Asian Crisis part 1

Source: A dictionary of snow.

 It was March 1997 and the weather in Helsinki was terrible. The streets were filled with sohjo, a mixture of half-molten snow and icy-cold water. The Finnish language had a whole galaxy of names for permutations of snow and water – that’s how overbearing it could be. Sohjo guaranteed that every trip out of the door left your feet wet and cold. To keep the roads unfrozen, salt was applied generously. It stuck to shoes, cars and pets' paws, forming white crust and slowly eating everything away. In the eighties finance professionals were able to deduct suits from income tax – and everyone could deduct eyeglasses. During the depression of 1991-1992, these exemptions were removed in the name of austerity and nobody complained, as the whole crash was supposedly the fault of yuppies in suits. The politicians were the same, only that they were promoted and moved further away from the line of fire, from temporary elected positions to permanent positions of power, money and lack of personal responsibility. EU was very helpful in the process.

Some people had a set of outdoor shoes with them and changed to proper business shinies at the office. The elites were mocked by claiming that they didn’t even own proper shoes, as they never had to walk outside. I had to walk outside, and it was making me sick. I tried to avoid tripping on the icy pavement laced with water that was hiding submerged dog shit. Few months, and the sohjo would be gone, but the shit would be there, and it would start smelling real bad. Then, eight weeks of summer, on average 12 days with sunshine and warm weather. With good luck, perhaps six of those days would happen during the weekends. Serotonin levels low, danger.

The rise of Nokia had produced paper millionaires and the government coffers were flooding with tax receipts. Finland was the Japan of Europe and the Silicon Valley of Scandinavia. Wired, 60 Minutes and the early birds of internet boom were moving in. In the business plans weaknesses became strengths and strengths became weaknesses.

Nothing much was happening in the office. Several old friends had left the company, and it felt like all the old faces that had stayed were no friends of mine anymore. The recently erected Chinese wall had separated us from the fun guys in the equity, structuring and fund marketing. Sometimes I could hear their laughter through the wall. At least they had hundreds of stocks, scores of fund products and structured notes in all colors that they could push – it didn’t matter if something went wrong, they could switch products, it was all profit, just like in Goodfellas.

My department only had the dollar, the pound, the Swedish krona and that was it. Thanks to globalization, there were some small client exposures in the small Baltic currencies or Asia, but it was minimal. Of course we had the different maturities, options, FRA’s, swaps, changing implied volatility surface, and – usually – the underlying exchange rates moved enough to make the customers stop out, put in a limit or roll their short options further out-of-the-money. There was delta and gamma, unsophisticated counterparties, wide spreads, big figure errors and your choice-prices. Fast markets, limits-up, margin calls, too much coffee and tangents on the phones.

Tangents were the greatest thing since beer and RK 62. The tangent would close the customer from the loop so my counterparty could tell me his price and I could then tell the customer my price. The tangent was used to protect the customers from themselves. Often the customers had strange ideas about what their place in the food chain was and the tangent helped them maintaining that illusion. Tangent was the Matrix, but not as effective as it had been. 

I managed to convince a corporate account that the dollar was trending stronger. As the customer’s underlying position was long dollars, he had to sell them ahead in the markets and hated the idea of an eventual hedging loss. Hedging losses were unwanted, as the boards and the CEO’s were often not the brightest starts in the sky. The tendency to mentally account hedging activities and underlying position to different baskets was on decline though, given better education and the constant risk consulting from the Andersen Consulting and their ilk.

I had heard AC charged $200,000 for their comprehensive risk management consulting program, which included the treasury staff standing in a circle, holding hands, being told that they were a team. AC was called Android Consulting, because their people all looked and sounded the same, and when talking to you they would move physically very close in order to make that intimate “we”-connect. Usually something that makes you angry and sad should be joined at the first opportunity, as it will be the eventual winner. Maybe I could make a second career in consulting.

I suggested to the customer that instead of selling the dollars in the forward markets through his main bank, he should do a bearish seagull option strategy. The implied volatilities for three month USDDEM were relatively high, and the strikes of the short options would be relatively far away from the current market. We just loved doing seagulls. It sounded good on paper to them: protection at the forward level with possible but improbable inconveniencies at the short strike levels. If the short strike levels were reached, that meant more volume to us, as we would suggest rolling the strikes further out in time or in price. We would have captive customers, keeping them in a prison of 25-delta short options.

Alcohol did not numb me as effectively as it did only few years ago, and I was only 25. The trance mix tapes from DJ Orkidea were not helping either. After the early nineties the rave scene had already been assimilated by the mainstream culture. Last weekend at a club I met a girl who was holding a one-woman demonstration demanding the return of 1993 – the golden year of trance. When the only thing left was nostalgia, the solution was time travel. Before ubiquitous broadband, one could travel back few years by flying to an emerging country. It was time for a spring break.

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