Than helping clients with doing only the business we

  • No School
  • AA 1
  • 172

This preview shows page 98 - 100 out of 172 pages.

than helping clients, with doing only the business we thought could make us a lot of money and ensure our survival. A perfect case in point was the lucrative fiefdom of Bobby Schwartz.
Image of page 98
There was a whole segment of hedge funds that had the wrong trade on before Lehman Brothers went belly-up. These funds were almost always short volatility: in other words, they’d bet that, on average, markets would remain fairly calm, even though there might be some hiccups along the way. Academic studies had shown this strategy to work over prolonged historical periods. The problem was that these hedge funds were not anticipating “Black Swan” events, a term coined by Nassim Nicholas Taleb to explain once-in-a-thousand-year-type events that people do not expect and that models can’t predict. What we saw in 2008 and 2009 was a series of Black Swan events that the statistical models would have told you were not possible, according to history. Instead of the S&P 500 Index having average daily percentage swings of 1 percent, for a sustained period the market was swinging back and forth more than 5 percent per day—five times what was normal. No computer model could have predicted this. The markets exploded in volatility, and the funds got crushed. They were actually going out of business because the pain on their portfolios was so great. Suddenly they needed to unwind everything; they needed to get out of all their derivatives positions. This was where Bobby came in. A client would call him and say, in a panicked voice, “I need to get out of this immediately. What’s your price?” And Bobby would quote them a substantial price. Goldman was taking significant fees on these clients. During one period in the midst of the crisis, Schwartz was bringing in $2 million a day on his trades. In a sense (a very cynical person would say), Goldman was hastening the rates at which the clients were going out of business, because of the amounts we were charging them. But then, the market was in turmoil; of course we had to charge high fees, because we were taking a big risk by facilitating this business. However, there is such a thing as a middle ground. It was almost like a fire sale. And the firm rewarded Bobby for doing this business. At the end of 2008, a year when very few people were getting promoted, a year with the smallest MD class in a long time, Bobby’s name was on the list of new managing directors. One couldn’t begrudge him his monetary success: After all, he was just doing his job, and he was really good at it. But I remember thinking, Welcome to the changing world of Goldman Sachs leadership. Company culture and morale seemed to be bygone values. To paraphrase that great sage Puff Daddy, it was all about the Benjamins now. If you were in the right place at the right time, if you were the trader with the “hot pad” (credit-default swaps, for example), or if you were the salesperson with the clients who were running for the exits, and if you had the instincts to know how to capitalize on this, then— boom! —the firm promoted you and paid you well and you were now a leader of the firm.
Image of page 99
Image of page 100

You've reached the end of your free preview.

Want to read all 172 pages?

  • Fall '19

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors