This summer I read several books that gave me a thorough education on what banking is and what banking is in America. I was fascinated. I was so skeptical about Economics before this summer. To me, a bank gave loans and was a well insured safe for storing money. Boy was I wrong. How else could bankers be making so much just connecting buyers with sellers of capital? This is capitalism baby. You don't sit on top of thousands of dollars of cash. You make your cash work for you. You invest.
Before this summer, Investing to me was AAPL and GOOG. Also hilarious, these were my only indicators of the market status. If GOOG was above 550, the market was great. I had a weak understand of supply and demand, and ECON 101 was a bunch of bullshit theory.
My education started with seeing how investment banks raised capital and kept trading floors and expanded to the world of private equity. Again, I was fascinated. Dollar units were billions and millions. More often, billions. Markets were made by everyones contribution, yet not one contributor knew what would hapeen next. A great paradox for the market makers themselves(specialists) that support these contributors, but I woudln't have found so much free information if many people had not exploited the system and profited.
From Michael Lewis, I got educated about the Mortgage Giants FRE and FNM. Icouldn't believe how clever people like Lewie Ranieri, a IB mailroom clerk that woound up, trading billions of dollars worth of morgages, packaged mortgages and connected buyers and sellers to make a tradebale security out of millions of average joe's trying to buy homes. Consumer spending is 2/3 of GDP! Wall street had just exploited america's biggest source of income!!!!
Of course, FNM and FRE are now trading below 1.00. AFter reading about their explosion in the 80's I saw these giants fall to the gutter. I read about Lehman as a top recruiter for Ibankers at Wharton and saw it fall to shit. Today, MER was bought out by BAC. Brilliant. This year will go down in history. Books will be written, models will be made, and classroms of kids will hear about this for years. I was excited the day that 9/11 happened becuase I knew I was living through a historical moment. Today, I realized the same is happening again. A sell off warranted by fear from a terrorist attack is nothing compared to a sell off from LEH going under. THink about all of the credit related bonds and other securities that just get defaulted. It's like buying someone's Rolls Royce on account, driving it for a month, then wrecking it and taking a shit in the drivers seat before returning it to the seller.
ladies and gentlemen, as our fearless leaders like to say. We are not in a recession. :)
