The seat-of-the- pants approach for risk had always worked well enough for me. You take on what your gut tells you is right. If it smells bad, get out. And don't risk more than you can make back in a day. So, if a young trader's best day ever was up a hundred grand, you don't let him take positions that might move against him by more than that in a day. This approach can sometimes be hard to quantify and the manager needs to keep an eye on what the troops are doing. Sometimes you have to cut somebody some slack, sometimes you have to rein a guy in, or even shut him down. Those are judgment calls. It used to be called managing.
But Wall Street fell in love with models. Not like Angie, these were black-box models that took in numbers, mashed and mangled them through t-statistics and standard deviations, and spit out other numbers. And since really smart guys were making the boxesand, I must admit, sometimes creating huge profits with themthe rest of the world fell in step. This created a bureaucracy of monitors typically not traders, but programmers and mathematiciansto watch over the rest of us and make sure we didn't do anything to upset their black boxes.
I had never agreed to those limits when they were introduced they were forced on me by this same group of old mother hens, who imagined they were appeasing the regulators by strangling my ability to get business done. My boss understood. He knew what the game was about. But in that meeting he just kept his head down and let me take the fl ack.
They let us leave only when I had agreed to abide by another meaningless set of even stricter guidelines. Another victory for form over substance.
I buttonholed my boss in the elevator.
"Why did you leave me hanging out there, David? I kept waiting for you to come charging to the rescue, flags flying and bugles blaring."
He spoke quietly and urgently. "You just dodged a bullet, Jason. When the firm is doing well, producers run the showyou know that. But we're not. The suits are taking over. We've had a couple of tough quarters and the board is looking for someone to take the fall."
"Come on, man. You know it's just the cycle. We've been through it before. We'll be knocking 'em out of the park again soon enough."
"Right now, the board would be thrilled with some consistent singles. You run a good team, Jason. Everybody knows it. If you keep your head down and your group starts making a little money on a regular basis, you should be fine."
That stopped me. "And if not?"
"Those old farts will serve you up to the board as the sacrificial lamb, and there won't be a thing I can do about it."
I had just bought Angie another new toya sixty-thousand-dollar Cadillac Escalade. She wanted it to ferry her fashion-world friends out to the Montauk house. But Angie hated to drive. So did I. She would lose all interest in that huge machine by midsummer. Ironically, it was a belt- tightening gesture on her part; she would not have to hire a limo each time she wanted to show off the beach house. But buying her expensive presentson a whim, to feed her acquisitive and mercurial spiritwas part of how I saw myself then. It was important to my self-image that I could go on being that guy for her. And for that I needed a joba big job. With a big bonus.
"I hear you, David." I wasn't going to let a bunch of empty suits stop me. "Thanks for the heads-up. Don't worry. I'll make it work."
I checked in with the trading desk. We were down just under a mil for the day. That meant we were only up two for the month. It was a meager showing for a dozen experienced traders. I checked the trade blotter. They hadn't really been doing so badly, most of the trades were reasonably profitable. And one was not. It was a big trade with a Middle Eastern monetary authority. My trader had been caught wrong-footed and had dropped two mil before he could get right way round. I couldn't undo the trade, or the trades he had done to offset the mini- disaster, but I could shift the settlement date. In stead of settling three days in the future, it would settle 368 days in the future. The desk would be up a mil on the dayfour for the monthand today's problem would become next year's problem. I could reverse it again the next time the desk had a big day. It would only be for a few days. Or a week. If anyone caught it in the meantime, I could bluff it out. If a junior clerk caught it, I'd tell him I was right and he was wrong. If anyone more senior asked, I would call it a mistake. Just like the previous one.
Excerpted from Black Fridays by Michael Sears. Copyright © 2012 by Michael Sears. Excerpted by permission of Putnam Books. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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No Man's Land
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