Fall 2005
What I remember most fondly about the year 2005, was the ease with which I was making money. Day trading was more fun than any video game I’d ever played before. Out of an excessively high opinion of my own knowledge of finance, I devised a complex strategy of trading options which I later learned is called the short calendar straddle. For a while I honestly thought I’d come up with it myself, but I should have known there’s nothing new left under the sun. Anyway, the crux of the matter was that I made outsized returns with a gimmick trading strategy and slowly bloated my already inflating ego in the process. Turns out, it was a difficult time to lose money anyway, as nearly every stock floated on infinite amounts of optimism. I honestly could have saved myself a lot of headache, and earned nearly as much, by just going long some ETF that tracked the S&P 500, but back in those days I was a lot more interested in style points.
I will say, though it may have been a gimmick, the recruiters loved it. Or at least that’s what they told me in interviews. In the end, the only offer I got was through a Managing Director who played golf at the same country club as Austin’s dad. They got paired up a few times and Mr. Richardson asked him to give me an interview. Like I said, you just never know when those connections will come in handy.
A couple months later I arrived at JP Morgan’s Global Markets & Investor Services trainee program, which was conducted at 270 Park Avenue. It felt like the beginning of college again, but without any beautiful women. I expected the Trading team would be primarily males, but I didn’t expect it to be all males. I recall maybe one or two girls in the whole recruiting class. It was a shame.
Our first days covered mostly firm propaganda and consisted of team building exercises, which we all scoffed at, until we moved on to compliance and risk management. While one would think these functions were critical, the topics were taught in a manner that almost guaranteed we wouldn’t remember much. I could have sworn they picked the most boring presenters for this on purpose, and it was a topic that we never revisited. Next came the software tools we would need: CapIQ, Bloomberg BondStudio, but the one we enjoyed most was Bloomberg’s new messaging client for bankers and traders. Right away we set out to create chat rooms devoted to discussing weekend plans and trading stock tips. A majority of us were new to the City, and we hadn’t captured the good graces of management yet, so our jaunts into the city at the time were hardly mentionable. We were happy to play the Wall Street card, but it only worked occasionally, and when it did, it was usually only in the outer boroughs. The market's supply of bankers was running high in 2005.
Finally training ended and we were shown to our domain, the trading pits of pop-culture lore. They had been transformed into neat rows of Bloomberg terminals on clean white desks years ago, and with instant messaging, traders rarely yelled or got up from their desks. However, the tension and excitement in the room was still palpable in the clack-clack of excited keystrokes. It didn’t take long for the social groups to form, and I fell in with a couple of analysts on my team who were from California. Jason and Eric were both from the Bay Area and they graduated from Berkeley and Cornell, respectively. Jason was a Chinese kid who got into finance purely because he wanted to pay off his college loans as fast as possible. Having had my parents pay for college, I really couldn’t blame him. Eric was a borderline genius math major who got interested in the quant revolution on Wall Street from some article he read in a magazine. He wanted to get in on the action so he figured a trading role was a good start. In case you’re not familiar, quants are the math and physics guys who started entering Wall Street with the introduction of high frequency trading, a technology that allowed computers to execute hundreds of trades in a fraction of a second based on complex (and sometimes not-so-complex) algorithms. The three of us were assigned to an Associate named Rubin Galasi, an Azerbaijani immigrant that was so intent on climbing the corporate ladder we thought he probably had the JP Morgan Mission Statement stamped on his ass.
Life as a sell-side analyst wasn’t glorious in the least, at least not before 10pm Eastern. When we started, we spent much of the day adjusting the formatting and double checking the numbers in revenue models of the mortgage-backed securities the bank sold to investors on the secondary market.
There are several different types of mortgage-backed securities, but we mostly looked at pass-through securities like residential and commercial mortgages, whereas our seniors worked on collateralized debt obligations. In a nutshell, MBSs were packages of mortgages that were bundled into different groups based on the amount of risk. Investors would buy different tranches of the security based on the credit ratings given by ratings agencies like S&P and Moody’s who charged the bank a fee to rate their assets.
We suspected there was something fishy about a bank, with all the incentive to have their investments rated highly, paying other companies to assign those ratings, but we weren’t there to rock the boat.
The work was mundane, but we did learn a lot about the derivatives markets and how they functioned.
Once we provided the models to the ratings agencies, they plugged them through their algorithms and assigned the expected rating. If there was a discrepancy, we usually adjusted the financial assumptions and then our sales and trading team could begin pitching them to pension funds, mutual funds and hedge funds. We sold them to Fannie Mae and Freddie Mac too, taxpayer backed enterprises that played on the markets, but we didn’t waste too much time impressing the middling, middle-aged, Midwesterners there, as they basically had a government mandate to buy up everything on the market anyway.
From our perspective, it made sense that the government should promote real estate investment to the population, since the typical Joe Schmoe had no business trading stocks or commodities. The government helped get more and more people in the game by backstopping Fannie Mae and Freddie Mac and enabling them to buy up all the excess liquidity on the market. Mortgage rates stayed low as long as demand for them stayed high and half way through the decade, every firm worth its salt was buying mortgages they could package into securities to sell off. As they say, business was a-boomin.
Most of the work we did was kosher; only a few times do I remember word coming down from above to fudge some numbers on a model to make the returns look more attractive. We never thought too much of it, to be honest. We were too busy kissing up to the MDs. It never worked though, because all they cared about was who stayed in the office the latest. Considering the work we all did was identical, it made sense. Regardless, Eric, Jason and I were too awestruck by the City to stay trapped in the office a minute longer than was absolutely necessary. We spent a lot of time and energy devising ways to get out of the office without getting caught.
One day Austin called and said he decided to drop out of the fifth year Masters program and instead was taking a job at a publishing house in Manhattan. It was a typical Austin move. I was excited that for a change, I’d be the one introducing him to girls… but I should have known better. A couple weeks after he moved into his West Village flat, he invited us to a reading at Happy Ending. The quiet French bar on the Lower East Side hosted readings every Wednesday night which Austin claimed “were usually attended by an attractive yet academic crowd.” It didn’t matter though, since he was bringing a few girls from work. He didn’t have any straight male co-workers—that lucky son of a bitch.
Our trio got to the bar as early as we could, but the reading was already halfway done by then. We quietly ordered our drinks and slinked into the seats Austin managed to save for us. I settled in to quietly investigate the group of ladies. I wasn’t surprised, it was as if a learned, old farmer had hand-picked the fruit himself. Smugly, we sat through the reading and quietly enjoyed our whiskeys.
Finally, the reader ended his recitation so introductions could be made and Isla, Jenny and Scarlet (or something like that) were presented to us. Austin had already picked the finest fruit for himself and she sat on his lap. We chatted away into the night, and the girls told us about their last year of college, how excited they were for their internship in the city, and how nice Austin was for bringing the new interns out and showing them the town. Yeah, a real genial bro that guy.
At some point in the night, one of the girls said, “Facebook me.”
“Uhm, what?” I asked, not at all sure what that meant.
“Ohh nevermind, I forgot you graduated already. You can’t get an account anyway.”
Having identified something not easily obtained, my interest was piqued. A site exclusive to college students? I had to have an account. The night ended with us exchanging numbers, keeping it old school, and then heading home on our various trains. The next morning I sent an email out to three or four younger college students asking to buy the use of their email address to create a Facebook account.
Within an hour I made a deal with one of Austin’s younger frat brothers, $150 for a year of use. Steep price I thought, but hell, I would be making almost $120k that year after the bonus was in. As soon as I had set up a profile, I set out adding all the girls I knew that were still in college, including the girls from the night before. Eric and Jason were huddled over my computer looking through pictures and before we knew it, we had attracted a few others, intrigued and daring enough to leave their posts unmanned.
As we pointed, laughed and simultaneously fell in love with the pretty girls, Rubin walked into the room.
Seeing the commotion, he made his way over before we could disperse.
“I hope you have a good reason for arranging this congregation, Rohan.”
“Uhh, uhh…” I stammered.
“Clearly we’re not running a very tight ship. I’ll make a note of that. Anyway, what was so interesting that you all were looking at?”
Seeing that our Managing Director, Charlie Dean, was nowhere to be found, and not having a good excuse ready, I told him the truth: that I had bought an email address from an acquaintance from college to get an account on this new site called Facebook.
“Well, let’s see the girls you guys were checking out. They were girls, I’m assuming?”
I clicked through a few of my newly minted Facebook friends. Impressed, he asked if any of these girls lived in New York. I told him yes and he glanced at a few more pictures while eyes peeked over terminals to see what was going on at my desk. His curiosity satiated, Rubin left to go do whatever it is he’d come to do.
A week later Jason, Eric and I got an email invite from Rubin. We went to the designated conference room with some consternation, almost certain we had messed up a revenue table Moody’s was going to be reviewing. We shouldn’t have worried, as we all now know the ratings agencies were asleep at the wheel and rubber stamping everything. Our models could have predicted a near certain risk of default and it would have barely raised an eyebrow. Instead, he told us that he was having dinner and drinks with two VPs and could really use some eye candy at the table. It was a simple and inoffensive deal, bring some pretty girls and they’ll cover the tab. We were ecstatic. It was the first instance that came even close to living up to the Wall Street reputation we had seen portrayed in the media. Once outside the room I excitedly BBM’d Austin to make arrangements.
We arrived after dinner, as instructed, and quickly drinks were pushed our way. Rubin introduced us as three of the more promising analysts on the team and the conversation quickly moved from finance to more general topics to accommodate our dates. It was then that the ingenuity of Rubin’s plan occurred to me. He was always quick to change the topic away from work whenever we got outside the office, and bringing in a non-finance crowd was a surefire way to do the same with his superiors. Even a dedicated initiate needs a break, I guess.
Jim, the far elder of the two senior bankers, was on our team and Esteban was a young, fast-rising star in the commodities group. From the conversation that was quickly dropped when we arrived, I could surmise that Rubin was trying to move from mortgages to the prestigious global commodities team, which would soon be taken over by Blythe Masters. She was the CFO of the Investment Bank at the time and widely credited with inventing credit default swaps, you may have heard of them referred to as “financial weapons of mass destruction.” Controversy would ultimately follow her to her new group, but that’s getting ahead of ourselves.
For the time being, we were happy to lounge at the Pegu Club with our lively companions and our intoxicated superiors. The waiter came by as we finished our Old Fashioneds and for our second round Jim recommended we try their signature drink, a delicious gin cocktail with curacao, lime juice and bitters. We didn’t realize that the drink and the bar were named after a Victorian Gentleman’s Club in Rangoon. The Pegu Club was a Whites only establishment during the British Raj with famous patrons like George Orwell and Rudyard Kipling. Without the context, we couldn’t help but wonder at the whimsical colonial décor.
Holding up his drink Jim said, “New York Magazine awarded this the best martini in New York last month. Audrey's simply amazing, I remember her from her days at Bemelmans in The Carlyle.”
Much of the night went on in a similar vein, which suited our company just fine, Madison Avenue girls that they were. They seemed genuinely happy with the attention they garnered from the affluent elder bankers. The conversation continued over several more drinks and the resulting buzz gave me the courage to ask if it was true that a Chinese Commerce Minister’s son had recently joined the firm. I asked because rumors had been swirling that he would be joining our team and was a lazy sack of shit, but I tried not to betray my motive.
“Ah, so word has reached you lot, aye?” Jim replied.
Rubin gave me a look but Esteban waved him off. “No, no, this is good. So, what have you heard about Joe Gao?”
“I heard from a friend at Goldman that he was hired there purely to get on good terms with the Communist Party,” I replied. Even Jason and Eric were stunned by my bluntness, and I’m not entirely sure myself why I said it. But feeling the stares on me and without anyone willing to fill the silence I continued, “and I heard he sent a dick pic to one of our recruiters.”
There was shocked silence before everyone burst out in laughter. It was indeed true that he had sent what would be described in The Journal as a “sexually explicit email to a female human-resources employee,” but no one else at the table knew it at the time.
“Bill brought him on as a favor to the White House, but keep that at this table,” Jim said, clearly feeling the effects of New York Magazine’s best martini of the year. The Bill he was referring to was former White House Chief of Staff and commerce secretary William Daley, who had recently been awarded membership on the Executive Committee at JP Morgan.
Emboldened by the response, I ventured to ask, “Is this pretty common in banking, Jim?”
To which the old VP replied, “No son, it’s pretty common in life.”