For a long time I felt without style or grace
Wearing shoes with no socks in cold weather
I knew my heart was in the right place
I knew I'd be able to do these things.
— Talking Heads, Houses in Motion
It has been a volatile year here at the Volcano Lair, Dear Readers. The more attentive among you may have noticed that Your Formerly Dedicated and Recently Only Intermittently Industrious Bloggist has been on again, off again in terms of his attention to these pages. At one point, I even announced my temporary retirement from blogging.1 There are many reasons behind this, but if I told you any of them I'd have to kill you. Normally, this would not bother me, but frankly there are just too many of you nowadays to make mass assassination practical anymore.
That being said, it appears that the occasional pearls I have thrown into the pig sty this year have received some attention from readers who are either too bored or too indiscriminate not to read them. Google, in its Infinite Goodness® even tells me how many times each post has been summoned to the screen. So, based on this simplistic stochastic calculus, I offer up for those of you who have not paid attention, those of you who would like to read only my most popular posts, and those of you with an unhealthy obsession with ordered lists [ahem, Joe Wiesenthal] the following five most popular posts published during 2010 at this humble opinion emporium.
Use this list wisely. As my amanuensis and confidential secretary Natasha always says, "A little TED goes a loooonnng way."
1. The Mouth of Sauron — My take on Lucas van Praag, chief spokesman for the Great Evil Vampire Squid of Markets, Goldman Sachs, and his employer. Excerpts:
This is just not a country where you can use words like "egregious," "febrile," and "chimera" in public without running the risk of being lynched for general asshattery.
The Japanese have a saying: the nail that sticks up gets hammered down. Right now, Goldman Sachs is the biggest fucking nail on the board. And Lucas van Praag is the miniature douchebag standing on top of the nail yelling, "Nyah, nyah! Go ahead, hit me! I dare ya!"
2. On Bullshit — A characteristically moderate and even-tempered response by Yours Truly to the assertion by some of my industry confrères that bigger banks are both better for their clients and less risky. Needless to say, I disagree:
But the point of my previous tirade stands: large, integrated, multi-line commercial and investment banks with fingers in almost every financial pie around the globe do not reduce systemic risk in the slightest. Instead, they comprise both the source and the pathway of contagion for systemic risk and potential breakdown.
3. I'm Dancing as Fast as I Can — Your Friendly Industry Tour Guide explains that, while investment bankers indeed tend to be rather smart individuals, with few exceptions we are not a reflective or introspective race. Viz.:
You will almost never find an investment banker "sicklied o'er with the pale cast of thought." It's just not in their genetic makeup to be reflective, introspective, or speculative in an intellectual sense.
Don't look to investment bankers for answers on how we got here. We don't know and we don't care. We take the world as we find it and try to make money.
4. Conventional Wisdom — Derivatives, liquidity, John Maynard Keynes, and Winnie the Pooh. You know, a classic:
Naturally investment banks swelled like a tick on a dog in this environment. Increased liquidity begat increased volume, which begat more investment bankers earning more money for moving value from one pocket of the global economy to another. (Productivity in terms of volume of deals per banker always lags overall market growth.) It didn't matter to them where the money was going, or if it was doing anything truly productive on the way. That wasn't their job to worry about. They just had to make sure the moolah got from column A to column B intact and on time.
And, of course, take their cut off the top.
5. A Client Is Not a Counterparty — I tease apart a recent Goldman Sachs transaction to help illustrate the difference between traditional market making and proprietary trading:
The major point you should take away from the dissertation above is that everything an investment bank normally does in securities markets requires it to put capital at risk. Low-risk, agency type businesses like underwriting and traditional market making lie on the same spectrum as full-blown proprietary trading, if only at different ends.
But the blurry line between market making and proprietary trading doesn't mean we can't identify proprietary investing—or, more specifically, acting like a principal investor—when we see it.
If you're lucky, maybe I'll spit out a few more beauties like these for you next year. But then again, maybe not.
Happy New Year.
1 If you still needed a reason, this rapid reversal should convince you never to trust another word I put on these pages. I am nothing if not mercurial.
© 2010 The Epicurean Dealmaker. All rights reserved.