What caught my eye this week.
Every decade or so, some rebellious storyteller escapes out the back door of an investment bank, breaks the code of omertà, and tells all on how top-tier financial services really work.
Michael Lewis and Liar’s Poker in the 1980s. Nick Leeson with Rogue Trader in the 1990s. Why I Left Goldman Sachs by Greg Smith in 2012.
And now Gary Stevenson with The Trading Game.
Think the lovechild of Liar’s Poker and Rogue Trader combined with a dash of Thomas Piketty on the side. You won’t be able to put it down, unless you hate swearing or laughing out loud.
You’ll probably learn something, too. I certainly did.
All the usual tropes are present. The ninth dan obscenities. Wanton moneymaking. The guys who can’t say no to anything, including just another day in the office.
In some ways it’s almost a relief.
I mean, I’m as allergic to excessive wokery as the next Gen X-er, and it’s honestly nice to hear that filthy-mouthed fishwives could still find soulmates in the City, if only they could make it to the 35th floor of the appropriate temple of finance.
On the other hand, if Stevenson is to be believed – and he comes across as very believable – then the Monopoly money mentality of bankers quickly shrugged off the 2007-2009 financial crisis.
And that’s not so easy to cheer.
The remunerative mill
It’s hard to remember now how revered bankers were, before the sub-prime crash turned credit crisis.
The market was always right, we’d been told. Risk had been smoothed away. A bunch of my university peers went to work for big banks – you’d think they’d joined the priesthood.
When the financial system tottered in 2008 and 2009, they got a bashing of course. Yet how much has really changed?
Most of my complaints from 2009 about financial services – especially its ludicrous salaries – still seem true today.
Consider, say, vanilla equity fund managers. Almost all nice people as far as I can tell. They work hard, speak eloquently, and yet nearly all fail at the one thing they’re paid to do – beat their benchmark. A return an index fund can deliver for ten basis points nowadays.
These managers are still paid very handsomely, every year. Even as passive investing eats up their assets as inexorably as The Blob.
Imagine if highly-paid dentists routinely left your teeth worse than they found them – and yet still got, well, highly-paid.
Wouldn’t something change?
Maybe the high pay is inevitable. My longstanding theory is an excess income is just a perk of any job that involves dealing with a lot of money.
This sounds trite but I’m serious.
Working in the money mine
Back in school a friend’s mum had a job at the Smiths crisps factory. There were always boxes of crisps at their house.
When I volunteered in a charity clothes shop on Saturday as a student, we got the first pick of the fresh donations.
An estate agent I knew didn’t even bother to list the best doer-uppers that came to him. He did them up himself.
Get a job in the video games industry and you get free Xbox games. Work behind a bar and you’ll never be short of a drink.
Secure a role in finance and there’s money everywhere. Soon some of it will fall into your pockets. You don’t even have to do anything illegal.
There’s a scene early in The Trading Game, where Stevenson makes £77,000 for his employer in a few minutes – just apropos of a casual, random conversation with the bloke at the desk next to him. He’s not yet even a proper trader with his own P/L at this point.
Moreover just a year or two later he’s able to put on a ten-figure trade, apparently because his new boss doesn’t know what his real job is.
As Joachim Klement says in his review at Klement on Investing:
The key achievement of Gary is that he paints his colleagues and himself as both sympathetic people you want to hang out and have a beer with and at the same time people who completely lack any sense of ethics and are driven only by their unbridled greed.
And it paints a vivid picture of how – at least in the 2000s and early 2010s – major banks let these guys run rampant without any real checks on their behaviour or the risks they take.
“Money money money, must be funny, in a rich man’s world…”
Nice work if you can get it
I’m not saying financial services jobs aren’t difficult or competitive or useful. Or that people don’t work long hours and get burnout.
But I do say plenty of jobs fit that description. Everyone from hrdwrkn nurses to software developers to street cleaners.
Yet they don’t get paid six-figures in their mid-20s to do it. Not least because they don’t work with money.
Perhaps you think the free market would have flushed out this excessive self-enrichment if it wasn’t actually warranted?
Maybe, but I’d point you again to the fund managers who we all know mostly fail. They’re still coining it. It doesn’t look like ruthless capitalism at its finest.
Think too about who sets financial service salaries. Yes – other people in financial services. It’s almost a Ponzi scheme.
(This becomes very apparent if you study the accounts of any firms with big investment banking divisions, incidentally. It sometimes seems a miracle that shareholders get any share at all.)
I know I sound self-righteous. To be clear if you’re working at an investment bank and making a fortune by being in the right place at the right time, deploying other people’s money without taking any risk with your own – then truly, good for you.
I’m saying it shouldn’t happen like this. At least not so trivially.
Not that you shouldn’t do it, if you want to and can. Seize the opportunity!
In fact, I expect many more will want to if they read Stevenson’s book, the same way the Liar’s Poker expose recruited a new generation of bond traders. Stevenson’s story is so entertaining, even as it darkens.
Actually, better than reading it, hear it as an audiobook.
Stevenson – an ex-grime MC – sounds like one of the cast of TopBoy interning with Gordon Gecko. He’s poetic, compelling, foul-mouthed, and very funny. I was left feeling more informed, but also a bit dirty.
Perhaps I’ll turn to Private Equity: A Memoir next, as a cleanser. (Thoughts on that over at The Lefsetz Letter).
Have a great long weekend! Even more links than usual to get you through to Tuesday…
From Monevator
Vanguard target retirement funds review – Monevator
From the archive-ator: the struggle for the soul of FIRE – Monevator
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
Renting now cheaper than buying in nearly all UK regions – Halifax
Biggest 25 ISA holders have amassed pots worth an average of £11.3m each – This Is Money
“You feel powerless”: homeowners facing huge ground rent increases… – ITV
…while elsewhere a one-bed flat’s service charge is hiked to £16,000 a year – BBC
New post-Brexit tariff to hit car exports to Canada – BBC
Peter Mandelson dismisses prospect of UK rejoining EU – Guardian
Blackrock’s [US] spot Bitcoin ETF already holds 250,000 Bitcoin – The Block
Minimum wage UK’s ‘most successful economic policy in a generation’ – Guardian
Daniel Kahneman: Nobel Prize-winning behavioural economist dies – BBC
Housing is more expensive in the UK than in any other OECD country – Resolution Foundation
London markets doom-loop mini-special
UK venture capital investment slumps to lowest level since Brexit – City AM
Fears over ‘uninvestable’ London market as more firms tipped to leave – Standard
The hunt for good value UK stocks [Search result] – FT
Products and services
Yorkshire Building Society launches a 1% deposit mortgage… – Sky
…while Santander, HSBC, and Barclays slash mortgage rates – This Is Money
Get £200 cashback when you open a new SIPP with Interactive Investor before 5 April. Terms apply – Interactive Investor [If cookies prevent you seeing this offer for new customers, try browsing in incognito mode]
Submit a meter reading ahead of the energy price cap cut – Guardian
The Mortgage Works offers new sub-4% buy-to-let mortgage – Standard
Five schemes to help first-time buyers onto the property ‘ladder’ – Guardian
Open an account with low-cost platform InvestEngine via our link and get up to £50 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine
First Direct brings back £175 bank account switching offer – Which
Beware of the gift card ‘draining’ scam – This Is Money
City boltholes for sale, in pictures – Guardian
Comment and opinion
In your 30s and 40s? Say goodbye to ever retiring – Independent
David Willets: the pension triple-lock has to go… – Conservative Home
…but Owen Jones disagrees – Guardian
Are index funds propping up the stock market? – A Wealth of Common Sense
Larry Swedroe: tracking error is a feature, not a bug – Alpha Architect
A well-written will makes life easier for your family [Search result] – FT
Financial flexibility – Best Interest
Some ‘mortgage prisoners’ owe thousands more than they borrowed decades ago… – Yahoo Finance
…but do they deserve sympathy, let alone compensation? – Gentleman’s Family Finances
JL Collins on his new FIRE book, Pathfinders [Podcast] – via Apple
Should you rent or buy a house? [US but interesting] – Of Dollars and Data
Naughty corner: Active antics
Investment trust matters [Podcast] – Far From The Finishing Post
US small-caps suffer worst run against larger stocks in over 20 years [Search result] – FT
Impersonating David Swensen is leading to Titanic losses – via LinkedIn
The highest-paid hedge fund managers, ranked – Institutional Investor
Kindle book bargains
The Success Myth by Emma Gannon – £0.99 on Kindle
Eat Shop Save by Dale Pinnock – £0.99 on Kindle
Lean In by Sheryl Sandberg – £0.99 on Kindle
The Making of a Billionaire by John Caudwell – £0.99 on Kindle
Environmental factors
Pricing climate risk – Klement on Investing
Europe’s growing ‘wolfdog’ problem – Guardian
Hydroelectricity is a hidden source of methane emissions – BBC
German village exemplifies the cancer risk from wood burning – Guardian
Lab tests found some bamboo toilet roll was 100% made of wood – Which
Robot overlord roundup
AI face recognition versus Croydon criminals – BBC
The Financial Times is testing a AI chatbot trained on its articles – The Verge
Scientists turn to AI to make beer taste even better – Guardian
BBC makes a statement on use of an AI voiceover – BBC
Life lessons mini-special
16 lessons from the ‘delinquent’ founder of Patagonia – Root of All
The riddle of happiness – More to That
A new philosophy of productivity – Cal Newport
32 years: what I’ve learned so far – Joseph Wells
The case for marrying an older man – The Cut
Off our beat
Smart words from smart people – Morgan Housel
What have 14 years of Tory rule done for Britain? – The New Yorker
London’s tallest skyscraper validates Einstein’s theory – Ian Visits
The US is having its second ‘Roaring 20s’ right now – A Wealth of Common Sense
A Q&A with psychologist and The Anxious Generation author Jonathan Haidt – Range Widely
Mental exercises to help tame stress and anxiety – Darius Foroux
Rescued baby hedgehog turns out to be a hat bobble – BBC
And finally…
“To avoid becoming embroiled in situations such as that suffered by Woodford, we could perform forensic analysis on each fund manager and attempt to decipher the many imponderables to judge future return prospects and risks. The far easier solution is to stop investing in star fund managers and the unique set of problems they bring with them.”
– Joe Wiggins, The Intelligent Fund Investor
Like these links? Subscribe to get them every Friday. Note this article includes affiliate links, such as from Amazon and Interactive Investor.
I recently received my voting papers from Yorkshire Building Society. The CEO received over £4M in remuneration last year. I’ve scarcely earned 1% of that in a year!
@ Martin T – whenever I’m offered a vote on like this for any building society I always vote against the renumeration for the directors. Paying people this amount for something that is meant to be mutual organisation run for its members is obscene – especially given that those who do far more worthwhile tasks in society e.g. save people’s lives, do so on a fraction of this.
@Grumpy Tortoise I’m tempted to attend the AGM (virtually), and offer to do the job for 10% of the remuneration, whilst distributing the difference to members in the form of increased interest rates. I have extensive experience running my own business, etc…!!
@Grumpy Tortoise — You write:
When I was young and didn’t really know how leadership or companies — or maybe even people — really worked, I used to have this theory that we could solve sky-high and rising incomes by having ‘syndicates’ of people band together to do the work. So in the case of your CEO, maybe seven people would bid to do it together for a fairly enormously high £500,000 each, saving the building society £500K on their £4m.
Of course I don’t think that would work for a day now, but it does flag up the absurdity of the figures.
These guys struggled along earning around 10-15x the median staff wages for decades, and were plenty incredibly wealthy for it. In Japan I believe they still do.
Thanks for the shout out – glad someone is reading!
On the reverence for bankers and shaman like Woodford or star fund managers:
Since the proceeds of economic growth are shown in asset/share prices and not shared equally, that’s why a good way to get rich is buy buying these assets.
No wonder we turn to gurus, shaman, wizards and magic bean traders – for a shortcut to riches!
They may have been necessary once but now they are not only unnecessary but are being shown as bad value for money middlemen (think SJP and their imminent collapse).
For the private passive investor – we have to hope that the saving in fees isn’t going to end up with a bubble in blind asset prices.
The alternative to investing in other people’s assets is to buy and control them yourself – most commonly in the UK as Buy To Let. A popular but massively risky investment. Also a investment class with excellent previous returns but it’s hard to see that continuing (the limits of people farming is upon us)
But I don’t feel that my VWRL ETF is robbing this/the next generation when it’s up 20% y/y – maybe it is.
However, is there an alternative to low cost ETFs? If so, I’d like to know.
Funny to hear you convert to Gary’s message – when I mentioned him to you in 2022, you said most traders are just people who spot patterns well and probably aren’t worth listening to for any broader economic advice!
@Zeb – Eh? I still think that.
The book’s a great read. I don’t agree with everything he says.
This site is full of me griping about inequality etc. The links above go back to 2008 and there’s more besides.
Cheers for sticking around though! 🙂
P.S. In case this escalates (I’ll be hiking in the South Downs today 🙂 ) please note “most” does not mean “all”.
Similarly I’m not saying “all” fund managers lag, all bankers are ineffectual, no superstar CEOs exist. Fwiw I can think of plenty of exceptions, as I’m sure can many of you.
I do think financial services as a whole is grossly and unjustifiably overpaid though.
And that we have a big existential issue with a rent seeking corporate management class.
Perhaps with wealth generally, but that’s a trickier issue.
Cheers, I’ll be moderating from the wings! 🙂
The “mortgage prisoners” have my sympathy. However these people borrowed from their future selves and now expect the taxpayer to bail them out? I know several who have benefitted from the huge increases in house prices. But they have enjoyed the gains spending on nice cars and holidays etc. No problem, but they have to pay for their spending at some point.
The background to the Ben Carlson piece on indexing at A Wealth of Common Sense, as linked to above, is an ongoing online spat with a Michael W Green at his own investment Substack here:
https://www.yesigiveafig.com/p/be-better?utm_source=profile&utm_medium=reader2
It’s basically on whether price insensitive indexing reduces effective price discovery and drains liquidity. Worth a read.
In his recent AWOCS piece Ben Carlson cross references and links to his 2019 response to Michael Burry, of the Big Short fame, who was claiming then that index funds were in a bubble. Back then Indexheads India Substack did its own take down of the ‘Index Bubble’ theory, which is also worth reading here:
https://indexheads.substack.com/p/its-a-bubble-listen-to-burry-and
It noted index funds had been denounced and decried ever since their launch back in 1975.
P.P.S. Really the last one now, from 2012:
https://monevator.com/consequences-of-income-inequality/
The hills await me! Happy Saturday.
There is a talk with Gary Stevenson at LSE about his book https://www.youtube.com/live/-hiQN2hR7IU?si=isW0EClbt9HaMjTZ
Commenters of Tim Worstall’s blog suspect Gary Stevenson of being fake e.g.
“worzel
March 6, 2024 at 9:58 am
‘That year, I was Citibank’s most profitable trader in the world. They paid me $2m’
You’ve only got to read that sentence to know the rest is BS
Zaichik
March 6, 2024 at 11:21 am
He can’t be that good a trader negotiating only a $2m bonus when the year before the most successful trader at Citibank – Andrew Hall received a $100m bonus
I think there is a reason this person is sharing his BS on YT and the Guardian and its not because he was the ‘most profitable trader in the world’”
Worstall himself thinks so too.
“So, the plot is, plucky little scrote with vast talent for trading. Makes it in the Big City. Then wants to leave – at which point his boss blackmails him into remaining a trader.
Bollocks.
The moment you even indicate that you’re thinking of changing trading desk, let alone leaving the trade, you’re cut off from the phones, the email, your desk, everything. You don’t even get to go back to your desk to retrieve the piccies of your dog – those are collected and handed to you in a black plastic bag.
Because if you’re about to jump ship then no one will still trust you with tens to hundreds of millions of the bank’s trading capital.
Quitting is brutally easy precisely because they don’t want anyone who doesn’t want to be there.
So, my view is that everything else being said in this new revelatory book is also toss.”
I can’t believe you are recommending Gary Stevenson’s. The guy is an angry, resentful, ungrateful champagne socialist with the biggest chip on his shoulder of all time. When will he ever shut up? There are already lots of taxes on the rich not least IHT, stamp duty and the LTA.
@13 Warren- if you are going to post please don’t sit on the fence regarding a person. I would really like yo hear your opinion on Gary Stevenson.
@Warren — That may be true, I’ve got no view and only know him from the book. But anyway I’m only recommending the *book* not him as a person or even an opinion. It’s a great read (/listen).
I admit I know nothing about Stevenson. Never heard of him before the media focus on him but I struggle with how credible he is.
First, because he states he was “Citibank’s most profitable trader” but what he got paid was modest (a couple of million). I wonder if he oversaw a small franchise book. Something like the Greek bond book, that typically would have been given to a junior since it was a backwater. That changed suddenly in 2010-12 as it became the centre of attention due to the Greek bond crisis.
Second, he argues he saw something macroeconomically that others didn’t. Made a call nobody else did. Again, if that was the case, again why did he get paid so modestly? He got paid what pretty much every market-maker got paid in that period for making around $40millon or so. He didn’t get paid like a big macro hitter.
I’m more inclined to think he happened to be in the right seat at the right time. If his profitability was just a function of the franchise seat, he would have paid a very low percentage on his profits, explaining the mismatch between being “most profitable trader” and being a more modest sum.
Third, there is the whole schtick about being a working class boy that went to Cambridge to do maths etc. Well, this is interest rate trading. Most of us have degrees in Maths or STEM subjects from Oxbridge, Imperial etc. In fact, most of us have MSc or PhD. There is nothing remarkable about his starting position. Interest rate trading was never dominated by public school boys the way investment banking or equities were. It wasn’t glamorous enough!
Stevenson just looks sort of typical. If I looked down my row on the trading floor, he’d not stand out at all. Same background, same pay etc. The only thing is he was working at Citi which by 2010 was a fairly second rate operation. Perhaps he was better than average compared to his peers at that entity.
P.S. IHT is on dead people and the LTA has been abolished.
IHT paid by beneficiaries. LTA back in September!
Agree with @TI, its a great read (whether you like him or not), and his message, which he repeatedly makes clear, is not about taxing those with a few million in assets.
I shall have to order the Stevenson book from the library to decide for myself whether it goes in the Michael Lewis and Frank Partnoy pile or the City Boy: Beer and loathing, GS Elevator gonzo heap.
First impressions based on free sections online are not great, though he’s clearly brighter than me as he passed his 11+ and I didn’t. I grew up a few miles to the west of him and it never crossed my mind that Ilford was a rundown bit of the east end, not least because its in Essex.
The loudest bell ringing for me though is his description of the foul mouthed language on the trade floor. I did a few contracts between 2002 and 2006 based on the Equity Floor in CGC2 and foul language just wasn’t common. The language at Citi was frankly a relief after a stint at HSBC where I struggled not to take the ‘F’ word home with me.
I’ll read the book but I’ll be starting from a sceptical viewpoint.
As someone who has made a decent living in the asset management industry, what you say rings true and the box of crisps analogy made me laugh as it’s quite accurate. Essentially it’s a skimming operation in the same way as the mafia used to take off the top in Vegas casinos. I even have a modest active element in my portfolio despite knowing better.
I wonder how we’ll look back on the current over financialised period of capitalism in the future. As Mervyn King pointed out during the GFC, much of what goes on in the sector is socially useless.
A bit leftfield to the Gary Stevenson debate above, but I was struck by Nick Maggiulli’s Of Dollars and Data piece on renting versus buying, using Manhattan as its example. Surely a more practically relevant comparison for most workers on the island to the one actually used (though it’s a thoroughly developed, well reasoned one, eloquently explained, as Nick always does) would be between the cost of either buying or renting on lower Manhattan (i.e. $1 mn for 700 sqft, or $4,150 pcm respectively) or commuting in from elsewhere in NYC and buying or renting there? Prices to buy per sqft in some neighbourhoods of Queens & East New York are 75%-80% less than in lower Manhattan. Just as with workers in central London, you wouldn’t just look at the cost of buying or renting there, where you work. You’d also consider commuting in from where you could better afford to buy or rent.
“then the Monopoly money mentality of bankers quickly shrugged off the 2007-2009 financial crisis.”
This wasn’t my experience.
“and early 2010s – major banks let these guys run rampant without any real checks on their behaviour or the risks they take.”
Nor this
“and it’s honestly nice to hear that filthy-mouthed fishwives could still find soulmates in the City”
Nor this
On the ISA millionaires story that goes around every now and then, “investors needed to achieve an annualised return of 18.9% over 34 years”.
This isn’t strictly true, and it’s more likely coming from inheritance of ISA allowances. Many people don’t know that if your spouse dies with say £1 million in their ISA, you are entitled to add £1 million to your own ISA (even if you don’t inherit that amount!).
That seems more reasonable than compounding at 18.9% over 34 years.
@ExCity. Totally agree with your experience. That, however, is not the narrative people want to hear. My bank didn’t even lose money in 2008 or need to be bailed out. Not what people want to hear.
@ExCity,ZXSpectrum48K – Agree with you completely. I got my highest bonus in 2008/9 for saving the exotics IR derivatives desk from the Gamma trap (when the tail was wagging the dog) and giving them instead of the massive losses other houses allegedly experienced one of their largest profits at the time.
In the book, his whole STIRT desk makes out like bandits during the financial crisis and the finger is pointed out the credit desk, which is I’m sure how we all remember the crisis (/movie 😉 ) going down.
I agree with the point that he seems to be a one-note trader, as best I can tell from the book he has an (initially contrary) thesis that rates will stay low and simply invests out on that basis, making millions accordingly when they stay low. To be fair to him he doesn’t really say otherwise.
He’s definitely sloppy (/colourful?) with some facts — he keeps calling Citi the largest bank in the world in the concluding part around the 2012-2014 era, which from memory it wasn’t (in fact it was shrinking and lagging IIRC).
I have no idea if his ‘most profitable trader in the world’ line is true by some narrow definition of what a ‘trader’ or ‘profit’ is, I agree as an outsider looking in it seems pretty hyperbolic.
He also talks a lot about his streets upbringing but seems to have actually got a lot of childhood friends who went to Russel Group universities…
But for me this isn’t why the book is a great read. Of course I hope it’s directionally true rather than outright made-up, but there’s not much pretence at it being a how-to for trading insights or whatnot.
Pretty sure the travails of the major banks during the financial crisis is a matter of public record 😉
Re: the swearing and prodigious drinking and whatnot, he implies this is something that happens more in his corner of the floor I suppose, and does talk a lot about how the rest of the trading floor is increasingly rarified great degree graduate types. I’ve no insight.
Perhaps one’s experience is largely path dependent. Joachim Klement seemed to endorse the general tone, and he doesn’t strike me as a market trader geezer type 😉
His complaints did grate for me a bit towards the end of the book. I didn’t feel he’d been badly treated at least until the endgame began — far from it — and it seems perfectly reasonably for deferred awards to be deferred and lost if you quit. That’s the point, surely. But mostly he is just saying ‘this is how I saw it take it or leave it’, rather than asking for forgiveness or whatnot.
I thought Gary Stevenson would go down like a lead balloon here! The crowd on Monevator are not his target audience.
I’ve been following him for a while now – his talk at LSE ( link at comment 12 by Ramzez) is a good summary. Note that Rebecca Gowland, the Executive Director of Patriotic Millionaires, is also there.
Gary Stevenson’s current message is a political one (possibly also moral, philosophical and psychological). It has been carefully crafted to get attention from a large number of people, so I wouldn’t expect it to be super accurate in the details.
Massive wealth inequality makes for a miserable, dangerous society.
That’s not what I want.
Right, back to the hillside to be with my mates (the other mountain ash!).
@Rowan Tree — Honestly, this is old and familiar stuff for me and I broadly agree on the disease, though probably not the cure:
https://monevator.com/consequences-of-income-inequality/
It’s funny being a blogger in these polarised days. On the one hand I get it in the neck for being a lefty Guardian-pimping IHT championing communist, on the other an evil and uncaring stooge of big money.
(I know you said neither, just having fun but it’s broadly true).
Thanks for the extra info!
As for the book, he kind of lost me as a person/plight in the last hour or so of the audio read, so I wonder if it’ll come back and bite him if he does start to gain a platform.
p.s. Note that I wrote that post when this site was making <£1 a day and Gary was earning £2m+ a year so *shrug* as the kids say 😉
Never heard of Gary Stevenson thank gawd, but @dearieme is my new hero.
I was in ITU for 2 months recently. Every member of staff I met was worth more than these over paid, privileged financial services professionals. From the doctors, nurses, physios, porters they all worked very hard, (and actually I survived so they were all successful.)
It saddens me how, directors, bankers, even quango chief’s and senior civil servants get paid so much for failure. They never seem to face the consequences of this failure.