so what really happened?

So here is my quick and dirty analysis (my keyboard is not working well - so cant write details):

1. Subprime loans were made to folks who never should have gotten them - sub par FICO scores, no income, no doc, 0% down... comon!! (2006 vintage was esp bad - you know, like rotten wine)

2. Home prices (on a national level) nose-dived for the first time since great depression - leading to massive defaults. Why does the subprime guy care - he leaves the keys with the bank and drives away in his truck - his home just lost 10$ of value - he has -ve equity, and he cannot refinance!

3. HEL deals had a capital strcuture - 0-5% equity, and above it sat the ignominious BBB- bond!! (ah here comes the catch). The losses (historically below 5% were now being projected in the 10 to even 15% range. The BBB- bonds were toast...

4. All this would have been still ok - i mean about 30bn losses...

5. But enter the ABS CDO market (a 250 bn issuance market), which recycled the BBB- bonds into another tranched product - if your underlying bonds are toast - guess what happens to even highly rated tranches? Result- ABX indices skydive like there is no tomorrow. (go to Markit website..)

6. Who's to blame - i think... the rating agencies (who made a bundle before all this mess).

so what does a strategist do??

A lot of people have asked me to describe the strategist's role - well, it all depends. It depends on the shop, the product area, buy vs sell-side. But this interview on e-financial careers may give a bit of a guide (although its on equity side, but still pretty good).

This week WSJ gave some very good articles on the subprime mess that Bear managed to get into...also a basic intro to CDOs.

Dinner with Jim Simons (well, along with 20 others)

Due to some incredibly good luck (cant delve details :)), I was invited to the post IAFE dinner/cocktails (and now why don't I carry a camera when I need it?). I had the good fortune of meeting some incredible folks - first off, of course, Jim Simons (who absolutely blew me away with his humorous and candid speech which he gave during the conference - oh, and what a refreshing personality - for some one who netted close to 1.6Billion (yes ..you read that correct) last year as part of his hedge fund!!), Mr. Richard Bookstaber (no pun on his last name), author of a new book on perils of financial innovation (which I had ordered a week ago on amazon), and other interesting hedge fund managers and IAFE directors. It was a great evening - especially, for a newbie like me!! Jim is definitely an inspiration for all aspiring FEs - in a way, he is like a modern day Buffet - someone who challenges the old paradigms and ushers in a new way of doing things. One bad thing - he doesn't believe in hiring anyone from Wall Street, just Scientists. Oh well :(

Earlier, the IAFE conference also featured interesting talks by Andrew Lo (MIT) on the psychology of trading (really interesting stuff) and some more talks on hedge funds. I had attended this conference last year as well , but I thought it was more well attended this year. I also ran into a bunch of MFEs, both from my class and previous batches.

Earlier (around 7.00 A.M.), I was struggling to find a suit for this conference (my movers have not yet brought my stuff). I was about to show up in my jeans..but with another stoke of good luck - a friend from the bay area who was traveling to NY told me he could lend me his formal clothes and shoes. I made a quick detour and presto - I was not embarrassed!!

and ...

I finally made the move - from sunny california to New York. I begin work in a few weeks - so right now have some time to settle in and get used to the new york - jersey accents.

WSJ had an interesting article on the whole subprime mess (subprime now sounds like a cuss-word, is it really that - or have investors simply over-reacted? Where is the value now..)
Subprime Business Now

Also, Monday features an interesting IAFE conference (yay!! I can actually attend those seminars now that I am in the city) - featuring the true giant of the field - Jim Simmons. I am looking forward to lecture..

Class of 2007!!

Thought this picture paints the more than 1000 words that would describe our feelings that day - lets summarise in one word - RELIEF!!


p.s.: I apologize if this picture is bound by some legal copyright stuff. Let me know and will remove it!!

Career progression for FEs

Attended a good event at Haas yesterday, focussing on Career paths. I found it interesting, even though I feel like I know some of it by now..But some things that stuck with me were:

• Buy side has fewer designations, and the org structure is more like a rectangle than a pyramid...
• Speakers when asked what made people successful in finance, indicated - "fire in the belly" (which is really true IMO), whether you are an "innovator" or a "replicator" (both are important, but the first cannot really be taught in school - either you have it or you dont), and a good bit of luck too!!

shameless plug!!

Just saw a cool article on the Haas MFE program in FE news. I has spoken to the author a few months back about the program and was pleasantly surprised to see some comments by yours truly in the article!!