Young Wall Street Traitor Joins Occupy Wall Street

by on June 19, 2012 · 19 comments

in Business, Culture, Politics

Wall Street “Quant” Alexis Goldstein joins the opposition

Wall Street recruits young, just out of college computer science majors and mathematicians to become “quants” whose skills are used among other things to predict when pension funds are going to make huge trades so that Wall Street can jump in ahead of them and do deals effectively raising the price the pension fund must pay or lowering the profit they might make.

One such young twenty something quant was Alexis Goldstein. Goldstein devised trading software for Deutsche Bank and Merrill Lynch. She has divulged some of Wall Street’s most closely held cultural secrets such as the phrase “rip the client’s face off” which means selling some derivative “solution” to a naive client such as a convent of nuns in Europe at a huge profit to the trader and to Wall Street while convincing the client that it’s the best deal they ever made. Sometimes they refer to these clients as “muppets.”

JP Morgan Chase and Goldman Sachs fanned out all over Europe in the wake of the Commodities Futures Modernization Act of 2000 which legalized derivatives. The legalization of derivatives made it possible to design financial products which shifted the risks and rewards around among different clients, some seeking higher rewards at higher risk and some seeking safety with lower returns and lower risk. Derivatives could be custom designed on the trading floor taking each client’s “needs” into account.

Wall Street investment bankers sold derivatives to municipalities, hospitals, convents, school districts and other institutions mainly dealing with unsophisticated people who had no idea of what they were purchasing or what could be the ultimate denouement. They believed the “F9 monkeys” from Wall Street who were nothing more than salesmen making huge commissions by selling junk to unsuspecting rubes. F9 monkeys put in a couple of inputs on their computer and then hit F9. That priced the derivatives for them and then they hit the road. Star traders could make $10-$15 million a year, a heady sum for a young twenty something.

One of the highly touted products was an interest rate swap. The town of Casino near Rome was looking to reduce the 5% interest rate it was paying on its outstanding debt. No problem. An interest rate swap could reduce the interest rate on its debt to say 2%. Little did the town fathers realize that this meant taking on more risk. They swapped from fixed rate to variable rate, from high interest to low interest. Some counter-party would always take the other side of the bet. If Casino wanted a lower interest rate with concomitant higher risk, there was always some one or some institution that wanted lower risk and was willing to pay a higher interest rate. All went well for a while until the interest rate Casino’s swap was pegged to started to go up. They paid hundreds of thousands more in interest than they bargained for. Casino ended up paying Bear Stearns (now owned by JP Morgan Chase) over a million dollars in interest. They sued and recovered half a million but they are still in the red More than a thousand municipalities and institutions in Europe bought some type of derivative from Wall Street. Potential losses are estimated to be in the billions. Scores of lawsuits have been filed.

Europe’s financial troubles largely originated with the machinations of Wall Street. When countries were trying to join the euro club, they let Goldman Sachs and JP Morgan Chase devise policies of regulatory arbitrage. Regulatory arbitrage refers to using derivatives to fashion ways of getting around the spirit of the law which are still legal. Derivative solutions were a magic formula that made European countries’ shaky finances still qualify for entry to the euro zone. The French cooked their books by reclassifying pension obligations. Germany played some tricks with gold. Now the chickens are coming home to roost with the collapse of the euro zone. The problem was letting Goldman Sachs and JP Morgan Chase use regulatory arbitrage to get them into the euro zone in the first place and set them on a debt based course where, no matter what they do, they will still be little more than serfs and vassals indebted to Wall Street in perpetuity.

And it wasn’t just in Europe. Birmingham, Alabama, county seat of Jefferson County, had squandered $2 billion on a sewer system in 1996. Many constituents ended up with a sewer system to nowhere and huge monthly bills. County officials were looking to refinance their loan and borrow more money to complete the system without raising rates. In 2002 a former TV personality turned politician, Larry Langford, took charge of Birmingham’s finances They wanted to refinance their sewer debt by borrowing another $3 billion.This was no problem for derivatives trader, Charles LeCroy, leading producer at JP Morgan, who devised a “solution” consisting of a series of interest rate swaps. Langford consulted a friend, Birmingham financial adviser Bill Blunt, who said it was a good deal. However, far from solving Jefferson County’s financial problems, the intervention of JP Morgan Chase only added to them.

In 2008 there was a big change in the markets. The county suddenly owed hundreds of millions of dollars in fees and penalties to its debt holders including JP Morgan. And there was another complication. LeCroy had paid Bill Blunt $3 million in bribes according to Federal prosecutors, and Blunt had given money to Larry Langford. In 2010 Langford went to jail for fifteen years on charges of bribery and fraud. JP Morgan was fined $25 million by the SEC and was ordered to forgive Jefferson County $697 million. Blunt cooperated with Federal prosecutors and got a 4 1/2 year sentence. LeCroy got 3 months. In 2011 Jefferson County filed the largest municipal bankruptcy in American history. Over 100 schools and hospitals as well as state and municipal governments bought swaps. In the last 5 years interest rate swaps have cost American taxpayers $20 billion.

Alexis Goldstein recounted how they talk about “FU money” on Wall St. That was when you had so much money that you could say “Fuck You” to anybody and not have there be any consequences. You are above everything and are immune from the world:

At one point in my career, I was being recruited by a hedge fund. During the recruitment process, one of my interviewers frankly described the fund’s founder—his boss’s boss—as a “spoiled brat billionaire.” My interviewer related a story about a meeting between the hedge fund and an executive at a company the fund wanted to work with. At one point, the visiting executive made statements the fund founder didn’t like. The founder turned to the visitor and said, “So, you came here just to try and fuck me over?” The visitor quickly stormed out in a rage. But the founder wasn’t satisfied just yet. He followed the man out of the room, into the elevator, shouted the entire ride down, and then yelled at him in the lobby until he finally left the building. When the founder came back upstairs to greet his shaken employees, he said, invigorated and beaming, “Wasn’t that fun?!”

This is Wall Street’s equivalent of the American Dream: to earn enough money so that you can behave in a way that makes the very existence of other people irrelevant.

She talks about a culture of admiring cheaters. If you do something against regulations and you only get caught once and pay a small fine, it’s worth it because the end goal is to make money no matter how. Wall Street exemplifies an ethic of profits at any cost. Finally, Goldstein said to herself, “I dont know if I can stay here and still be an ethical person.” So the ones who end up remaining on Wall Street are the ones who have the least ethical scruples, the ones like the Enron traders of a decade ago who don’t mind screwing Grandma out of her pension.

Many young Wall Street quants and traders who can’t take the ridiculous long hours and have moral qualms about ripping their clients’ faces off and legally gouging pension funds leave Wall Street after a short sojourn there. Alexis Goldstein now has her own consulting company. She started out teaching Occupy Wall Street about the Glass-Steagall Act, the depression era act that separated commercial from investment banking. That act was dismantled by the Gramm-Leach-Bliley Act of 1999 signed by President Bill Clinton. This made it possible for the combination of investment banks with insurance companies and commercial banks paving the way for collateralized debt obligations, credit default swaps and other sophisticated financial products which have turned out to be less than benign precipitating the 2008 subprime mortgage crash among other things.

I’ll give Alexis the final words:

“It is hard to contrast the joy of community I feel at Occupy Wall Street with the isolation I felt on Wall Street. It’s hard because I cannot think of two more disparate cultures. Wall Street believes in, and practices, a culture of scarcity. This breeds hoarding, distrust, and competition. As near as I can tell, Occupy Wall Street believes in plenty. This breeds sharing, trust, and cooperation. On Wall Street, everyone was my competitor. They’d help me only if it helped them. At Occupy Wall Street, I am offered food, warmth, and support, because it’s the right thing to do, and because joy breeds joy.

I was privileged enough to make it in the door on Wall Street, and to get bonuses during my time there. But I never felt as fortunate, or joyful, as I did the night after the eviction of Occupy Wall Street from Liberty Square, when we had our first post-raid General Assembly. When the thousands of supporters who filled the park necessitated three waves of the people’s mic. When our voices together echoed not just down the park, but up into the sky as the buildings caused the sound to ricochet off their glass walls.

And so I say to my friends who still dwell behind the Wall: come join us. The spoils of money can never match the joys of community. When you’re ready, we’ll be here.”

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John Lawrence

John Lawrence graduated from Georgia Tech, Stanford and University of California at San Diego. While at UCSD, he was one of the original writer/workers on the San Diego Free Press in the late 1960s. He founded the San Diego Jazz Society in 1984 which had grants from the San Diego Commission for Arts and Culture and presented both local and nationally known jazz artists. His website is Social Choice and Beyond which exemplifies his interest in Economic Democracy. His book is East West Synthesis. He also blogs at Will Blog For Food. He can be reached at j.c.lawrence@cox.net.
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avatar Rio June 21, 2012 at 4:46 pm

Excellent article! Thanks!

avatar MARK CREEK-WATER DORAZIO June 21, 2012 at 6:44 pm

AWE-SOME !!

avatar Misai June 21, 2012 at 9:39 pm

>“Wasn’t that fun?!”
Young males… you know the deal.

Job creation without higher government spending, inflation, or trade barriers: http://jobcreationplan.blogspot.com/

avatar alexis June 22, 2012 at 11:59 am

Hi,

Alexis here.

I would appreciate it if you linked back to the source article I wrote that you drew the quotes from. nplusonemag.com/leaving-wall-street

This is also my quote but is not included in the blockquote: “This is Wall Street’s equivalent of the American Dream: to earn enough money so that you can behave in a way that makes the very existence of other people irrelevant.”

I would also appreciate it if you noted that much of this article is taken, often verbatim, from the PBS Frontline documentary “Money, Power and Wall Street.” http://www.pbs.org/wgbh/pages/frontline/money-power-wall-street/

Finally, some corrections: I am not a twenty-something. I am in my early thirties.

Second, I was never a quant. I was a computer programmer and then a business analyst. Quants have very specific roles, building trading models and forumlas, and this is not a function I ever served in.

Thanks,
Alexis

avatar wiseold snail (@wiseoldsnail) July 20, 2012 at 7:48 am

thank you for being a member of our worldwide community. can’t wait ’til more people defect from wall street, from militarized police organizations, and from the corrupt relationships that exist among police, district attorney offices, and the courts.

we’re on our way, and landing anywhere where people help each other is better than staying here

if you’re in the mood, you can find me at gmail or twitter to post your original story or new work at our collective news website http://www.hellaoccupyoakland.org

avatar Arlene M. Ceallaigh June 22, 2012 at 3:32 pm

GREAT story!

So good to see this this young American turn her back on the soul-less greed of Wall St. She’s got heart, soul, and REAL American values!

avatar rico story June 22, 2012 at 4:35 pm

. . . – – nice article , , thanks john and alexis , , fore ‘ taking the tyme to craft such a clear and helpful perspective on the dis _ positioning fore ‘ such a violent and greedy agenda , , and the strategy which reveals the origins and motives fore ‘ that same agenda in question . . . – – a couple of items hear , , to think about , , in the service of POSITIVE STRATEGIC ACTION TOWARDS TO CORRECTING FORE ‘ this much abused practice of MILITARISTIC WEALTH MANAGEMENT . . . – – the first factor to consider here is to look objectively at the data , , and see , , that if there is such clear cut abuse , , and illegal use of power , , then rectification and correct judgment towards the use AND USER , , SHOULD NOT DEPEND ON THE ‘ DECISION ‘ OF A COURT RULING , , ESPECIALLY WHERE THAT RULING ITSELF DELAYS OR PREVENTS THE APPROPRIATE ACTION TO OCCUR . . .

. . . – – it is not necessary , , when there are balanced lawyer guild members who , , AS A COMMITTEE , , can ALL EASILY AND OFFICIALLY AGREE ON THE INJUSTICE OF THESE DEFINED ACTIONS , , and sign off on a document that circumvents and prevents the FREQUENTLY OCCURRING DIS _ GRACE , , of an obviously incorrect and unjust ; court decision ‘ event . . . – – in this sense , , an open session and decision maye be reached which has every bit of the legal weight & JUSTIFICATION & CLOUT , , as any court ordered decision , , with all of the logical / legal underlying support , , AND NONE OF THE POSSIBLE BACK ROOM ELITE DEALINGS . , which have always been a statistically established fact , , as they are now a publicized awareness , , FORE ‘ THAT SAME AGENDA IN QUESTION as wii find the evidence before this present situation itself . . .

. . . – – the objective hear , , is to now move forward with this empowered / TRUE & just documentation – judgment , , and use this momentum , , to strategically effect the required dynamic , , with regards to the plaintiff parties , , [ i . e . municipalities _ unions _ organizations _ INDIVIDUALS ] who have been so badly wronged through out this entire process , , and who are being DOUBLY PUNISHED on account of the fact that they not only lost their possible future revenues , , BUT ARE AT ‘ FAULT ‘ FORE ‘ NOT HAVING SUFFICIENT FUNDING TO MEET PRESENT TYME EXISTING FINANCIAL DEBTS / OBLIGATIONS / PROSPECTIVE NEEDS . . . – –

. . . – – to this end , , these wrongfully wronged groups / individuals should use the rationale of how they were wronged , , along with hard factual copy documentation , , as a FINANCIAL DIS _ ALLOWMENT OF OBLIGATION , , and DIRECTED TRANSFER OF DEBT OR REQUIRED COMPENSATION in place of any monies which would otherwise have been available fore ‘ any given transaction which they were in need of supplying compensation fore . . . – – in this waye then , , municipalities in europe , , should present a copy of this kind of documentation to existing creditors , , and saye , , ‘ here ‘ , , here is yore payment ‘ . . . – – ‘ this is valid because wii would have had the funds to pay you , , the lawyers guild has passed FAIR AND JUST AND INFORMED AND NON BIASED JUDGMENT ON THIS MATTER , , ACCEPT THIS AS OUR PAYMENT , , AND IF THERE IS A PROBLEM , , WELL , , YOU KNOW WHO THE LIABLE PARTY IS TO SEEK SATISFACTION FROM , , DON ‘ T YOU . . . ‘

. . – – this same approach should and rightfully so could be used fore ‘ ANY DESIRED OR REQUIRED FINANCIAL transaction , , and a running balance could be maintained which was an accurate record of , , what the REAL & TRUE EXISTING AND PROJECTED AVAILABLE FUNDS ARE AND WOULD BE , , thus clearing the record in an honest and strategically viable fashion , , and leveling and transferring the burden OF GUILT AND LIABILITY SQUARELY TO THE SOURCE OF AND FROM WHICH SUCH GUILT AND LIABILITY MOST CERTAINLY SHOULD STAY . . .

. . . – – forever always now ; ; rico story

avatar Financial Crime victim June 23, 2012 at 1:57 pm

Hey Spartacus – Crixus…. What do you think should be done about these dominance Wall Street types?

KILL THEM… KILL THEM ALL.

avatar John Lawrence June 24, 2012 at 11:11 am

Alexis is completely correct in her comments. Much of the article was inspired if not taken directly from the Frontline series, “Money, Power and Wall Street.” Alexis also did an interview for a podcast on “APM: The Story” from which some quotes were derived. I guess the term, “quant” has a specialized meaning on Wall Street. I thought it meant any mathematician or computer programmer who was not directly involved in trading.

The important thing is that people be informed of the scale and breadth of the damage caused by the Wall Street debacle that resulted from the creation of financial instruments that came about from the deregulation of the banking industry. Since nothing much has changed (Alexis herself has said that Wall Street will just figure out a way around any regulations that will be imposed by the Dodd-Frank law), we can all expect to be treated to a reprise of the global financial fiasco probably sooner rather than later. The incentives for traders to make money quickly rather than consider the long term consequences are just too great.

The European situation has still not been solved. Loaning money to Greece and Spain, albeit at lower interest rates by the European Central Bank, is still just adding more debt to countries staggering under the debt that they already have. It’s not that they’re GIVING them the money. The basic problem is that the ruling elites in the US and Europe are still totally dedicated to a debt based global economy and they have just about reached the end of their rope with that model.

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