Aftermath of Financial Crisis, Michael Lewis’ Big Short and My Struggles after MBA

The greedy who ruled the world of high finance are sitting pretty. Yes, Madoff was caught and has been rightly put behind bars for the rest of his life. How about those who wronged all of us, yet cannot be held responsible in the eyes of law?

As each day passes by, I read more stories about the shenanigans from Wall Street, who left no stone unturned, in their drive to profit from “innovative” financial products that were so complex that the only way to unwind the craziness was a certain meltdown of credit markets and therefore, the general economy. Here is one such story of how big banks looted ordinary Americans; while bank executives made millions, ordinary Americans lost jobs and contemplated suicide. I am certainly one of the casualties of this crisis and at times feel extremely angered by the irresponsibility and the greed of some, which destroyed the future of many talented people who just aspired to live a productive life. While I completely take responsibility for all my actions and decisions past, I cannot help but think that the magnitude of today’s problems are solely the creation of few powerful people who blatantly discarded all their morals and responsibility toward the society. It was a meltdown of capitalist’s dharma.

You see, I was passionate about finance. So, I left engineering in pursuit of a career in finance and economics. I read financial history, economics, business cycles, financial theories and tools, and everything connected to the capital markets with great intensity and passion. I was fascinated by the way the markets evolved over the past one hundred years. There is this amazing story of Louis Bachelier, a French mathematician whose “theory of speculation” became the foundation for the concept of stochastic processes, random movements observed in statistical variables such as stock price. I fervently studied the works of William Sharpe, Harry Markowitz, Eugene Fama, kenneth French, Ben Graham, Myron Scholes, Fisscher Black, Bob Merton and so many other brilliant academicians and strategists whose theories and models became pillars of what is being taught in the business schools and practiced by investors and traders alike in their quest to understand and conquer this dynamic organism called financial markets. I read more and more about the history of capital markets, magnificent bull runs and devastating market collapses, rogue traders and the psychology behind their irrational behavior, 1987 crash, the demise of LTCM, which boasted the Nobel laureates and the “dream team” put together by the legendary John Meriwether. Boy! did I really work hard! I did a great job in MBA where I single-mindedly pursued financial topics—advanced corporate finance, international finance, risk management & Derivatives, investment & portfolio management—and finished at the top of these finance classes. I worked hard and was certain that at some point I could be one of the most valuable contributors in managing risk in the world of finance. I promised myself that I would work very hard, shun greed and work with great ethics and morals. In essence, I wanted to truly embody the true dharma of a capitalist.

The financial crisis destroyed everything I believed in. With each passing day, while I look for a job, I am troubled by the entrenched corruption at every level of our financial system. The system is incapable of eliminating the corrupt minds and incompetent, yet powerful people who were at the very heart of this crisis. Those who can make a difference are summarily dismissed as “misfits.” The mantra is still, “ profit at any cost.” Big banks, with all that “free money” from the Feds, is trading merrily and raking in big profits. The bonuses are going ever higher. But what about the real businesses, the bloodline of our economy? Feds’ easy money doesn’t translate to easy credit for these businesses. What is the strategy here? Those who screwed up the system and brought the entire global economy to its knees should be revived so that we get our confidence back? When these bankers and their brilliant, Ivy-educated traders make millions, we, the ordinary citizens should feel everything is back to normal and go about our lives? It’s an illusion. What is wrong with these central bankers? While I agree that in free market society those who have the ability need to be rewarded, I am disgusted by the fact that these traders in these big banks, with every advantage to turn the markets in their favor by the sheer weight of their big presence, are called “brilliant” and deserving. I think a high school kid with zero interest capital and the might of Goldman Sachs behind him can make millions! I have no doubt.

Incompetence and greed are a lethal combination. I would recommend everyone to read the brilliant book by the talented Michael Lewis. The book is "Big Short.” It’s the story of few courageous and brilliant skeptic investors/traders who made big money by betting against the US housing market and all those esoteric debt instruments concocted by the Wall Street bankers. Michael Lewis, a former bond salesman at Solomon Brothers, was a reluctant participant in the opaque world of high finance during his early days in Wall Street (he later quit and became a journalist and authored  many popular books such as, Liar’s Poker, Moneyball, Blindside etc.) and he was shocked to find that many Wall Street firms employed highly incompetent people who knew nothing about many of the financial products they were selling, yet received tremendous amount of money for their incompetence. In the Big Short, Lewis talks about Joe Cassano, the head of the now infamous division of AIG, the AIG FP, who was instrumental in the creation of all those high-risk Credit Default Swaps (CDS) on mortgage-backed-securities (MBS) that were sold to every investor/trader who was short on the rotten subprime loans. This Joe Cassano was a powerful, arrogant man who had no understanding of the esoteric financial products AIG FP was insuring, according to Lewis’s book. Moreover, the book says that he was a man who refused to listen to anyone who raised concerns about these products during their daily meetings. How can a company like AIG have such an egotistical, incompetent man at the helm? The great business writer, Jim Collins writes about the primary reason why mighty companies start declining from their peak,  in his new book, How the Mighty Fall, and he says it is the hubris that decides their fate. In the case of AIG, it was the hubris and the incompetence of Joe Cassano, and the stupidity of AIG’s leadership who failed to recognize that.

Before I conclude, I would recommend you to read the story of this unknown “moral crusader” of the Wall Street who finds himself as the central figure in Lewis’ book, Big Short—Steve Eisman. Steve was disgusted with the financial legerdemain that was all pervasive in  Wall Street. He found the recklessness of these organizations and its leaders morally reprehensible. Steve was also the man who trained the now famous financial analyst, Meredith Whitney of Oppenheimer.

My struggles are nothing compared to the millions who have lost homes, jobs and, more importantly, the hopes of better life. Somehow, moral hazard seem to only apply to ordinary Americans who made some bad decisions and not the big banks who threw all caution to the wind and played recklessly with other people’s money. I am troubled by this job market, which is going through a structural change. Many will never find the jobs they did all their lives. It’s been a devastating couple of years. I get a bad feeling that things will get really worse before they get better. While I keep upgrading my financial skills and try to be an active participant in the market actions, the realist in me says that dramatic upside in this economy is a mere mirage. So, I have to live by the teachings of Bhagwad Gita, “focus on the process and the result will take care of itself.” Easier said than done. I read a lot about the struggles of many successful people who defied all odds and made a mockery of conventional wisdom when it comes to building a successful life. Thinking about babies and how they learn to walk—they fall and fall and fall for a long time, but they keep getting up until they walk for good—is a great lesson. They are unencumbered by their failures; they don’t care what others think about their lack of success in the beginning; they just keep doing what they seek to achieve. It is a great motivator, that baby thing, but I am intrigued how as adults we forget that lesson we learned in our own lifetime. May be it has got to do with our own arrogance of what we know as we grow, our inflated measure of who we are and how we need to be seen in the society, how we let others define our own success, how conscious we are about what others think about our job, our assets, our family life, our material possessions…Life in the grand scheme of things should be all about where we started and how we make our journey till we bow out of this world. At the end of the day, poor or rich, we need to stick to our values defined by dharma and perform our actions that are positive in some small way to the society we live in.

Good luck and good life to all!