Tuesday, June 12, 2012

The Hunch, the Pounce and the Kill

If there were a genre called business science fiction and fantasy (a mixture of Philip K. Dick and Malcolm Gladwell), then Azam Ahmed’s recent Times story about the infamous trade that put JP Morgan in the hole for a cool 2 billion and climbing (“The Hunch, the Pounce and the Kill,” NYT, 5/26/12) would definitely qualify. Consider the tale’s protagonists: Boaz Weinstein, Chrysler building based hedge fund trader, one time Stuyvesant High school grad, chess wunderkind and card shark who Warren Buffet once invited to a poker tournament and JP Morgan’s Bruno Iksil, aka “the London whale,” so named for what Ahmed described as “his outsize trades.” Iksil wasn’t Melville’s Great Whale, a creature who would have posed a slightly greater challenge in both life and art. He turned out to be easier prey for Boaz. When the initial reports of the JP Morgan loss originally appeared, most of the attention in the press concerned bank regulation. Here was 2008 with one of the most prominent and profitable financial institutions in America, taking a huge blow for trading in area that many think should be off limits to banks. However, the exact nature of the losses and what they derived from remained somewhat of a mystery. Even more important however was the fact that JP Morgan didn’t exist in a bubble. The bank’s loss had to be someone else’s gain. “The resulting uproar, in Washington and on Wall Street, has largely obscured a simple truth of the marketplace,” Azam Ahmed remarked. “Yes, Morgan lost big—but, as Mitt Romney has pointed out, someone else won. And that someone or, rather, those someones, turn out to be Boaz Weinstein and a wolf pack of like-minded hedge fund managers. In the London Whale, these traders saw a rich opportunity, and they seized it with both hands. That, after all, is the way hedge funds roll.” Like all fantasy fiction, there still is something unearthly about all of this, and for the lay person, who is likely to be stunned by all the zero’s, it’s the question, how does it all happen? Credit default swaps and synthetic derivatives still read like supernatural forces to those who aren’t versed in their workings. To the many who don’t understand these esoteric financial instruments, which are to financial journalists on the prowl for scoops what leveraged buyouts were in the 80’s, they’re the mysterious dark energy of the business world.

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