April 26, 2010--CDOs and S&M

Unintentional satire is my favorite kind. So I was amused to stumble on the following story in Saturday's New York Times.

At first I thought I was hallucinating and thus had to read it twice. Here's the story:

There was this Derivatives Association conference in San Francisco. Lawyers, financiers, investment bankers, and above all traders showed up to hear about "Systemic Risk: Advances and Challenges in the Wake of the [Financial] Crisis" and "Collateralization and Netting." Whatever that means, though I assume "netting" means making money.

Between panel discussions there was lots of chat about the potential changing environment for derivatives trading. If President Obama and the Democrats in Congress have their way, these transactions will be brought more out into the light of day. What has to this point been a largely unregulated, opaque marketplace will become, to use the word of the day, more transparent. And presumably less profitable.

I am not holding my breath waiting for this to happen since a literal well-financed army of lobbyists has marched on the Capital to press senators from both parties to keep their hands off what they call the Free Market. Forget for the moment that that legendary Free Market has functioned more like a rigged gambling casino (maybe to Republicans even the rigging represents freedom); forget for the moment that hedge fund managers who have been at the epicenter of the crash, with the connivance of Congress and the previous administrations, have special dispensation from most forms of taxation; what was concerning to the folks who convened in the City By the Bay were the consequences to their own personal bottom lines if even modest new regulations are approved.

It was reported (full article linked below) that young derivatives traders are now questioning whether or not they should stay in the business. The Times reported that during the conference their seniors attempted to calm them down. One said, "I think people have accepted that regulation is going to happen and that the business will probably be less profitable."

"Even so," I'm sure they counseled their young wards, "you should hang in there because there will still be plenty to go around. But in case you are unconvinced," I can almost hear them saying, "think about what it would be like if there weren't derivatives and CDOs to pedal and sell short. You'd have to get a real job and actually work for a living. So stay loose and think about sending your resume to Goldman Sachs."

But sitting in on speeches and panel discussions can take its toll on participants; and so perhaps inspired by senior members of the Republican National Committee who not too long ago spent some quality time at an S&M club while they were huddling in San Diego, the derivatives boys took Thursday night off and made their way to Supperclub, a joint where weary traders could flop on beds that covered the club's floor while staff massaged them all over.

Newly relaxed, later the same evening some wended their way to the Supperclub's S&M chamber where . . .

But this is too much information for me. If you must, use your own imagination.

Then, fully stimulated and remotivated, they returned to the hotel, the luxe Fairmont on Nob Hill, for another day of hearing about how to make big bucks no matter what Congress and the president come up with.

And of course I am assuming that after all was said and done and they departed, they wrote off even the tab at Supperclub as a business expense. There must also have been a workshop at the conference about to get away with that. Perhaps moderated by the RNC's Michael Steele.