Thursday, December 30, 2010

TED’s Greatest Hits of 2010

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.

Tuesday, December 28, 2010

What He's Really Thinking the First Time You Have Sex

It's almost year end, so it's just about time for the annual festival of wrap up articles in the financial media. These are published to remind us what happened in 2010, how we are supposed to think about it, and why we should run out immediately and buy that fetching luxury item prominently displayed next to the articles in our favorite mainstream media outlet. I, for one, am thankful the journalists and editors of our crack fourth estate work so selflessly after a tiring year to fill the blank space between Mercedes and Rolex ads with such informative and helpful copy:
Lorem ipsum dolor sit amet, consectetur adipisicing elit...

But journalism is a competitive business nowadays, resembling nothing so much as a high-speed game of musical chairs (where the internet calls the tune), so we should not be surprised that some practitioners are early out of the gate. Today's contribution to year-end gun-jumping comes from The Wall Street Journal. There, Dana Cimilluca and Anupreeta Das report the absolutely gobsmacking news that Wall Street firms are deeply engaged in their annual brawl over M&A league table rankings.

Now, if you are like me, Dear Reader, you are absolutely shocked, shocked that this hoary old chestnut still merits the time of day, much less seven column inches. This tale is older than dirt, and dustier than Cher's bustier. It was already old and dusty over three years ago when I took respite from my busy schedule of rapine and slaughter to pen an explicatory aperçu to a lament by Dennis Berman on the topic at the same broadsheet.

At that time, Mr. Berman did pen a couple of bons mots worth repeating:

The [M&A league] tables have become home to the most petty and wheedling impulses of the industry's most-respected institutions, which are rabid about staying high in the rankings. If you want to understand the Street at its absurd best, watch men in Rolexes grub for credit for deals they barely worked on for clients who probably won't pay them.

Cimilluca and Das offer comparatively little in the way of insight in the current piece, other than a few reported nuggets on AIG and other deals where credit is being contested. Missing from their piece, and from Berman's 2007 article, is an explanation why Wall Streeters act so petty over league tables. Indeed, watching entitled plutocrats scratch and claw over billions of dollars of profitless business may indeed engage the disinterested observer's sense of humor and/or schadenfreude, but I suspect many of my Dedicated Followers would in fact like to know the reasons behind it.

So, in the spirit of selfless public service for which Your Bountiful and Beneficent Correspondent is so widely and aptly known, I offer up a few select nuggets from my prior piece which should shed some illumination on the subject. (In consideration of those Long Faithful Readers who may have read the original piece in full, and those new readers who have something better to do than to wade through my fulsome juvenilia, I have chosen to edit my remarks to the meat of the matter. All of you are welcome.)

I quote my earlier self:

M&A league tables, in contrast, are and always have been a farce. There are no uniform reporting requirements concerning advisory roles or fees for M&A transactions. In order to be given credit for advising on a deal, all a bank has to do is persuade a client to confirm to the reporting services that it worked on it. No real work need take place, and no real money need change hands. Hence, you get examples of highly-discounted or no-fee "services" being "performed" by five, six, or eight otherwise totally uninvolved banks solely in order to claim credit for a big or high profile deal. It is not unheard of or even rare for a bank to deliver a last-minute "fairness opinion" for no fee at all in order to get full credit for "advising" on a $30 billion transaction.

But if, as Mr. Berman reports, everyone knows these league tables are crap, why does Wall Street spend so much time and energy gaming them?

Well, for one thing they are good recruiting tools. All those eager university and business school graduates who are aching to rub shoulders with John Mack, Stan O'Neal, and Henry Paulson What's-His-Name are massively impressed by league tables that show which of their preferred future employers has bragging rights in particular business areas. ...

Second, the published league tables, which tend to appear in the general financial press every quarter and often with higher frequency in the i-bank trade rags, are a nifty form of free advertising. Who, I ask you, does not like free advertising?

But third—and perhaps most surprising—at the end of the day investment banks spend enormous energy and real money on league table positioning and presentation because their customers want them to.

[That is your cue to ask why.]

M&A, for most companies, is a rare thing, a once in a lifetime event fraught with all sorts of terrors and confusions. Furthermore, it is not trivial to say that every M&A situation is truly different, so even if you are in the minority of corporate managers who have actually been involved in a deal, it is almost certain you will not be completely prepared for the next one. Lastly, very few corporate executives are capable of judging the quality of advice given to them in the course of a deal, since (a) they usually cannot figure out exactly what is going on in the room at any particular time and (b) the outcome of any deal depends on an extremely complex interaction of numerous factors, only one of which is the skill of their advisor.

Mergers and acquisition advice is an archetypal example of what Charles Green over at The Trusted Advisor calls "complex intangible services." M&A advice is hard to deliver, impossible to evaluate ex ante, difficult to evaluate ex post, and embedded in a deal process where the criteria for success are multifaceted and highly variable across deals. It is widely viewed as expensive, although at around 1% of aggregate deal value (and declining as a percentage the larger the deal gets), M&A fees are trivial in relation to the value at stake, whether you consider that value to be the future health of the company, the reputation and personal financial condition of the senior executives involved, the net worth of the company's shareholders, or the lives and livelihoods of its employees, vendors, and other stakeholders. This is one reason why everyone pays what in absolute terms look like obscenely large advisory fees even as they complain loudly about having to do so. As many an investment banker has asked a reluctant client during fee negotiations, "You wouldn't pick your brain surgeon solely on the basis of who offers the lowest price, would you?"

[Now for the money shot]:

[But] unlike for many other complex intangible services like accounting, law, and consulting—where a client has a good chance of being able to "test drive" its advisors before it hires them—potential consumers of M&A advice are thrown back on two primary sources of information to use in choosing an advisor: public brand or reputation, and what the investment bankers tell them. Now, most corporate executives are clever enough to perceive when they are being sold, and most investment bankers are pretty effective salesmen and women, so being able to point to some sort of external validation of a bank's skills and reputation is a valuable thing. (Remember how no-one used to get fired for picking IBM? Well no-one gets fired for picking the #1, 2, or 3 M&A advisor, either, even if the deal goes completely pear-shaped.) Hence the continued reliance on published league tables.

The fact that these league tables are widely known to be manipulated does not dissuade the average client, either. You can argue that the fact that a bank is able to persuade big clients to give it public credit for work it has not done is a pretty good indication of decent client relationships and persuasive negotiating skills, both of which are important M&A advisory skills in their own right. And, the mere fact that i-banks so obviously scrap, struggle, and expend copious resources they could otherwise use in their main business trying to reach and stay at the top of the industry league tables month after month is reassuring to clients that the bank in question (a) has surplus resources to devote to an apparently noneconomic activity and (b) cares about its reputation. This is analogous to what naturalists would call a marker of genetic or reproductive health: the same reason peahens look for the gaudiest peacocks with the most energetic courtship dances, even though such activities and energy expenditures on the part of the male are wasteful and even dangerous from a pure survival perspective.

Finally, it is important to remember that investment banking is at its core a network business. Investment banks' skills and capabilities derive from the extensive personal and business relationships of its professional employees, and this is arguably the most compelling value proposition any investment banker brings to a client. What better way to demonstrate the strength of your network, and the extent of your connectivity, than a league table showing how many deals you worked on and how many clients you served? Even if some of them are fake.

So there you have it, children: investment banks scrap like toddlers over league table rankings because, at the end of the day, their clients want them to. After all, investment banking is a service business. And the client is always right, n'est-ce pas?

* * *

Notwithstanding my potshots at the Journal and its confrères above, I fully understand why the financial press has to trot these silly league table articles out on a regular basis. For one thing, the investment banks would scream bloody murder if they didn't get their quarterly free advertising. For another, most people who read the financial press couldn't care less about understanding Wall Street and its silly rituals and business models. They just like to imagine Lloyd Blankfein and James Gorman locked in a mud-wrestling match at a dive bar in Hoboken over who gets bragging rights to the #1 slot in 2010 M&A. Good fight stories sell newspapers.

Finally, just as in those highly successful infotainment marketing vehicles known as women's magazines, it does not do for a periodical to demystify a recurring topic like sex or league tables by explaining it too deeply. For if you do, who will buy the next issue to read the same reheated crap all over again?

By the same token, what woman really wants to know that the true answer to the question posed in this post's title 1 is:

"How soon after I'm done can I go home and watch the football game?"

1 And, no, I did not make that question up. I strive for authenticity in everything I do. It is the genuine article.

© 2010 The Epicurean Dealmaker. All rights reserved.

Sunday, December 26, 2010

H.R. 4173

One Hundred Eleventh Congress
of the
United States of America


Begun and held at the City of Washington on Tuesday,
the fifth day of January, two thousand and ten

An Act

To promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘‘too big to fail’’, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

* * *

"At pet stores in Detroit, you can buy
frozen rats
for seventy-five cents apiece, to feed
your pet boa constrictor"
back home in Grosse Pointe,
or in Grosse Pointe Park,

while the free nation of rats
in Detroit emerges
from alleys behind pet shops, from cellars
and junked cars, and gathers
to flow at twilight
like a river the color of pavement,

and crawls over bedrooms and groceries
and through broken
school windows to eat the crayon
from drawings of rats—
and no one in Detroit understands
how rats are delicious in Dearborn.

If only we could
communicate, if only
the boa constrictors of Southfield
would slither down I-94,
turn north on the Lodge Expressway,
and head for Eighth Street, to eat
out for a change. Instead, tomorrow,

a man from Birmingham enters
a pet shop in Detroit
to buy a frozen German shepherd
for six dollars and fifty cents
to feed his pet cheetah,
guarding the compound at home;

and a woman from Bloomfield Hills,
with a refrigerated Buick
wagon, buys
a frozen police department Morgan
for thirty-seven dollars
for her daughter who loves horses.

Oh, they arrive all day, in their
locked cars, buying
schoolyards, bridges, buses,
churches, and Ethnic Festivals;
they buy a frozen Texaco station
for eighty-four dollars and fifty cents

to feed to an imported London taxi
in Huntington Woods;
they buy Tiger Stadium,
frozen, to feed to the Little League
in Grosse Ile;
they buy J. L. Hudson's, the Fisher Building,

the Chrysler Freeway, the Detroit Institute
of the Arts, Greektown,
Cobo Hall, and the Tri-City
Bucks Roller Derby
Team. They bring everything home,
frozen solid

as pig iron, to the six-car garages
of Harper Woods, Grosse Pointe Woods,
Farmington, Grosse Pointe
Farms, Troy, and Grosse Arbor—
and they ingest
everything, and fall asleep, and lie

coiled in the sun, while the city
thaws in the stomach and slides
to the small intestine, where enzymes
break down molecules of protein
to amino acids, which enter
the cold bloodstream.

— Donald Hall, Poem with One Fact 1

1 Donald Hall, "The Town of Hill," David R. Godine, Boston, 1975, pp. 13–15.

© 2010 The Epicurean Dealmaker. All rights reserved.

A Cautionary Tale

Women with hats like the rear ends of pink ducks
applauded you, my poems.
These are the women whose husbands I meet on airplanes,
who close their briefcases and ask, “What are
you in?”
I look in their eyes, I tell them I am in poetry,

and their eyes fill with anxiety, and with little tears.
“Oh, yeah?” they say, developing an interest in clouds.
“My wife, she likes that sort of thing? Hah-hah?
I guess maybe I’d better watch my grammar, huh?”
I leave them in airports, watching their grammar,

and take a limousine to the Women’s Goodness Club
where I drink Harvey’s Bristol Cream with their wives,
and eat chicken salad with capers, with little tomato wedges
and I read them “The Erotic Crocodile,” and “Eating You.”
Ah, when I have concluded the disbursement of sonorities,

crooning, “High on thy thigh I cry, Hi!”—and so forth—
they spank their wide hands, they smile like Jell-O,
and they say, “Hah-hah? My goodness, Mr. Hall,
but you certainly do have an imagination, huh?”
“Thank you, indeed,” I say; “it brings in the bacon.”

But now, my poems, now I have returned to the motel,
returned to
l’eternel retour of the Holiday Inn,
naked, lying on the bed, watching
Godzilla Sucks Mount Fuji,
addressing my poems, feeling superior, and drinking bourbon
from a flask disguised to look like a transistor radio.

Ah, my poems, it is true,
that with the deepest gratitude and most serene pleasure,
and with hints that I am a sexual Thomas Alva Edison,
and not without collecting an exorbitant fee,
I have accepted the approbation of feathers.

And what about you? You, laughing? You, in the bluejeans,
laughing at your mother who wears hats, and at your father
who rides airplanes with a briefcase watching his grammar?
Will you ever be old and dumb, like your creepy parents?
Not you, not you, not you, not you, not you, not you.

— Donald Hall, To a Waterfowl 1

1 Donald Hall, "The Town of Hill," David R. Godine, Boston, 1975, pp. 10–11.

© 2010 The Epicurean Dealmaker. All rights reserved.

Tuesday, December 21, 2010

Merry Christmas, Baby

Merry Christmas baby
Babe you sure did treat me nice
Yeah! Merry merry merry Christmas baby
Babe you sure did treat me nice
Gave me a diamond ring for Christmas
And now I’m living in paradise

Oh! I’m feeling mighty fine this morning
I’ve got good music on my radio
Hey baby, I’m feeling mighty fine
I’ve got good music on my radio
I would love to hug and kiss you baby
While you’re standing beneath the mistletoe

Santa came down the chimney
About half past three
He got all of these presents that you’ll use
See, I’ll help you put on these

Merry merry merry Christmas baby
Oh! you sure been good to me
I haven’t had a drink this evenin’ baby
But I’m all lit up like a Christmas tree

Hey! Merry merry merry Christmas baby
I’ve got good music on my radio
I said, merry merry merry Christmas baby
I’ve got good music on my radio
I would love to hug and kiss you baby
While you’re standing beneath the mistletoe

— B.B. King, Merry Christmas Baby1

Merry Christmas, everyone. Happy holidays.

Have fun!

1 YouTube soundtrack courtesy of @juanviejo. Thanks, Jon.

© 2010 The Epicurean Dealmaker. All rights reserved.

Saturday, December 18, 2010

We Get Mail!

From the mailbox:1
From: [Redacted]

To: The Epicurean Dealmaker

Sent: December 13, 2010 2:24 AM

Subject: I need advice way more that the other slobs who write you


I found your commentary through ftalphaville which [I] read as part of an Investment Banking class (ridiculous I know but it sounded interesting when I was registering for classes), at my small liberal arts college. I don't read your stuff to learn about the industry since you aren't actually a great source [Ed.: Hmph] and that being completely ignorant of banking practices is obviously not a significant barrier to entry [Ed.: We're beginning to dislike this yahoo]. Rather, I like the access to poems, books, movies, and vocabulary continuously used in [your] posts. What I'm curious about is how you developed your cultural literacy [Ed.: Beginning to feel slightly mollified...]. It seems like there has to be a better guide to the humanities that the New Yorker [Ed.: Now there's a sensible fellow]. I've looked at your list of books on Finance but I'm more interested in what you would recommend for general life.

Thanks. Hopefully [it] hasn't been Mark Madoff writing this stuff for the past couple of years.

[Signature redacted]

* * *

Dear Redacted:

Your suspicion is correct: I am not Mark Madoff.

That being said, I must say I think your stated quest to better yourself intellectually and culturally is somewhat quixotic and self-defeating, given the fact you have already indentured yourself to the blinkered worldview of the socialists, communists, Marxists, and professional malcontents who no doubt hold the curriculum and teaching methods of a small liberal arts college such as yours hostage. Show me a female professor of Comparative Literature and Gender Studies at your school who has shaved her legs once in the past 15 years, and I will hold out slim hope that you have a passing chance to wrest your intellect free from the New-New-Anti-Canon in which you are being indoctrinated and learn to think for yourself.

You may understand my caution as the natural perspective of an individual who was schooled at a time when Dante, Shakespeare, Tolstoy, Hemingway, and a baker's dozen of other Dead White Males were not viewed as constructive rapists, intellectual imperialists, or empty, brainless dictation machines for the magical ur-texts of their corrupted, patriarchal social milieus but rather as a pretty impressive collection of clever fellows quite talented at pushing words around on a sheet of paper. Sadly, my worldview is completely bereft of understanding or subtle appreciation for the finer points of Crypto-Columbian Transvestite Literature from the sub-Amazonian basin from 1953 onward. In other words—as your professors will gleefully tell you—I am a complete idiot.

Nevertheless, I am unapologetic in my advocacy of Dead [insert race or ethnic persuasion here] [insert gender or sexual preference here] authors from what is now disparagingly known as The Canon. Notwithstanding some of the very valid accusations about context, bias, and socially-driven contingency which professors and theorists of literature have made against these individuals and their texts for the past few decades,2 I contend these works have undiminished interest and value for every thinking person. Why, you may ask? For the same reason these works and these authors have survived the great winnowing of poor, mediocre, and near-great authors and works over centuries of Western (and other) civilization: namely, they are great fucking writers.

Quality matters. No matter what age, pedigree, or recommendation comes attached to a work of art, if it is lousy, I don't read it. And neither should you. Life is too fucking short for bad writing.

* * *

On the other hand, I do not recommend you become a snobbish consumer of art, either. I find no-one so tiresome and uninteresting as a person who contends that only a certain kind, type, vintage, or source of art or writing is "worth" reading. Bullshit. Read it all, and make your own decisions. But keep an open mind, and look for new material, media, and artists using the only criterion that really matters: is it any good?

By the same token, do not sneer at entertainment value. Why should you look down upon a book, or a movie, or a photograph you find beautiful or entertaining, even if it has no "deeper" artistic content?3 I do not enjoy reading mediocre novels, but I enjoy the crap out of some mediocre movies (as well as some good ones). Does that make sense? Is it consistent? I don't know, and I don't care. That's just how I roll.

So, as you may now see, I am pretty close to an omnivore when it comes to art and literature. The real limiting factor to my consumption of and familiarity with art is simply the time to enjoy it. Because of that, I read and reread a lot of classic fiction, some poetry, and quite a bit of nonfiction. I watch current release and back catalogue movies. I develop favorites, and I revisit them often. That, combined with a pretty robust associative memory, allows me to harvest these materials for the blog posts you enjoy (!) here.

As such, it is a personal strategy. It may not work for you. But let no-one tell you there is only one right way to approach art or literature, or one culturally-approved list of acceptable works to enjoy.4 Develop your own list, and your own approach, and tell the rest of us to take a hike. I, for one, will not take offense.


1 Guaranteed transcribed as received verbatim, save for a few minor grammatical corrections necessary to render the message comprehensible to anyone in possession of a brain before 1985. As Joe Pesci said in My Cousin Vinny, "Yoots."
2 Which, frankly, if they have any merit, have only enriched a sensitive reader's appreciation of the texts in question. Art is about layers, Onion Boy, and—generally speaking—the more layers the merrier. I think a lot of textual criticism is nonsense, but I also think a lot of it is quite insightful and interesting.
3 Are you sure there is none? Have you looked carefully enough for it? I wouldn't be so quick to judge, if I were you. Just an FYI.
4 For those of you who really want a list, here's a quick, unsorted one that I might start from, if I were in a magnanimous mood. It's not comprehensive or complete, but you could do worse, in my opinion, than to consult these heavyweights: T.S. Eliot, Conrad, Yeats, Tolstoy, Dante, Shakespeare, Hemingway, Chandler, Montaigne, Austen, Joyce, Cervantes. The list—and, frankly, even the books that comprise it—is less important that what you make of it, so enjoy.
5 It occurred to me, after I published this, that I did not address your question regarding the source of my vocabulary. One explanation is that it comes from long reading of fiction and nonfiction works (like those above) which use such language, an early immersion in Latin in high school, and—I am not immodest to admit it—a prodigious memory for such things. The other, truer explanation is just that I'm a freak who loves and collects words. There is no training for that, just therapy. It's called blogging.

© 2010 The Epicurean Dealmaker. All rights reserved.

Friday, December 17, 2010

Holiday Interlude

I have eaten
the plums
that were in
the icebox

and which
you were probably
for breakfast

Forgive me
they were delicious
so sweet
and so cold

— William Carlos Williams, This Is Just To Say

Happy holidays, everyone. Peace, comfort, and joy to you all.

Be safe, and be kind to each other.

© 2010 The Epicurean Dealmaker. All rights reserved.

All Aboard!

"You seek a greeaat fortune, you three who are now in chains. You will find a fortune, though it will not be the fortune you seek.

"But fust ... fust you must travel, a long and difficult road. A road fraught with peril. Mm-hmm. You shall see thangs ... wonderful to tell. You shall see a ... a cow ... on the roof of a cotton house. Ha! And, oh, so many startlements.

"I cannot tell you how long this road shall be, but fear not the obstacles in your path, for fate has vouchsafed your reward. Though the road may wind, yea, your hearts grow weary, still shall ye follow them, even unto ... your salvation."

O Brother, Where Art Thou?

There's a scene in the 1989 Steve Martin movie, Parenthood, which has always bothered me. In it, the spunky, slightly addled, naturally adorable grandmother wanders into an argument between Steve Martin's character, Gil, and his wife Karen, played by Mary Steenburgen. Gil and Karen are arguing about the unpredictability of life, and Gil complains that he hates it. Grandma interrupts delphically that she loves the wild, terrifying, unpredictability of roller coasters, which she considers far more interesting than merry-go-rounds, which just "go around." For a ham-handed Hollywood metaphor, the scene is neatly done, and the moviegoer is duly prepared for the subsequent scene when Gil's youngest son demolishes the school play and everyone lives happily ever after.

Now, I like Parenthood, but I have always found the life-as-roller-coaster metaphor facile, ridiculous, and untrue. (Perhaps my hostility is informed by the fact that I dislike real-life roller coasters, too.) Life is nothing like a roller coaster. Life, no matter how terrifying or benign, does not run on fixed, immutable tracks in self-contained loops; loops which have been engineered and maintained to prevent the very premise upon which their entertainment is based—elemental fear of falling, death, and oblivion—from ever occurring.

Real life is not engineered1. Real life does not return you to the place whence you embarked. Real life is not predictably scary and thrilling. Real life is not predictable at all. I can look back upon my decades of life and recognize something which looks a little like a roller coaster in the rear view mirror: ups and downs, highs and lows, rapid shifts of speed and direction, sickening drops and exhilirating plunges. But I cannot see the track ahead, and I know no-one else can either. There is no fundamental reassurance that I will return, safe and sound, to the place where I started. There is no guarantee my ride will even continue beyond my next breath.

It is our minds which provide the narrative to our lives, the structure and shape to which we cling and try in our blindness to assign meaning. For what is the point of our journey? Why are we on this track, with these people, at this time? What will it matter that we have even passed this way before?

Who knows? Perhaps Grandma is right: we should just close our eyes, hold on tight, and enjoy the ride.

We shall not cease from exploration
And the end of all our exploring
Will be to arrive where we started
And know the place for the first time.

— T.S. Eliot, "Little Gidding"

1 Or, if it is, all evidence of its engineering, and the Engineer behind it, is hidden from us, only discoverable explicitly through the non-factual means of faith. I do not wish to get into a theological dispute here, but I think you follow my meaning.

© 2010 The Epicurean Dealmaker. All rights reserved.

Saturday, November 27, 2010

A Client Is Not a Counterparty

I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description ["hard-core pornography"]; and perhaps I could never succeed in intelligibly doing so. But I know it when I see it, and the motion picture involved in this case is not that.

Justice Potter Stewart

Jesse Eisinger put up an interesting piece yesterday at DealBook, reporting on a series of transactions conducted by Goldman Sachs in 2008 and 2010. He uses it to illustrate what he and many other people seem to view as an insoluble dilemma: how to distinguish between market-making by investment banks and proprietary trading. The distinction is an important one, as Mr. Eisinger explains, because the so-called Volcker Rule in the new Dodd-Frank financial regulation regime severely limits investment banks' proprietary trading and investment activities.

I will let Mr. Eisinger explain:

The story starts in summer 2008. Bear Stearns had collapsed. The housing bubble was bursting. So was another bubble, in loans to high-risk companies. Banks, which had doled out overly generous loans to high-risk corporations, would get stuck with losses on many of these.

During this period, Goldman Sachs bundled a bunch of these loans into a special concoction called CELF Partnership — or CELF-interested.

Of the 1.5 billion euro deal (about $2 billion today), 1.2 billion euros came from Goldman’s own balance sheet. Goldman whipped the deal out the door in July 2008.

Just two months later, the financial crisis roared to a boil and the assets backing the CELF bonds, like all such investments, wilted. Those who bought into the CELF deal were sitting on paper losses.

The CELF deal got interesting this year. The big investor in the deal, a Dutch pension fund, wanted out. It owned the triple-A rated portion of the CELF deal.

The investor went back to the underwriter, Goldman, and after an auction, the firm bought it from its client. Because the market had declined, the investor took a loss.

In addition to buying the triple-A position, Goldman also bought some of the equity, or the bottom part of the deal. The equity carried ownership rights. Goldman bought enough equity to become the majority holder of the deal.

As majority equity owner, Goldman unwound the securitization and liquidated the securities.

Goldman made a bundle on the trade. Even though the CELF assets aren’t worth today what they were in 2008, there was enough money that in unwinding the trade, all the debt holders — including Goldman — got paid off in full. The holders of the equity were left with cents on the dollar. For Goldman, the trick was that it was worth a small loss on the equity to make a big gain on the debt.

So Goldman made money and some of its clients took a loss. At this point, few would be surprised by that.

Now, I am not personally familiar with this transaction, but I must say Mr. Eisinger obscures at least as much as he uncovers by the way he glosses over some of the key details in the story. I think it would be instructive to unpack his narrative. Perhaps we can learn a little more than we expect to about the distinction between market making and proprietary trading, after all.

* * *

First of all, we need to tease apart the various different roles Goldman Sachs played in this little drama. The fact that one firm played multiple roles does not prevent us from distinguishing among them, or pointing out the important differences each has.

The first clue comes from the fact that €1.2 billion of the corporate loans underlying the securities in question "came from Goldman's own balance sheet." This means one of two things: either Goldman purchased these corporate loans from the original lenders (or secondary market holders) for its own account, or it loaned the money itself to those corporations.1 Now, whether you loan money directly or purchase loans from others, the economic upshot is the same: you are a lender. Also, and more to the point, you are an economic principal. A principal invests its own money for its own account. It puts its own capital at risk in pursuit of investment return, whether that takes the form of lending money to borrowers; buying and holding long-term, illiquid assets; or trading securities, commodities, and other financial instruments for investment gain. That last is commonly known as proprietary trading.

The second distinct role Goldman played in the transaction was to bundle its own loans (and €300 million from other parties) into the CELF securitization, slice the underlying loans into separate classes of security with different priority claims on the underlying pool of loans, and sell those securities to investors. These activities and their analogues are known in the trade as structured finance. They can be performed on behalf of an unrelated third party, in which case the structured financier acts as an agent, or they can be performed for yourself as principal, as in the case of Goldman's CELFs. Usually the firm which acts as structuring agent also sells the resulting securities to outside investors. Selling newly issued securities on behalf of another party—related or unrelated—is known as underwriting.

Underwriting is one of the oldest functions of investment banks. Traditionally, it took the form of pure agency business: an investment bank would work with the issuer of new securities to shape them into a form and value attractive to the market, would arrange and assist the issuer in marketing the new securities to investors, and, in the end, would purchase the securities in bulk and then resell them to investors which it had already determined wished to buy them. The underwriter does in fact put its own balance sheet on the line, if only temporarily, by buying the securities and then reselling them. In this way, an underwriter does act as a principal. However, if it does its job properly, and develops and identifies adequate demand among third party investors for the securities prior to purchasing them, its risk is distinctly limited and quite fleeting. Underwriting is therefore properly understood primarily as an agency business. As an agent, the underwriter's primary obligation is to the issuer, to help create, market, and sell its new securities in such a way that the issuer can accomplish its financing objectives.

However, it is important to realize that the underwriter's success—and privileged position in the market as a trusted vendor of issuers' new securities offerings—depends heavily on its prior record in placing securities with third party investors. An investment bank which becomes known for underwriting low quality paper, crappy issuers, or overpriced securities can become a pariah with the investors who normally purchase such securities. They will not buy its offerings, or they will only buy them with heavy price discounts. This gets around to corporate issuers, and those companies will choose different investment banks to place their securities the next time they want to finance. Accordingly, you must understand that a traditional underwriter's interests—when it acts as a pure agent, or hired gun—are never 100% aligned with those of its issuer client. In many cases (not all), an issuer simply wants to receive the highest price possible for its securities. But the underwriter wants to sell securities that will make its clients on the other side of the Chinese wall—buy-side investors—happy, too. The underwriter, as pure middleman, must play a long game, and its success depends on pleasing both sides of the table. Usually that means displeasing each of them—issuer and investor alike—equally.

In addition, an underwriter usually bears at least an implicit obligation to investors to not only underwrite quality, reasonably priced securities but also to support those securities in aftermarket trading. In practice, this means offering an acceptable bid when an investor wants to sell the securities a bank has underwritten and, to a lesser extent, an acceptable offering price for future purchases. Supporting newly issued securities in the aftermarket leads neatly into the concept of market making.

* * *

Market making is the process through which an investment bank makes a two-way market in various securities and markets. In other words, it stands ready at all times to buy securities at an advertised purchase price and to sell those selfsame securities at an advertised selling price (which, understandably, in almost every instance is higher than the price at which it offers to buy). There are many reasons why investors want investment banks to perform this function, even in the age of fully automated electronic matching markets. The simplest is anonymity. Investor A usually does not want Investor B (or C or Z) to know it is liquidating its entire 50,000 share position of IBM. It can sell its shares to X Bank at 11:07:17 am and X can turn around and sell them all to Investor B at 11:07:32. Another is that markets for certain securities can be relatively illiquid. There may be no buyer for security Z for hours, days, or even weeks. Investor A can sell its Z to X Bank today, which will take those securities into inventory for eventual sale when a buyer materializes. A third is that many securities trading in the market—like the various tranches of the CELF offering—are relatively obscure or customized, and only the investment bank which underwrote them fully understands which other investors in the market buy and sell such securities, and at what price.

Now, unlike underwriting new securities, where an investment bank earns a fixed, predetermined percentage of the offering proceeds for its labor no matter what price the securities sell for, a market-making bank only profits to the extent it can sell securities in its market making operations for more than it purchases them for (adjusted, as always, for funding costs). Furthermore, a market-making bank cannot reduce its uncertainty about the securities' eventual selling price by pre-marketing them to investors like it does in a new issue offering. Just like underwriting, however, the market-making bank must use its capital to purchase securities and hold them in inventory until it can sell them. Market making is risky. Market making is a principal activity.

And yet, investment banks traditionally thought of market making as a client service. An agency business. We put our capital at risk to facilitate the trading of our investing clients. In exchange, we earned a small commission, the occasional chance to put our capital to work in longer-term trades where we thought we had an edge, and—most importantly—priceless insight into the daily operations of particular securities markets, including the appetites, biases, and weaknesses of countless third party market participants. This insight is incredibly valuable, not only in market making itself, but also in making the investment bank possessing it a better informed underwriter for new securities. Securities markets are hotbeds of asymmetric information. The party with the best information has the greatest power. Market making can provide that power.

Now, historically what prevented investment banks from exploiting their privileged market position as the possessors of the best and most complete information to the fullest was relatively thin capitalization. But as markets got bigger and broader, and securities (and derivatives) got more complex, customized, and illiquid, investment banks' demand for capital became ever larger. In part, this was driven by their clients, who demanded they make markets in all the exotic new goodies their underwriting arms were frantically pushing out the front door. First they converted from private partnerships to publicly traded entities. Next, they merged with or converted into universal banks active across all markets: fixed income, equities, commodities, derivatives, currencies, etc. Complexity in particular—exemplified by exploding volumes in derivatives and structured securities—drastically increased the number and profitability of opportunities for the best positioned insiders—investment banks, natch—to profit from asymmetric information. Our clients demanded it, and we saw the opportunity. Large scale proprietary trading was born.

* * *

Enough with the history lecture. 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. There is no bright line between market making and prop trading, if only because a market maker may unintentionally take securities into inventory for a long time, because no buyer happens to be available, whereas a prop trader may make money by scalping basis points in high speed trading of liquid markets.

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. The only time Goldman Sachs acted remotely like an agent in the scenario Jesse Eisinger described above was when it underwrote the original CELF securities offering in 2008. Even then, its client was Goldman Sachs itself, which sold the vast majority of loans underlying CELF to the securitization vehicle as principal. How interested do you think Goldman was in selling those securities to investors for an attractive price? Can you imagine its concerns as underwriter might have been subordinated to its interest as seller in getting the highest price? I can.

In any event, Goldman's actions in 2010 bear absolutely no resemblance to behaving like an agent when it purchased the outstanding CELF securities and liquidated them. It did not behave like a normal market maker, buying securities from one investor and selling them to another. It paid an arm's length price, determined after an auction run by a third party, to the investor it originally sold the AAA rated tranche to. It then triggered the liquidation of the securitization by purchasing a majority stake in its equity. With respect to the seller of the AAA tranche, it acted as a pure trading counterparty. A principal.

Therefore, Goldman's attempt to wrap its behavior in the holy shroud of client service:

"Our client decided to sell its investment," the firm said in a statement. "It took independent advice and ran a competitive sale process. We offered the highest price. This is a good example of helping a client achieve its objective, and underscores the critical importance banks play in using their capital to facilitate transactions on behalf of clients."

is nothing more than a patently disingenuous dodge.

By the same reasoning, my local pharmacist becomes my client every time I buy Preparation H to soothe the ass chapping Goldman Sachs gives me when they spout such pure, unadulterated horseshit.

I don't think so.

1 It is a relatively recent development (within the last 15 years or so) that corporate loans have become widely traded. It used to be a bank which loaned the money to a corporate client kept the loan as an interest-earning asset on its balance sheet until maturity. The bank originated the loan and retained full risk exposure to the timely repayment of interest and principal by its debtor. Nowadays, banks and investment banks still originate such loans, but they often dispose of most if not all of the risk exposure by selling those loans or derivatives tied to them to third party investors. Some argue that this has materially weakened the credit risk underwriting process for corporate lending, since the banks which originate and quickly sell such paper have little incentive to truly determine the long-term creditworthiness of their borrowers. I cannot disagree.

© 2010 The Epicurean Dealmaker. All rights reserved.

Monday, November 22, 2010

Biting the Hand that Feeds Me

Clouseau: "Does your dog bite?"
Hotel Clerk: "No."
Clouseau: [bends down to pet the dog] "Nice doggie."
[Dog barks and bites Clouseau in the hand]

Clouseau: "I thought you said your dog did not bite!"
Hotel Clerk: "Zat is not my dog."

— The Pink Panther Strikes Again

Well, I suppose now that you're here, having arrived via direct or circuitous paths connected with John Cassidy's modestly incendiary article in The New Yorker, I should probably tender some sort of lukewarm welcome.

Yes, I am that self-styled Epicurean Dealmaker whom Mr. Cassidy quotes toward the end of his measured assault against my industry. I am indeed an investment banker, of more than 20 years experience, all of which I have spent advising corporate clients on mergers and acquisitions and helping them raise financing in various capital markets. I am one of the good guys, if you please, or so I contend. (You, of course, are free to draw your own conclusions.)

Since you are here, you may have many questions about who I am, what I believe, and how the hell I have the nerve to take potshots at the business which has put varying amounts of bread on my table for lo these many years. Who I am is simple, mercifully brief, and—you will readily understand, given my temerity—likely to stay that way. Mr. Cassidy is correct to identify me as a "mid-level banker." While I am senior enough to be a Managing Director, with all the experience, battle scars, and inside understanding of the workings of the sausage factory that entails, I am not a senior executive, with vast numbers of minions at my command or a huge P&L to tend. Were I so, I would not be writing this blog, since whatever spark of independent or critical thought I might possess would have been beaten out of me—or, more likely, discarded by Yours Truly out of an instinct for intellectual and vocational self-preservation—long ago.

I have seen the inside of a wide range of investment banks, from small to very large indeed, so I have a reasonably well-informed opinion of the things which ail us or which cause us to inflict our ailments on others. I am not a denizen of the capital markets—a salesman or trader, in the argot—but I know many of these wretches charming individuals by their works, and by the damage they have periodically inflicted on my own pocketbook with all-too-predictable blow-ups on the trading floor. You have heard of the merry war between Corporate Finance and Capital Markets? It has existed since the first cavemen partnered up to syndicate a mammoth hunt, and it has been chronicled by such luminaries as Ken Auletta (Greed and Glory on Wall Street) for donkey's years. News flash: the traders won. It is the traders' Wall Street which blew up in our faces and which looks likely to sashay away from the crisis with little more than some mustard on its Saville Row suit and a disapproving glance or two at cocktail parties this holiday season.

What I believe can be found scattered about this site, usually enveloped within my signature all-too-copious verbiage. I have, I readily admit, rather eclectic tastes and interests, so there is a corresponding range of opinion here guaranteed to offend or irritate almost everyone. A previous introduction is probably as good a place as any to start if you want a general overview. A glossary of post topics should be useful, as well. I should also use this opportunity to warn the casual reader that I express myself in profane and unguarded language, often. Those who don't like such talk should leave, now.

For those of you who would like a deeper view of my perspective on the history, nature, and prospects of investment banking, you could do far worse that to start with The K-T Boundary and the epic four-part treatise Nature Red in Tooth and Claw, beginning here. Additional related ruminations on the business can be found scattered about the site under the rubric The Life.1

As far as how I have the balls to bite the hand that feeds me, well, chalk it up to an abominable sort of conceited independence. I have sacrificed a great deal in my life to pursue my profession—a profession, mind you, which I still enjoy and take pride and satisfaction in. But I will not sacrifice my mind, nor my sight, nor my integrity for anyone or anything.

I am nobody's fucking dog.

1 I have written little to update these opinions over the past many months. This is because 1) I am once again, thank heavens, too busy to natter away on stuff which few people have any interest in (except, like now, when it blows up in everyone's faces), and 2) nothing has changed since I wrote it. You may correctly accept this latter point as my judgment of the likely effect and success of the much ballyhooed financial reform legislation currently being neutered in the back rooms and halls of Congress, as well.

© 2010 The Epicurean Dealmaker. All rights reserved.

Saturday, October 23, 2010

Solomon, that Sheba Led a Dance


May God be praised for woman
That gives up all her mind,
A man may find in no man
A friendship of her kind
That covers all he has brought
As with her flesh and bone,
Nor quarrels with a thought
Because it is not her own.


Though pedantry denies,
It's plain the Bible means
That Solomon grew wise
While talking with his queens,
Yet never could, although
They say he counted grass,
Count all the praises due
When Sheba was his lass,
When she the iron wrought, or
When from the smithy fire
It shuddered in the water:
Harshness of their desire
That made them stretch and yawn,
Pleasure that comes with sleep,
Shudder that made them one.


What else He give or keep
God grant me—no, not here,
For I am not so bold
To hope a thing so dear
Now I am growing old,
But when, if the tale's true,
The Pestle of the moon
That pounds up all anew
Brings me to birth again—
To find what once I had
And know what once I have known,
Until I am driven mad,
Sleep driven from my bed,
By tenderness and care,
Pity, an aching head,
Gnashing of teeth, despair;
And all because of some one
Perverse creature of chance,
And live like Solomon
That Sheba led a dance.

— W.B. Yeats, On Woman

Note: Idiosyncratic formatting as meant.
© 2010 The Epicurean Dealmaker. All rights reserved.

Sunday, October 17, 2010

Weekend Interlude

I will arise and go now, and go to Innisfree,
And a small cabin build there, of clay and wattles made:
Nine bean-rows will I have there, a hive for the honey-bee,
And live alone in the bee-loud glade.

And I shall have some peace there, for peace comes dropping slow,
Dropping from the veils of the morning to where the cricket sings;
There midnight's all a glimmer, and noon a purple glow,
And evening full of the linnet's wings.

I will arise and go now, for always night and day
I hear the lake water lapping with low sounds by the shore;
While I stand on the roadway, or on the pavements grey,
I hear it in the deep heart's core.

— W.B. Yeats, The Lake Isle of Innisfree

© 2010 The Epicurean Dealmaker. All rights reserved.

Friday, October 1, 2010

The Relief of Distance

After all, Facebook, like Zuckerberg, is a paradox: a Web site that celebrates the aura of intimacy while providing the relief of distance, substituting bodiless sharing and the thrills of self-created celebrityhood for close encounters of the first kind. ...

[Zuckerberg]’s a revolutionary because he broods on his personal grievances and, as insensitive as he is, reaches the aggrieved element in everyone, the human desire for response.

— David Denby, "Influencing People"

Part of the power and attraction of social media, in my opinion, is that it encourages and enables the creation of acquaintance, friendship, and even intimacy among individuals who would otherwise never be able to create or even desire such relationships in the real world. Culture, geography, distance, and existing socioeconomic ties are not insurmountable or even apparent obstacles to people commencing interaction and communication over the internet. This broadens the scope for both connection and misunderstanding to a far greater degree than has been possible to date in our local, non-virtual, geography- and time-constrained world. The potential degrees of freedom of human interaction have materially increased. While this has opened intoxicating vistas of personal possibility for millions, you can also imagine it is not always a good thing.

The other significant change embedded in these new interactions is that people can cultivate relationships over virtual social networks for months and even years without ever meeting in the flesh. Stable, long-lasting, and—it is not irresponsible to imagine it—even durable relationships of the deepest kind can be established and maintained between characters or personae that individuals adopt and present to each other. Is this wise? Is it responsible? Is it fair?

Does it matter?

Probably not, for we have already shipped ourselves out to a brave new world. An entire generation is constructing online identities—smarter, wittier, braver, and prettier than we are in the real world—and sending them out to interact and form relationships with similarly artificial simulacra. We are no longer Pygmalion in his studio, sculpting an image of female perfection according to our own desires and imaginings, and then falling in love with our own pliant and accommodating creation.

Instead, we are sculpting ourselves into our own Galateas, in form and image how we imagine others would desire us to be, and then posting our idealized version of ourself onto the global bulletin board of friendship and desire. Where will this go? How will it end?

I am an old man, a throwback to a generation which found standalone PCs with 256K of memory revolutionary, so I am not qualified to say. But I must believe it will have an effect on the form and nature of human interaction going forward.

And I also believe that one day, some restless prodigy of the Facebook generation will take all these changes and rewrite Romeo and Juliet for the brave, new, networked world of her peers. I predict it will be both beautiful and heartbreaking.

© 2010 The Epicurean Dealmaker. All rights reserved.

Thursday, August 19, 2010

Four Gates to the City

Every city has its gates, which need not be of stone. Nor need soldiers be upon them or watchers before them. At first, when cities were jewels in a dark and mysterious world, they tended to be round and they had protective walls. To enter, one had to pass through gates, the reward for which was shelter from the overwhelming forests and seas, the merciless and taxing expanse of greens, whites, and blues—wild and free—that stopped at the city walls.

In time the ramparts became higher and the gates more massive, until they simply disappeared and were replaced by barriers, subtler than stone, that girded every city like a crown and held in its spirit. Some claim that the barriers do not exist, and disparage them. Although they themselves can penetrate the new walls with no effort, their spirits (which, also, they claim do not exist) cannot, and are left like orphans around the periphery.

To enter a city intact it is necessary to pass through one of the new gates. They are far more difficult to find than their solid predecessors, for they are tests, mechanisms, devices, and implementations of justice. There once was a map, now long gone, one of the ancient charts upon which colorful animals sleep or rage. Those who saw it said that in its illuminations were figures and symbols of the gates. The east gate was that of acceptance of responsibility, the south gate that of the desire to explore, the west gate that of devotion to beauty, and the north gate that of selfless love. But they were not believed. It was said that a city with entryways like these could not exist, because it would be too wonderful. Those who decide such things decided that whoever had seen the map had only imagined it, and the entire matter was forgotten, treated as if it were a dream, and ignored. This, of course, freed it to live forever.

— Mark Helprin, Winter's Tale

I was fortunate to have Winter's Tale published shortly after I arrived, and while I was still finding my way around New York City. It was a good and reliable guide and map to the overwhelming engine and labyrinth that is eight million souls swarming together on the Hudson River, especially for a poor and naive immigrant from the Western wastes.

Years later, knowing how much I loved the book, my young daughter presented me the very copy I had bought in 1983 for Christmas, having scrawled "For Daddy Love" along with her and her brother's names in colored pen on its cloth cover boards.

One can have worse souvenirs, guides, and ticket stubs from the chief journey of one's life.

© 2010 The Epicurean Dealmaker. All rights reserved.

The Amtal Rule

One does not argue about The Wind in the Willows. The young man gives it to the girl with whom he is in love, and, if she does not like it, asks her to return his letters. The older man tries it on his nephew, and alters his will accordingly. The book is a test of character. We can't criticize it, because it is criticizing us. But I must give you one word of warning. When you sit down to it, don't be so ridiculous as to suppose that you are sitting in judgment on my taste, or on the art of Kenneth Grahame. You are merely sitting in judgment on yourself. You may be worthy: I don't know, But it is you who are on trial.

— A.A. Milne

One's character, and courage, are tested so many times in one's life, in subtle and not-so-subtle ways, usually unannounced, and often without our even being aware of it. I wonder how many of us have failed—or passed—such a test in ignorance.

And I wonder if anyone or anything is keeping score.

© 2010 The Epicurean Dealmaker. All rights reserved.

Wednesday, August 18, 2010

Retainers of Fluidity

Of course, it's bad to be a criminal. Everyone knows that, and can swear that it's true. Criminals mess up the world. But they are, as well, retainers of fluidity. In fact, one might make the case that New York would not have shone without its legions of contrary devils polishing the lights of goodness with their inexplicable opposition and resistance. It might even be said that criminals are a necessary component of the balanced equation which steadily and beautifully eats up all the time that is thrown upon its steely back. They are the sugar and alcohol of a city, a red flash in the mosaic, lightning on a hot night. So was Pearly.

— Mark Helprin, Winter's Tale

Yeah, well, maybe not.1

I can think of legions of pasty-faced 20-something hedge fund and proprietary traders who would love to style themselves as something as transgressive and oppositional as criminals. Most, much to their unknowing and likely never-to-be-known chagrin, are just nerdy parasites on the monetary surplus of a fat and lazy society.

Not that I'm judging, or anything.


1 After all, there is a difference between retainers of fluiditity and people who just retain fluid. Q.v. the nebbishes at Goldman Sachs.

© 2010 The Epicurean Dealmaker. All rights reserved.

Sunday, August 15, 2010

Weekend Interlude

We shed as we pick up, like travellers who must carry everything in their arms, and what we let fall will be picked up by those behind. The procession is very long and life is very short. We die on the march. But there is nothing outside the march so nothing can be lost to it. The missing plays of Sophocles will turn up piece by piece, or be written again in another language. Ancient cures for diseases will reveal themselves once more. Mathematical discoveries glimpsed and lost to view will have their time again. You do not suppose, my lady, that if all of Archimedes had been hiding in the great library of Alexandria, we would be at a loss for a corkscrew?

— Tom Stoppard, Arcadia

I knew I left that damn corkscrew somewhere.

© 2010 The Epicurean Dealmaker. All rights reserved.

Saturday, August 14, 2010

Another Supposedly Fun Thing I’ll Never Do Again

In the random, serendipitous sort of discovery one—okay: me, I admit it; perhaps you never do or have done such a stupid thing in your entire fucking life—makes while skimming about the internet like a mosquito sniffing out carbon monoxide emissions at a picnic on a summer night, your Dedicated Prosodist stumbled upon a clever little site which professes to analyze writing samples and compare them to the style of a famous writer. The site is entitled, entirely appropriately if somewhat awkwardly, “I Write Like.”

Naturally, visions of grandeur, immensely lucrative book deals, and book launch parties best described as orgiastic bacchanals danced before my eager eyes as I cut and pasted a few random paragraphs of prose from these pages into IWL’s magic box and clicked “Analyze.” Sadly, as someone or other once proclaimed about their first sexual experience, the anticipation greatly exceeded the actual event.

First to pop up was that literary barnburner and perennial stalwart atop The New York Times Teenage Girls’ Vampire and Sublimated Masturbatory Fiction Bestsellers List, H.P. Lovecraft. Who?

Well, ol’ H.P. was a primo generator of “weird fiction,” and his
guiding literary principle was what he termed “cosmicism” or “cosmic horror”, the idea that life is incomprehensible to human minds and that the universe is fundamentally alien. Those who genuinely reason, like his protagonists, gamble with sanity.

While I can acknowledge that my readers gamble with their sanity each time they read something here, and I concede that my clotted prose can often be fairly described as “weird fiction,” I am nonetheless saddened that IWL’s first approximation of my prose was to an author whose estate will have been lucky to have sold more than 25 copies of his back catalog in the past 24 months. This was not a good start toward the classic mahogany runabout I was planning to put my book royalties toward.

The next block of text I analyzed returned the far more satisfying result of Vladimir Nabokov, who at least has the advantage of titillating the adventurous and scandalizing the stuffy. But the comparison was unfair, since the prose I chose to analyze was selected from my recent panegyric to dirty old men and their lust for nubile, underannuated lolitas. Even I have to admit that is cheating.

So I collected another few paragraphs of a more general nature and plugged them into IWL’s black box. Here the result was more interesting, if no more supportive of my hopeful visions of a mailbox groaning under the weight of obscenely large royalty checks. The famous writer whose reputation IWL so cavalierly chose to permanently damage by association with Your Lowly Solipsist’s feeble emanations was none other than David Foster Wallace. Poor, sad, suicidal man.

I am not familiar with most of Mr. Wallace’s work, although I did enjoy his trenchant-graduation-speech-turned-excessively-short-publishing-event Water over the course of 15 minutes spent waiting for a pre-ordered copy of X-Men No. 3,274 to be delivered from the Classic Literature section of Barnes and Noble. I am sure his other work likewise merits the frabjous praise heaped upon it by all and sundry, but I am an important investment banker, with limited time. I’ll just wait for the Cliffs Notes version of Infinite Jest to come out.

Although, I have to admit I admire Mr. Wallace’s program and turn of phrase, if Wikipedia reports it aright:

According to Wallace, “fiction’s about what it is to be a fucking human being.”

I might say the same about what I try to accomplish here, imperfectly, on a very occasional basis.

* * *

That being said, I just plugged the preceding paragraphs into IWL’s transmogrification device, and out spit H.P. Lovecraft again.


© 2010 The Epicurean Dealmaker. All rights reserved.

Monday, August 9, 2010

Ooh, Shiny!

Arrakis teaches the attitude of the knife—chopping off what's incomplete and saying: "Now it's complete because it's ended here."

— Frank Herbert, Dune

Well, that's a bloody relief.

I just unplugged from Twitter. I think my heart rate and blood pressure both dropped twenty points apiece.

I've been threatening to do so for some time now, whining and tweeting out loud about quitting for weeks, in between launching one or more of my trademark multi-tweet treatises on some-fucking-thing-or-other. My Twitter followers have made terrific fun of me for it, and justifiably so. But as I have explained in these pages before, I naturally tend toward the ADHD side of the consciousness spectrum. Twitter's automation of a never-ending stream of bright, shiny bits of information, opinion, trivia, and minutiae is tailor made to drive me to paralyzed distraction. It's terrific, enervating fun.

Which would be fine, if I were truly independently wealthy, lounging on a luxury yacht in the middle of the Mediterranean with a bevy of scantily-clad confidential secretaries and barrels of ice-cold champagne my only competing distractions. I could handle that. But shit, homies, I have a job, and a family, and two pathetic excuses for dogs to take care of. Twitter is just too fucking distracting. At least for me.

So I am gone. Vamoosed. Outta there. Never to return, until and unless I win the lottery or convince a particularly recalcitrant client of mine to sell his massively overpriced company for a very large pot of money, of which I will commandeer an appropriately modest, yet obscene percentage. "Fuck you money," as they call it in the trade.

Those of you Dear Long-Form Readers who have frequented my irregular emissions on Twitter as well as these pages are welcome to remain and enjoy the more substantive fare here. Although I did recently threaten to withdraw from blogging as well, the time commitment to this forum is far more manageable than the daily drain of watching Twitter on the off chance someone one might say something ridiculous or amazing. As well as the competing temptation to lob 140-character bon mots, aperçus, or word bombs into the stream whenever I feel unjustly overlooked or neglected.

But you'll get over it. The electronic mailbox associated with this account remains in effect, should you care to communicate in a more personal and direct fashion. And, really, admit it: you're not gonna miss me that much.

The person who experiences greatness must have a feeling for the myth he is in. He must reflect what is projected upon him. And he must have a strong sense of the sardonic. This is what uncouples him from belief in his own pretensions. The sardonic is all that permits him to move within himself. Without this quality, even occasional greatness will destroy a man.


Not that anything I have tweeted to date constitutes greatness, mind you.


© 2010 The Epicurean Dealmaker. All rights reserved.

Friday, August 6, 2010

Thank You for Smoking

Ἔρος δηὖτέ μ' ὀ λυσιμέλης δόνει,
γλυκύπικρον ἀμάχανον ὄρπετον

Eros once again limb-loosener whirls me
sweetbitter, impossible to fight off, creature stealing up

— Sappho, LP, fr. 130, trans. Anne Carson

“Why is youth so terribly unmerciful? And who has given it permission to be that way?”

— Smiles of a Summer Night

Hewlett Packard CEO Mark Hurd resigned this evening, allegedly in response to an internal investigation about sexual harrasment. While the investigation found no evidence of wrongdoing, “it did find violations of the company’s standards of business conduct.” Given the obfuscations and protective smokescreens inherent to corporate PR doublespeak, this tells us exactly nothing. I am sure the legions of well-paid internal and external counsel beavering away in darkness to quickly settle and bury any real or purported wrongdoing will make sure we never really find out.

But Mark Hurd’s real or alleged guilt is not my subject this evening, Dear Readers. Rather, it is a larger and more persistent question. One which I believe many of you, like me, have pondered from time to time over the length of your lives. That is:

Why is it that powerful men cannot seem to keep their dicks in their pants?

This phenomenon is so trite, prevalent, and persistent that I will not insult your intelligence by drawing attention to the myriad examples from our recent or distant past to illustrate it. I will just presume that if you have not been in a coma since the age of three you probably have a pretty good idea of what I am talking about. Of course, I am talking about the sexual peccadilloes of men who are normally married, as opposed to the theoretically less objectionable rutting about of unattached and uncommitted men. You should also assume I am focused on powerful men. Naturally, a man with social status, economic wealth, or political power will have a lot more opportunity to fool around with members of the fairer sex, since so many of the distaff gender find such attributes to be catnip in a man. Poor, lowly, impotent men—I will assert with little fear of contradiction—are probably just as eager to do the nasty with attractive women as the big boys. They just get a lot fewer chances, and no-one in the gossip pages seems to care if they succeed.

* * *

Now those of you now reading who expect a lengthy, well-reasoned and well-documented treatise on the sociological, anthropological, and cultural sources and reasons for extramarital cheating among married men in positions of power will be sorely disappointed (as well as clearly lost, having stumbled upon the wrong blog site). But I can offer a few simple observations based on personal experience and observation.

For one, unlike what I remember believing in my callow youth and the apparent beliefs of many youngsters under the age of 30 today, getting older does not leach out physical desire or interest in sex from married adults like an inconvenient stain.1 If anything, the decreasing frequency and opportunity for thrilling sex with an exciting stranger tends to make it that much more attractive to anyone not sporting ice blood in his veins.

Second, the relentless approach of age, infirmity, and death assumes a greater and greater reality and presence of mind as one ages. Most young people below the age of 30 simply cannot comprehend—on a visceral, emotional level—the ineluctable fact of their approaching decrepitude and eventual obliteration. This lurking thought grows slowly in one’s mind as one ages, hiding in the shadows but never forgotten, and it begins to affect almost every aspect of one’s behavior. For men, fear of death can make one grasp at youth, and excitement, and beauty in a desperate subconscious bid to stave off the Reaper. If the man happens to be wealthy, famous, and powerful, likely he will be surrounded by plenty of pliable young females delighted to indulge his self-deception.

But third—and, in my opinion, most important—men do not lose the need and desire for romantic love any more than do women when they age. If anything, it gets more poignant and compelling than when they were young. The young man—like the young woman—yearns for love, and pines for it, but deep in his bones he just knows that he will find it. He assumes it is inevitable. The older man knows, from long experience, that he may never find such love, or, if he has had it, experience deep, compelling romantic love ever again. If this realization does not turn him bitter, it will make him all the more susceptible to the real or imagined siren call of Eros. Stir in method, and opportunity, and presto!: peccadillo in a glass.

* * *

But don’t take my word for it. Go watch Ingmar Bergman’s Smiles of a Summer Night. And read Pauline Kael’s review of the film, if you need further convincing that romantic love gets no simpler, no less poignant, and no less powerful when you are old and married. In it she quotes a Swedish film critic, who wrote that

“... Smiles of a Summer Night is a comedy in the most important meaning of the word. It is an arabesque on an essentially tragic theme, that of man’s insufficiency, at the same time as it wittily illustrates the belief expressed fifty years ago by Hjalmar Söderberg that the only absolutes in life are ‘the desire of the flesh and the incurable loneliness of the soul.’”

Then perhaps in the future you will not sneer quite so readily at old men besotted with sex, making themselves ridiculous in the pursuit of romantic and erotic love, no matter how powerful they may be. Perhaps you will remember the words of another old man who also clung desperately to youth and love and was obsessed with sex well into his dotage. There is wisdom and magic in them.

O but there is wisdom
In what the sages said;
But stretch that body for a while
And lay down that head
Till I have told the sages
Where man is comforted.

How could passion run so deep
Had I never thought
That the crime of being born
Blackens all our lot?
But where the crime’s committed
The crime can be forgot.

— W.B. Yeats, A Woman Young and Old: V. Consolation

Glukupikron, indeed.

1 Although there is a very long, semi-serious tradition in Western culture—disputed violently by many women, natch—asserting that married women lose interest in sex disproportionately more than husbands. This trope is neatly illustrated by one of the favorite (and most popular) jokes of Mrs. Dealmaker herself:

Q: What's the difference after sex among a prostitute, a mistress, and a wife?
A: The prostitute says, “Did you enjoy that?” The mistress says, “Did you enjoy that as much as I enjoyed that?” And the wife says, “Beige... I think I want to paint the ceiling beige.”

© 2010 The Epicurean Dealmaker. All rights reserved.

Wednesday, August 4, 2010

Jezebel Spirit

Ha ha ha ha ha ha ...

Do you hear voices?

You do. So you are possessed.

You are a believer, born again and yet you hear voices and you are possessed.

Okay. Are you ready [unintelligible] ?
Ha ha ha ha ha ha.

— Unidentified exorcist, New York, 19801

Consider, Gentle Readers, a simple game:

It is an auction, with any number of participants, the object of which is to win a single, unadorned one hundred dollar bill. If you win the auction, you get to keep the money. (No tricks, I promise.) Bidding starts at a minimum of one dollar, and topping bids must exceed the prior bid by no less than one dollar, in even, undivided dollars. There is only one additional rule: the runner up in the auction must pay his or her last bid to the auctioneer, as well as the winner paying the winning bid. So, for example, if the winning bid is $10, and the next highest bid is $9, the winner will pay $10 and collect the hundred dollar bill, and the runner up will pay $9 and receive nothing.2

So, here we go. I am holding in my hands a crisp, new, freshly-issued one hundred dollar bill. Genuine U.S. currency, guaranteed legal tender for all debts, public and private. The opening bid is one dollar. Only one measly dollar to walk away with a crisp new hundo. Who will start the bidding?

* * *

I wonder how many of you raised your virtual hands. Contrariwise, I wonder how many of you recognized the trap for what it is: a slight variant of Martin Shubik's rational choice theory experiment, the Dollar Auction.

It is an odd sort of game, but one which leads to all sorts of interesting outcomes and associated implications. For some of you may have realized that once you make a bid, you are committed to a losing escalation. Sure, at the beginning, the prospect of winning $100 for a bid of $1, or outbidding a competitor to win it for $10, sets your rational utility-maximizing (i.e., greed) glands salivating. Eventually, however, you realize that you are trapped in a losing battle. If another person bids $50, you or someone else have to bid $51; otherwise, you will spend $49 and get nothing. All of a sudden the prospect of a risk-free gain of $51 begins to look like an unavoidable loss of $49. Surely you should just bid $51 yourself, right? But then your equally rational competing bidder does the same, and you are back to the races. Sadly, the escalation doesn't even stop once the high bidder reaches $100, the true value of the bill at auction. For then the underbidder faces the prospect of either bidding $101, and losing a dollar, or not counterbidding and losing $99.

Depending on how loss-averse the participants are, or how much utility they derive from inflicting greater losses on their competitor than they suffer themselves, there is no theoretical upper limit to how high bidding can go.

I have seen this auction played out in an academic setting in front of a diverse group of businesspeople for a $20 bill. The winning bid?: $50, before the business school professor running the auction took pity on the bidders and cancelled the experiment. This same professor later told us he had run a dollar auction like mine for $100 among a group of hardened, financially savvy investment bankers. The result there?: $1,000 and counting, before he cut it off. Apparently, some of the bankers in the room became truly incensed when they were not allowed to continue their mutually assured destruction.

In fact, one of the only ways to participate in such an auction and win is to bid first and not face a counterbid. In other words, you can win if you are by far and away the most aggressive, greedy, competitive, and stupid of the auction participants. (For if you are not stupid, you will think through the situation and realize that bidding second puts you at the mercy of the idiot who bid first, with no clear loss limit in sight. The only reason you might bid is if you refuse to allow the stupid guy to walk away with $99 worth of risk-free profit. But that can be a rather pyrrhic lesson to teach.)

* * *

Now I share this thought experiment with you, Dear Readers, because I think it illustrates an illuminating dynamic in many competitive socioeconomic situations. The dollar auction is simplified, and simplistic, but the win-at-all-costs motivation behind it can be witnessed in human activities as widespread and diverse as mergers and acquisitions, proprietary trading, simple auctions, and herding behaviors of all kinds. Even, I would argue, in the winner-take-all competitions of the human heart.

What is the solution? I have no fucking clue.

Greed is a mercurial and Protean thing. So is fear. Bottle them up in one part of the human psyche, and they will only reemerge in different form elsewhere.

The principle of exorcism is simple: an exorcist suitably skilled can expel an evil spirit from the victim it possesses, but he cannot destroy that spirit. That, presumably, is for God alone to accomplish.

* * *

Come out, grief! Come out, destruction!

Ha ha ha ha ha ha ...

1 As sampled by Brian Eno and David Byrne in "The Jezebel Spirit," from My Life in the Bush of Ghosts. Listen to it. It will spook the crap out of you. Highly recommended.
2 For you cleverboots, there is another rule: no bidding consortia. You're in this one alone.

© 2009 The Epicurean Dealmaker. All rights reserved.