Lessons Learned From The Financial Crisis Of 2008 - Anoop P S, IIM Calcutta
Anoop P S did his PGDM from IIM Calcutta (2005 - 2007) and is currently serving as the Director for the ForEx Division of a preeminent Asian based investment bank. His works received awards from prestigious financial journals like Asiamoney and Asiarisk.
I was having a difficult time on the morning of 16 September 2008. It was a Monday morning more than a year after I started working with FX structuring desk of an international bank in Singapore. This was my first job in high finance after my MBA in IIMC. Something didn't seem right that Monday morning.. Prices I was seeing in my models were dramatically different from what I saw previous Friday. I got suspicious, triple checked my computations and still saw these dramatically different prices. I told my senior colleague about what was happening and he gave me a look of disbelief. He was an Irish man by the name Robert Ryan who I secretly suspected to be a genius with his endless knowledge and intellect. He irritatingly told me that Lehman Brothers have collapsed the day before and that is having an impact on prices of financial instruments. At that time, little did I suspect the profound impact this event was going to have on my life.
I realized the efficiency and brilliance of global finance machinery. Bankruptcy of Lehman Brothers which happened just few hours before in US was affecting complex derivative products in Singapore. After this, I started following financial news and its impact on financial markets more closely. What I saw was not pretty. Metrics like LIBOR-OIS spread which refer to the lack of confidence among financial institutions were hitting all time highs. It was scary to imagine what this means to the world. What happens if the biggest financial institutions have no faith in the system ? What happens if people cannot make and receive payments ? Can system function like that ? People from financial industry broadly agreed with my concerns. Some of my friends were so paranoid that they even took out all their money from banks to store as cash in their homes. They were so worried that financial system was going to implode and banks were going to default on their deposits. Years later I read that Mohammed El Erian, who was the head of largest bond fund in the world at that time, asked his wife to take out as much cash as possible from their bank accounts because he was worried that banks will not open next day. Thankfully that phase passed. Some bold unconventional actions from world's major central bankers under the de facto leadership of Bernanke averted the armageddon. What he tried during that tumultuous period was so unconventional that a banking rescue of that magnitude was never tried before in human history. Eminent financial thinkers like Warren Buffet have echoed the sentiment that financial system failed during that period and it was unconventional actions by the likes of Bernanke which averted disaster. It was lucky for the world that Bernanke has studied great depression of 1930's all his life. By learning about the mistakes which led to the great depression, Bernanke was able to avoid another great depression 75 years later. In many ways that is the story of human civilization. We are constantly learning from our past mistakes and making incremental improvements to make our lives better. To contribute to this process of human advancement, it will greatly help to know our history. It will help to know what has worked in the past and what has not worked.
Public outcry against bankers in the aftermath of Great Recession of 2008-09 was vehement. Politicians, Banks and Regulators had to take note. They acted to make financial system safer and to curb the 'excesses' of bankers. Deliberations on what changes to be brought to industry were mostly very transparent. Central Banks, BIS and many such think tanks regularly updated public on the direction they are taking for changing industry. It was an interesting period for me personally as there was something new to learn every day. But, for many people it is not pleasant to work in an industry which is in constant flux. As a result, my team which consisted of 7 people before crisis shrunk to 2 persons by end of 2009. Many of the industry professionals and parts of financial media were very pessimistic about the prospects of a career in finance at that point. I allowed myself to be impacted by this negativity and that reduced my motivation to try harder. Other person in my team acknowledged the magnitude of challenges we were facing, worked harder and started chasing all available opportunities. During that period, china decided to internationalize its currency. This opened up a flood gate of opportunities for banks to make money. My colleague was able to identify this opportunity and made a lot of money for the bank. This helped his career a lot with multiple promotions and bigger responsibilities over a short span of time. Having a positive attitude is extremely important for achieving positive outcomes, especially when things are tough. Only with a positive attitude, one can muster the energy to work hard to overcome challenges. I hope this learning will stay with me for ever. You fail the moment you give up working hard. But if you continue working hard, you have a chance at success.
Politics is considered a dirty word these days. But, like minded people working together for a common goal is critical for achieving success. That is what politics means to me. Politics, in an organizational context, is the art of nurturing right relationships. If Robert Ryan didn't have good relationship with me, he might not have pushed me to follow news more closely. However good you are, there is a limit to what you can achieve as an individual. That is especially true when lot of the knowledge that gives you a competitive edge is not in books or databases anymore. Information technology has been a great leveler by making pursuit of information lot more easier. You don't have to by-heart equations and formulaes anymore. You can get any kind of information out there with the touch of a button from your phone. But, there is still lot of knowledge being generated through human experience. Information technology have still not figured out ways to give you access to this knowledge through your phone. Such knowledge is locked in people's brain and they will not allow you access to that knowledge unless you have good relationships with them. I am not asking you to be a predator who uses other people for your own benefit. I am just stressing the importance of people and benefits of having good relationships with people.
One of my original reasons to join finance was that i liked economics and finance subjects during my MBA. Guess there is nothing like a crisis to put your beliefs to test. Eight years after the crisis, financial industry is drastically smaller and it pays much lesser to be a banker. Along with this, job in financial markets can be stressful. For some people, part of the stress comes from the fact that you are dealing with large size transactions over a short span of time. A small mistake from you can potentially lead to big losses. Then, so is the job of an adventure sport enthusiast or a heart surgeon. Largest transaction I have done till now is a USDJPY complex derivative. Price of this derivative was linked to multiple factors like spot rate, volatility surface, interest rate etc, all of which changes continuously. And I had less than 30 seconds to agree on a price with client and execute the trade. I would like to think that, the adrenaline rush I felt while executing this trade is not much different from what an adventure sport enthusiast feel while doing his stunts or what a heart surgeon feels while doing a surgery. I felt really good after executing that trade. Guess that is what you call a good fit in terms of what a job demands and what an employee wishes for. What I enjoy in my job is exactly what someone else hates. I fumbled into a career in finance after many a detour. Nevertheless, after close to a decade in finance and surviving the biggest financial crisis since great depression, what I like about it outweighs what I dislike about it.
Movies Related to 2008 crisis: 10 Movies That Would Boost Your CAT Preparation - Deepak Mehta, IIM A