I can’t believe it’s been 10 years since Lehman collapse. The one thing that is usually lost in the conversation about 2008 is that it was all over before 2008. The time to be short was 2007, before the term ‘subprime’ made it into the mainstream conversation.
Looking back it’s easy to say we saw what was coming. Our desk was mainly short throughout the entire 2007 and parts of 2008, and even though we were overall bearish, none of us could have estimated the scale of what’s to come. No bear, no matter how prescient, could have foreseen the magnitude of the carnage. We thought that no matter how bad it is, it was going to be contained within our market. What lack of imagination! One can have the wrong trade on; one can have the right trade on; and then one can have the right trade on without even knowing why he’s right. I thought I was right because I saw shitty collateral and overleverage. Turns out I was right because I underestimated the indolence and infantilism and cynicism of people at the top. I thought they were buying residual pieces for yield. Turns out they were buying those pieces to squeeze a few remaining points from the already dying beast, to keep the game rolling on fumes just for a few more months.
To build the logical chain of events that could unfold, the upcoming avalanche from layers upon layers of leverage and stupidity and short-term self-interest, that would require more than a Math PhD or an MBA. In fact, the logic itself was a flawed tool of assessment under those circumstances. A student of human frailty and irrationality, a philosopher was needed then. But philosophy was in short supply on the trading floors.
But back then I, and everybody else were immersed in the minutia of hourly quotes and moves on Bloomberg screen. That was my world and nothing existed outside of it. Check out a few pages of my journal. You’ll see daily, hourly oscillations between feeling important and useless. You’ll find glee interchanged with despair; exhilaration followed by frustration and self-hatred. I was killed and resurrected several times over the course of the day. Surviving the vicious vagaries of market mistakenly lead you to award yourself some super powers, some kind of Heart of Darkness-style battle weariness – a mental compensation for a pathetic indoor life of spreadsheets and numbers and fluorescent air-conditioned offices.
The irony is that we thought we knew everything about the world. The idea was that those who can’t define what a CDS is should not render their opinion, simply because they don’t know what’s going on. That feeling of omniscience and superiority was borne out of proximity to and usage of obscure tools and familiarity with indecipherable terms that could have enormous impact on any aspect of a layman’s life. Stepping out from the office onto the busy New York street, I always looked at those unsuspecting pedestrians with pity and wondered how can they go about their business without knowing what was coming? If only they knew that bid-offers that were ticks apart yesterday were points apart today! Do you even know what that means?! We thought that in our exclusive corners, with mechanisms that set the whole world in motion we were modern day bond vigilantes. Bond vigilantes! We were weeks away from coming hat in hand to politicians who couldn’t even understand what the fuck we were talking about.
And in the end, we fucked it all up. And the little guy, as always, was left to foot the bill.