Sketchy Crystal Balls
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There were probably millions of people whose lives were in genuine danger at that moment, and I was not among them. But in the separate, metaphysical realm of capitalism, losing my job and my seat in the industry like this would be pretty close. My balance sheet would collapse from the losses on the house and the loss of income would leave me unable to replenish the lost dollars.
The reason I say it REALLY felt like war is because I wasn’t at risk due to my own mistakes. I was at risk merely because of my position. You might argue that I was in this position because of my past mistakes; namely buying a new construction condo in Brooklyn in 2007. But my point is that there is a special feeling that you get once the die is cast and you are waiting for the outcome, helplessly.
I knew that if I lost my job it wouldn’t be easy to find the next one. There was something called “adverse selection.” If I had gone looking for a job say 12 months earlier I would have been golden. Back then, Wall Street was still growing. But in late 2008 it was shrinking. And it was about to start shrinking at an accelerating rate.
Adverse selection is a quant concept that describes the tendency of assets purchased in response to customer demand to move against you. According to the standard thinking, it is because the customers (or whomever initiates the transaction) has information about future price moves.
It’s as if the correct prices of stocks are floating out there in the universe and the quants are all looking into these sketchy crystal balls that work, but only to limited and varying degrees. Then they send their orders to buy the stocks that are going up and sell the ones that are going down.
According to mythology, the quant’s ability to predict these future price movements was why they got the big bonuses, and also why they had the most client money. The quants with the best crystal balls would end up controlling most of the assets and most of the order flow.
Faced with my financial death, I could see reality more clearly. The concept of adverse selection could be applied to demand for jobs as well as demand for stock trades.
Back in 2005 the big investment banks had had open seats and not enough people to fill them. They had already pulled the creme-de-la-creme from the Ivy League schools and still needed more. As a result, it became much easier to get a job. But in 2008 there were suddenly few open seats and a deluge of candidates with killer resumes.
But none of this was happening because of information obtained by a quant via a crystal ball. It was happening because some deeper, realer reality was intruding on the fantasy universe that the quants had constructed.
In the real reality, Wall Street was really dying.
