Wednesday, June 20, 2007

It's Different This Time

My first step in the business world was in the early 90's with NCNB, the precurser to a host of bank names ending in B of A. When I joined the company they had just completed the purchase of First Republic Bank of Texas. They paid $1.5 billion, and then didn't, benefitting from a tax loophole that has since closed. First Republic had burned through its entire capital base and a lot more on dodgy real estate, dry oil wells and international loans, the same problems that brought Citi close to its end, trading for $1.50 a share in the cigar butt discount bin.

When the times get good, prudence and the rules that got you in position to make a bundle get thrown out the window - the first law of greed. Raw land, speculative real estate, no money down? No problem. Banana republic (not the stores) needs a soveriegn loan, no problem. Everyone's doing it, have to keep up with the peer group (a bad behaviour that starts around age 3), have to grow earnings.

After business school, I worked at Robertson Stephens, a fabulous brand with a first class crew. This time I was lucky enough to be in front of the bubble and make a little coin along the way. But after losing the leadership team that got the firm into an enviable position, and discovering an inability to do wrong, the firm found itself shut down by its parent company, Fleet Boston (again, after many name changes - life in financial services). In 2001, after uttering the infamous ad line, "Thanks old economy, we'll take it from here!", we found ourselves with triple the work force doing a third of the business, leaving a trail of liability-smelling bad behaviour.

Now, thankfully, I sit at my own desk watching the next mass grab for wealth spiral out of control. The same signs - rampant insider trading, new custodians of capital with different ideas of credit risk, and absolutely unknown risk concentrations. Whistling past the graveyard? I know, I've heard it all - explosive growth in risk abating derivatives, a shrinking pool of equity and vast growing pools of equity funds, a veritable central bank led fire sale for debt capital - its different this time. Maybe. Doubt it.


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