In the case of the european banks even more clients

  • No School
  • AA 1
  • 172

This preview shows page 147 - 149 out of 172 pages.

In the case of the European banks, even more clients than usual got into these trades, including the traditionally more conservative mutual funds. Goldman and other banks saw an opportunity to make a lot of money in this sector because countries such as Greece, Portugal, and Spain were going through the turmoil of a debt crisis, and the U.S. politicians were in gridlock over whether to increase the federal borrowing limit and adopt a long-term plan for reducing government debt. As a result, it looked as though Standard & Poor’s would downgrade the U.S. credit rating—which would cause even more turmoil. The more tumultuous the situation, the more volatile the options, and the fatter the margins for the bank making the prices. Sure, there is more risk, but there is also far more possibility for huge profits. Aside from the obvious dishonesty of continually switching our recommendations to clients based on what our traders wanted to do, I was bothered by the European bank-options axe also because of the impact it was having on markets. (Some of these European banking stocks could move more than 5 percent in a day.) And these weren’t abstract assets. These were the national banks of sovereign nations, countries with millions of citizens who were depending on their governments to get their shit together. Jerking around the fates of their banks struck me as highly irresponsible. What made matters worse, and even murkier, was the fact that a well-known Goldman Sachs strategist had come out with a semisecret report that went to only a select number of clients. The Wall
Image of page 147
Street Journal wrote about it. In his commentary, the strategist painted a particularly dire picture and suggested that European banks might need to raise $1 trillion in capital. He suggested some derivatives plays to capitalize on (or hedge against) this turmoil. During the same time period that a Goldman strategist was predicting the implosion of the European banking system, there were many days that our trading desk wanted to convince clients that today is a day to buy—a bullish story. It was all too much. We had advised Greece all those years ago how to cover up its debt by trading a derivative. Now that the chickens had come home to roost, we were showing hedge funds how to profit from Greece’s chaos; and on the other side of the Chinese wall, our investment bankers were trying to win contracts from the European governments to advise them on how to fix the mess. This complex and conflicted scenario was deflating for many people on the trading floor, and I had many conversations about it with colleagues. People saw the hypocrisy but nobody did anything about it. The bonus culture was just too entrenched. The numbers themselves militated against change.
Image of page 148
Image of page 149

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