After yesterday’s post on Mortgage-Backed Securities (click here), I felt that I should write something on the book that talks about the origination of the MBS (which, for the record, is a pun: Origination refers to the collection of mortgages and repackaging them as an MBS).
Michael Lewis, before he became famous for writing books, was a bond trader with Salomon Brothers. And when I read this book, I realised the following:
- At no point in my life do I want to sit at a trading desk;
- Traders look down on the Corporate Finance guys as being soft-core; and
- I’m totally okay with being soft-core.
But apart from that little self-discovery, the most valuable realisation that came from this was just how new finance is. So much of the theory that we’re lectured on in University gets confused with my impression of economics lectures: you think that this is all old-school well-covered territory. Well, it’s not.
In this book, not only do they talk about Salomon Brothers traders coming up with MBS, they also make reference to the first call options being created. In the 1980s! Hectic.
Other points I hadn’t realised before:
- Bond traders sound a lot like the Italian mafia.
- Bond traders may actually have been Italian mafia.
- John Meriwether was heavily involved in the creation of Mortgage-Backed Securities. That’s the same John Meriwether of LTCM fame – which was the Fed’s bailout crisis of the late 1990s. That guy should be cast in bronze and placed next to the Wall Street bull.
I’ll be honest – the book is a bit slow at certain points, and the writing-style sometimes reminds me of the Godfather dialogue.
But worth it.
Gareth Crosland February 7, 2012 at 18:45
Why would you never want to be a trader? Was asked that in an interview today and didn't have very compelling answers.
Maybe I should read the book….Reply
Jayson Coomer February 7, 2012 at 21:15
Ha ha – you must email me to tell me about the interview! My answer to that question would be along the following lines:
I think that trading requires a certain type of personality. You need to have that gambling excitement; that willingness to make snap decisions; an ability to read market sentiment before the market is aware that it's feeling it. Just talking about it makes me tense. And even though some trading strategies can be quite technical, I still believe that active traders tend to go with their gut. And that just doesn't fit with my zen. I want to be involved in the process of unlocking value. Not hoping that I spot the unlocked value before anyone else – followed by hoping that everyone else spots it just after I've made my move. Maybe that's naive – but that's my gut speaking, ironically.
Well, you see – I read this book. And I just knew.
Gareth Crosland February 8, 2012 at 10:34
I'll have to go with the first response for the time being considering I haven't read the book!