Sunday, May 3, 2009

Late Stage MBA - Josh Moritz - The Final Derivative

A town of wealth is feeling the pinch. Tomorrow afternoon as I tool my way across Pennsylvania to pick-up my oldest son from freshman year at college there is a protest brewing in front of the Westport Town Hall. It's not about the non-existant draft, Iraq, or the underfed. Its about sports, art classes, music and drama. They are going to be cut down, not cut out.

Westport is fast becoming a town of too much new construction on fair sized lots that are remaining vacant an unsold. Like note in an earlier post, it ain't Detroit, but eyebrows that have not been botoxed do raise a bit when houses that were on the market for $4 million sell at auction for $1.9 millon. It becomes worrysome when even the well off are denied new credit cards because their Experien credit report indicates that the value of their house has declined past even a modest mortgage. Things are getting a bit serious.

Unlike in NY where you might lose Kindergarten, Westport cuts back on things children in most towns, including pretty well-off towns, would be amazed at, which is why we moved here. I suppose it is a bit of just desserts since many MBA's, Lawyers and executives who got us in this spot do happen to live here as well.

This whole situation is pretty ironic and brings to mind a story from my days at Rutgers. One night in 1972 a student commited sucide by jumping off the roof of one of the river dorms yelling as he went down "I am not a derivative." Ahead of his time, it should be the rallying cry for the afternoon protest in front of Westport Town Hall. Maybe we can get some of our money back.

3 comments:

Unknown said...

I am confused about the point of this blog. Are you inferring, or perhaps explicitly stating it is the fault of "derivatives" that we are in this mess? I find this to be an irresponsible and single-minded statement. Why aren’t those people who accepted undeserving loans at fault? Did bankers force people into these situations? If I gave someone a gun do they have to use it?

Late Stage MBA - Josh Moritz said...

We disagree.

Tyler, guns alot more understandable.

There maybe some quants out there who really undrestood what the props were, but I will bet the average sales person and the average buyer thought they understood what they were selling and buying, but did not.

This is more than Caveat Emptor, this could be Enron on a wider, less understood and perhaps even more innocent scale.

I believe that the algorytms were abused.

From reports in esteemed business publications that include the WSJ, The Wall Street Journal, Fortune, Forbes -- true capitalist tools of the trade -- sophisticated investors did not understand the underlying facts of many derivatives.

In an age when AAA rated companies are not really triple AAA, we need honest sellers of information.

To wit, I throw the guantlet at your feet: $100 prize to a panel of broker sellers circa 2006 against a panel of CFO's from small to medium sized municipalities from around the country, circa 2006.

The goal: the panel will be given a typical product to explain as they get from the backroom. They do their pitch. The buyer comes back and explains what they bought. We then see the results in 2009. The audience clap meter determines who get the $100.

Late Stage MBA - Josh Moritz said...

We disagree.

Tyler, guns alot more understandable.

There maybe some quants out there who really undrestood what the props were, but I will bet the average sales person and the average buyer thought they understood what they were selling and buying, but did not.

This is more than Caveat Emptor, this could be Enron on a wider, less understood and perhaps even more innocent scale.

I believe that the algorytms were abused.

From reports in esteemed business publications that include the WSJ, The Wall Street Journal, Fortune, Forbes -- true capitalist tools of the trade -- sophisticated investors did not understand the underlying facts of many derivatives.

In an age when AAA rated companies are not really triple AAA, we need honest sellers of information.

To wit, I throw the guantlet at your feet: $100 prize to a panel of broker sellers circa 2006 against a panel of CFO's from small to medium sized municipalities from around the country, circa 2006.

The goal: the panel will be given a typical product to explain as they get from the backroom. They do their pitch. The buyer comes back and explains what they bought. We then see the results in 2009. The audience clap meter determines who get the $100.