Friday, October 24, 2008

A Re-constructed Diary, Part 1

A few people have asked me what's it's been like to be near the front-lines of the financial (and now economic) crisis. Actually I find the media coverage so expansive that there's nothing I know that's not reported out there somewhere.

That said, I've recently realized that a personal history might be interesting to look back on some day. It is now conceivable that we're watching a world being dissolved a week at a time, for better and/or worse. So, since I wasn't disciplined enough to keep a diary, here's an attempt to reconstruct one of the past couple of months.

September 1-8. We are in a cabin outside Machias, Maine, enjoying a much-needed late summer vacation. I am reading topology(!!) and Will Durant's ancient Greek history, written in 1938-39 (and found on the New York streets for free!). Durant makes the point that it takes a few hundred years to complete a cycle of ascendant culture, cosmopolitan cities, trade-driven prosperity -> stability, some sort of democracy -> concentration of wealth and power, subversion of government -> revolt or dictatorship -> land and wealth re-distribution -> trade-driven prosperity. This goes back to Minoan times, and probably further. It is both unnerving and comforting: why were we raised to think we're any different?

An anecdote. It seems the (subprime?) mortgage brokers and securitization conduits have devastated this part of Maine. All kinds of people must've re-financed unwisely, because 20-30% of the property is for sale, and it's not just the vacation homes.
Very sad.

September 9-14. I'm back in the office on Tuesday. Thanks to Jérôme Kerviel's shenanigans we now have to take off five consecutive business days, and we have a database to prove it. ( I am neither a trader nor controller, though conceivably I have access to systems.)

Lehman shares are sinking fast. There have been times in my career when our higher-ups have publicly said that they expected some consolidation in our industry. But it's clear they never meant this, and we are nervous too. On Thursday my boss tells me with a shrug some colleague is buying Lehman at $7. He knows this since he has to approve all trades we make, even for our personal accounts. I tell him that some Lehman employees have brought cameras into the office to take goodbye photos of their colleagues -- this is via a friend of Sofia's who works there. He's silenced by this thought, and yet he's been at the Firm for 20 years, and is perceptive enough to have told me in May that "it'll be a recession for the country and a depression on Wall Street."

On Sunday evening I'm in JFK, flying a red-eye to Budapest where we have an analytics team. I call my parents, as waiting for flights is some of the least chaotic time I have for catching up with family. We discuss what's being reported about what's going on inside the New York Fed regarding Lehman. I actually think that Lehman is technically solvent, but that they are suffering from a panic; my father thinks they are insolvent. It probably all comes down to the price one puts on illiquid assets, which may as well be a whim.

I then board the plane, which is one of the few ways left on this planet to have a Blackberry in your pocket and still be in a news blackout.