Tuesday, March 20, 2012

Greed is good

Growing up in a middle class family, my initial interaction with banks was very limited, specially as a schoolboy. I had a very simplistic idea and definition of a bank in my head back then. A bank is a place where people keep their money safe so that bad people don't steal it from you. You have a unique account number through which you are recognized by the bank. When you have some extra money you don't need, you go there and use that number to put in your money safely. When you need a more lump-some amount for example to buy furniture or a TV, you go there again and using your number, you get your own money back. Since you trust your bank and put your money with them, the bank uses it for various purposes and in return give you a part of the profit they make which you call interest rate. Each bank had its own rate depending on the status of a bank. In my last days in school, I also learned from my parents that one can get higher interest rate with banking products like IVP (Indira Vikas Patra) and FD (Fixed Deposit) and in return you have to keep money with them for a fixed and longer period of time. There was another thing I used to hear often was a cheque but I never really understood it or cared for it. Actually, I was never really interested in money. I knew we need it to survive and it is important but trust me, till today I am still not very fond of money which makes my parents nervous sometimes.  

After school, while getting into college, I heard about other bank products/terms like loan, credit card, stocks, shares etc. My parents had never been big risk takers with money so they never used these things. Till today, my parents don't have a credit card and they never invested a single dime paisa in stocks. Life was simple, no debts, no fancy bank products, all good and we lived within our means. That was time of late nineties. 

Cut to 2012, in the last 10-12 years I think I learned a lot about the world. I did my graduation, post graduation, started working, saved some money for myself, traveled a bit. This past decade made not only me but everyone witness, a hell lot of things which might not have been normal 50 years back, specially relating to the Dot-com bubble and its burst (2000), 9/11 and its economic aftermath (2001), US housing crash (2008) and recently the euro crisis (2010). Incidentally, all related to money.    

During my graduation and post graduation, I learned a term and a form of banking called Investment banking. It was quite different to the simplistic idea I had of banks. It seemed quite complicated to me to figure it out myself. I did not had any contacts who could explain me about it nor did I had money or knowledge or experience to try it out myself. But, I had always heard and read jokes about how women fall for investment bankers and even blindly marry one if they get a chance. Then, one day I happened to watch the movie named Wall Street (1987). It definitely was an adrenaline pumper but I hardly understood the complex banking jargon used in it. But there was a dialogue by Michael Douglas playing Gordon Gekko in the movie which always stuck on to me, "Greed is good". Another line which I never forget from the movie is when Martin Sheen tells his son to start 'producing' something with his life. He said, "Create, instead of living off the buying and selling of others". It was only some years later that I saw it again and could make more sense out of it.

After working for a couple of years and making some savings, I was advised by many to buy a house/apartment by investing my savings and taking a loan. I was never really interested in it. Incidentally, a friend of mine started working as a analyst and then a trader at an energy trading company. For me it was all Latin, trading energy. I mean how trade something like energy, sitting at a computer ? I was quite fascinated by it and asked my friend to explain me everything about it. I got more curious and learned the basics of trading and its fancy terminology like shorting, stop loss, call and put options, naked selling, derivatives etc. The next step was to actually try my hand at it. So, I started slowly with putting some money in the market. I did good initially and it motivated me to learn further. So, I started digging more and more into it. Reading books, keeping constant watch on the news, reading analyst reviews, know how of trading algorithms etc. I further did well in the markets. It was never the attraction of money for me. It was always about beating the market. The kick you get after getting your bet right in the market is priceless. So, it was always about doing better than the markets. All that adrenaline rush and excitement when watching graphs going up and down is not describable in words. One had to experience it himself.

All this lasted for about 12-15 months. But slowly, I started feeling that my actual work was being neglected. I was investing too much time in this. I am not a finance guy or a banker or a trader by profession. I am a Computer Science guy. So, even though I was doing well, I decided to quit it. Also, I was started question the moral and ethics behind all of it. How is it different from gambling? My religion strictly prohibits gambling and here I was placing a bet that things 'might' turn in my favor if I am lucky. There is no solid foolproof way of winning all the bets in the markets. I had read an article where the author prefers going to a casino and playing there better than placing bets in the market. He said casinos are far more fair than the dynamics of stock markets. I could not agree more. There was another reason behind it. Gradually, over time, you start seeing the bigger picture. You realize that you are just a small fish in the pond or even sea. Sometimes, you are even the bait. The big sharks sit in those investment banking firms who are professionally groomed and trained for this game. They know this game inside out and they are the masters in it. There are hell lot of things going behind the curtains which an average person has no chance of knowing. You keep fooling yourself that you made some money from it but it is actually them who get the real deal !

Let me explain with an example taking an IPL match. The investment bankers and traders are like the players on the field actually playing the game. It does not matter if they win or loose. At the end of the day, they will take home fat pay checks. You my friend, as an independent day trader on the other hand is like that cola boy serving cola to the audience. You invest your own money to buy those cola filled cups from a vendor and take them to the audience. You feel great and beat your chest that you did great by selling a 10 rupees cola cup for 50 rupees. But at the same time, if somebody, in moment of ecstasy and cheering for the players unknowingly by mistake touches the tray of cola you are carrying and all of it falls down, all the loss of buying the cups at 10 rupees from the vendor is your own !   

Last week, an open letter published in the New York Times created quite a buzz in the markets. It was by a guy named Greg Smith who resigned after working in high ranks at one of the top investment banking firms, Goldman Sachs. A lot of people criticized that it is all a gimmick and why did the guy realized after all these years and taking fat pay checks every year, that he was working at a bad place. Why, just at the turn of his retirement he blew it all. How will he manage to handle the court cases that Goldman Sachs will charge him with. Why don't he work with the government and work legally to help them to charge the company with fraud.

All these are valid questions but personally speaking, I don't care if it is a sham or a PR stunt. All I care is that at least someone challenged his moral and stood up to speak the truth. It happen sometimes that it takes time to build up the strength to say enough is enough. It was a classic Michael Clayton moment for me. The film starts with a brilliant monologue that I can relate to this open letter and consider worth listening once. In the film, they show how a 'fixer' played by George Clooney finally stands up for the right thing to do. There was even a testimony by the teacher of Greg Smith published which supported his actions. So, it is tough to believe that everything going on at his former workplace is all nice and clean. There was another interesting article I read after this open letter was published. The open letter had quite an impact in Europe. It is quite clear that there is a big distrust in banks building up and their PR teams are working round the clock for damage control.

I have visited 3 of the Char Dhams I consider of the banking world, New York, London, Frankfurt. Japan is next on the list to visit. There is another interesting thing I have observed while traveling to places in the western world. Is it just by coincidence that the biggest, the most fancy building in downtown of most cities is a bank? Does it ring a bell?

Sometimes, I wonder how we are making our lives complex day by day. I wish things would be much simpler and we would have stuck to my school-time understanding and liking of banks!


palak said...

very well written :) keep it up! keep writing :)

bankersgarden.blogpost.com said...

The post was a very interesting to a retired banker like me.

the.orchestra.of.life said...

I was expecting a comment from you, at least on this post :) But frankly speaking, reading again the post, I feel it was a mess. There are so many things I left. Ex: is it fair to compare retail and investment banking? If no one invested money in markets how would companies grow? etc
Actually, I did not wanted to make the post like a lecture on banking but more like a take from a common man's perspective.
Moreover, neither I am a writer nor a banker so what would I know :) It is like my grandfather telling me how useless I am as a computer engg. when I am not even able to repair my mom's PC :D

Madhulika said...

I loved the simplicity with which you started your post...
A simple family, strange kiddish ideas, perfect life. I guess it is something everybody can relate to.
Beautifully written :)
Keep Blogging..!!
and thanks a lot for dropping by my blog, your words means a lot to me :)

the.orchestra.of.life said...

thanks Palak and Madhulika :)

Anonymous said...

Greed of lots of people over decades , has led to this growth of money, on PCs(not on trees). /It has been legitimized, and there is no going back.

Wish, they will keep the food commodities out of it, though. At least in India!


the.orchestra.of.life said...

well anonymous/vetrimagal .. we are way past that stage too. I mean you can literally trade food commodities on major stock exchanges. I was literally shocked and appalled when I learned it for the first time (as a common man). But yes, you can buy and sell ETFs (Exchange-traded funds)/Certificates of commodities like wheat, cotton etc merely sitting on your PC :)