications of Lewis and Einhorn laying bare systematic flaws will significantly impact how global finance is reshaped. It's a lengthy but quick read. Be sure you click the link to continue reading when you reach the bottom of page four; the piece was published as two separate articles for some reason.

Issues raised in the article are not new -- Einhorn publicly disclosed many of the credit rating agency problems in 2002 and has testified before Congress about difficulties of excess leverage at investment banks -- though I'd suggest they are unknown by the general public and only vaguely understood by many finance people. Mainstream press outlets will further explore these issues in the months ahead. You might as well be ahead of the curve.

One great quote:

SAY what you will about our government’s approach to the financial crisis, you cannot accuse it of wasting its energy being consistent or trying to win over the masses. In the past year there have been at least seven different bailouts, and six different strategies. And none of them seem to have pleased anyone except a handful of financiers.

And here’s the most incredible thing of all: 18 months into the most spectacular man-made financial calamity in modern experience, nothing has been done to change that, or any of the other bad incentives that led us here in the first place.

Sadly, the fact that politicians and the American public are just beginning to become aware of these issues means we're not probably close to the end of current pain. I'm hoping for public equity markets and the US economy to bottom this calendar year, but certainly not holding my breath for either.
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* Full disclosure: I like David Einhorn. My team used to cover Greenlight and each time I met with Einhorn I found him intelligent, inquisitive, and darkly humorous. His view is sound, but the fact that I agree with his conclusions and like him as an individual probably means I give the article greater importance than many people would.

Cheapskates

One of the amusing characters observable in a New York commute is the newspaper scavenger. This is not a garbage-digging homeless person (usually), but someone who picks up the discarded periodicals left behind by previous mass transit passengers. Almost every morning I see a small handful of people from my train walking through the aisles picking up bits of New York Times, Financial Times, and Wall Street Journals left by others.

I understand frugality, but it strikes me as unwise to pick up half a New York Post from the disease infested floor of a train in order to save fifty cents. People who commute from Connecticut or Westchester County are paying a few hundred dollars per month just for a train pass; you’d think that a couple quarters to procure phlegm-free reading material wouldn’t be too financially disruptive. I can’t help but chuckle when the guy with four hundred dollar shoes looks carefully in each row of seats for that missing page from the Journal’s C section.

This morning I observed a new low in newspaper scavenging. Trains were on a holiday schedule and I went in a little later than usual. There were a few familiar faces (hello coffee breath guy; good morning loud French-speaking cell phone talker) but I didn’t recognize most of the people. I was slower to leave the train than usual, waiting for the crowds to thin a little before pushing into the stairwell with Emma who joined me for the day. While we waited, one of the commuters I didn’t recognize made his way through the train in the familiar hunting pattern of a newspaper scavenger. Apparently unsatisfied with his findings, he went to newspaper recycling bin on the train platform. These are large metal mesh containers designed to prevent removal of their contents, but people often leave papers on the top in much the same way that charitable old women put out a bowl of seeds for chipmunks. My new friend did not find what he wanted there either.

This scavenger was middle-aged, dressed casually as befitted the nature of professional work on the first day of a new year, and nothing about him gave the appearance of frequent dumpster diving. However, he must have been desperate for a specific bit of reading material as he tentatively poked at the top layer of refuse in the garbage can next to the recycling bin. Although the platform was mostly clear and Emma was getting antsy to leave, I couldn’t move until I learned what he was after. Maybe I should be reading the same thing if it held such interest for him.

I was more than a little surprised when he pulled a crumpled paper from the trash and walked off triumphant. What treasure compelled this man to search a Metro North train, peer into a recycling container, and finally dig through trash? The Metro*.

Observing this reminded me of an even greater experience with foolish cheapskatedness. I’ll share that story soon.

* If you don’t live in an urban area, The Metro is given away free all over cities. You can’t walk five blocks – especially near transit centers – without being accosted by several people trying to hand you one.