10 Jan 2016

Remembering 2008

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2008Crash

Bob Henderson lost more money in 2008 than I did, and he seems to have learned a few things about the limits of the calculative powers of human reason. A model is only a model.

I’d lost almost $200 million in October. November wasn’t looking any better.

It was 2008, after the Lehman Brothers bankruptcy. Markets were in turmoil. Banks were failing left and right. I worked at a major investment bank, and while I didn’t think the disastrous deal I’d done would cause its collapse, my losses were quickly decimating its commodities profits for the year, along with the potential pay of my more profitable colleagues. I thought my career could be over. I’d already started to feel those other traders and salespeople keeping their distance, as if I’d contracted a disease.

I landed in London on the morning of November 4, having flown overnight from New York. I was a derivatives trader, but also the supervisor of the bank’s oil options trading team, about a dozen guys split between Singapore, London, and New York. Until this point I’d managed the deal almost entirely on my own, making the decisions that led to where I … we … were now. But after a black cab ride from Heathrow to our Canary Wharf office, I got the guys off the trading floor and into a windowless conference room and confessed: I’d tried everything, but the deal was still hemorrhaging cash. Even worse, it was sprouting new and thorny risks outside my area of expertise. In any case, the world was changing so quickly that my area of expertise was fast becoming obsolete. I pleaded for everyone to pitch in. I said I was open to any ideas.

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One Feedback on "Remembering 2008"

GoneWithTheWind

The problem is that investors, bankers and traders are tasked to make money. When things are going well everyone is making money so the task then becomes making more money than the rest of the investors. This means more risk, leveraged investments and contracts that extract a pound of flesh when the SHTF. When everything goes South investments that seemed to make sense in the glory days take on a different smell. But as sure as the sun rises every morning I know when the bulls are running the money men will demand more and risks be damned.

When the news is all bad and things seem hopeless that is the time to buy. When everyone is buying and all the news is good, sell.



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