“The Big Short”, eReaders and Notable Quotes

July 31, 2010

So after almost two years with absolutely no time to read a book, I finally chose to opt-in to the Kindle App for my 3GS iPhone.  I was trying to avoid the whole eBook thing being part Luddite and all.  Nonetheless, I am now a total convert, and see absolutely no reason why I would ever need to buy an eReader.  The small screen and large type on an iPhone is perfect for someone like me.  With massive adult onset ADHD, having to only reread one or two sentences to catch my place beats the hell out of rereading the same page over and over again after my mind wanders or eyes stray.

I got through what I assume in print version is a short book in just under one week, working approximately 70 hours in my “day” job, and having time enough to spare with my wife and son.  My first eBook experience was Michael Lewis’ The Big Short: Inside the Doomsday Machine, one of the many financial crisis related books on my list but not on a shelf.  Michael is of course a brilliant writer, and my iPhone and the Kindle app made me a brilliant reader, highlights, bookmarks and all.

I particularly like the ability to highlight a book and then to see a summary of your highlights.  I also love the fact that it always knows where you left off whether on the phone or on my laptop.  I am notorious for losing my place in a paper book.

If not having time to read was the old problem, the new problem is what to do with the stack of books I amassed in anticipation of one day (year) having the time to read them all.  Now they are destined to sit in book purgatory for a very long time.  In fact I’d imagine that if those poor books could communicate, they’d probably be hugging my ankles begging me to stay off my iPhone and pick them up.

This brings me to my newest quandary.  Does one need to commit to only buying books he doesn’t physically own in digital form, or are we at the point where its ok to buy the digital copy even though I haven’t cracked the physical form?

I suppose all those people who bought/kept books to fill shelves in order to look smart have a legitimate excuse when their smarter friends are over for dinner and notice that most of the dusty books have not be as much as creased in the spine.  Those who need it have an easy and defendable position that they read it digitally.

Does this mean that books will become souvenirs, or at least some new type of home decor or ornament?  We may eventually want physical mementos of the knowledge we’ve digested either to remind ourselves of all we’ve learned or to illustrate to others our knowledge, interests and tastes.  Thus books may transform from being containers of actual knowledge to mementos of knowledge consumed?  In that case, we’ll no longer need the pages?

Anyway, enough of the commercial. Having worked at Lehman Brothers for two years out of a well-regarded MBA program, albeit as a bona fide “rookie”, I felt it worthwhile to list those passages that I either felt Michael stole from me, or more likely that resonated deeply with my own experience, perspective and insight.

I’ll do it, but only after you explain to me how you are going to fuck me” [My success has hinged on the fact that I always told and still do tell clients how a firm is trying to fuck them]

Senior management’s job is to pay people,’ he’d say, ‘If they fuck a hundred guys out of a hundred grand each, that’s ten million more for them.  They have four categories: happy, satisfied, dissatisfied, disgusted.  If they hit happy, they’ve screwed up: They never want you happy.  On the other hand, they don’t want you so disgusted you quit.  The sweet spot is somewhere between dissatisfied and disgusted‘”  [This could not be more true and manifested itself in my short tenure at Lehman when I asked my direct boss why in a year of record Wall Street bonuses (2007) my bonus was going to be 30% of what was promised to me.  His answer was, really: “cash isn’t for rookies”]

The market was paying Goldman Sachs bond traders to make the market less efficient.” [This idea struck me as I was watching the original House Inquiry into the Abacus CDO with Fabrice Tour and his supervisors from Goldman Sachs.  In their testimony, they defended their positions as market makers.  At one point one of them made a dogmatic point that market makers serve a higher social purpose in allowing society to thrive with liquid markets.  I was yelling at the TV like folks do at the Friday night midnight showing of Rocky Horror Picture Show.   A market where only one firm is providing price discovery is by definition inefficient.]

His house was worth a million dollars and maybe more yet would rent for no more than $2,500 a month.  ‘It was trading more than thirty times gross rental,’ said Ben.  ‘The rule of thumb is that you buy at ten and sell at twenty.‘” [This is good advice, and still few people probably know it.]

Eisman had a curious way of listening; he didn’t so much listen to what you were saying as subcontracted to some remote region of his brain the task of deciding whether whatever you said was worth listening to, while his mind went off to play on its own.  As a result, he never actually hears what you said to him the first time you said it.  If his mental subcontractor detected a level of interest in what you had just said, it radioed a signal to the mother ship, which then wheeled around with the most intense focus. ‘Say that again,’ he’d say.” [This sadly and quite brilliantly describes me and most of the people I still work with]

“‘Everyone who was trying to sell something was wearing a tie,’ said Ben.  ‘Everyone who was there to buy wasn’t….‘” [True]

What are the odds that people will make smart decisions about money if they don’t need to make smart decisions–if they can get rich making dumb decisions?” [Excellent question, and something I don’t think has been addressed by financial reform, I touched on this in an old post from September 20, 2008 in: Corporate Governance: Redefining Independence.

All that was clear was that the profits to be had from smart people making complicated bets overwhelmed anything that could be had from servicing customers, or allocating capital to productive enterprise.  The customers became, oddly, beside the point” [This is also very sadly and very importantly true.  Price transparency is the enemy of Wall Street.  Market makers provide little if any value in markets where price discovery is ubiquitous.  Market makers depend upon opacity to make a living.  I touched on this point in another old post about a year and a half ago: Today’s Regress is Tomorrow’s Progres.  If none of that makes sense consider how much price competition there is for trading stocks today.  Individual investors can now trade shares for pennies.  There is no profit at those levels for brokers or their firms.]

In the late 1980s an early 1990s Salomon Brothers had entire years–great years!–in which five proprietary traders, the intellectual forefathers of Howie Hubler, generated more than the firm’s annual profits.  Which is to say that the firm’s ten thousand or so other employees, as a group, lost money.” [Wow!]

The people in a position to resolve the financial crisis were, of course, the very same people who had failed to foresee it” [This passage reminds me of something an old colleague and friend so eloquently said just after Lehman’s failure, “Is it reasonable to expect that the same fools who got us into this mess would be at all qualified to get us out?”  I noted this in Unreasonable Expectations]

The problem wasn’t that Lehman Brothers had been allowed to fail.  The problem was that Lehman Brothers had been allowed to succeed.”  [Hindsight being 20/20, brilliantly stated]

This was yet another consequence of turning Wall Street partnerships into public corporations: It turned them into objects of speculation.  It was no longer the social and economic relevance of a bank that rendered it too big to fail, but the number of side bets that had been made upon it.” [Two nice points. 1. No Wall Street firm, barring Goldman can even claim to have a partnership culture anymore after so many forced marriages and divorces through thee decades of consolidation. That said, Goldman’s long history as a public company has mostly diluted the original partnership culture, although one could argue that it is the strongest of the remaining large market making financial institutions. 2. Leverage ratios, segregation of client assets, FDIC and SIPC insurance and all of the traditional risk management/mitigation tools are effectively useless when the size of the counter party risk in the system totally and complete dwarfs the size of the entire system.]

‘When I hear ‘Chinese wall,’ I think, You’re a fucking liar’” [I suppose one could totally agree with that statement. I assert that when I hear the C-word, its more like speaking about Cancer in some families.  There are things that are understood, but are simply never discussed publicly.]