How a Hedgie Grew a Heart…

By day, I spend my minutes, hours, life, pouring over the many sites that comprise the web-based media beast that reports on financial news. It is my job to inform those managing and playing with money what is going on in the global markets, much as I try to spin the role differently. My colleagues are a bit younger, bright eyed, either naive to the engine we support, content with it, or just plain too young to have experienced the way life can beat you down.

But this isn’t a pity party. It’s merely an observation of how the recession changed everyone. Perhaps we were all in a coma and the recession was what finally woke us up. The other day, someone forwarded me a link to BankersBall, where the site had posted Andrew Lahde’s fall 2008 resignation letter. The 30-something former hedge fund manager had a realization and left the market, cash in hand, health in the gutter, and BlackBerry likely retired. You see it seems the the hedgie stole Christmas. I’m sorry, the hedgie grew a heart. I have to say that while others call him bitter because he trashes those that attended “overpriced prep schools” and Harvard Business School with their parents’ help, I think he is at least man enough to admit that the world he succumbed to is ignorant to what I believe are one-dimensional, selfish existences. But, he is bitter nonetheless, a sentiment I can understand.

That is not to say that the desire for a comfortable life, which can be quite costly, is not respectable. I’m the first to admit that thanks to my parents and grandparents, I went to great schools and never had undergraduate loans. I know I’m blessed for that, for the fact that my parents are happily married and for the two siblings I’d do nearly anything for. I also appreciate that I grew up with vacations and camp, things most people don’t get. But, I did make the conscious decision to live honestly, and to respect the rights of all people that want to live in this or any other free country.  But I feel that just like Andrew Lahde, this country is in the midst of a massive transformation that could make or break us, regarding our place in the world.

The exponential growth in the technology and financial sectors that is to most progress and a sign of a sophisticated society is to me both the bane and boon of our society, and nation. In the most macro of levels, I believe we took industrialization too far. Take a look at Fritz Lang’s silent black-and-white film Metropolis and you’ll learn 1) of the genius he was, like Marshall McLuhan–The Medium is the Message- predicting the future decades ahead of schedule, and by decades, I mean at least half a century, and 2) that many saw this coming, but the prospect of more has, is and always will, cloud judgment.

Metropolis by Fritz Lang Trailer – Amazing videos are here

What started as a means to creating jobs and products to suit demand turned into a never ending cycle of innovation that would lead to a marketing-led cycle of created demand. Essentially, in my opinion, the most powerful people in the world are those that lobby to fight or enforce legislation, the lawyers that advise the upper crust, and the marketers that shape what we will soon want. You see slowly, our friend Google, in its attempt to bring the Internet to all, is giving the government and big businesses a look at all of our lives and interests. George Orwell is rolling over now.

Why? Because the creation of demand makes the public, us, into puppets of corporate America. We become the buyers they need to sustain their companies, which due to capitalism-on-steroids, is all about big profits, board concerns and the earnings required to get the chief executives a few visits to the British Virgin Islands and a third house. For transparency purposes, I can’t say I’m completely removed from this. For the purposes of retirement, I trade stocks and hence am part of the shareholder group these public companies are working to please. But really, I believe it’s their own bottom line they truly care about. And honestly, in this rough ride we call life, who can blame them.

But, it seems Laude just realized that he sacrificed morals, contentment and interpersonal relationships for a six-plus figure income and a 24/7 girlfriend: his BlackBerry. So how does this relate to the suits? The suits may appear one-dimensional and most of them may very well be, but they are run by leaders driven to maintain a lifestyle other leaders say exudes success, which makes them worthy of envy and admiration. In this drive, they are able to contain opinions, quell morals, and create a team of smart, money hungry individuals. And for that reason, these individuals can pool their instincts and research, determine what the public will soon want, determine if the public and their peers can afford their wishlist, and determine if we are in a bull or bear market.

The mediocre suits will minimize bear markets and recessions and then know when to jump into the recovery ASAP, to regain as much of lost assets as possible. But the few rare financial wizards–John Paulson, Nouriel Roubini, George Soros–these types of men, and I suppose Lahde too, will make their money by studying and betting on the demise of a sector of our society and market. They don’t draw attention to themselves but eventually the media comes a knocking and the truth surfaces–that while we sat in front of the tube setting up our digital VCR, they were making billion dollar bets that our world, and the entire world via a domino effect, was heading for an iceberg, RIGHT AHEAD.

But, I can’t hate on these guys because the truth is, our government agencies weren’t ready to accept the crash. They were warned numerous times over many years about the Bernard Madoff scandal and did nothing. As a result tens of billions disappeared. But while Madoff was the class ponzi scheme–using one investor’s cash to pay off another investor’s commitent, now lost–these guys represent the bigger issue because they know they are benefiting from the future downfall of many, but the only concern they have is the bottom line and their benchmark. So long as they achieve alpha–the return above the benchmark-they are deemed a success, no matter what they sacrifice or who they step on along the way.

Laude obviously realized that the desire to benefit from a loan based on a pool of bad assets isn’t the best way to live. In the simplest of terms, my understanding and opinion about derivatives, without much education, is that savvy finance guys knew that many of these American homebuyers couldn’t afford daycare, car payments, credit card bills and a mortgage. They knew the reason these people did get mortgages, however, was because the unsavory loan candidate is risky, and with risk comes reward, in this case, higher-than-average interest. The institutional market suits know this because they seek the same thing as the lone mortgage lender–an above-average return. And so when these mortgages began to pile up and banks restructured them, they pooled them and used them as collateral for other deals. The aforementioned suits knew enough to bet all of this had opened up Pandora’s Box.

And so they bet and they bet big, but meanwhile their lives are a mission to forever analyze the product that changed many a life–money. And for what? Multiple homes, endless quid, the fake admiration of countless, and heaps of material items likely made by tweens in a nation that will slowly plow over us: China.

So the desire for success and comfort leads to insatiable appetites. And now we are in too deep, with China owning heaps of our currency and Americans demanding the same products at lower prices, a sign that China’s stronghold on America is only just beginning. And for what? Multiple low-quality shirts, the biggest TV a wall will fit and trinkets galore. So I ask the future Roubinis and Langs of the world–what’s next and how do we change our collective fate?

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