| Friday, July 17, 2009 |
| Why are toxic asset traders still employed while stodgy bond traders are unemployed? |
The Mother Jones article: The Mystery of the Missing Unemployed Man wonders why the very brokers and traders who created and then traded those mortgage-backed securities and the swaps (the instruments that insured those securities) can't be found on the unemployment lines? How could that be? We've heard ad nauseum about mortgage-backed securities. They're bonds "structured" out of thousands, or tens of thousands, of home or commercial mortgages. The bond's owner was to receive interest out of the mortgage payments from all those property owners. He could earn a low 5% interest if he opted to be paid out of the first money that came in. (Institutional investors often chose that safe "tranche," or slice, of the security.) But back when mortgages seemed so safe, a hedge-fund gambler might have been happy to opt for the last mortgage payments to come in — in exchange for heftier 7% to 8% interest rates. Of course, that was the gamble. Too many missed mortgage payments meant little or no returns for his fund.
When last I heard, more than half of U.S. mortgages were held this way, so it was a reasonable supposition that a lot of people had been employed structuring, trading, and insuring those bonds. But who in his right mind would touch this stuff now? While that lawyer sounded like an honest, helpful fellow, I still wondered whether he wasn't just brushing me off to protect his embarrassingly unemployed clients.
Soon after, however, I met a bank corporate loan officer who confirmed that his colleagues on the "structured side" were indeed still employed. In fact, he thought he noticed a couple of new chairs at their trading desk in the bank's trading room. "Those damn things" had become so complicated, he speculated, that the people who put them together were now needed in similar numbers to "unwind the bank's positions" — that is, get them out of the deals. The articles goes on to explain why these deals are so complicated and why these toxic asset traders are still so very lucrative to the investing world and why they are still not only employed, but making the big bucks and bonuses. It is also depressing to read that these toxic asset traders are not just working to unwind or undo the damage - they are also busy still creating and trading new instruments!
Does our bailout money cover these new trades? |
| posted by Boston Gal @ 11:47 AM *
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Are you kidding? Of course it does. My husband calls these derivatives traders and creators living off the greatest state funded unemployment fund ever created. I mean, they are collecting on average $700,000 in bonus/year (what Goldman Sachs' bonuses are expected to be this year) for doing things that will inevitably pull this country deeper into recession.
The bankers will say that they "paid back the bailout". It was never the money that was making them profitable. It was the explicit guarantee from the state, the access to extremely cheap capital from the discount window, and a whole host of other programs put into place since the recession started (I go into this a bit on my site).
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Are you kidding? Of course it does. My husband calls these derivatives traders and creators living off the greatest state funded unemployment fund ever created. I mean, they are collecting on average $700,000 in bonus/year (what Goldman Sachs' bonuses are expected to be this year) for doing things that will inevitably pull this country deeper into recession.
The bankers will say that they "paid back the bailout". It was never the money that was making them profitable. It was the explicit guarantee from the state, the access to extremely cheap capital from the discount window, and a whole host of other programs put into place since the recession started (I go into this a bit on my site).