Читать книгу Conversations With Wall Street - Peter Ressler - Страница 6

“The industry forgot its purpose.”

- Goldman Sachs Structured Bond Trader

On September 15^th, 2008 at 11:31 a.m., I received an email from the president of my biggest hedge fund client—a firm that managed over $40 billion worth of assets. The subject line read: “Want to interview all Lehman RMBS team and CMBS team ASAP.” In a follow-up phone call, he told me that for the next few weeks, he and his colleagues would stay in the office as late as possible to meet them all. RMBS means residential mortgage-backed securities (bonds), and CMBS means commercial mortgage-backed securities. These were two of Lehman Brothers’ most profitable businesses, and the firm, the fourth largest investment bank in the world, had declared bankruptcy only hours earlier. Those who had worked in these divisions were the superstars of the industry. Most of their competitors coveted their commercial talent, meaning the ability to make money. They were considered untouchable prior to September 15^th, 2008; now, they were unemployed and available. “Shocked, devastated, outraged, terrified, confused, and numb” were the adjectives they used as they sat in my office after that fateful day.

In my wildest imagination after thirty years in the business, I never expected to be in the center of the largest and most devastating financial crisis since the Great Depression. For the first time in my career, no one knew what would happen next. The smartest guys in the business, the ones who understood risk, the guys who could figure out how the markets would behave and how to capitalize on these predictions, were completely baffled. The lives they had built for themselves and their families were now threatened. In some ways, it was like facing death. We go through life taking things for granted until we lose them without warning. Fear has a way of forcing the truth to the surface. It creates a desire to honestly evaluate our actions for the first time in our lives.

After Lehman Brothers filed for Chapter 11 and the markets ceased to function, one of the first people I met was a mortgage trader who had just lost everything. “Jeff” had worked at Lehman his whole career; most of his money was tied up in Lehman stock. Both of us witnessed the gradual erosion of the subprime mortgage market beginning in July 2007, which culminated in the economic devastation of millions of lives on and off Wall Street. We were both in shock. “Can you believe this?” I asked him. He shook his head: “I really can’t. I can’t believe this happened.” It was clear the collapse of this 158-year-old institution, which had sustained his family in an opulent lifestyle for nearly twenty years, had taken him by complete surprise. We sat in silence for a few moments, not sure of what to say. I thought about how this man had lost his job, career, money and life he had built and cultivated for decades in a matter of days. His distress was palpable.

The crash was blamed on subprime mortgage securities, loans made to borrowers with less than stellar credit histories. Today, the word “subprime” is synonymous with evil. I wanted to learn how these securities could wreak such havoc on this large scale. I had spent my whole career recruiting talent for the mortgage business. I knew the original founders of the securitization market. I could not figure out how the safeguards on the market—underwriting standards, loan-to-value ratios, solid modeling formulas, and large down payments—had been removed. As a trader on Lehman’s residential mortgage securities desk, Jeff was there through it all. He must have a view on how this debacle occurred.

“How do you give a loan to someone who has no shot at paying it back and not expect the bonds to default?” I asked. “It does not make any sense,” I said. Jeff replied, “One of the reasons subprime bonds were created was to give potential homeowners with troubled credit history a second chance at owning a home.” He explained the product was geared to borrowers who had experienced temporary hardships like health issues, job loss or other circumstances out of their control, yet had the ability to overcome these obstacles. Rather than completely shut them out of the home buyer’s market, these loans were structured so those with secure incomes could still buy a home: “The analytics and models that the Street developed could accurately determine the probability of default and therefore manage the risk in a prudent and measurable way. There was, in the early days of subprime, specific criteria for who could qualify. These bonds were riskier than securities backed by prime mortgage loans, so the returns were higher. That made them attractive for investors who thought they understood the risks involved. Over time demand for these investments grew substantially. In the beginning they were extremely profitable for Wall Street. Contrary to what we read in the newspapers, the early vintages of subprime bonds did have a lot of value.”

His description of the subprime market reminded me of a conversation I had with “Dean,” a structured products banker from Goldman Sachs. He said that before the meltdown, he felt “proud to be in a field that allowed capital to flow from where it was abundant to where it was scarce.” He worked long hours and loved his job. He understood his job provided a valuable service to clients and those impacted by his clients’ success. Yet the events of the two years leading up to the market crash had deeply disturbed him: “The industry forgot its purpose.” Dean was remarkably philosophical about an industry full of people whose sole purpose was to make money. Many people in finance have a sense of pride in what they do and know their jobs are important to well-functioning markets; however, Dean’s sense of nobility in finance was unique and inspiring. It was a belief that I shared. However, I did not always feel that way. The belief that there was a deeper purpose to my work was a gradual process that evolved over time and through life-changing events. I thought back to my early years in the business. The truth was I had never given a thought to “the purpose of the industry” in those days. My purpose was to make a good living for myself and my family. It began and ended there. How can I make money today? How can I make more money today? Those were the most probing questions I had asked in my first years in the industry. For me, Wall Street offered a happy escape from a challenging youth in my native Flatbush.