No One Knew What They Were Doing

At 22 years old I slithered into the world of cash management through the thick brush that concealed it; and five years later, inched out wounded and with little dignity. Just as worms expose themselves to concrete the minute your lawn gets soggy, we too tried our hardest to keep from drowning. We lost many friends to the flood, and many thereafter in the blazing heat.

I don't know if it's a good thing when people say 90% of your job you'll learn on-site. It leaves way too much to the imagination of those with sneaky imaginations. Lately you see in the news different headlines like "idiot financier schemes investors out of $50 Billion." This isn't some mistake they made; take it from me. It's their ability to lie with blatant overconfidence while being completely uneducated to begin with. Not to mention the stiffening orgasmic power that the money injected into to them day after day. Every crispy new million they'd raise added another inch to that big swingin dick they'd imagined they had. Just as I knew little about the products we bought our clients, everyone around me only knew a Hershey squirt more.

There's a difference between Analysts and Salesmen. An Analyst is someone who combs the fine print of a prospectus and tests every possible scenario to litmus. A Salesman however, is a fundamentalist. They take two snippets of detail out of context and drive home those key elements; ponying up their children as collateral to prove it. The point is, that's the job of a salesman. To know how to close business and make friends with any type of asshole that farts an unclean one, and uses spare hundos to clean it up. The job of the analyst is the flag-raising, compliance policy-driven blowhard which Executives need at their hip to say "yay" or "nay" about the products they're willing to back. The Executive, we all know is just a figurehead powdering his nose and swaying his conductor's wand amongst his executive peers. There's no physical way he could be aware of the investments his 14,000 employees are suggesting their clients should buy. If you're the CEO during an economic upturn, you end up being a genius...during a downturn, it's all your fault....simple as that.

I say no one knew what they were doing because they would've been fired way before fully learning how to properly do it. When you're thrown into a pit of snakes you have to quickly figure out how to survive. The chance to read up on what snake is the deadliest, their territorial behavior, and/or the history of curing bites, is a chance you're never afforded. There's no time for fucking around. You either produce or you're gone. The guy next to me was someone brand new quite often.

We were bond managers, corporate cash managers, traders, investment advisors, whatever you want to call us...and our job was to invest excess cash for corporations. What they wanted was high interest rates in a short amount of time without a lot of risk. When we looked at a product named "The City of Miami Dade Development Project", do you actually think we called up the city department and asked how their budget and fiscal policy forecast was looking for the next 20 years? Do you think we worried that Miami-Dade might be the next place a massive hurricane would hit, and that we shouldn't put our client into this type of Municipal Bond because "anything can happen?" Who do you think we would've gotten at the city office if we'd called? I'm picturing someone worse than the talent at the DMV. Hell, they'd provided us with a 202-page prospectus to read over with a magnifying glass, so we could always reference that if we had ay questions. Our boss would've been real proud of the revenue we brought in if we'd spent the next 5 days reading that over. After all, we sold 300 types of these bonds every single day from different cities, water, power, and aviation authorities. Special housing, roadwork, transportation, sanitation, and stadium projects were all common players for good rates of interest as well. All we could go on was the credit-rating and whether or not the name sounded legit. In order for a corporation to invest in a bond, it normally needs to be AAA-rated because it's the safest quality out there. Considering they were so safe, the blanket we wrapped them in bedded totally different securities, such as CD's, Treasuries and anything else "guaranteed", where they have never slept.

The people that were structuring these bonds were also oblivious. They would pool together several hundred million dollars worth of outstanding mortgage loans, credit card receivables, or student loans, and structure it so that they would meet the standards for achieving a AAA-rating from the credit agencies. If the bond being issued was 500 million dollars, a bank would create a fund name which would consist of all the loans together as one offer. You could then buy a piece of that issue in increments of 25,000. First though, they'd pile 510 Million instead of just 500 Million of those student loans into the fund, expecting that the likelihood of 10 Million dollars extra being added to the 500 million dollar deal, would be enough over-collateralization to justify all future defaulted student loans from those idiots that never felt like paying them off. The same went for mortgage related funds completely backed by outstanding mortgages pooled together. The formula wasn't really made-up, it was given to them by the credit-rating agencies, where some schmuck actuary came up with the idea that only a small percentage on top of the fund-size was necessary to protect it from defaulting. And that it would still provide enough cushion for those investing in what were truly unstable packaged loans. I wish someone would've just told the actuary that everything in life isn't a formula, and that they're forgetting one major fucking insight (a.k.a. "oversight")...... the idea of "demand". What if someone doesn't want it? It seems the question was never contemplated. Sort of like...."oh well, we'll worry about that bridge when we come to it." The idea that these products would become obsolete, that they would become the burden of the banks underwriting them, in sizes up to hundreds of billions worth of shitty un-saleable assets where the banks themselves will have to sit on the debt and cover it with borrowed cash at an even higher rate than the municipality they struck the deal with, would ever have to pay them. "Snot possible; never happen."

When a bank is approached by a municipality wanting to issue debt(bonds) to the public, the bank pitches that city on why they should consider using their bank. The reason banks go so hard after winning the opportunity to issue the debt is because they charge astronomical fees to issue the debt. The problem though for the bank issuing the $500 million bond is that it becomes their burden to find buyers for the bond. The city no longer deals with anything. They just take the money they were loaned and spend those funds wherever they need it. If the bank doesn't find enough internal clients to buy the bonds, that's where we corporate cash managers come in. In order to entice us, we're given a selling concession, which is essentially a commission-style thank you from the bank for the temporary purchase. The reasons we wanted the bonds were because they paid great commissions, whereas the other products within our investment hemisphere were not paying squat. Obviously, a light bulb should be going off as to why these offer such great commissions; there must be some related risk. To understand the risk, you need to know the bonds.

They were 20-year maturities, meaning if you were to hold the bond for twenty years from the day you purchased it, you would get your principal back after those twenty years ended; all the while receiving your interest payments. In order to attract buyers, these bonds offered an "exit feature" where every 7, 28 or 35 days you could sell the bond back to the bank and receive your interest without penalty; so really, you never had to hold it for twenty years. The market had been around since the early-to-mid eighties, and there weren't really any significant instances where someone who wanted to sell back their bond wasn't able to. It was the bank's job to find those new buyers if someone wanted to sell it back, and if they couldn't find anyone to buy it, they would keep it on their books as "inventory" and work to re-sell it later. This "exit" or "liquidity" feature is what opened up the product to many corporations and wealthy individuals needing to keep their cash available weekly, or monthly, and since the interest rates were quite attractive, this was the product to buy.

In July 2007, banks were becoming strapped having to hold so much debt on their books since a lot of their clients were exiting the market and keeping their cash very liquid in overnight money market funds. Every night that went by where those bonds sat in-house at the bank, they would assume large carry-over or debit charges on their own accounts for having held securities that they couldn't cover with equal cash values, therefore the bank would have to virtually borrow money to cover them legally....and those charges outweighed the interest they'd receive from the municipality. Around the second week in July some managers in these underwriting banks had secret meetings to discuss their banks' disinterest in continuing the business. The best thing they could do was sell as much as possible from their inventory and never allow the bonds to be bought back again by their bank. They decided to come up with offers so attractive that it was tough for cash managers to not bite. Upwards of $40,000 commissions for buying a piece worth $1 Million were offered, where as the normal commission for a $1 Million piece was about $125. Unaware that the price for having bought the piece would be your client's illiquidity until the bond's final maturity date 20 years from then.

As this became front page news, every bank stopped buying back their bonds. Although that meant the end of credibility and the inability to ever sell anything they held on their books, cutting off their clients from selling would save them Billions in repurchased assets. Whoever held an issue was going to hold it until maturity, receive their interest and hope to god the loans or municipality underlying it didn't default and become bankrupt.

Our friends at these banks who we drank and ate fancy dinners with wouldn't take our calls. They weren't allowed too. If they'd said anything, they'd be fired. Anything they ever really said was, "I'm so sorry, we had no fucking idea." And I believe them. These were traders, moms and dads just selling bonds and managing their accounts like us....not the CFO's making decisions to stop taking on debt because the stock price had fallen the last two quarters. They knew 10 minutes before we did that morning that their business was done.

Our clients would call us up and ask for new news, and we had none. Nothing but threatening lawsuits, conference calls with CFO's and Treasurers calling us asshole morons that deserved to be hung by our suspenders. I know, that one really hurt. I tried to provide an analogy for all this, and here's the first I came up with. If you buy a brand new car from the salesman, and it turns out to be a lemon, do you run to the salesman and call him a fucking asshole because the manufacturers screwed up making it? There is only so much blame we could take for investing in AAA-rated securities alongside the agreement with our clients that this is what we were going to buy. The real idiots behind this whole shit-show is the credit rating agencies such as Moody’s, Standard and Poor’s and Fitch who were the Analysts per se, giving these securities the highest credit marks possible. Although we could've sat and read every little nook and cranny about every little bond, or had Alan Greenspan next to us at our desk before we ever made a decision, either way we still would have been fired for never bringing in revenue.

The worst part was our clients getting fired by their executives because they had listened to us. Because they went to that baseball game, or that Bruce Springsteen concert with us and enjoyed themselves, and therefore wanted to reward us. Once they had to tell their CEO's that their money was locked up for twenty years and that they didn't know why, they never stood a chance. Corporations who had just gone public, raising close to 100 million dollars gave us their cash to manage for a few weeks until they stopped celebrating their amazing ability to raise cash in a market like this. After those three weeks were up and they'd figured out that they wanted to build a new manufacturing facility and push advertising expenditures to build their brand image, we had to tell them their cash wasn't available. In fact, we couldn't even put a price on their cash if they wanted to sell it at a discount to any buyer. It was worthless. We had ended up buying products that had no value for resale.

The days became dreadful. The phone never rang. There was no reason to call prospects, old leads or friends in the industry. There was no reason to ever believe or trust you since you'd pitched bird shit to them for months and months prior. The other products within the industry paid nothing so there was no money to really be made unless you managed assets under a fee-basis and not by commission. As the telephone numbers of friends didn't work anymore, and my colleagues would be sent back home to their families to seek out a whole new life within something they'd never known, I too was asked to exit the tall murky grass and hit the pavement to grind out whatever distance I had yet to travel.

The scariest thing I learned was that you truly never know if you can trust someone. I say that not so you can shit your pants about any relationship you've ever made, but to enlighten you that there's always a risk you undertake in any partnership. Even if the guy has billions of dollars and a reputation that outshines Mother Theresa, it's truly whether or not working with that person, and the joy you get out of it, is completely worth the risk......because they seriously, after years and years of adding inches to their johnson, still....might have no fucking idea what they're doing.