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Occupying Wall Street

It’s Monday, July 10, 2006, and I’m wearing a dark suit and pantyhose, standing in a sea of dark suits, all nervous and fidgety.  It’s the first time I’ve worn something from the Misses section at TJ Maxx, and it feels like a personal milestone.  Goodbye, Juniors, with your bedazzled t-shirts and l.e.i. jeans with patches on them: I’m a suit n’ pantyhose woman now.  And why wouldn’t I be, here, in midtown Manhattan, standing in the marbled lobby of a $40 billion company on the first day of my summer internship, the first job to pay me more than minimum wage, the first place where I’ve spent a whopping $89 on a suit jacket to still look like a street urchin in a Brooks Brothers catalog.  I’ve made it, Ma, I’ve made it!

As our group of eighty-or-so interns is herded into the auditorium for orientation, we pass through sleek elevator banks hidden by translucent glass panels, the ultimate markers of lobby opulence.  I never thought I’d end up in this kind of fancy place; in fact, my almost-Marxist teenage self would’ve totally pooh-poohed it: “Ugh, so corporate.  Gross.”  But now, sitting in a plush leather chair, facing a gourmet spread, I’m thoroughly ready to drink the hoity corporate Kool-Aid: drink it, guzzle it, pour it into an IV bag and take it intravenously, whatever.  All I know is that I have just one goal now: do well this summer and get a full-time offer, ‘cause this is where I want to be.  Maybe, just maybe, I could work here for the rest of my life.

“Hello, summer analysts,” the HR rep says. “Welcome to Lehman Brothers.”

HILARITY ENSUES

My mom always says that you don’t know what you like until you try it.  This is her rationale for why “trying out” Wall Street would be a good idea (although this doesn’t seem to extend to drugs, skydiving, or black guys).  In truth, I’m totally up for it.  All my friends are working in banks, so Wall Street sort of becomes our white-collar pregnancy pact.  We get the chance to live in New York, make money, and piss it away like spoiled-rotten socialites–what could be better?  Plus, there’s a certain prestige that comes with working on the Street: If you manage to land an internship at one of the big investment banks, you earn 50 douche points for Gryffindor, and everyone at Harvard wants to be Head Douche.

So that’s how I end up at Lehman: eager, young, impressionable, and in search of shits and giggles.

After our week-long orientation, I’m placed in the Equity Research group, reporting to a man who is the spitting image of Mr. Bean (perhaps with less charm).  His second-in-command, and the guy who is in charge of dealing with me, is a big, rotund, former offensive lineman who I call Diabetes, but not to his face.  While they’re nice, well-mannered, aromatic men, I get the feeling that despite my best efforts, giggles will be hard to come by.

Once I start the job, Mr. Bean and Diabetes have this crazy notion that I’m actually interested in what they do.  So they regale me with stories about free cash flows and outsize valuations and setting appropriate price targets for the stocks they cover.  Diabetes gives me a stack of research reports to read, which I use to create a little fort in my cubicle to play Berlin Wall (“Left hand, tear down this wall of annual reports!” “Okay, right hand!” *Crash.* And that’s the end of the game).  I find ways to amuse myself, because while Lehman might have a lot of money (in 2006), it’s severely lacking in personality.  At one point I try to joke around with Mr. Bean: “You’re such a lucky guy, getting to play around with all these models.”  Blank stare.  “Like, financial models.”  Blank stare.  “It was a joke.”  Curt nod.  “Okay, if you need me, I’ll be at my desk, trying to draw a pterodactyl in Windows Paint.”

I have a feeling this will be a long summer.

DEPRESSION HITS

As the weeks go by, I start to understand why bankers have such a high suicide rate.  The job is a depressing combination of number crunching and Powerpoint presentations.  Sometimes the highlight of my day is doing extensive data entry.  Other times, I get the privilege of formatting a chart.  I’m beginning to think that my job can be filled by a seventh-grader with basic typing skills and a knack for bar graphs.

Soon I realize that I can get by with minimal effort as long as I present something that already confirms Mr. Bean’s hypothesis: “You were right again, the lagged NASDAQ index is a better indicator for revenue trades.”  This strategy seems to work well, especially when combined with my flowery new finance vocab.  Still, even though I’m barely working, often eating, and most likely napping in the handicapped stall with the bench in it, I’m in the office past 9 pm every night.  Because despite the Wall Street stranglehold on words like “optimization” and “efficiency”, the mantra of “face time” rules over them all.*

In my last week at Lehman, I’m given an offer to return full-time.  At the start of the summer, I would’ve been ecstatic.  Now, I’m not so sure.  Diabetes takes me out to lunch to discuss “my future at the company.”  His argument is a good one: it’s a great offer, at a prestigious company, in the best city in the world.  But I have spent the last eight weeks painstakingly manufacturing fun in a job I hate.  I know now that no gourmet spread will be able to sway me.

So, I decline my offer.  Two years later, Lehman declares bankruptcy.  I guess it was a good decision.

SHITS AND GIGGLES

I never foresaw the economic crisis that would lead to Lehman’s demise.  As much as I like to think that I psychically predicted this, I simply left because I didn’t enjoy the work.  And since that summer, I’ve been detached from the turmoil that’s surrounded Wall Street.  I can sympathize with both the protestors and the good people I used to work for.  Ultimately, though, I hope that both sides can see that we’re in this slog together: We need our banks to efficiently allocate capital, and we need an informed public to keep it in check. We need enthusiastic young people to work hard and kick out those caught napping in the bathroom.

But no matter how much we compromise, everyone—people and institutions—must recognize the human fallacy that can be the source of our problems: it’s much harder to take a stand on your own, and it’s much easier to blindly follow the crowd.  That’s how I ended up shoveling shrimp cocktails into a TJ Maxx power suit, and that’s how our country got stuck in this current financial mess.

When I was at Lehman, our group published a 100-page research report in August 2006.  In the report, we predicted that one of the stocks we covered would be trading at $32 by next year, based on our sophisticated (financial) models.  Diabetes had wondered if we were being too bullish, so Mr. Bean asked me to compare our target to that of the other banks.  After a thorough Bloomberg inquiry, I found that we were right in line with the Street: all the other big firms (Fidelity, Moody’s, Merrill, etc.) were giving targets within spitting distance of $32.  So we went with it, confident that we were in the ballpark.  Make little ripples, not waves, they say.  All these smart people can’t be wrong, right?

A year later, the purported $32 stock was at $3.

Oops.

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*Also, in most big banks, if you work past 8 pm, you can order dinner. If you work past 9, you can get a black car to take you home. So if you’re already there at 7:30, why not stick it out for another half-hour and get some food out of it? Resourcefulness.

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Take a Risk, Take a Chance, Make a Change*

* Yes, the title is from a Kelly Clarkson song.  I’m not ashamed.

During the summer before my senior year of college, I did an internship at a large investment bank in New York.  To get the job, I professed my love for DCF models and calculating betas.  I made myself sound like the most interesting person in the world: “I enjoy reading Reuters.com, making data tables in Excel, and taking nonlinear walks along the beach.  I don’t always drink beer, but when I do, I prefer A&W.  That company’s got quite the cash flow.”

I suppose it worked.  I accepted an offer from a prestigious bank in midtown Manhattan, working in equity research for the summer of 2006.

salesI thought I would need a few weeks to determine whether I’d find my calling in finance.  But after just a few days, I already hated it.  I hated the dress code, the formality, the hierarchy, and the Big Brother-ness of it all.  I hated the work, which teetered between mundane and soul-sucking.  Most days, I just felt like a highly-paid supermarket cashier, plugging in numbers and being rude.  I quickly learned that there were three tenets of business: 1) Jerkiness is a coveted personality trait…  2) “Fuck” can be used as a noun, verb, adjective, adverb, insult, directive, and occasionally, term of endearment…  3) Lastly, in order to fit in, you have to be strongly opinionated about HR, women leaders, and taxes.  (The opinion must also be negative, although you can “support them in concept.”)

Throughout the summer, I felt like I was part of a giant sociological experiment, where you throw fifty impressionable college kids into (what I would consider) the worst job in the world (except, maybe, dairy farming) and record their reaction.  The people who loved it also seemed to hate it as well, but they had all accepted that hatefulness was part of the job — therefore it was palatable.  And for a summer at least, it was palatable, especially given the fact that we were well-paid, well-fed, and living in New York with an unlimited reign over the four-letter word dictionary.

lincolnNearing the end of my two-month stint, I had to meet with HR (ugh) to discuss full-time opportunities.  The bank was well-known for only hiring first-years from its summer intern class.  Even though I knew, deep down, that I didn’t want to do this for two full years, I still wanted to get an offer.  I still wanted to have a job lined up, even though I swore I wouldn’t take it.  I wouldn’t.  Even though it was a prestigious firm.  I wouldn’t.  Even though I’d built up a strong network.  I wouldn’t.  Even though I’d get to live comfortably in New York City.  I wouldn’t.  Or would I?

During my session with HR, I was bombarded with a barrage of questions that I hadn’t prepared for: “What are your three biggest weaknesses?  What would you title your autobiography?  Which historical figure do you identify with most?”  To the last question, I blurted out “Abraham Lincoln,” after a long, awkward silence in which I contemplated whether Chairman Mao had any redeeming qualities.  (For some reason, he’s the first “historical figure” that pops into my head.)  After trying to justify to HR that Abe was a perfectly legitimate answer (“I see myself in him through his honesty…his passion for humanity…his log cabin roots”), I realized that I would always be better at BS-ing about Lincoln than modeling cash flows.

So when I got my full-time offer, I turned it down.  I took another job, still in finance, but at a media company where I could learn to hone my creative talents.   And now, two years later, as I’m coming to the end of my term, I have to make another decision — whether to stay in my backup plan, or to go ahead and do something crazy, like compare myself to Abraham Lincoln.  Like eschew a stable finance career for the peripatetic life of a starving writer.  I’m leaning towards the latter, because I’m finally ready to give it a real shot now.  And I do truly believe that all things will work itself out in the end…

After all, the full-time offer I turned down, in the winter of 2006, was from Lehman Brothers.

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Where Have All The Good Times Gone?

Last summer, we were just coming to the realization that the economy might be in some trouble… Bear Stearns had fallen, oil prices were skyrocketing, and George W. Bush was still President. It wasn’t a good time.

We started 2009 thinking that the bad karma in ’08 was all in the past… but a quick comparison suggests that it may be rougher now compared to back then:

YOUNG LOVE
Summer 2008 Winter 2009
What’s worse?
Nick Jonas breaks up with Miley Cyrus over the phone Chris Brown breaks Rihanna’s heart… and her nose Obviously Chris Brown… you don’t send your girlfriend to the hospital, ever
POLITICKIN’
Summer 2008 Winter 2009
What’s worse?
Sarah Palin campaigning for the Vice Preisdency Tim Geithner campaigning for $789 billion Sarah Palin by a wink
CHEATING
Summer 2008 Winter 2009
What’s worse?
A-Rod and Madonna A-Rod and a syringe Almost a toss-up between infidelity and ‘roids, but the juice is illegal… so it’s got to be worse
FAVRE ME
Summer 2008 Winter 2009
What’s worse?
Brett Favre un-retires Brett Favre re-retires Un-retired Brett Favre… the last month of the season counts
BABIES R US
Summer 2008 Winter 2009
What’s worse?
Angelina Jolie has twins! Crazy Angelina wannabe has octuplets! Crazy woman… Angelina only has 6 kids compared to her litter of 14
POOF!
Summer 2008 Winter 2009
What’s worse?
$11 billion (August market cap of soon-to-die Lehman) $50 billion (Bernie) Yup, a vanishing $50 billion is worse…
THE DOW
Summer 2008 Winter 2009
What’s worse?
Down 9% from June to August, finishing just over 11,000 Down 10% year-to-date, clocking in under 8,000 Help.

Final count of crappiness? Summer ’08: 2… Winter ’09: 5

So, things are definitely not getting any better in 2009. In fact, they’re really spiraling more and more out of control, towards utter despair and desolation. But… at least we totally kicked last summer’s ass.

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Auto Industry Bailout: For or Against?

The case AGAINST:

Simple economics: If the Big Three automakers fail, it’s because someone else is doing it faster, better, and cheaper. And that won’t change with a measly $15 bn loan that can barely cover the companies’ monthly billion-dollar losses… As they say, you can’t teach an old dog new tricks. Any bailout will just be delaying the death.

carsTime to restructure: Just as it doesn’t make sense to grow oranges in Minnesota, it may not make sense to mass-produce cars in the US. GM, Ford, and Chrysler all have profitable overseas operations, but they’re getting squeezed here at home with higher costs, tighter regulations, and powerful unions. We’ll have to take the hit sometime, so why waste taxpayer money? It’s time to acknowledge that the economics just cannot support an auto industry in Detroit.

Bailing out a lack of innovation: Finally, Tom Friedman likens an auto industry bailout to funding typewriter companies on the eve of the birth of computers.

The case FOR:

lions_fanLost jobs: If there is no bailout and the Big Three automakers must reduce production, a conservative estimate is that we will lose 453,000 jobs next year; others have said it could be as bad as 2.5 million. What will all these people do next? Watch the Lions go 0-16?

Repaying taxpayers: Letting the car companies fail would lead to less tax revenue from lower incomes and lost jobs–which may end up costing us more than an upfront loan funded by taxpayers. Plus, there’s always the chance that the car companies could take the loan and actually turn things around… meaning we’d get our money back eventually, even if it’s in yen.

Like our economy isn’t crappy enough already… let’s just make it worse. The death of the auto industry would have a ripple effect on the entire economy, just as we saw with letting Lehman fail (bailout of AIG, collapse of WaMu, hello-goodbye of $700 bn). If the Big Three go down, taxpayers may eventually have to jump in and bail out everyone on down in the supply chain, plus insurers, pension guarantors, etc. How long could it take to get out of this? Well, how long have the Lions been in the “re-building” phase? Years and years.

What do you think?

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Lessons Learned from Buying Lehman at $61

In the past few days, another investment bank has fallen, another huge government bailout has been announced, and WaMu customers are making like it’s 1929 and rushing to take money out of their Whoo Hoo! checking accounts. Year to date, the S&P 500 has fallen by over 20%, unemployment is at a five-year high of 6.1%, and it doesn’t seem like the end is in sight.

So, how did this all happen? What has caused Morgan Stanley to court Wachovia, and WaMu to pimp itself out to the Koreans? We’ve heard the terms “housing bubble” and “subprime crisis” and “credit crunch” ad nauseum over the past few months… but what does it all mean? The following is my attempt to explain the recent travails of the economy, and why I probably never should have bought Lehman at $61:

A couple years ago, you bought a house and took out a $300,000 mortgage on it. The bank that issues this mortgage takes it and pools it along with other customers’ mortgages. Then they sell this product, called a mortgage-backed security, to Lehman Brothers. Lehman likes buying mortgage-backed securities, since it can get a decent return for a perceived low amount of risk, as historically, people rarely default on their mortgages. All the other big investment banks/brokerage houses are doing it too, and so there’s a strong secondary market out there for these securities. This is a seemingly win-win situation for all: a profitable venture for Lehman, and a way for the banks to lend more money and increase home ownership.

Enter subprime.

The banks and mortgage lenders are doing well; they can sell off their pooled mortgages to the traders at Lehman, or to Fannie Mae and Freddie Mac. Much of the risk that the customer will default, then, can be transferred. Thus, the mortgage lenders start getting more lax in their lending terms. More and more subprime mortgages are issued, which involves lending to high-risk borrowers like your deadbeat cousin Charlie. The lending terms are structured so that it looks good at the time of signing (encouraging more Charlies to borrow), but after a certain initial grace period, borrowers are hit with much higher rates.

Meanwhile, the MIT grads at Lehman are concocting new complex derivatives in order to make money. Remember that a mortgage-backed security is already a pool of mortgages. Now, the guys on the Street are trading pools of these pools. And pools of pools of pools. Your $300,000 mortgage is all part of this. Thankfully, you, as a credit-worthy, responsible citizen, have been diligently making payments. But Charlie, who is using his home as a laboratory for crystal meth, is not. Of course, mortgages had already been pooled to mitigate the risk of individual borrowers defaulting. BUT, if a whole bunch of people start using meth instead of paying off their mortgages, then we’re in trouble not just for that one security, but for all of its new derivatives as well.

Then, to make matters worse, the housing bubble bursts.

Prior to 2005, housing prices had been on the rise, with higher sales and consequently, more homes being built. At some point though, supply far exceeded demand, and housing prices began a steady decline. Let’s say the house you bought was worth $300,000 at the time of your purchase. Now, the price of your home is at $200,000, a decline of 33%, right around the rate that housing prices in Southern California have declined. Because the price of his house has fallen too, your cousin Charlie can no longer afford his monthly payments (which have also skyrocketed after his low-rate grace period expired). He, along with thousands of other subprime borrowers, defaults. His meth lab goes into foreclosure. You’re still scraping by, but your monthly payments are going up because the price of your home has dropped so dramatically.

While all this is happening, Lehman and other banks with large portfolios of mortgage-backed securities are taking the losses incurred from all the Charlies defaulting. They also face the suddenly very real risk that you may default too. Already saddled with these losses, the prices of all mortgage-backed securities (and its derivatives) drop across the board. No one wants to buy, and so the value of these assets just continue to plummet. Firms are forced to issue billions of dollars in write-offs. Lehman’s stock price falls and it tries to raise capital–not only because it needs more cash as collateral for its lenders (like your mortgage payments going up when your house price falls), but also to assuage outside perception that it’s going under. But there aren’t too many institutions out there that are in a position to lend money, and not many that want to do it–especially to a firm whose net worth is unknown because of all its mortgage exposure. Banks everywhere enact tougher lending standards to individuals and businesses, making it universally difficult to get cash… thus leading to a “credit crunch”.

So in the end, with a portfolio full of assets that have no market, hedge funds aggressively shorting its stock, and no one willing to lend it money, Lehman files for bankruptcy. Charlie is living on the streets, you’re struggling to pay your mortgage, and more turmoil (involving more derivatives, including AIG’s credit default swaps) is roiling the market… Not a very happy ending.

Obviously this is a simplified version of what happened in the overall economy; in reality, the chronology of what happened is not as linear, and the situation at Lehman was far more complicated than anything I could explain. Many of our venerable publications will do a far better job of sorting through the mess than I have, but hopefully this can serve as a primer. After all, this story is probably not over yet.

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Damn…It Doesn’t Feel Good to Be a Banker

Traditionally, finance professionals on Wall Street have gotten a bad rep. They’re the greed-filled, money-hungry, soulless types who exist only to make the rich richer. They embody Gordon Gekko and the ruthless, shadowy banker from Deal or No Deal. They’re the ones who work eighteen hour days, order limo service for their mistresses, enrich nudie clubs and liquor stores, and spend thousands on a night out…just because they can. They’re coke fiends, adulterers, anti-humanitarians, and scums of the earth…

This is the negative perception of Wall Street as a whole–which doesn’t lead to much sympathy when thousands of bankers and traders and brokers are on the brink of losing their jobs.

Many of us may feel little compassion for those who are now clearing out their cubicles and polishing their resumes. After all, they chose this field–and the risks and rewards that come with it. We have come to denigrate the Wall Street types because of their enormous salaries and lavish lifestyles. We typically assume that people who chose the finance life embody all the negatives that we associate with the heartless Gekko. But like any other career path, we all choose our profession based on what it will yield us, either personally or financially. Not everyone is suited to becoming a teacher, or a doctor, or some other “noble” occupation–and not everyone can afford to take a low-paying job either, because of their family background or other personal situation. Some may go into finance because they truly love making DCF models and calculating IRRs on a daily basis. Some may do it because it’s a springboard to other opportunities within the private or public sector. Some may look at their job as a temporary means to an end–more hours now, but a better life in the future. And then there are some who are just good at it… and who can blame someone for wanting to be in a career that they’re good at?

Of course, there are many dirty i-bankers who make all finance professionals look bad–and perhaps there are more jerks per capita on Wall Street than in the nonprofit sector. But for all the greed-mongers that pass through the field of finance, we may find a great philanthropist (Warren Buffett) among them. So when thinking about the shocking fall of Lehman and Merrill, consider all the good, non-scum people you know at those firms… even though Gekko may have no sympathy for them, we should.

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