Conversations With Wall Street. Peter Ressler

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СКАЧАТЬ worried about our home; we too stayed up at night wondering how to make ends meet. The fruits of years of hard work and effort were gone through no fault of our own. We had borrowed within our means, invested in real estate and stocks for retirement, and put savings away for that rainy day. Like so many others, we did everything right, but somehow it went horribly wrong. We had no idea that the rain would bring with it a monsoon that did not stop for eighteen long months. When it stopped, we were drenched to the bone and emerged with a completely different perspective. We would never see money the same way. We would never see Wall Street the same way. We would never again see Main Street as separate from it all.

      The industry had devoured the economic security of millions of American people, who had nothing to do with the debauchery and somehow wound up with the bill. They had slain unarmed foes with abandon and walked triumphantly off the mortgage battlefield with spoils in hand. Without looking back, they destroyed homes, marriages, families and futures. Somehow, in its divine perfection, we found ourselves in a unique position to discover how these events had occurred and even more importantly, why.

      The lines from the Serenity Prayer surfaced in my mind: “God grant me the serenity to accept the things I cannot change, the courage to change the things I can and the wisdom to know the difference.” We needed that courage now. This was not about us; rather, it was about every one of us. We were called to action by a force of fate greater than ourselves. By the simple fact that we landed once again in the middle of a monumental moment in history, we understood there was no turning back.

      Shattered Dreams

       “This is a shock to me. I never thought in my entire career I would be in a position like this… I have lost everything. I don’t know what to do.”

      - Bear Stearns High-Yield Trader

      In early 2007, there were rumblings in the financial industry of a housing collapse. The game of finance is one part expertise, one part strategy, and one part guessing. Not everyone believed that housing was set to fall. Some of the most experienced market makers believed it would continue pushing the upper limits of reason. Many firms were buying more investment properties and increasing their mortgage securities portfolios. Others saw the end of the ten-year run and began to bet against the markets. On assignment for my long-term clients, which included large hedge funds, commercial banks and investment banks, my job was to ferret out the best mortgage talent in the industry. Every firm was in relentless competition with the others. Who would get to the top of the heap was determined by who hired the smartest, most innovative risk takers in the business – those that had the guts to push the outer edge of risk, yet the brains to pull back before falling off the cliff.

      In the mid-1980s, I began working in the mortgage securities markets for Lehman Brothers and Bear Stearns. Mortgage securities were new and exotic investment products. When Mike Mortara, one of the innovators of the market, moved from Solomon Brothers to Goldman Sachs, I followed him. In the late 1990s, I broke away from AJ Consulting to start my own search firm with Monika and another partner. We built the company into the exclusive talent broker for Goldman Sachs’ fixed income division. Mike Mortara was one of the most innovative and brilliant money makers in the industry. He was already a legend by the time I met him, having achieved superstar status by inventing mortgage securities with another financial genius, Lou Ranieri, also a man of deep character and integrity. Mike was of the old school - the way things used to be done at the top firms and still are in some circles: creating value for profit. His word was his bond. I grew up in the industry understanding culture is as important as profit.

      In mid-2007, some of my investment banking and hedge fund clients began to cancel searches in the mortgage markets. The only business that seemed poised to grow was commercial real estate and asset-backed securities. Something was amiss in the housing market. Between late 2007 and early 2008, the industry was in flux. Bankers and finance pros were jumping around from one firm to the next. Many were setting up their own shops, others were pushed out of their firm after large losses. It was an industry in transition. No one knew what was coming right around the corner. The first tremor in the market was the collapse of the venerable Bear Stearns hedge fund. Veteran market makers headed the fund, which blew up in a million pieces. The markets held their breath. It was reminiscent of the collapse of Long Term Capital Management ten years before. At that time, two mathematical wizards, both Nobel Laureates in Economics, had miscalculated global market movements, nearly crushing the industry. The firm had borrowed $90 for every $1 in assets and was systemically connected to financial institutions across the globe.

      The massive losses after the Bear fund collapse were far-reaching and vast. Just how far-reaching no one knew for sure. Rumors circulated that the investment bank itself was in trouble. The idea of a firm that old, respected and well-capitalized going down was unfathomable. The Street did not yet know that the majority of their investments were in mortgage products and some of the most lethal kinds. Nor did they know that Bear had tripled its leverage (borrowing) over the past three years. They were no longer the solid belt-tightening firm they used to be in the Ace Greenberg years. Former CEO Ace was so cautious and frugal that he was famous for demanding his employees save paper clips. When the firm collapsed in March 2008, the industry was shocked. Highly respected professionals had operated this firm. The mood on the Street was one of tremendous sadness. We mourned the loss of one of our own. At a Lehman Brothers benefit for the Fiver Children’s Foundation, a non-profit dedicated to inner city youth run by the former head of global fixed income sales and one of my former business partners, Tom Tucker, the conversation was sorrowful. Bear employees sat together drinking heavily, while Lehman employees offered sympathy. The crowd toasted them; everyone present felt their pain. They had lost 80% of their share price, their jobs, and their status. More than that, the Lehman crowd felt fear. Little did they know that six months later they would be wiped out by bankruptcy. In retrospect, it was the calm before the storm.

      In mid-2008, every firm wanted to hire the Bear talent partly out of a sense of industry loyalty, but also because these were some of the most talented people in finance. From an outside view, who would want to hire people whose excessive risk crushed the firm? From an inside view, no one in the industry blamed them for Bear’s demise. They were simply caught in the downturn of the markets. Many great ones before them had gone down. The key was to pick yourself back up and get back in the game as soon as possible. I began to interview the Bear mortgage desk for clients. These industry giants were devastated. Out of necessity, we began deep discussions, trying to understand what happened to the firm and the industry. These were heartfelt conversations with people I had known for years and others well-known by reputation. Their vulnerability opened up the discussion to a level of personal honesty none of us were used to. There was much more at stake now than business as usual. I wanted to understand how people I admired and respected for their brains and expertise for nearly three decades had cannibalized their own industry, the industry that supported my family and friends. Slowly a picture of the human side of Wall Street emerged revealing how the mighty had fallen and how “the best of the best” felt about life at the bottom.

      “Frank” was a high-yield bond (distressed corporate debt) salesman who had nothing to do with the mortgage markets. He sold corporate bonds and bank loans that belonged to companies experiencing financial difficulty. After receiving his MBA from NYU, he began his career in 1990 with a consulting firm where he helped analyze companies. He moved to Bear Stearns in 1994 as a salesman and quickly became one of the biggest producers on the desk. He sold high-yield bonds (a.k.a. “junk” bonds) to hedge funds, pension funds, insurance companies and money managers. Frank had slicked back hair, darting eyes, and an easy and affable manner. Sporting a classic white shirt, red power tie and dark suit, he evoked a bygone era of Wall Street. His gross production in 2006 for the firm had been just over $20 million, with his compensation ranging between $1.5m - $2 million per year. Fifty percent of that was paid to him in Bear Stearns stock. Married with three children, ages three, five and six, he commuted into the city every day from his five-bedroom home in Connecticut. In 2007, after Bear Stearns’ СКАЧАТЬ