A few days ago I received an e-mail from my Kenyan cousin which joked that Obama's family in Kenya was making plans to lengthen the runway in their village on Lake Victoria so that Air Force One could land safely.
The underlying culture in Kenya is that if you make it good the family (extended) can expect to be taken along. For example if you were to become the major of Nairobi tribe members (all) would expect to be offered jobs in Nairobi. I feel Obama's extended family on the shores of lake Victoria will be disappointed.
Having grown up as a white boy in rural Kenya at the tail-end of the colonial period Kenya is in my heart, soul and body. I speak Swahili, think like a Kenyan and always believed that Kenya's was first. In the early seventies 10 years after independence from British rule the white colonials felt an uneasy sense of the future. Many left for South Africa or Australia but many more stayed. My family stayed but for me things did not work out and at the age of 17 I left for Britain to become a young soldier. 32 years later I find myself an American citizen living in Charlotte North Carolina with a half Kenyan president elect. I like all Kenyan's, am emotional with pride.
Thursday, December 4, 2008
Merry Christmas
Here’s wishing you and your family a merry Christmas and a safe and rewarding 2009.
I think we will all be glad to see the end of 2008. For us it was a particularly bad year, and if I had to choose a year to spend in bed, this would have been it. In April I was diagnosed (cause unknown) with Transverse Myelitis, a rare syndrome affecting the spinal cord. I spent 9 weeks in hospital. I was hit at the fourth vertebrae below the neck and was completely paralyzed. The prognosis was poor only a third recovering completely, another third getting no recovery. Here eight months later – I seem to be lucky and am making steady progress to what I hope will be a full recovery, but only time will tell. I am very thankful to my family and friends for all the wonderful support they have given me though out the year.
I did close my business in June, but hope I will be well enough to re-start it again in early 2009. Lets all hope the new year can restore our positive and confident spirits!
Regards Raymond May
I think we will all be glad to see the end of 2008. For us it was a particularly bad year, and if I had to choose a year to spend in bed, this would have been it. In April I was diagnosed (cause unknown) with Transverse Myelitis, a rare syndrome affecting the spinal cord. I spent 9 weeks in hospital. I was hit at the fourth vertebrae below the neck and was completely paralyzed. The prognosis was poor only a third recovering completely, another third getting no recovery. Here eight months later – I seem to be lucky and am making steady progress to what I hope will be a full recovery, but only time will tell. I am very thankful to my family and friends for all the wonderful support they have given me though out the year.
I did close my business in June, but hope I will be well enough to re-start it again in early 2009. Lets all hope the new year can restore our positive and confident spirits!
Regards Raymond May
Tuesday, November 25, 2008
Democracy in the selection of Board of Directors
By R Raymond May
1526 Reverdy Oaks drive, Matthews NC 28105 (tel) 704.847.0008
I was asked at a neighborhood get together in November 2008 for my opinion on what was the root cause of this fine mess we find ourselves in at the end of 2008. Interesting, everyone knows it was all caused by the collapse in house prices and the sub-prime mortgages debacle! or was it?
No I said, those were only the first symptoms; the root cause was the wholesale institutional culture of corporate theft that has taken hold. The most clear cut sign is the incredible levels of CEO pay, golden parachutes and most of all pay levels on Wall Street. 17 billion dollars for the 2007 Goldman Sachs bonus pool! Almost equal to the company’s current market capitalization.
One group of the stakeholder club – “management” holds all the cards. The others - Capital, employees, community take what management gives them. There are lots of “good” managements but there are no checks and balances and it is hard to see the good from the “bad” until it is too late.
The only check and balance on management is the Board of Directors. But how is the board put into place and who checks the board? Certainly not the shareholders, but no, it is the same shameless management.
In response to the corporate scandals in 2001-2002, the major U.S. exchanges came up with new director and committee independence requirements, which are intended to enhance board oversight. We use this regulation event to shed light on the effect of board structure on CEO compensation. We find a significant decrease in CEO compensation upon compliance with these requirements. The significant decrease in compensation is due to a decrease in the option-based portion of the compensation. The results suggest that board structure is a significant determinant of the size and structure of CEO compensation.1
None of these changes has addressed the key issue – how do we select and remove a board of directors? Other than having a yes vote to management’s selections for us.
Corporations are so big, and the amount of cash available is just too temping. I remember thinking out loud as a young trader on Wall Street "why are we paid so much?" My boss the future CFO of JP Morgan replied "it is because we are so close to all the money".
During my time on Wall Street I observed two types of people. Type 1 had the corporation, group or businesses interests in mind foremost. Type 2 only had their own interests at heart. Types 2 were definitely the majority and you hoped you did not have to work for one of them. The business seemed cyclical in terms of which type was dominant.
Clearly this mess was caused by the gradual prominence of type 2s. What is the purpose of owning stock in a company where all returns go to management? Why own a company where the number of shares increases at the same speed as profits just to be given to management?
As the US government agrees to bailout Citibank all the talk on the TV shows is on the removal of the Board! but even if we wanted to how would that happen? And how would a new board be selected?
We need real democracy in the selection of Board of Directors!
1. Chhaochharia, Vidhi and Grinstein, Yaniv,CEO Compensation and Board Structure(October 2006). Available at SSRN: http://ssrn.com/abstract=901642
1526 Reverdy Oaks drive, Matthews NC 28105 (tel) 704.847.0008
I was asked at a neighborhood get together in November 2008 for my opinion on what was the root cause of this fine mess we find ourselves in at the end of 2008. Interesting, everyone knows it was all caused by the collapse in house prices and the sub-prime mortgages debacle! or was it?
No I said, those were only the first symptoms; the root cause was the wholesale institutional culture of corporate theft that has taken hold. The most clear cut sign is the incredible levels of CEO pay, golden parachutes and most of all pay levels on Wall Street. 17 billion dollars for the 2007 Goldman Sachs bonus pool! Almost equal to the company’s current market capitalization.
One group of the stakeholder club – “management” holds all the cards. The others - Capital, employees, community take what management gives them. There are lots of “good” managements but there are no checks and balances and it is hard to see the good from the “bad” until it is too late.
The only check and balance on management is the Board of Directors. But how is the board put into place and who checks the board? Certainly not the shareholders, but no, it is the same shameless management.
In response to the corporate scandals in 2001-2002, the major U.S. exchanges came up with new director and committee independence requirements, which are intended to enhance board oversight. We use this regulation event to shed light on the effect of board structure on CEO compensation. We find a significant decrease in CEO compensation upon compliance with these requirements. The significant decrease in compensation is due to a decrease in the option-based portion of the compensation. The results suggest that board structure is a significant determinant of the size and structure of CEO compensation.1
None of these changes has addressed the key issue – how do we select and remove a board of directors? Other than having a yes vote to management’s selections for us.
Corporations are so big, and the amount of cash available is just too temping. I remember thinking out loud as a young trader on Wall Street "why are we paid so much?" My boss the future CFO of JP Morgan replied "it is because we are so close to all the money".
During my time on Wall Street I observed two types of people. Type 1 had the corporation, group or businesses interests in mind foremost. Type 2 only had their own interests at heart. Types 2 were definitely the majority and you hoped you did not have to work for one of them. The business seemed cyclical in terms of which type was dominant.
Clearly this mess was caused by the gradual prominence of type 2s. What is the purpose of owning stock in a company where all returns go to management? Why own a company where the number of shares increases at the same speed as profits just to be given to management?
As the US government agrees to bailout Citibank all the talk on the TV shows is on the removal of the Board! but even if we wanted to how would that happen? And how would a new board be selected?
We need real democracy in the selection of Board of Directors!
1. Chhaochharia, Vidhi and Grinstein, Yaniv,CEO Compensation and Board Structure(October 2006). Available at SSRN: http://ssrn.com/abstract=901642
Friday, November 21, 2008
Black Friday - the collapse of Citibank
November 21 2008
Seems to be another black Friday, Citibank shares trade below $4.00, Bank of America is on the verge of becoming a single digits stock, the once mighty JP Morgan has seen its stock tumble 50% in the last month.
Why is this happening?
One clear reason can be laid firmly at the door of Treasury Secretary Paulson. Lack of Confidence.
I have this picture in my mind of Fort surrounded by bad guys and on the verge of having to give up its defense, all hope rests in the arrival of a relieving force. But a smoke signal is seen in the distance from the relief force saying that they are going home! the Fort will just have to wait for another force to arrive in a few months. This is effectively what Paulson said this week in front of Congress. The TARP [troubled asset relief program] would no longer be used by the current administration to buy bank assets. Whoosh! Shock!
From the moment Paulson said this, commercial mortgage assets, credit card loans assets, auto loans assets on bank balance sheets have seen spreads widen, and once more raising the specter of bank failures.
History will judge Paulson once we have a better view of these events with the advantage of perspective. However Paulson is already trying to write his own version of history, his press conference earlier this week attempted to set out a defense of events surrounding the demise of Lehman as being caused by "insufficient authority" vested in Treasury and the Federal Reserve. This is a tacit admission that the demise of Lehman was a turning point in the crisis and a mistake, one in which ensured this would be a major crisis and one that would be difficult to arrest. For my two cents – history will not judge him kindly.
I for one believe Lehman could have been saved in some form. Lehman's demise taken together with the effective confiscation from equity holders that resulted from the Conservatorship of Freddie, Fannie and AIG has resulted in the equity markets collapsing - there are no buyers of equities. Why would you buy equity when you are unclear what you are buying and risk confiscation by the government?
As the equity market collapsed, holders of equities are forced to liquidate generating even more downward pressure. The final collapse has caused hedge funds that held equities as glorified mutual funds to report large losses and start a stampede of withdrawals from all hedge funds.
So what started as a housing crisis is no longer a housing crisis and those that say in order to fix this crisis the housing market must be shored up are no longer correct. The issues now lie in commercial loans, commercial mortgages, credit cards, auto loans, hedge funds, manufacturers or just about everybody. It is very difficult to see how confidence in balance sheets, businesses and our economy can be restored.
Management of Citi were right in saying that the share price should have no affect on the ability of the bank to operate normally. Oh how we wish this was true! Unfortunately Citi needs to continue to roll over its short-term finances! Who will lend Citi the money? As the share price falls, the price of funding increases, at some point the bank is no longer viable. We have seen this play out many times. But we are at a place now that the only buyer of Citi is the government and we all know the price of that is! So selling Citi shares at $4 seems very rational. Back to Paulson - he's been very inconsistent, very unfair and is provided no leadership - expect a bad weekend!
One last point - the administration has allowed huge financial corporations to be created! We are back to where we were in 1928! before the Glass-Steagall Act that resticted bank holding companies own other financial firms. Is this really a good idea?
Seems to be another black Friday, Citibank shares trade below $4.00, Bank of America is on the verge of becoming a single digits stock, the once mighty JP Morgan has seen its stock tumble 50% in the last month.
Why is this happening?
One clear reason can be laid firmly at the door of Treasury Secretary Paulson. Lack of Confidence.
I have this picture in my mind of Fort surrounded by bad guys and on the verge of having to give up its defense, all hope rests in the arrival of a relieving force. But a smoke signal is seen in the distance from the relief force saying that they are going home! the Fort will just have to wait for another force to arrive in a few months. This is effectively what Paulson said this week in front of Congress. The TARP [troubled asset relief program] would no longer be used by the current administration to buy bank assets. Whoosh! Shock!
From the moment Paulson said this, commercial mortgage assets, credit card loans assets, auto loans assets on bank balance sheets have seen spreads widen, and once more raising the specter of bank failures.
History will judge Paulson once we have a better view of these events with the advantage of perspective. However Paulson is already trying to write his own version of history, his press conference earlier this week attempted to set out a defense of events surrounding the demise of Lehman as being caused by "insufficient authority" vested in Treasury and the Federal Reserve. This is a tacit admission that the demise of Lehman was a turning point in the crisis and a mistake, one in which ensured this would be a major crisis and one that would be difficult to arrest. For my two cents – history will not judge him kindly.
I for one believe Lehman could have been saved in some form. Lehman's demise taken together with the effective confiscation from equity holders that resulted from the Conservatorship of Freddie, Fannie and AIG has resulted in the equity markets collapsing - there are no buyers of equities. Why would you buy equity when you are unclear what you are buying and risk confiscation by the government?
As the equity market collapsed, holders of equities are forced to liquidate generating even more downward pressure. The final collapse has caused hedge funds that held equities as glorified mutual funds to report large losses and start a stampede of withdrawals from all hedge funds.
So what started as a housing crisis is no longer a housing crisis and those that say in order to fix this crisis the housing market must be shored up are no longer correct. The issues now lie in commercial loans, commercial mortgages, credit cards, auto loans, hedge funds, manufacturers or just about everybody. It is very difficult to see how confidence in balance sheets, businesses and our economy can be restored.
Management of Citi were right in saying that the share price should have no affect on the ability of the bank to operate normally. Oh how we wish this was true! Unfortunately Citi needs to continue to roll over its short-term finances! Who will lend Citi the money? As the share price falls, the price of funding increases, at some point the bank is no longer viable. We have seen this play out many times. But we are at a place now that the only buyer of Citi is the government and we all know the price of that is! So selling Citi shares at $4 seems very rational. Back to Paulson - he's been very inconsistent, very unfair and is provided no leadership - expect a bad weekend!
One last point - the administration has allowed huge financial corporations to be created! We are back to where we were in 1928! before the Glass-Steagall Act that resticted bank holding companies own other financial firms. Is this really a good idea?
Crossing the bridge!
November 21 2008
The doorbell just rang. It was the Chesapeake man coming to collect my wheelchair. Who would have thought that a manual wheel chair would cost $6000. Leaving hospital in June I had ordered a wheelchair but cancelled the order as it became clear that I would walk again. So instead of my own wheelchair I have relied on a loaner which came due today.
I did not know he would be coming to collect my chair today. Should I let him have it? It is very useful for anything stressful or long, like voting day or taking the dog for a walk - yes I take my wheelchair!
I let him have my chair!
Therefore I have no crutch any more and have to walk everywhere - what better signal is there.
The doorbell just rang. It was the Chesapeake man coming to collect my wheelchair. Who would have thought that a manual wheel chair would cost $6000. Leaving hospital in June I had ordered a wheelchair but cancelled the order as it became clear that I would walk again. So instead of my own wheelchair I have relied on a loaner which came due today.
I did not know he would be coming to collect my chair today. Should I let him have it? It is very useful for anything stressful or long, like voting day or taking the dog for a walk - yes I take my wheelchair!
I let him have my chair!
Therefore I have no crutch any more and have to walk everywhere - what better signal is there.
Thursday, November 13, 2008
Derivatives, the starting of Blackbird
November 13 2008
By R Raymond May (c) 2008
1526 Reverdy Oaks drive, Matthews NC 28105 (tel) 704.847.0008
In 1986 I joined JP Morgan London as a freshly qualified accountant to be a junior staff member on a policy and procedures working team. Just six weeks into my career at JP Morgan I was sidetracked by the controller to help with the operations of the small business that was suffering growing pains - derivatives or in our jargon – Swaps. At that time only 5 business personnel and a single clerk, each trade tracked on a separte spreadsheet. I spent the next six years developing technologies covering operations, accountancy, risk management, valuation and more for what become a huge business. I can confidently claim to have first designed and developed systems that used mark-to-market accounting, value at risk and complex yield curve construction.
In 1992 I moved with my family to New York to take up a junior role on the trading desk. My first responsibility was to implement the risk management technologies I had developed in London. Secondly I took these models and arbitraged the long-term foreign exchange forward markets. In 1994 I took over responsibility for all U.S. dollar derivatives at JP Morgan.
At the end of 1996 I considered the methodology for trading in the swaps market to be inefficient and opaque. There must be a better way! Just that year a new trading platform had been introduced to trade foreign exchange. With my technology background and deep understanding of the swaps market I felt uniquely qualified to develop an electronic exchange for this huge growing derivatives market. In early 1997 I resigned from JP Morgan and set up camp in Charlotte North Carolina to commence the development of a new and complex marketplace, which we subsequently called Blackbird.
Over the next three years we raised $40,000,000 and developed the complex technology to allowed traders to trade between each other all forms of OTC derivatives. It was a major accomplishment.
The first serious challenge we faced came from the established Chicago exchanges in the form of regulation. Were we an exchange? And the challenge was launched by the CFTC. This was a complex question and one in which we could not afford to lose if we planned to have any clients. If we were to be regulated so to would all the Wall Street banks. With the help of the same banks and the top lawyers in the land we defended ourselves before six Congress committees. The final outcome was legal certainty on the regulation of derivatives. OTC derivatives would not be regulated providing that they were bilateral financial contracts and not fungible.
Our next challenge was to attract the banks to use our platform to trade OTC derivatives. This was a brick wall. This was a very profitable business, the larger banks generating more than a billion dollars a year, and the respective large bonuses. Under no circumstance would they countenance the risk that we've would spoil the party. The 10 largest created a consortium "Swapswire" each contributing $10,000,000 to develop their own version of a trading system and blocking our launch.
Since its launch in 2000 Blackbird has been unable to break down this brick wall.
By R Raymond May (c) 2008
1526 Reverdy Oaks drive, Matthews NC 28105 (tel) 704.847.0008
In 1986 I joined JP Morgan London as a freshly qualified accountant to be a junior staff member on a policy and procedures working team. Just six weeks into my career at JP Morgan I was sidetracked by the controller to help with the operations of the small business that was suffering growing pains - derivatives or in our jargon – Swaps. At that time only 5 business personnel and a single clerk, each trade tracked on a separte spreadsheet. I spent the next six years developing technologies covering operations, accountancy, risk management, valuation and more for what become a huge business. I can confidently claim to have first designed and developed systems that used mark-to-market accounting, value at risk and complex yield curve construction.
In 1992 I moved with my family to New York to take up a junior role on the trading desk. My first responsibility was to implement the risk management technologies I had developed in London. Secondly I took these models and arbitraged the long-term foreign exchange forward markets. In 1994 I took over responsibility for all U.S. dollar derivatives at JP Morgan.
At the end of 1996 I considered the methodology for trading in the swaps market to be inefficient and opaque. There must be a better way! Just that year a new trading platform had been introduced to trade foreign exchange. With my technology background and deep understanding of the swaps market I felt uniquely qualified to develop an electronic exchange for this huge growing derivatives market. In early 1997 I resigned from JP Morgan and set up camp in Charlotte North Carolina to commence the development of a new and complex marketplace, which we subsequently called Blackbird.
Over the next three years we raised $40,000,000 and developed the complex technology to allowed traders to trade between each other all forms of OTC derivatives. It was a major accomplishment.
The first serious challenge we faced came from the established Chicago exchanges in the form of regulation. Were we an exchange? And the challenge was launched by the CFTC. This was a complex question and one in which we could not afford to lose if we planned to have any clients. If we were to be regulated so to would all the Wall Street banks. With the help of the same banks and the top lawyers in the land we defended ourselves before six Congress committees. The final outcome was legal certainty on the regulation of derivatives. OTC derivatives would not be regulated providing that they were bilateral financial contracts and not fungible.
Our next challenge was to attract the banks to use our platform to trade OTC derivatives. This was a brick wall. This was a very profitable business, the larger banks generating more than a billion dollars a year, and the respective large bonuses. Under no circumstance would they countenance the risk that we've would spoil the party. The 10 largest created a consortium "Swapswire" each contributing $10,000,000 to develop their own version of a trading system and blocking our launch.
Since its launch in 2000 Blackbird has been unable to break down this brick wall.
Thursday, October 23, 2008
A real domino story- aren’t there any adults in charge?
The Banking Crisis!
By Raymond May © 2008
Matthews NC
Depression, crash, unemployment, worst in a lifetime, bailout - what are they talking about and how did we get here?
It's not many times since 1997 when I left my trading desk at JP Morgan in New York where I was head trader for U.S. dollar derivatives to start a new life in Charlotte North Carolina that I have given much thought to the goings on of Wall Street.
I missed the sub-prime crisis completely, it passed me by, no one offered me more money than my house was worth maybe I just never asked. It was not until my wife came home from having her nails painted at the "nail girl" that I knew something was wrong. She always came back with thrilling stories of the goings on of the nail girl’s children in a dysfunctional way. Her daughter 19 and recently married having lost her job as a cleaner was now pregnant and her new husband having lost his job as a cement truck driver where now months in arrears on the mortgage. Pardon me! Who would give them a mortgage I thought! I guess we all know the answer now.
What is sub-prime? As part of the “New Deal” in the 1930’s the US Government set up Fannie Mae to operate in the U.S. secondary mortgage market. Rather than making home loans directly with consumers, to work with mortgage bankers, brokers, and other primary mortgage market players to help ensure funds where available to lend to home buyers at affordable rates. Fannie Mae has been a key player in the mortgage market ever since and their so-called conforming mortgages are referred to as A-paper or prime. In the 1990’s a new market developed outside the GSE structure with disastrous consequences – the Alt-A or alternative-A paper. These mortgages were offered for an additional fee to individuals who for whatever reason could not qualify for a conforming GSE mortgage. It could be a small businessman with insufficient documentation, a new resident with no credit history etc but was clearly considered a good risk. It was only a small step to the “liars mortgage” – or no docs and sub-prime – mortgages made to people who did not qualify at any level. It was the additional fee or higher rate of these mortgages that attracted the Investment Banks and the CDO bonanza that was to follow.
Subprime mortgages from across the country were being sold by mortgage originators to Wall Street houses who in turn packaged these mortgages into what are now referred to as CDO's [collateralized debt obligations]. These CDO's in turn were sold on to investors with respective credit ratings provided by the rating agents. These CDO's provided wall street with profits and bonuses from a vast sausage machine backed by ever-increasing prices in the housing market and vast demand from investors looking for higher yields. Wall Street demand pushed originators to push the envelope in creating more new mortgages.
CDOs where pools of mortgages packaged so that each buyer was ordered according to who would take a default loss first, second, third etc. The slice that took the last loss, the most safe was called the “super senior”. This was sold first, but when AIG and other buyers were full up the issuing Investment Bank was obliged to buy the super senior themselves in order to sell the rest. As a result Citibank, UBS and Merrill Lynch ended up with huge portfolios of super senior CDOs. To show how bad this has got, Merrill Lynch stated when announcing third quarter results on October 16, 2008 “Net write-downs of $5.7 billion resulting from the previously announced sale of U.S. super senior ABS CDOs “ Merrill Lynch also announced that it had sold in all 30bn of super senior CDOs, it is safe to assume they did not receive much in return for this Triple A paper.
As is now known the sub-prime and CDOs experience turned into a disaster for all involved, but why were so many people taken in? Wasn’t the outcome obvious? Lets pass the obvious villains, company management and boards and look at two other groups who should have been the canaries in the mine; the rating agencies (S&P, Moody & Fitch) and the Internal Risk Management Departments at the big Wall Street houses, how did these groups miss the obvious?
Why do we have rating agencies, and their sisters - monoline insurance (Ambac Financial Group Inc and MBIA) and the GSEs (government sponsored enterprise - Fannie Mae and Freddie Mac)? In the age of the Internet it seems that we can do our own research but that's not always been the case and these three groups came into existence to be responsible to do the necessary groundwork on corporate bonds, municipal bonds and mortgages respectively so that investors could have confidence in what they were investing in. They were there so we could trust in the system! And capital would reach those places where it would otherwise never reach. Each of the players got greedy and expanded their participation in their respective markets, creating conflicts and eventually failing the system.
Back to the rating agencies, these institutions extended their business from rating corporate bonds to providing ratings on CDOs. The conflict of interest between Wall Street houses sponsoring the CDO issues and the issuer (the same wall street firm) resulted in the rating agencies clearly doing insufficient work. They had to rate these bonds as required by the Investment Bank if they wanted to continue to get the rating business.
As for Internal Risk Management Departments at the Wall Street Firms, they clearly must have been persuaded by business managers that the penalty for failing to pay and fulfill ones mortgage obligations was such that foreclosure would not be an issue. Basically the effect on an individuals' credit score and future restrictions on availability to credit for seven years would be sufficient deterrent to ensure compliance and negative equity would not result in foreclosure. However on further reflection it is completely rational for a borrower to return the keys on a house where the borrower has negative equity. It is hard to believe that Wall Street firms believed house prices would always go up. A second possibility is these groups were making so much money, had their own complexity that the risk management responsibilities were given to the CDO management. It was rumored the CEO of Merrill Lynch would spend significant time with the securization group, demanding more market share.
(as an aside - The monoline insurers whose role is central in a well functioning municipal bond market should never have been allowed to expand their business into insuring CDO's. When the CDO's began to fail these organizations had insufficient capital to protect municipal investors.)
As for the GSE's, how the mighty have fallen. Starting in the early nineties Freddie Mac (the smaller of the two GSE’s, founded in early 70’s to provide competition to a newly privatized Fannie Mae) and Fannie Mae began to expand rapidly take advantage of their pseudo government status to raise capital cheaply in the bond markets. On September 7 2008 when these institutions were placed in Conservatorship by the US Treasury they together had outstanding debt in excess of $1.7 trillion and had capital of only 60 billion (half of which was represented by tax credits! don’t think they will be paying tax for a while) representing a capital ratio of less than 3% much lower than the 8% held by banks. This debt was invested in mortgages (although not subprime mortgages). Their collapse was a result of the knock on effect of the subprime affecting uncertainty in Mortgage Securities generally and foreclosure spilling over into the prime mortgage market. With the need to continually replace their borrowing with new borrowings, the small capital base, increasing skepticism of lenders ensured that these institutions would fail. Ironic that an institution created in the 1930s to help lead the country out of the depression should itself help threaten us with a second great depression. These two huge corporations highlighted so much of what was bad leading up this crisis including excessive lobbing by corporations, excessive CEO compensation and lack of oversight. As Jim Cramer of Mad Money screams on his TV show “government by and for the corporation”. Freddie and Fannie spent $160mm on lobbying in the last ten years. It is no surprise that no new oversight made it into law.
As the crisis grew falling prices in the house market led to more foreclosures, a crashing CDO marketplace lead to uncertainty in the valuation bank balance sheets and the confiscation of the failing GSEs left investor's in a position of real uncertainty. What institutions could be trusted?
Worst was to come.
So what is a credit default swap (CDS for short)? Here is a simple example: the U.S. government issues a five year bond (a transferable loan) to yield 4% [commonly referred to as the five year treasury] whereas Ford Motor Company would need to issue the same five year bond to yield 9%, the differential of 5% is referred to as the credit spread. The introduction of the credit default swap in the late nineties allowed for the credit spread to trade independently of the bond as a credit default swap. In a CDS one party would pay 5% each year for five years in return for receiving 100% if Ford Motor Company defaulted on the bond.
Back to the current crisis, house prices continue to fall, the monoline insurance companies tottered on bankruptcy, banks continued to take right offs against their mortgage portfolios and foreclosure rates climbed. It is still very much a housing relating crisis at this point. For banks and especially Investment Banks the liquidity (the ability to sell at the current market price quickly) is assumed in order to support a leverage of greater than 12-1. The stability in asset prices over the last 15 years had led many Investment Banks to ran leverage positions of 30 or 40 to one. Even at this stage in the crisis it may have been possible for the system to survive providing there was no run on any bank.
For investment bank with no depositors, assets are funded through market instruments like commercial paper, repurchase agreements and traditional bonds.
The CDS price (normally quoted in basis points (.01 of a %)) on any company is the market statement of the likelihood of that company defaulting. The lower the spread the less likelihood of default. It is also the premium over the equivalent government rate that the company must pay in order to borrow funds. Hedge funds saw an opportunity here by buying a CDS (pay the spread to the seller in return for getting 100% if the target defaulted ) and adding pressure on the cost of funds. The seller of the CDS to the hedge fund would need to in turn sell the targets stock or bonds short in order to hedge their position, creating uncertainty and widening of CDS spreads, increasing the borrowing cost of the target and increase likelihood of default. Nasty game, but this is why the weakest investment bank was in big trouble. Pack always picks on the weakest!
The next chapter in the falling dominos occurred in March 2008, it was a Friday and the CDS spread for Bear Sterns widened to 14%, unprecedented wide levels, Bear was suddenly cut off from the credit markets, unable to replace short term funding. It would need to sell assets, but liquidity was not there. Over the weekend the Federal Reserve sponsored the acquisition of Bear Sterns by JP Morgan. One event in 2007 signaled the coming crisis. Two Bear Stern hedge funds required large capital injections by Bear after Merrill Lynch sold $825mn of the hedge funds CDOs assets held as collateral and raised only 100mm a measly 12 cents for each dollar.
In saving the system from a Bear Stern failure, shareholders were paid $10 per share, something at least greater than zero, bondholders saw their securities jump to 100% as their borrower was replaced by the mighty J P Morgan. JP Morgan received a guarantee on Bear Stern Assets from the Federal Reserve, putting the US taxpayer at risk with little likelihood of a return. The only loser here seemed to be the taxpayer! JP Morgan completed the acquisition on 30th of May 2008.
The next domino in the crisis was principal itself. The moral hazard implied by saving Bear Sterns. Largely occurring within the republican administration and its supporters. Capitalism was best served by allowing the natural process to take it course and government should not get involved in selecting winners or losers. This argument directly led to the central incident of the crisis that was yet to occur and that ensured the crisis would be global, deep, scary and put the world Financial System at risk. Over the last 20 years the capital markets have grown more complex and the inter-dependence of all the large players has grown to a level not fully understood. Trillions of dollars of OTC (over-the-counter) derivatives have been written between all players. One large player disappearing overnight would leave a huge level of uncertainty in the market. Would it bring the whole system down? No one knew.
I was woken on Sunday, the 15th of September by a friend who thought I should know that Lehman Brothers was filing chapter 11 and Bank of America was buying Merrill Lynch at $29.00 a share. I was incredulous this was impossible they could not possibly let Lehman file! surely they knew what they were doing, how many trillions of derivative contracts did Lehman hold? This would be an almighty mess. If they wanted to make an example Washington Mutual would have been better simpler choice, but of course they are politicians and Washington Mutual would affect the man on the street at least superficially whereas Lehman was those bad guys from Wall Street. Clearly the CEO of Merrill Lynch was the only one who knew what he was doing, if Lehman disappeared he was next, by arranging a buyout all this would be avoided.
This one action to let Lehman fail which in hindsight after the moral hazard debate that had preceded was inevitable, on top of everything that had come before, completely sent the financial markets into a tailspin. Only weeks before Lehman had announced a quarterly profit and net assets of $26bn and now the bonds were trading 10¢. What had happened? Where had $150bn dollars gone? How was this possible? From this point on a credit markets froze! No institution could trust any other institution; nothing was what it seemed no balance sheet could be relied upon. Just the speed Lehman had vanished was enough to spook everyone.
The dominos continued to fall. The first impact of Lehman’s bankruptcy was seen went markets opened on Monday 16th September. On Friday the 13th two days before Lehman filed for bankruptcy the credit rating agencies downgraded AIGs debt. AIG being the 18th largest corporation in the world and its largest insurance company saw credit default swaps as a natural extension of the insurance business, it was simply the process of insuring a bond in case of default and how many default had there been? Not many. From the start of this crisis credit spreads had began to widen and AIG began to take paper losses on their large portfolio of Credit Default Swaps (CDS), unfortunately all spread were widen! That was not meant to happen, all companies were not to be in trouble at the same time. But the rating downgrade from triple A triggered an event that was also not meant to happen. AIG would need to post Collateral to the owners of these CDS contracts based on their current market value in case AIG was no longer triple A. on Friday AIG disclosed to the market that it would need $40bn cash to post as collateral. This was a liquidity crisis and not a statement that AIG was in financial trouble. When the market opened on Monday following Lehman’s demise AIGs collateral requirement had grown to $85 billion. Basically credit spreads had more than doubled as a result the Lehman bankruptcy. At this point AIG had no alternative but to declare bankruptcy if Federal government would not provide a loan. Who else was going to come up with $85bn! The terms extracted by the Treasury once again looked like confiscation and put a shocked market into more shock.
[Lehman Brothers, a classic investment bank, had 700 billion of assets funded by 21 billion of capital (or 33:11), 125 billion in bonds and 550 billion of traditional market finance. Washington Mutual the largest credit union in the United States had 310 billion in assets. AIG had assets of over one trillion dollars and shareholders equity of $104bn2.]
The world didn't have long to wait for the next chapter. This was a straight run on the bank, after months of speculation a collapsing share price and rumors, depositors began to withdraw funds has increased pace from Washington Mutual. On the 25th of September 2008 after losing $16 billion in deposits in the week following the Lehman bankruptcy, the FDIC seized WaMu and assets, depositors and branches handed over to JP Morgan for less than $2bn. Leaving investors and bondholders of WaMu with nothing. But the politicians were gratified that no depositor was hurt and the FDIC paid out no funds in the process. This time the tax payer and JP Morgan won. But this just insured the dominos would continue to fall. Only in April 2008 WaMu had raised $7bn of new capital and was not a sub-prime lender.
Washington Mutual may have passed into history with no further incident had not JP Morgan not fully disclosed the valuation it attributed to the assets it had purchased from Washington Mutual. Washington Mutual held in large portfolio of option ARM mortgages, which J P Morgan discounted by 23%. Enter our next victim, Wachovia was known to hold a portfolio of over 120 billion of option ARM mortgages and would need to write off 28 billion to conform to the JP Morgan pricing. Wachovia CDS exploded to over 14%. I received a phone call from my stepfather asking me if he should withdrawal his funds from Wachovia, the stealth run had begun, $15bn being withdrawn in the first week. Wachovia needed help and fast and was eventually purchased by Wells Fargo.
Who was next? Basically the system was broken. Morgan Stanley, Goldman Sachs, Royal Bank of Scotland, Nat City, SunTrust you name it they were all in trouble. When General Electric was unable to raise short-term funds and their CDS widened to 4% everybody was in trouble, not just banks. The crisis now introduced the equity market as the next domino. Share prices of financial companies had fallen throughout the crisis but now everyone was affected and the whole stock market began to unravel.
International banks began to fail; international stock markets began to unravel.
Paulson, US Treasury secretary introduced his “troubled asset relief program” or TARP on the 19th September 2008. On Monday September 29th the House of Representatives votes to not pass the measure, starting a major crash in the stock market. Congress re-thinks and passes the bill on a second attempt on Friday 3rd October only to look out dated over the week-end when the UK government announces that they planned to invest $85bn directly into their banks.
The TARP gave the US Treasury authority to buy up to $700bn in distressed assets from financial institutions at some price fixed by auction between the distress levels and some value based on fair likely return on expected cash flows. Basically this was seen as a bailout of the bad actors at a cost to taxpayers but something had to be done. And this was the only proposal on the table until the UK acted. It is three weeks since the TARP was passed into law and still no auction has occurred. The TARP will end up being unworkable has the same author that allowed Lehman to fail.
The UK government less restricted by political dogma went to the heart of the issue of shoring up bank balance sheets without having to work out a valuation for the distressed assets. The UK extracted their pound of flesh without the look of confiscation. Some management had to step down, salaries would be restricted, dividends would be restricted, and returns on preferred would be a high 12% but shareholders would not be thrown out completely.
The US morphed the TARP into authority to invest directly into 9 banks, but instead of extracting a pound of flesh they offered a deal that was to good to refuse. So much for not selecting winners! The stock market begins crashing anew leading to a run on Hedge Funds as money was pulled out leading to more selling.
Now the scene switches to Congress to find blame and what we need to put in place for the future.
But this is not yet over. All assets have depreciated, equities from 14000 to 8000 a 42% fall, Oil from 145 to 65 a 55% fall, gold from 950 to 700 a 26% fall, the only safe harbor in this storm has been $ and Yen government bonds.
The Hedge Fund industry is in trouble, the industry that emerges from this crisis will be very different to the one that entered it. There has been almost no barrier to entry, no regulation and high profit margins. All of this will change for those that survive.
We are seeing “super” banks emerge, one stop shops with credit cards, deposits, mortgages, business loans, investment banks, equity brokers all under one roof. This looks very like pre Glass-Steagall, which created the FDIC and prohibited a bank holding company from owning other financial companies. This ban was repealed on November 12, 1999. Is this in the best interest of our nation? How will these giants be regulated? How do we insure the FDIC is not liable to investment banking losses?
The economy is the next domino, negative growth, just how negative? How many cars are going to me made and sold in the USA in the next 12 months? How many people are going to lose their jobs? I think we will be very lucky if unemployment stabilizes below 9%.
To summarize or conclude on what went wrong. In a low regulation world great faith is placed in management of banks own self interest being aligned with the public good. This failed.
The rating agencies, monoline insurance companies and mortgage GSEs must be regulated and not allowed to expand their businesses for profit.
Internal Risk management groups must be independent of management.
OTC derivatives need to be centrally cleared.
CDS should regulated. In the Lehman example $400bn of CDS where settled against 125bn of Lehman’s bonds outstanding. Basically Lehman should never been allowed to fail.
Back to my own experience. I left J P Morgan in 1997 with a business plan to create an electronic platform to allow banks to trade OTC derivatives and therefore replacing the existing secretive opaque system. As a small start up we experienced many challenges namely technology, funding, regulation and market acceptance. We solved the technology and funding and after 2 years of hard work in Washington and legal uncertainty and testifying six times in Congress the regulation issue was solved – the market would stay unregulated, the platform would not be regulated by the CFTC provided we did not clear trades and access was kept to professionals. Through out the regulation uncertainty the large Wall Street banks were very helpful to us, the banks had a huge self interest to ensure the market remained un-regulated.
Finally we had a working technology, funding and certainty on the US regulation situation, we were now ready to launch the platform. Boom! We hit a brick wall that same self interest which had prompted the major banks to help us through the regulation maze re-appear to thwart us. The market was so profitable they wanted it to stay opaque. 10 banks ganged up, threw $100mm into the hat and told the marketplace not to use our platform as they would create a cheaper better platform. We struggled to get anyone interested, we were locked out (can I say anti-trust or coercion?). It is ten years later and there still is no electronic platform operating in the derivatives world.
{Here are the milestones:
The subprime mortgage market grows to include no docs 100% mortgages. The hottest housing markets see price declines and the start of foreclosures. The CDO market for secondary mortgages begins to unravel. UBS, Citibank and Merrill Lynch announced vast loss provisions. SIV vehicles put Commercial Paper market at risk. The monoline insurance companies begin to collapse. Baer sterns collapses and is rescued by the fed and JP Morgan. Outcry on “moral hazard”. Treasury seizes Freddie Mac and Fannie Mae. Lehman collapses and is allowed to go into bankruptcy. Credit spreads explode wider. Treasury seizes AIG. FDIC seizes Washington Mutual and awards assets, branches and deposits to JP Morgan. After stealth run on deposits Wachovia is forced into the hands of Citibank (Later acquired by Wells Fargo). No institution can trust any other organization, Inter-bank activity ceases. Congress eventually passes the TARP bill (allowing Treasury to purchase mortgage assets from banks). The British government rescues three British Banks by injecting capital therefore becoming shareholders. The stock market crashes. The U.S. Treasury follows the UK lead by taking direct stakes in nine banks.}
Notes:
1. Lehman 2007 annual report
2. AIG 2007 annual report
By Raymond May © 2008
Matthews NC
Depression, crash, unemployment, worst in a lifetime, bailout - what are they talking about and how did we get here?
It's not many times since 1997 when I left my trading desk at JP Morgan in New York where I was head trader for U.S. dollar derivatives to start a new life in Charlotte North Carolina that I have given much thought to the goings on of Wall Street.
I missed the sub-prime crisis completely, it passed me by, no one offered me more money than my house was worth maybe I just never asked. It was not until my wife came home from having her nails painted at the "nail girl" that I knew something was wrong. She always came back with thrilling stories of the goings on of the nail girl’s children in a dysfunctional way. Her daughter 19 and recently married having lost her job as a cleaner was now pregnant and her new husband having lost his job as a cement truck driver where now months in arrears on the mortgage. Pardon me! Who would give them a mortgage I thought! I guess we all know the answer now.
What is sub-prime? As part of the “New Deal” in the 1930’s the US Government set up Fannie Mae to operate in the U.S. secondary mortgage market. Rather than making home loans directly with consumers, to work with mortgage bankers, brokers, and other primary mortgage market players to help ensure funds where available to lend to home buyers at affordable rates. Fannie Mae has been a key player in the mortgage market ever since and their so-called conforming mortgages are referred to as A-paper or prime. In the 1990’s a new market developed outside the GSE structure with disastrous consequences – the Alt-A or alternative-A paper. These mortgages were offered for an additional fee to individuals who for whatever reason could not qualify for a conforming GSE mortgage. It could be a small businessman with insufficient documentation, a new resident with no credit history etc but was clearly considered a good risk. It was only a small step to the “liars mortgage” – or no docs and sub-prime – mortgages made to people who did not qualify at any level. It was the additional fee or higher rate of these mortgages that attracted the Investment Banks and the CDO bonanza that was to follow.
Subprime mortgages from across the country were being sold by mortgage originators to Wall Street houses who in turn packaged these mortgages into what are now referred to as CDO's [collateralized debt obligations]. These CDO's in turn were sold on to investors with respective credit ratings provided by the rating agents. These CDO's provided wall street with profits and bonuses from a vast sausage machine backed by ever-increasing prices in the housing market and vast demand from investors looking for higher yields. Wall Street demand pushed originators to push the envelope in creating more new mortgages.
CDOs where pools of mortgages packaged so that each buyer was ordered according to who would take a default loss first, second, third etc. The slice that took the last loss, the most safe was called the “super senior”. This was sold first, but when AIG and other buyers were full up the issuing Investment Bank was obliged to buy the super senior themselves in order to sell the rest. As a result Citibank, UBS and Merrill Lynch ended up with huge portfolios of super senior CDOs. To show how bad this has got, Merrill Lynch stated when announcing third quarter results on October 16, 2008 “Net write-downs of $5.7 billion resulting from the previously announced sale of U.S. super senior ABS CDOs “ Merrill Lynch also announced that it had sold in all 30bn of super senior CDOs, it is safe to assume they did not receive much in return for this Triple A paper.
As is now known the sub-prime and CDOs experience turned into a disaster for all involved, but why were so many people taken in? Wasn’t the outcome obvious? Lets pass the obvious villains, company management and boards and look at two other groups who should have been the canaries in the mine; the rating agencies (S&P, Moody & Fitch) and the Internal Risk Management Departments at the big Wall Street houses, how did these groups miss the obvious?
Why do we have rating agencies, and their sisters - monoline insurance (Ambac Financial Group Inc and MBIA) and the GSEs (government sponsored enterprise - Fannie Mae and Freddie Mac)? In the age of the Internet it seems that we can do our own research but that's not always been the case and these three groups came into existence to be responsible to do the necessary groundwork on corporate bonds, municipal bonds and mortgages respectively so that investors could have confidence in what they were investing in. They were there so we could trust in the system! And capital would reach those places where it would otherwise never reach. Each of the players got greedy and expanded their participation in their respective markets, creating conflicts and eventually failing the system.
Back to the rating agencies, these institutions extended their business from rating corporate bonds to providing ratings on CDOs. The conflict of interest between Wall Street houses sponsoring the CDO issues and the issuer (the same wall street firm) resulted in the rating agencies clearly doing insufficient work. They had to rate these bonds as required by the Investment Bank if they wanted to continue to get the rating business.
As for Internal Risk Management Departments at the Wall Street Firms, they clearly must have been persuaded by business managers that the penalty for failing to pay and fulfill ones mortgage obligations was such that foreclosure would not be an issue. Basically the effect on an individuals' credit score and future restrictions on availability to credit for seven years would be sufficient deterrent to ensure compliance and negative equity would not result in foreclosure. However on further reflection it is completely rational for a borrower to return the keys on a house where the borrower has negative equity. It is hard to believe that Wall Street firms believed house prices would always go up. A second possibility is these groups were making so much money, had their own complexity that the risk management responsibilities were given to the CDO management. It was rumored the CEO of Merrill Lynch would spend significant time with the securization group, demanding more market share.
(as an aside - The monoline insurers whose role is central in a well functioning municipal bond market should never have been allowed to expand their business into insuring CDO's. When the CDO's began to fail these organizations had insufficient capital to protect municipal investors.)
As for the GSE's, how the mighty have fallen. Starting in the early nineties Freddie Mac (the smaller of the two GSE’s, founded in early 70’s to provide competition to a newly privatized Fannie Mae) and Fannie Mae began to expand rapidly take advantage of their pseudo government status to raise capital cheaply in the bond markets. On September 7 2008 when these institutions were placed in Conservatorship by the US Treasury they together had outstanding debt in excess of $1.7 trillion and had capital of only 60 billion (half of which was represented by tax credits! don’t think they will be paying tax for a while) representing a capital ratio of less than 3% much lower than the 8% held by banks. This debt was invested in mortgages (although not subprime mortgages). Their collapse was a result of the knock on effect of the subprime affecting uncertainty in Mortgage Securities generally and foreclosure spilling over into the prime mortgage market. With the need to continually replace their borrowing with new borrowings, the small capital base, increasing skepticism of lenders ensured that these institutions would fail. Ironic that an institution created in the 1930s to help lead the country out of the depression should itself help threaten us with a second great depression. These two huge corporations highlighted so much of what was bad leading up this crisis including excessive lobbing by corporations, excessive CEO compensation and lack of oversight. As Jim Cramer of Mad Money screams on his TV show “government by and for the corporation”. Freddie and Fannie spent $160mm on lobbying in the last ten years. It is no surprise that no new oversight made it into law.
As the crisis grew falling prices in the house market led to more foreclosures, a crashing CDO marketplace lead to uncertainty in the valuation bank balance sheets and the confiscation of the failing GSEs left investor's in a position of real uncertainty. What institutions could be trusted?
Worst was to come.
So what is a credit default swap (CDS for short)? Here is a simple example: the U.S. government issues a five year bond (a transferable loan) to yield 4% [commonly referred to as the five year treasury] whereas Ford Motor Company would need to issue the same five year bond to yield 9%, the differential of 5% is referred to as the credit spread. The introduction of the credit default swap in the late nineties allowed for the credit spread to trade independently of the bond as a credit default swap. In a CDS one party would pay 5% each year for five years in return for receiving 100% if Ford Motor Company defaulted on the bond.
Back to the current crisis, house prices continue to fall, the monoline insurance companies tottered on bankruptcy, banks continued to take right offs against their mortgage portfolios and foreclosure rates climbed. It is still very much a housing relating crisis at this point. For banks and especially Investment Banks the liquidity (the ability to sell at the current market price quickly) is assumed in order to support a leverage of greater than 12-1. The stability in asset prices over the last 15 years had led many Investment Banks to ran leverage positions of 30 or 40 to one. Even at this stage in the crisis it may have been possible for the system to survive providing there was no run on any bank.
For investment bank with no depositors, assets are funded through market instruments like commercial paper, repurchase agreements and traditional bonds.
The CDS price (normally quoted in basis points (.01 of a %)) on any company is the market statement of the likelihood of that company defaulting. The lower the spread the less likelihood of default. It is also the premium over the equivalent government rate that the company must pay in order to borrow funds. Hedge funds saw an opportunity here by buying a CDS (pay the spread to the seller in return for getting 100% if the target defaulted ) and adding pressure on the cost of funds. The seller of the CDS to the hedge fund would need to in turn sell the targets stock or bonds short in order to hedge their position, creating uncertainty and widening of CDS spreads, increasing the borrowing cost of the target and increase likelihood of default. Nasty game, but this is why the weakest investment bank was in big trouble. Pack always picks on the weakest!
The next chapter in the falling dominos occurred in March 2008, it was a Friday and the CDS spread for Bear Sterns widened to 14%, unprecedented wide levels, Bear was suddenly cut off from the credit markets, unable to replace short term funding. It would need to sell assets, but liquidity was not there. Over the weekend the Federal Reserve sponsored the acquisition of Bear Sterns by JP Morgan. One event in 2007 signaled the coming crisis. Two Bear Stern hedge funds required large capital injections by Bear after Merrill Lynch sold $825mn of the hedge funds CDOs assets held as collateral and raised only 100mm a measly 12 cents for each dollar.
In saving the system from a Bear Stern failure, shareholders were paid $10 per share, something at least greater than zero, bondholders saw their securities jump to 100% as their borrower was replaced by the mighty J P Morgan. JP Morgan received a guarantee on Bear Stern Assets from the Federal Reserve, putting the US taxpayer at risk with little likelihood of a return. The only loser here seemed to be the taxpayer! JP Morgan completed the acquisition on 30th of May 2008.
The next domino in the crisis was principal itself. The moral hazard implied by saving Bear Sterns. Largely occurring within the republican administration and its supporters. Capitalism was best served by allowing the natural process to take it course and government should not get involved in selecting winners or losers. This argument directly led to the central incident of the crisis that was yet to occur and that ensured the crisis would be global, deep, scary and put the world Financial System at risk. Over the last 20 years the capital markets have grown more complex and the inter-dependence of all the large players has grown to a level not fully understood. Trillions of dollars of OTC (over-the-counter) derivatives have been written between all players. One large player disappearing overnight would leave a huge level of uncertainty in the market. Would it bring the whole system down? No one knew.
I was woken on Sunday, the 15th of September by a friend who thought I should know that Lehman Brothers was filing chapter 11 and Bank of America was buying Merrill Lynch at $29.00 a share. I was incredulous this was impossible they could not possibly let Lehman file! surely they knew what they were doing, how many trillions of derivative contracts did Lehman hold? This would be an almighty mess. If they wanted to make an example Washington Mutual would have been better simpler choice, but of course they are politicians and Washington Mutual would affect the man on the street at least superficially whereas Lehman was those bad guys from Wall Street. Clearly the CEO of Merrill Lynch was the only one who knew what he was doing, if Lehman disappeared he was next, by arranging a buyout all this would be avoided.
This one action to let Lehman fail which in hindsight after the moral hazard debate that had preceded was inevitable, on top of everything that had come before, completely sent the financial markets into a tailspin. Only weeks before Lehman had announced a quarterly profit and net assets of $26bn and now the bonds were trading 10¢. What had happened? Where had $150bn dollars gone? How was this possible? From this point on a credit markets froze! No institution could trust any other institution; nothing was what it seemed no balance sheet could be relied upon. Just the speed Lehman had vanished was enough to spook everyone.
The dominos continued to fall. The first impact of Lehman’s bankruptcy was seen went markets opened on Monday 16th September. On Friday the 13th two days before Lehman filed for bankruptcy the credit rating agencies downgraded AIGs debt. AIG being the 18th largest corporation in the world and its largest insurance company saw credit default swaps as a natural extension of the insurance business, it was simply the process of insuring a bond in case of default and how many default had there been? Not many. From the start of this crisis credit spreads had began to widen and AIG began to take paper losses on their large portfolio of Credit Default Swaps (CDS), unfortunately all spread were widen! That was not meant to happen, all companies were not to be in trouble at the same time. But the rating downgrade from triple A triggered an event that was also not meant to happen. AIG would need to post Collateral to the owners of these CDS contracts based on their current market value in case AIG was no longer triple A. on Friday AIG disclosed to the market that it would need $40bn cash to post as collateral. This was a liquidity crisis and not a statement that AIG was in financial trouble. When the market opened on Monday following Lehman’s demise AIGs collateral requirement had grown to $85 billion. Basically credit spreads had more than doubled as a result the Lehman bankruptcy. At this point AIG had no alternative but to declare bankruptcy if Federal government would not provide a loan. Who else was going to come up with $85bn! The terms extracted by the Treasury once again looked like confiscation and put a shocked market into more shock.
[Lehman Brothers, a classic investment bank, had 700 billion of assets funded by 21 billion of capital (or 33:11), 125 billion in bonds and 550 billion of traditional market finance. Washington Mutual the largest credit union in the United States had 310 billion in assets. AIG had assets of over one trillion dollars and shareholders equity of $104bn2.]
The world didn't have long to wait for the next chapter. This was a straight run on the bank, after months of speculation a collapsing share price and rumors, depositors began to withdraw funds has increased pace from Washington Mutual. On the 25th of September 2008 after losing $16 billion in deposits in the week following the Lehman bankruptcy, the FDIC seized WaMu and assets, depositors and branches handed over to JP Morgan for less than $2bn. Leaving investors and bondholders of WaMu with nothing. But the politicians were gratified that no depositor was hurt and the FDIC paid out no funds in the process. This time the tax payer and JP Morgan won. But this just insured the dominos would continue to fall. Only in April 2008 WaMu had raised $7bn of new capital and was not a sub-prime lender.
Washington Mutual may have passed into history with no further incident had not JP Morgan not fully disclosed the valuation it attributed to the assets it had purchased from Washington Mutual. Washington Mutual held in large portfolio of option ARM mortgages, which J P Morgan discounted by 23%. Enter our next victim, Wachovia was known to hold a portfolio of over 120 billion of option ARM mortgages and would need to write off 28 billion to conform to the JP Morgan pricing. Wachovia CDS exploded to over 14%. I received a phone call from my stepfather asking me if he should withdrawal his funds from Wachovia, the stealth run had begun, $15bn being withdrawn in the first week. Wachovia needed help and fast and was eventually purchased by Wells Fargo.
Who was next? Basically the system was broken. Morgan Stanley, Goldman Sachs, Royal Bank of Scotland, Nat City, SunTrust you name it they were all in trouble. When General Electric was unable to raise short-term funds and their CDS widened to 4% everybody was in trouble, not just banks. The crisis now introduced the equity market as the next domino. Share prices of financial companies had fallen throughout the crisis but now everyone was affected and the whole stock market began to unravel.
International banks began to fail; international stock markets began to unravel.
Paulson, US Treasury secretary introduced his “troubled asset relief program” or TARP on the 19th September 2008. On Monday September 29th the House of Representatives votes to not pass the measure, starting a major crash in the stock market. Congress re-thinks and passes the bill on a second attempt on Friday 3rd October only to look out dated over the week-end when the UK government announces that they planned to invest $85bn directly into their banks.
The TARP gave the US Treasury authority to buy up to $700bn in distressed assets from financial institutions at some price fixed by auction between the distress levels and some value based on fair likely return on expected cash flows. Basically this was seen as a bailout of the bad actors at a cost to taxpayers but something had to be done. And this was the only proposal on the table until the UK acted. It is three weeks since the TARP was passed into law and still no auction has occurred. The TARP will end up being unworkable has the same author that allowed Lehman to fail.
The UK government less restricted by political dogma went to the heart of the issue of shoring up bank balance sheets without having to work out a valuation for the distressed assets. The UK extracted their pound of flesh without the look of confiscation. Some management had to step down, salaries would be restricted, dividends would be restricted, and returns on preferred would be a high 12% but shareholders would not be thrown out completely.
The US morphed the TARP into authority to invest directly into 9 banks, but instead of extracting a pound of flesh they offered a deal that was to good to refuse. So much for not selecting winners! The stock market begins crashing anew leading to a run on Hedge Funds as money was pulled out leading to more selling.
Now the scene switches to Congress to find blame and what we need to put in place for the future.
But this is not yet over. All assets have depreciated, equities from 14000 to 8000 a 42% fall, Oil from 145 to 65 a 55% fall, gold from 950 to 700 a 26% fall, the only safe harbor in this storm has been $ and Yen government bonds.
The Hedge Fund industry is in trouble, the industry that emerges from this crisis will be very different to the one that entered it. There has been almost no barrier to entry, no regulation and high profit margins. All of this will change for those that survive.
We are seeing “super” banks emerge, one stop shops with credit cards, deposits, mortgages, business loans, investment banks, equity brokers all under one roof. This looks very like pre Glass-Steagall, which created the FDIC and prohibited a bank holding company from owning other financial companies. This ban was repealed on November 12, 1999. Is this in the best interest of our nation? How will these giants be regulated? How do we insure the FDIC is not liable to investment banking losses?
The economy is the next domino, negative growth, just how negative? How many cars are going to me made and sold in the USA in the next 12 months? How many people are going to lose their jobs? I think we will be very lucky if unemployment stabilizes below 9%.
To summarize or conclude on what went wrong. In a low regulation world great faith is placed in management of banks own self interest being aligned with the public good. This failed.
The rating agencies, monoline insurance companies and mortgage GSEs must be regulated and not allowed to expand their businesses for profit.
Internal Risk management groups must be independent of management.
OTC derivatives need to be centrally cleared.
CDS should regulated. In the Lehman example $400bn of CDS where settled against 125bn of Lehman’s bonds outstanding. Basically Lehman should never been allowed to fail.
Back to my own experience. I left J P Morgan in 1997 with a business plan to create an electronic platform to allow banks to trade OTC derivatives and therefore replacing the existing secretive opaque system. As a small start up we experienced many challenges namely technology, funding, regulation and market acceptance. We solved the technology and funding and after 2 years of hard work in Washington and legal uncertainty and testifying six times in Congress the regulation issue was solved – the market would stay unregulated, the platform would not be regulated by the CFTC provided we did not clear trades and access was kept to professionals. Through out the regulation uncertainty the large Wall Street banks were very helpful to us, the banks had a huge self interest to ensure the market remained un-regulated.
Finally we had a working technology, funding and certainty on the US regulation situation, we were now ready to launch the platform. Boom! We hit a brick wall that same self interest which had prompted the major banks to help us through the regulation maze re-appear to thwart us. The market was so profitable they wanted it to stay opaque. 10 banks ganged up, threw $100mm into the hat and told the marketplace not to use our platform as they would create a cheaper better platform. We struggled to get anyone interested, we were locked out (can I say anti-trust or coercion?). It is ten years later and there still is no electronic platform operating in the derivatives world.
{Here are the milestones:
The subprime mortgage market grows to include no docs 100% mortgages. The hottest housing markets see price declines and the start of foreclosures. The CDO market for secondary mortgages begins to unravel. UBS, Citibank and Merrill Lynch announced vast loss provisions. SIV vehicles put Commercial Paper market at risk. The monoline insurance companies begin to collapse. Baer sterns collapses and is rescued by the fed and JP Morgan. Outcry on “moral hazard”. Treasury seizes Freddie Mac and Fannie Mae. Lehman collapses and is allowed to go into bankruptcy. Credit spreads explode wider. Treasury seizes AIG. FDIC seizes Washington Mutual and awards assets, branches and deposits to JP Morgan. After stealth run on deposits Wachovia is forced into the hands of Citibank (Later acquired by Wells Fargo). No institution can trust any other organization, Inter-bank activity ceases. Congress eventually passes the TARP bill (allowing Treasury to purchase mortgage assets from banks). The British government rescues three British Banks by injecting capital therefore becoming shareholders. The stock market crashes. The U.S. Treasury follows the UK lead by taking direct stakes in nine banks.}
Notes:
1. Lehman 2007 annual report
2. AIG 2007 annual report
Wednesday, August 20, 2008
Transverse Myelitis
Oh my gosh have things changed for me in a flash. Monday morning back in April I got to my desk as normal at 7am after dropping Richard off at school (they do start school early here!). Preparing for the day at my desk, I started to feel as if I about to vomit. I decided to go home, thinking it was food poisoning. The next day I felt no better and again on Wednesday, now it was time to go see a doctor, the doctor told me there was nothing to worry about and gave me a shot to stop the vomiting. Nothing had changed by Friday and I asked Suzanne to take be back to the doctor. Again he said nothing to worry about and gave me a second stronger shot and couple of pints of plasma as I was very dehydrated by this time. I came home and after a few hours felt even worse. I was so surprised at how much one can throw up having not drunk or eaten for 5 days. This time I asked to be taken to the hospital. At this stage the only thing wrong was I could not drink or eat and I would vomit every hour or so! At 2 am on Saturday morning they finally admitted me to hospital.
In hospital they ran the gambit of tests, and told Suzanne I would be released by Wednesday, there was nothing to worry about. I still could not eat or drink, but I was getting weak. I was also put on intravenous feeding - some turkey soup looking stuff in a bag and strong looking milk which the fed me through my veins. It was the Wednesday that I attempted to sit up that I discovered I could not move at all, I was paralyzed. At this point they moved me to intensive care and ran a bunch more tests. At this point our local hospital, not having the correct specialists decided to move me to the main hospital in Charlotte (we actually live 11 miles south in a suburb of Matthews).
In the main hospital I was seen by every specialist under the sun and was eventually diagnosed with Transverse Myelitis (TM ), after 2 MRIs and a number of CAT scans. TM is a rare syndrome which effects approx 1400 people a year in the US and is characterized by inflammation of the spinal cord. It results in the loss of motor, sensory, bladder/bowel functions. For me it hit very hard, I lost all movement below the T4 (forth vertebrae below the neck), so I lost my stomach muscles and all movement in my legs, I was unable to even sit up, lost all feeling below the breast and lost bowel and bladder function. My arms are good and very helpful, but by the time I tried to used them they were very weak, and fairly useless.
Research at John Hopkins concludes that 1/3 of patients have a full recovery, 1/3 partial and a 1/3 with little to none. There is no known cure and as my doctor said to me “we will know how well you are doing by how well you are doing”. Mind you in hospital no one would tell us any of this, we were totally in the dark.
Suzanne had to go to great lengths to look after the kids, keep my office going, work and visit me everyday. As I recovered I could see how much the worry was wearing her down. Eventually I was able to return to solids and after a 4 week treatment of very strong steroids was able to eat solids again.
Hospital was generally very unpleasant and I was delighted when I was finally informed that I would be transferred to a rehab hospital, one of the best on the east coast. The hospital had a 144 bed for Spinal cord and brain injury rehab center. So after 5 weeks I was placed in a new bigger brighter room and under nurses and doctors who seemed to care. It was like sunlight in the morning.
At rehab they worked me hard. Each new exercise or step seemed impossible, from first getting into or out of a wheel chair to getting my socks on. 5 hours each day, gradually I got stronger and learnt how to dress myself. On the last morning I had to pass a test and dress and wash myself with no help. I did it, but it took 90 minutes. After 4 weeks in the rehab hospital I began to emotionally to break down, there was nothing more to it, I had to get out, I was sure I was going to die it was so bad. On the 12th of June they released me to go home.
Going home was full of anxiety, I would not have any nurses to look after me, I would not have the air bed with nice handles to help me sit up, I would not have help with my bowel program or nurse to help move me at night.
Our home is so ill suited for a para! We have 6 bedroom and 4 bath rooms, none of which I can reach to! They are either upstairs or down below. Suzanne converted my study into a bedroom and the boys had to carry me into the house in the wheelchair up the 5 steps from the street.
Once Suzanne finally got me into my own bed that Thursday (12 June) my left leg MOVED! Small but a real movement. I really wanted a bottle of champagne!
The prognosis from John Hopkins say the biggest improvement, if it is going to happen will occur in month 3 through 6. It is 4 months, and two months since leaving hospital since I was struck with this and the last month has been one of continual improvement. We have just returned from 3 weeks at the beach. I made such great head way my therapists could hardly believe it when I returned to therapy. I only had a short day 12- 5, principally staying in bed, but I managed to swim for least an hour each day and in the pool I was able to build on the movements in my stomach and legs. The improvement was so good that my therapists tried me in a walker. I was able to stand, my arms doing most of the work, BUT.. I see where this is going.
The sensory aspects have caused me the most problems recently. I still have not feeling but I have a numbness all over which is my brain interpreting messages as pain. It is difficult to get comfortable in any position and I can’t stay in the same place long. Bed is the best place! If I could get over the nerve pain I would be fine, I can do everything from my wheelchair now.
In hospital they ran the gambit of tests, and told Suzanne I would be released by Wednesday, there was nothing to worry about. I still could not eat or drink, but I was getting weak. I was also put on intravenous feeding - some turkey soup looking stuff in a bag and strong looking milk which the fed me through my veins. It was the Wednesday that I attempted to sit up that I discovered I could not move at all, I was paralyzed. At this point they moved me to intensive care and ran a bunch more tests. At this point our local hospital, not having the correct specialists decided to move me to the main hospital in Charlotte (we actually live 11 miles south in a suburb of Matthews).
In the main hospital I was seen by every specialist under the sun and was eventually diagnosed with Transverse Myelitis (TM ), after 2 MRIs and a number of CAT scans. TM is a rare syndrome which effects approx 1400 people a year in the US and is characterized by inflammation of the spinal cord. It results in the loss of motor, sensory, bladder/bowel functions. For me it hit very hard, I lost all movement below the T4 (forth vertebrae below the neck), so I lost my stomach muscles and all movement in my legs, I was unable to even sit up, lost all feeling below the breast and lost bowel and bladder function. My arms are good and very helpful, but by the time I tried to used them they were very weak, and fairly useless.
Research at John Hopkins concludes that 1/3 of patients have a full recovery, 1/3 partial and a 1/3 with little to none. There is no known cure and as my doctor said to me “we will know how well you are doing by how well you are doing”. Mind you in hospital no one would tell us any of this, we were totally in the dark.
Suzanne had to go to great lengths to look after the kids, keep my office going, work and visit me everyday. As I recovered I could see how much the worry was wearing her down. Eventually I was able to return to solids and after a 4 week treatment of very strong steroids was able to eat solids again.
Hospital was generally very unpleasant and I was delighted when I was finally informed that I would be transferred to a rehab hospital, one of the best on the east coast. The hospital had a 144 bed for Spinal cord and brain injury rehab center. So after 5 weeks I was placed in a new bigger brighter room and under nurses and doctors who seemed to care. It was like sunlight in the morning.
At rehab they worked me hard. Each new exercise or step seemed impossible, from first getting into or out of a wheel chair to getting my socks on. 5 hours each day, gradually I got stronger and learnt how to dress myself. On the last morning I had to pass a test and dress and wash myself with no help. I did it, but it took 90 minutes. After 4 weeks in the rehab hospital I began to emotionally to break down, there was nothing more to it, I had to get out, I was sure I was going to die it was so bad. On the 12th of June they released me to go home.
Going home was full of anxiety, I would not have any nurses to look after me, I would not have the air bed with nice handles to help me sit up, I would not have help with my bowel program or nurse to help move me at night.
Our home is so ill suited for a para! We have 6 bedroom and 4 bath rooms, none of which I can reach to! They are either upstairs or down below. Suzanne converted my study into a bedroom and the boys had to carry me into the house in the wheelchair up the 5 steps from the street.
Once Suzanne finally got me into my own bed that Thursday (12 June) my left leg MOVED! Small but a real movement. I really wanted a bottle of champagne!
The prognosis from John Hopkins say the biggest improvement, if it is going to happen will occur in month 3 through 6. It is 4 months, and two months since leaving hospital since I was struck with this and the last month has been one of continual improvement. We have just returned from 3 weeks at the beach. I made such great head way my therapists could hardly believe it when I returned to therapy. I only had a short day 12- 5, principally staying in bed, but I managed to swim for least an hour each day and in the pool I was able to build on the movements in my stomach and legs. The improvement was so good that my therapists tried me in a walker. I was able to stand, my arms doing most of the work, BUT.. I see where this is going.
The sensory aspects have caused me the most problems recently. I still have not feeling but I have a numbness all over which is my brain interpreting messages as pain. It is difficult to get comfortable in any position and I can’t stay in the same place long. Bed is the best place! If I could get over the nerve pain I would be fine, I can do everything from my wheelchair now.
Friday, February 22, 2008
Resolving the lack of mentors at law firms
by Zebroid (c) 2008
Associates at leading law firms often ask the ever so important question, “How do I find a mentor?!” A plea for advice.
"I am getting good experience but I get NO mentoring. I get given work I have no experience doing. With a little mentoring I would be able to do it better. No one reviews my work it goes directly to the client. I am very stressed"
Although there are several different approaches to solving this problem, I’ve collected a few ideas of ways to deal with the issue.
Answer 1
Find who at your firm is in charge of ‘Professional development’. Arrange a meeting, if they are in a different office, arrange a time to speak on the phone. If this does not work Go speak to the practice chair/leader.
Open with:
“I really want to grow and learn. I want to be as effective and productive as I can be”
Remember it is all about “them” what you can do for “them”, never about you and how frustrated you are.
Prepare some examples of where a mentor would have made you more effective and reduced the institutional risk.
Identify individuals that would be good mentors prior, as you maybe asked
Then sit back and “listen”.
Answer 2
I think that despite the popularity of the topic, real mentorships are just tough to come by. Select carefully, but identify an individual within your business that is accessible to you and who has demonstrated success in their career. Observe their personal style for a while and ask yourself if this is a style you would like to emulate. Finally, approach the individual and explain that you are seeking guidance from some kind of informal mentorship and are interested in exploring with them how you might take advantage of their experience and knowledge from time to time. Ask them if they have an experience with mentoring and how such a relationship might or might not work for them.
Answer 3
I’m not sure there is a universally acceptable solution to this. So many factors come into play.
1. Experienced lawyers become frustrated by spending time to teach new lawyers, where the probability of those new lawyers moving on to other jobs is high.
2. Few firms actually set their rewards systems to encourage any conduct not seen as a direct revenue generator.
3. Time and billing pressures on lawyers make any serious teaching effort seem counterproductive, particularly given point numbers 1 & 2.
4. The level of attention that a new lawyer might desire as “mentoring” can sometimes be seen by an experienced lawyer as a demand for needless hand-holding or coddling. The best route that I’ve found so far is to encourage experienced lawyers to pick out one newer person to work with and “mentor.” Letting the experienced lawyer select the person seems to reduce the effects of point 4. Having the new person directly assist the experienced lawyer on a consistent basis, seems to reduce point 3.
Associates at leading law firms often ask the ever so important question, “How do I find a mentor?!” A plea for advice.
"I am getting good experience but I get NO mentoring. I get given work I have no experience doing. With a little mentoring I would be able to do it better. No one reviews my work it goes directly to the client. I am very stressed"
Although there are several different approaches to solving this problem, I’ve collected a few ideas of ways to deal with the issue.
Answer 1
Find who at your firm is in charge of ‘Professional development’. Arrange a meeting, if they are in a different office, arrange a time to speak on the phone. If this does not work Go speak to the practice chair/leader.
Open with:
“I really want to grow and learn. I want to be as effective and productive as I can be”
Remember it is all about “them” what you can do for “them”, never about you and how frustrated you are.
Prepare some examples of where a mentor would have made you more effective and reduced the institutional risk.
Identify individuals that would be good mentors prior, as you maybe asked
Then sit back and “listen”.
Answer 2
I think that despite the popularity of the topic, real mentorships are just tough to come by. Select carefully, but identify an individual within your business that is accessible to you and who has demonstrated success in their career. Observe their personal style for a while and ask yourself if this is a style you would like to emulate. Finally, approach the individual and explain that you are seeking guidance from some kind of informal mentorship and are interested in exploring with them how you might take advantage of their experience and knowledge from time to time. Ask them if they have an experience with mentoring and how such a relationship might or might not work for them.
Answer 3
I’m not sure there is a universally acceptable solution to this. So many factors come into play.
1. Experienced lawyers become frustrated by spending time to teach new lawyers, where the probability of those new lawyers moving on to other jobs is high.
2. Few firms actually set their rewards systems to encourage any conduct not seen as a direct revenue generator.
3. Time and billing pressures on lawyers make any serious teaching effort seem counterproductive, particularly given point numbers 1 & 2.
4. The level of attention that a new lawyer might desire as “mentoring” can sometimes be seen by an experienced lawyer as a demand for needless hand-holding or coddling. The best route that I’ve found so far is to encourage experienced lawyers to pick out one newer person to work with and “mentor.” Letting the experienced lawyer select the person seems to reduce the effects of point 4. Having the new person directly assist the experienced lawyer on a consistent basis, seems to reduce point 3.
Thursday, February 14, 2008
So you think a recruiter can find you a job?
By Zebriod (c) 2008
(planning to find a new job)
If it has not happened to you yet, it happens more and more often, the work disappears and you need to find a new job. When this happens the first thing you need is a plan, a plan to land a new job. It is always easier to land a new job when you have a job, but you don’t have the time and that is not the situation I intend to cover here.
The plan needs to be more than finding a recruiter and sitting back. You need to be in control of your search, a recruiter can only help if they have the right client.
Step 1. Ground work
Get you paperwork in order:
1a. Review your resume (See my article on writing your resume)
1b. Review all your accomplishments – write them up, no one is going to hire you because you need a job, they will only hire you if you bring something they need (See my article on accomplishments)
1c. Make a personal marketing statement (see creating your elevator pitch)
1d. Get copies of transcripts – many companies require these if you have post grad education.
1e. Prepare your references – this is very important, networking can land you the job you need. Call everyone you know and ask them if they would be willing to provide you a professional reference if needed – don’t be proud.
Step 2. How to stay in control
Make sure all recruiters have your permission directly from you prior to submitting your resume to any employer. Recruiters have a natural incentive to send your resume to as many companies as possible, just in case you get hired. Normally they can claim a fee if you go to work for any of these within a year of submitting your resume.
Create a spreadsheet of possible companies. Use the internet to research companies in your location or in your sector
Number Co Name Website Co Contact Recruiter Date sent Notes--->
Only self submit through the website as a last resort. Try to place a call into the company, use you marketing pitch and attempt to get someone in the company to get you in. If you submit through the website will be joining hundreds of “chef s and chauffeurs” and as a result your resume will first be read by a machine, so make sure you have as many “key words” as possible.
Step 3. Network
Most mid career job changes are a result of “networking” not recruiters, it is expensive for companies to find quality staff and as a result networking has a distinct advantage over using a recruiter. It maybe difficult to call previous colleagues and admit that you are searching for a new job, but it has to be done. Call them all, make sure you are prepared to market yourself even when you think they know you. Use an indirect approach “Do you know anyone that is hiring”, “Do you have anyone over at xyz company that I can call?”.
This is difficult, but do it. Finding the next job is a full time job.
Step 4. Be prepared
The first step is to get an interview, but an interview is not the end, just the end of the beginning. Be prepared to interview well.
Try to be nice and well mannered at all times.
(planning to find a new job)
If it has not happened to you yet, it happens more and more often, the work disappears and you need to find a new job. When this happens the first thing you need is a plan, a plan to land a new job. It is always easier to land a new job when you have a job, but you don’t have the time and that is not the situation I intend to cover here.
The plan needs to be more than finding a recruiter and sitting back. You need to be in control of your search, a recruiter can only help if they have the right client.
Step 1. Ground work
Get you paperwork in order:
1a. Review your resume (See my article on writing your resume)
1b. Review all your accomplishments – write them up, no one is going to hire you because you need a job, they will only hire you if you bring something they need (See my article on accomplishments)
1c. Make a personal marketing statement (see creating your elevator pitch)
1d. Get copies of transcripts – many companies require these if you have post grad education.
1e. Prepare your references – this is very important, networking can land you the job you need. Call everyone you know and ask them if they would be willing to provide you a professional reference if needed – don’t be proud.
Step 2. How to stay in control
Make sure all recruiters have your permission directly from you prior to submitting your resume to any employer. Recruiters have a natural incentive to send your resume to as many companies as possible, just in case you get hired. Normally they can claim a fee if you go to work for any of these within a year of submitting your resume.
Create a spreadsheet of possible companies. Use the internet to research companies in your location or in your sector
Number Co Name Website Co Contact Recruiter Date sent Notes--->
Only self submit through the website as a last resort. Try to place a call into the company, use you marketing pitch and attempt to get someone in the company to get you in. If you submit through the website will be joining hundreds of “chef s and chauffeurs” and as a result your resume will first be read by a machine, so make sure you have as many “key words” as possible.
Step 3. Network
Most mid career job changes are a result of “networking” not recruiters, it is expensive for companies to find quality staff and as a result networking has a distinct advantage over using a recruiter. It maybe difficult to call previous colleagues and admit that you are searching for a new job, but it has to be done. Call them all, make sure you are prepared to market yourself even when you think they know you. Use an indirect approach “Do you know anyone that is hiring”, “Do you have anyone over at xyz company that I can call?”.
This is difficult, but do it. Finding the next job is a full time job.
Step 4. Be prepared
The first step is to get an interview, but an interview is not the end, just the end of the beginning. Be prepared to interview well.
Try to be nice and well mannered at all times.
Tuesday, February 5, 2008
What Makes For a Good Resume?
by Zebriod (c) 2007
1. Don't use tables; I scream every time I see an overly complicated tabled resume! Resume are distributed via email and rarely printed any more. The resume must look good on a screen, tables make it too busy, work at a simple clean look.
2. The purpose of a resume is to get you the interview! Actual the object is just to get them interested enough to “read” it.
A resume is not the best historical document of your life! No one reads, so why do you expect anyone to read your resume? The best you can hope for is someone to scan it; you better make every word count.
3. Avoid long paragraphs. Let’s call it the three line rule. If you have to use more than three lines to describe any role you should go back to the drawing board. Re-read it asking “who would be interested”
Example: (taken from an actual resume, you don't have to read it! - it makes the point)
Primary responsibility for advising OTC and Listed Equity Trading Desks, Equity Sales, International Trading, Equity Option Trading, and securities exchange floor trading operations, with coverage responsibilities for Transaction Services, Research, and Retail Equity. Developed legal structure for 10b5-1 trading program, and negotiated transactions thereunder; also negotiated prime brokerage, service, and various other agreements. Development and implementation of firm-wide policies and communications in connection with extended-hours trading, decimalization, best execution, payment for order flow, electronic trading, etc., as well as preparation and implementation of supervisory procedures for desk and floor operations. Antitrust attorney in charge of supervising Compliance officers engaged in Department of Justice stipulated taping. Provided transactional and trading support to equity and fixed income businesses in London office, both from New York and in London.
Did you get any of that? I did not follow it at all, how about the following re-write?
· Advising OTC, Listed and Option Equity Sales and Trading Desks, and exchange floor trading operations of all legal matters.
· Establishing 10b5-1 trading program and prime brokerage services.
· Communicating firm-wide policies in connection with extended-hours trading, decimalization, best execution electronic trading, and payment for order flow.
4. Make every word count. It is a good goal to get your resume on to one page, (and that is the case when you have had a 25 year career or are only just starting out.) Allocate more space to the most relevant and more recent stuff; don't be put off by creating a specially tailored version of your resume for each job opportunity.
A resume has three main components: (Features; Education; Accomplishments)
(i) Features - these are dates, companies and titles;
JP Morgan Chase, Dec 2002 - Present Vice President, Global Trading Foreign Exchange
(ii) Education - This can be placed at the start or at the end depending on how stellar it is. If you have a P.hD why not highlight it.
(iii) Accomplishment at each position; Avoid long paragraphs, attempt to use action words to describe your accomplishments using bullets, it is all about what you can do for the next company!
4. Don't Clog it up. I hate the poor pitch a lot of people add under "Objectives" or "Skill" and clog up the resume - don't do it.... Do you think anyone believes you when the resume says "good communicator" "good team player" etc... this is just hot air. If you feel the urge to do this spend the time drafing a good cover letter.
Example:
First Surname
1500 May Blvd. Arlington VA 22201 ♦ (900) 367-8614 ♦ email@law.uni.edu
Education
University School of Law, Atlanta, GA
Juris Doctor Degree, May 2002. Highest Grade in Dispute Resolution
Moot Court, Intellectual Property. Emory Award Scholarship
London School of Economics, London, England
Masters in Economics, June 1999
Graduated With Distinction. London Friends Scholarship
Amherst,
Bachelor of Arts Degree in Political Science and Economics, May 1998
Graduated Summa Cum Laude. Margaret C. Peabody Fellowship. W. C. Rockefeller Grant
Bar Memberships
Admitted to the New York, New Jersey, Washington D.C. Bar Associations, eligible to waive into Massachusetts
________
Experience
Law firn, L.L.P., Washington D.C. August 2003 - Present
Associate
· Research and writing in government procurement, international contracts, corporate structuring, export and intellectual property law
· Litigated before the Government Accountability Office and Court of Federal Claims regarding organizational conflicts of interest and corporate compliance issues
· Reviewed contracts for joint venture between two film studios and litigated against claims of dilution and misappropriation of commercial likeness
· Drafted negotiated license rights for software package to be sold to the Department of Defense
· Negotiated assignment of rights of multi-media software from Swedish based entertainment company to major U.S. entertainment consulting group
· Advised international clients on Buy American Act, Trade Agreement Act, Berry Amendment
· Litigated claims of trademark infringement and deceptive trade practice for website based company regarding video streaming of news and entertainment clips
· Defended music company product line and packaging from trade dress infringement claims
US Corporate Inc., New York, NY and Newark, NJ January 2003 – August 2003
Assistant General Counsel
· Worked exclusively with client regarding licensing, trademark/domain litigation
· Drafted shareholder agreements, employment / consulting contracts, non-disclosure agreements, licensing and sub-licensing contracts for data rights, manuals and software tutorials
· Filed company trademark and assisted with patent provisionals
· Drafted proposals for STTR, SBIR and DARPA regarding portable medical devices funding
Law firm, P.C., New York, NY and West Orange, NJ May 2002 – January 2003
Associate
· Drafted performance and payment bond documents for surety entities
· Litigated state and city contractual claims on behalf of construction companies working in NY
Publications: Contributor, ……………………..
Language Skills: Spanish; German (conversational); learning Russian
1. Don't use tables; I scream every time I see an overly complicated tabled resume! Resume are distributed via email and rarely printed any more. The resume must look good on a screen, tables make it too busy, work at a simple clean look.
2. The purpose of a resume is to get you the interview! Actual the object is just to get them interested enough to “read” it.
A resume is not the best historical document of your life! No one reads, so why do you expect anyone to read your resume? The best you can hope for is someone to scan it; you better make every word count.
3. Avoid long paragraphs. Let’s call it the three line rule. If you have to use more than three lines to describe any role you should go back to the drawing board. Re-read it asking “who would be interested”
Example: (taken from an actual resume, you don't have to read it! - it makes the point)
Primary responsibility for advising OTC and Listed Equity Trading Desks, Equity Sales, International Trading, Equity Option Trading, and securities exchange floor trading operations, with coverage responsibilities for Transaction Services, Research, and Retail Equity. Developed legal structure for 10b5-1 trading program, and negotiated transactions thereunder; also negotiated prime brokerage, service, and various other agreements. Development and implementation of firm-wide policies and communications in connection with extended-hours trading, decimalization, best execution, payment for order flow, electronic trading, etc., as well as preparation and implementation of supervisory procedures for desk and floor operations. Antitrust attorney in charge of supervising Compliance officers engaged in Department of Justice stipulated taping. Provided transactional and trading support to equity and fixed income businesses in London office, both from New York and in London.
Did you get any of that? I did not follow it at all, how about the following re-write?
· Advising OTC, Listed and Option Equity Sales and Trading Desks, and exchange floor trading operations of all legal matters.
· Establishing 10b5-1 trading program and prime brokerage services.
· Communicating firm-wide policies in connection with extended-hours trading, decimalization, best execution electronic trading, and payment for order flow.
4. Make every word count. It is a good goal to get your resume on to one page, (and that is the case when you have had a 25 year career or are only just starting out.) Allocate more space to the most relevant and more recent stuff; don't be put off by creating a specially tailored version of your resume for each job opportunity.
A resume has three main components: (Features; Education; Accomplishments)
(i) Features - these are dates, companies and titles;
JP Morgan Chase, Dec 2002 - Present Vice President, Global Trading Foreign Exchange
(ii) Education - This can be placed at the start or at the end depending on how stellar it is. If you have a P.hD why not highlight it.
(iii) Accomplishment at each position; Avoid long paragraphs, attempt to use action words to describe your accomplishments using bullets, it is all about what you can do for the next company!
4. Don't Clog it up. I hate the poor pitch a lot of people add under "Objectives" or "Skill" and clog up the resume - don't do it.... Do you think anyone believes you when the resume says "good communicator" "good team player" etc... this is just hot air. If you feel the urge to do this spend the time drafing a good cover letter.
Example:
First Surname
1500 May Blvd. Arlington VA 22201 ♦ (900) 367-8614 ♦ email@law.uni.edu
Education
University School of Law, Atlanta, GA
Juris Doctor Degree, May 2002. Highest Grade in Dispute Resolution
Moot Court, Intellectual Property. Emory Award Scholarship
London School of Economics, London, England
Masters in Economics, June 1999
Graduated With Distinction. London Friends Scholarship
Amherst,
Bachelor of Arts Degree in Political Science and Economics, May 1998
Graduated Summa Cum Laude. Margaret C. Peabody Fellowship. W. C. Rockefeller Grant
Bar Memberships
Admitted to the New York, New Jersey, Washington D.C. Bar Associations, eligible to waive into Massachusetts
________
Experience
Law firn, L.L.P., Washington D.C. August 2003 - Present
Associate
· Research and writing in government procurement, international contracts, corporate structuring, export and intellectual property law
· Litigated before the Government Accountability Office and Court of Federal Claims regarding organizational conflicts of interest and corporate compliance issues
· Reviewed contracts for joint venture between two film studios and litigated against claims of dilution and misappropriation of commercial likeness
· Drafted negotiated license rights for software package to be sold to the Department of Defense
· Negotiated assignment of rights of multi-media software from Swedish based entertainment company to major U.S. entertainment consulting group
· Advised international clients on Buy American Act, Trade Agreement Act, Berry Amendment
· Litigated claims of trademark infringement and deceptive trade practice for website based company regarding video streaming of news and entertainment clips
· Defended music company product line and packaging from trade dress infringement claims
US Corporate Inc., New York, NY and Newark, NJ January 2003 – August 2003
Assistant General Counsel
· Worked exclusively with client regarding licensing, trademark/domain litigation
· Drafted shareholder agreements, employment / consulting contracts, non-disclosure agreements, licensing and sub-licensing contracts for data rights, manuals and software tutorials
· Filed company trademark and assisted with patent provisionals
· Drafted proposals for STTR, SBIR and DARPA regarding portable medical devices funding
Law firm, P.C., New York, NY and West Orange, NJ May 2002 – January 2003
Associate
· Drafted performance and payment bond documents for surety entities
· Litigated state and city contractual claims on behalf of construction companies working in NY
Publications: Contributor, ……………………..
Language Skills: Spanish; German (conversational); learning Russian
ABC of good interviewing
ABC’s of Good Interviewing.
The purpose of a resume is to get the interview; the purpose of the interview is to receive any offer.
A. Your perspective.
An interview should be hard work and you must be prepared. However let’s understand first what you are trying to accomplish. When you have completed the interview you should be able to answer the following three questions:
Do you understand the opportunity
Can you do the job, and
Do you want the job?
We can flip these and easy understand what the interviewer is trying to accomplish!
B. The basics.
Never forget the basics. That is know where you have to be, be there 15 minutes early, be well presented, that is have clean shoes, be well prepared, know all you can about the interviewers and company. And above all be respectful. Wear a suit even if the company has a casual dress code.
People hire people they like, people like people with energy. So have good posture, eye contact, listening skills! and use words such as contribute, enhance, and improve in your responses.
C. Be prepared for the Ice-breakers.
Over 80% of interviews start off with an icebreaker like “tell me about yourself”. These are dangerous and you need to be on guard. Interviews are rarely interested in you to the extent that they are will to sit a listen to where you grew up and irrelevant stories – so we have to keep it relevant at all times. So how do you answer it? You need to do some homework.
Prepare your own marketing statement the night before. Everyone needs this at all times, it is sometimes referred to as your elevator speech or pitch. Imagine you get caught in the elevator with the boss between floors; you would not want to miss the opportunity…
This is what it looks like, prepare a 3 part statement:
Part 1 – One sentence summary of career to date.
Part 2 – Accomplishment you are proud of that will capture the employer’s attention.
Part 3 – One sentence summary of what you want to do next in your career.
Example “I’ve had 16 years of experience in the industry while serving as a {job title} with company ABC for the last five years. While at ABC, I led the successful {accomplishment} which resulted in us achieving {bottom line impact…saving money, saving time, awards/recognition}. For my next career move, I desire to move to a company with more prestige where I can continue to add value for the long term.”
Tips. We always need to do our homework and this statement is a good demonstration. Part 1 needs to be relevant and most people have to work at making this short, easy to ramble on here – the interviewer is not interested.
Part 2 is very telling, prepare as many accomplishments from your career as possible, select the best for your marketing statement and use the remainder through out the interview to answer other question. For example if you get a skill question “what do you know about ..?” You can have a specific accomplishment that highlights your knowledge.
Part 3 allows you to answer “why am I here and why you should hire me?” right up front. Don’t miss the chance.
**An Extra Tip: If given the opportunity to ask a question at the very beginning of the interview – Ask, “What exactly are you looking for in a (title of position)?” Listen Carefully! You should target the rest of your interview answers so that they cover what the hiring manager’s response was to that question.
D. How to answer behavioral questions.
You are going to get many questions in interviews that are skill, knowledge or behavioral based. For example, what’s the most difficult situation you ever faced on a job?
Answer questions with examples, so you will be glad you did your homework. Remember rule 1 – it is all about them, how do you joining them benefit them? How do your previous accomplishments and experiences benefit them?
One way you want to think of this answer using the SOAR or STAR principles.
Situation Situation
Obstacle Task
Action Action
Result Result
“I was in this situation, I was given this task, I took the following actions and result was…”
See how all the accomplishments you prepared for your marketing statement will be very useful?
Each discipline will have their own skill requirement so be prepared, we can’t cover that here but all employers are looking for the same three things:
Skills, Experience and Stability
But be prepared to highlight the “intangible” using accomplishments. Saying you are a “good team player, good communicator, hard worker, cultural fit, internally motivated” with no context is hollow.
E. Be ready to ask good questions.
When finally the interviewer will ask “have you any questions for me?” The wrong answer is “No”. Interviewers like to talk about themselves and they get as much out of you questions as the answer to their questions.
Prepare questions in these 3 categories:
Questions about the job / opportunity
Questions about the company, however never ask something that is publicly available.
Questions about the interviewer, how about testing them with “tell me about yourself”
Sample Questions:
-What would you expect me to achieve in the first 6 months?
-Is there anything I can tell you about my qualifications that I haven’t said yet?
-What are the principal challenges I would face in this job?
The purpose of a resume is to get the interview; the purpose of the interview is to receive any offer.
A. Your perspective.
An interview should be hard work and you must be prepared. However let’s understand first what you are trying to accomplish. When you have completed the interview you should be able to answer the following three questions:
Do you understand the opportunity
Can you do the job, and
Do you want the job?
We can flip these and easy understand what the interviewer is trying to accomplish!
B. The basics.
Never forget the basics. That is know where you have to be, be there 15 minutes early, be well presented, that is have clean shoes, be well prepared, know all you can about the interviewers and company. And above all be respectful. Wear a suit even if the company has a casual dress code.
People hire people they like, people like people with energy. So have good posture, eye contact, listening skills! and use words such as contribute, enhance, and improve in your responses.
C. Be prepared for the Ice-breakers.
Over 80% of interviews start off with an icebreaker like “tell me about yourself”. These are dangerous and you need to be on guard. Interviews are rarely interested in you to the extent that they are will to sit a listen to where you grew up and irrelevant stories – so we have to keep it relevant at all times. So how do you answer it? You need to do some homework.
Prepare your own marketing statement the night before. Everyone needs this at all times, it is sometimes referred to as your elevator speech or pitch. Imagine you get caught in the elevator with the boss between floors; you would not want to miss the opportunity…
This is what it looks like, prepare a 3 part statement:
Part 1 – One sentence summary of career to date.
Part 2 – Accomplishment you are proud of that will capture the employer’s attention.
Part 3 – One sentence summary of what you want to do next in your career.
Example “I’ve had 16 years of experience in the industry while serving as a {job title} with company ABC for the last five years. While at ABC, I led the successful {accomplishment} which resulted in us achieving {bottom line impact…saving money, saving time, awards/recognition}. For my next career move, I desire to move to a company with more prestige where I can continue to add value for the long term.”
Tips. We always need to do our homework and this statement is a good demonstration. Part 1 needs to be relevant and most people have to work at making this short, easy to ramble on here – the interviewer is not interested.
Part 2 is very telling, prepare as many accomplishments from your career as possible, select the best for your marketing statement and use the remainder through out the interview to answer other question. For example if you get a skill question “what do you know about ..?” You can have a specific accomplishment that highlights your knowledge.
Part 3 allows you to answer “why am I here and why you should hire me?” right up front. Don’t miss the chance.
**An Extra Tip: If given the opportunity to ask a question at the very beginning of the interview – Ask, “What exactly are you looking for in a (title of position)?” Listen Carefully! You should target the rest of your interview answers so that they cover what the hiring manager’s response was to that question.
D. How to answer behavioral questions.
You are going to get many questions in interviews that are skill, knowledge or behavioral based. For example, what’s the most difficult situation you ever faced on a job?
Answer questions with examples, so you will be glad you did your homework. Remember rule 1 – it is all about them, how do you joining them benefit them? How do your previous accomplishments and experiences benefit them?
One way you want to think of this answer using the SOAR or STAR principles.
Situation Situation
Obstacle Task
Action Action
Result Result
“I was in this situation, I was given this task, I took the following actions and result was…”
See how all the accomplishments you prepared for your marketing statement will be very useful?
Each discipline will have their own skill requirement so be prepared, we can’t cover that here but all employers are looking for the same three things:
Skills, Experience and Stability
But be prepared to highlight the “intangible” using accomplishments. Saying you are a “good team player, good communicator, hard worker, cultural fit, internally motivated” with no context is hollow.
E. Be ready to ask good questions.
When finally the interviewer will ask “have you any questions for me?” The wrong answer is “No”. Interviewers like to talk about themselves and they get as much out of you questions as the answer to their questions.
Prepare questions in these 3 categories:
Questions about the job / opportunity
Questions about the company, however never ask something that is publicly available.
Questions about the interviewer, how about testing them with “tell me about yourself”
Sample Questions:
-What would you expect me to achieve in the first 6 months?
-Is there anything I can tell you about my qualifications that I haven’t said yet?
-What are the principal challenges I would face in this job?
Thursday, January 31, 2008
Marketing Statement
By Zebriod (c) 2008
We all need one, or two. We have all heard of the elevator speech, where you are caught the elevator between floors with the boss, you have 11 seconds of his time, you need to get your message across – clearly and fast. Likewise if an interviewer starts with an icebreaker question like “tell me about yourself’, you don’t want to miss the opportunity to put yourself in the best possible light.
Be sure you don’t ramble on about irrelevancies or get off topic! Instead, make your answer into a 3 part pre-planned marketing statement.
Part 1 – One short sentence as summary of career history to date.
Part 2 – A stand out accomplishment you are proud of that will capture the employer’s attention.
Part 3 – One sentence summary of what you want to do next in your career. This is a forward looking statement, positive (never bash a previous situation) and clearly answers the question why are you here now?
“I’ve had 16 years of experience in the industry while serving as a {job title} with company ABC for the last five years. While at ABC, I led the successful {accomplishment} which resulted in us achieving {bottom line impact…saving money, saving time, awards/recognition}. For my next career move, I desire to move to a company with more prestige where I can continue to add value for the long term.”
**An Extra Tip:If given the opportunity to ask a question at the very beginning of the interview – Ask, “What exactly are you looking for in a (title of position)?” Listen Carefully! You should target the rest of your interview answers so that they cover what the hiring manager’s response was to that question.
We all need one, or two. We have all heard of the elevator speech, where you are caught the elevator between floors with the boss, you have 11 seconds of his time, you need to get your message across – clearly and fast. Likewise if an interviewer starts with an icebreaker question like “tell me about yourself’, you don’t want to miss the opportunity to put yourself in the best possible light.
Be sure you don’t ramble on about irrelevancies or get off topic! Instead, make your answer into a 3 part pre-planned marketing statement.
Part 1 – One short sentence as summary of career history to date.
Part 2 – A stand out accomplishment you are proud of that will capture the employer’s attention.
Part 3 – One sentence summary of what you want to do next in your career. This is a forward looking statement, positive (never bash a previous situation) and clearly answers the question why are you here now?
“I’ve had 16 years of experience in the industry while serving as a {job title} with company ABC for the last five years. While at ABC, I led the successful {accomplishment} which resulted in us achieving {bottom line impact…saving money, saving time, awards/recognition}. For my next career move, I desire to move to a company with more prestige where I can continue to add value for the long term.”
**An Extra Tip:If given the opportunity to ask a question at the very beginning of the interview – Ask, “What exactly are you looking for in a (title of position)?” Listen Carefully! You should target the rest of your interview answers so that they cover what the hiring manager’s response was to that question.
So you think a recruiter can find you a job?
(planning to find a new job)
Zebriod (c) 2008
If it has not happened to you yet, it happens more and more often, the work disappears and you need to find a new job. When this happens the first thing you need is a plan, a plan to land a new job. It is always easier to land a new job when you have a job, but you don’t have the time and that is not the situation I intend to cover here.
Any the plan needs to be more than finding a recruiter and sitting back. You need to be in control, not the recruiter.
Step 1. Ground work
Get you paperwork in order:
1a. Review your resume (See my article on writing your resume)
1b. Review all your accomplishments – write them up, no one is going to hire you because you need a job, they will only hire you if you bring something they need (See my article on accomplishments)
1c. Make a personal marketing statement (see creating your elevator pitch)
1d. Get copies of transcripts – many companies require these if you have post grad education.
1e. Prepare your references – this is very important, networking can land you the job you need. Call everyone you know and ask them if they would be willing to provide you a professional reference if needed – don’t be proud.
Step 2. How to stay in control
Make sure all recruiter have your permission directly from you prior to submitting your resume to any employer. Recruiters have a natural incentive to send your resume to as many companies as possible, just in case you get hired. Normally they can claim a fee if you go to work for any of these within a year of submitting your resume.
Create a spreadsheet of possible companies. Use the internet to research companies in your location or in your sector
Number Co Name Website Co Contact Recruiter Date sent Notes--->
Only self submit through the website as a last resort. Try to place a call into the company, use you marketing pitch and attempt to get someone in the company to get you in. If you submit through the website will be joining hundred of “chef and chauffeurs” and as a result your resume will first be read by a machine, so make sure you have as many “key words” as possible.
Step 3. Network
Most mid career job changes are a result of “networking” not recruiters, it is expensive for companies to find quality staff and as a result networking has a distinct advantage over using a recruiter. It maybe difficult to call previous colleagues and admit that you are searching for a new job, but it has to be done. Call them all, make sure you are prepared to market yourself even when you think they know you. Use an indirect approach “Do you know anyone that is hiring”, “Do you have anyone over at xyz company that I can call?”.
This is difficult but do it.
Step 4. Be prepared
The first step is to get an interview, but an interview is not the end, just the end of the beginning. Be prepared to interview well.
Try to be nice and well mannered at all t
Zebriod (c) 2008
If it has not happened to you yet, it happens more and more often, the work disappears and you need to find a new job. When this happens the first thing you need is a plan, a plan to land a new job. It is always easier to land a new job when you have a job, but you don’t have the time and that is not the situation I intend to cover here.
Any the plan needs to be more than finding a recruiter and sitting back. You need to be in control, not the recruiter.
Step 1. Ground work
Get you paperwork in order:
1a. Review your resume (See my article on writing your resume)
1b. Review all your accomplishments – write them up, no one is going to hire you because you need a job, they will only hire you if you bring something they need (See my article on accomplishments)
1c. Make a personal marketing statement (see creating your elevator pitch)
1d. Get copies of transcripts – many companies require these if you have post grad education.
1e. Prepare your references – this is very important, networking can land you the job you need. Call everyone you know and ask them if they would be willing to provide you a professional reference if needed – don’t be proud.
Step 2. How to stay in control
Make sure all recruiter have your permission directly from you prior to submitting your resume to any employer. Recruiters have a natural incentive to send your resume to as many companies as possible, just in case you get hired. Normally they can claim a fee if you go to work for any of these within a year of submitting your resume.
Create a spreadsheet of possible companies. Use the internet to research companies in your location or in your sector
Number Co Name Website Co Contact Recruiter Date sent Notes--->
Only self submit through the website as a last resort. Try to place a call into the company, use you marketing pitch and attempt to get someone in the company to get you in. If you submit through the website will be joining hundred of “chef and chauffeurs” and as a result your resume will first be read by a machine, so make sure you have as many “key words” as possible.
Step 3. Network
Most mid career job changes are a result of “networking” not recruiters, it is expensive for companies to find quality staff and as a result networking has a distinct advantage over using a recruiter. It maybe difficult to call previous colleagues and admit that you are searching for a new job, but it has to be done. Call them all, make sure you are prepared to market yourself even when you think they know you. Use an indirect approach “Do you know anyone that is hiring”, “Do you have anyone over at xyz company that I can call?”.
This is difficult but do it.
Step 4. Be prepared
The first step is to get an interview, but an interview is not the end, just the end of the beginning. Be prepared to interview well.
Try to be nice and well mannered at all t
Behavior Questions
By Zebriod (c) 2008
I’m not one for listening to party debates, but last night I listened to the Republican debate at the Regan Library. Largely to see how they answered questions, did they have any tips for successful interviewing?
My top observation was the ability of Ron Paul to listen and not get frustrated, just marvelous.
The debate centered on Romney and McCain. As an independent, that is not going to vote for any of these guys, with little or no baggage toward these guys, Romney was the winner on this day by a wide margin when judging the quality of his debating skills. Why? He used examples of “his” past to predict his performance in the future, verifiable accomplishments as examples of why the country should hire him.
When asked if the country was better off today than eight years ago. when the current President started, he clearly pointed out that was not a question he should answer. He had nothing to do with this performance, but instead reviewed his role as governor of Massachusetts, the Salt Lake games, his business career and how he left each better than he found them. McCain on the other hand focused on general, unsupported statements like “I will be the …” “I am the most qualified…”. One approach left me impressed the other unconvinced.
My take away was the importance of being a good listener and using accomplishments to answer questions about future performance.
Introducing the STAR or SOAR principle: STAR stands for (S)ituation, (T)ask, (A)ction and (R)esult, and would be used as follows. I was in this situation, I was given these tasks, I took these actions and the result was. So, going back to Romney, he said when he became Governor we had a 3 billion dollar budget shortfall, not wanting to raise taxes, he found many areas where Massachusetts had not raised fees for 20 years, such as food signs on interstates. In this way, he closed the budget gap by running government more sensibly, like a business.
(For SOAR the (O) is for obstacle)
Use this concept to answer any behavior questions, for example of which are ‘how would you react to…’, ‘give a situation how would you act/react…’
In order to be well prepared, you must sit down and create a list of accomplishments. Write these up, add to them, reword them and practice them. From this list you can now go many places. First , create your own personal marketing statement, a Features And Benefits worksheet and answer behavioral questions.
Accomplishments need to answer the following question “what did you achieve that helped MAKE MONEY, SAVE MONEY, or CHANGE A PROCESS to impact the BOTTOM LINE?”
Don’t forget employers are only looking for “Skills, Experience and stability”
I’m not one for listening to party debates, but last night I listened to the Republican debate at the Regan Library. Largely to see how they answered questions, did they have any tips for successful interviewing?
My top observation was the ability of Ron Paul to listen and not get frustrated, just marvelous.
The debate centered on Romney and McCain. As an independent, that is not going to vote for any of these guys, with little or no baggage toward these guys, Romney was the winner on this day by a wide margin when judging the quality of his debating skills. Why? He used examples of “his” past to predict his performance in the future, verifiable accomplishments as examples of why the country should hire him.
When asked if the country was better off today than eight years ago. when the current President started, he clearly pointed out that was not a question he should answer. He had nothing to do with this performance, but instead reviewed his role as governor of Massachusetts, the Salt Lake games, his business career and how he left each better than he found them. McCain on the other hand focused on general, unsupported statements like “I will be the …” “I am the most qualified…”. One approach left me impressed the other unconvinced.
My take away was the importance of being a good listener and using accomplishments to answer questions about future performance.
Introducing the STAR or SOAR principle: STAR stands for (S)ituation, (T)ask, (A)ction and (R)esult, and would be used as follows. I was in this situation, I was given these tasks, I took these actions and the result was. So, going back to Romney, he said when he became Governor we had a 3 billion dollar budget shortfall, not wanting to raise taxes, he found many areas where Massachusetts had not raised fees for 20 years, such as food signs on interstates. In this way, he closed the budget gap by running government more sensibly, like a business.
(For SOAR the (O) is for obstacle)
Use this concept to answer any behavior questions, for example of which are ‘how would you react to…’, ‘give a situation how would you act/react…’
In order to be well prepared, you must sit down and create a list of accomplishments. Write these up, add to them, reword them and practice them. From this list you can now go many places. First , create your own personal marketing statement, a Features And Benefits worksheet and answer behavioral questions.
Accomplishments need to answer the following question “what did you achieve that helped MAKE MONEY, SAVE MONEY, or CHANGE A PROCESS to impact the BOTTOM LINE?”
Don’t forget employers are only looking for “Skills, Experience and stability”
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