A Voice Out of the Past – Part 1

Today I was taking care of some paperwork and a phone call came through.  Now we only have a land line.  No smartphone paraphernalia so I have to go over to the phone to see who’s there.  Well, the phone number was from the New York City area and was unfamiliar so I let it go to voicemail.  When the caller started leaving a message, I immediately recognized the voice and as he started leaving his name, I found out I was right.  It was a guy I worked with back in 1987.  I left the City in 1988 and I guess I never expected to hear from him again.

I immediately picked up the call and we started catching up.  Apparently, he retired last year and was cleaning up some old letters and photos from the time period and he decided to try and look me up.  We did the usual back and forth talking about the people we worked with back then and it was amazing how many details were at our fingertips even after thirty-four years.  As it turned out both of us left the field we were in at the time.  Which is not surprising.  He and I had separately drifted into the securities industry by getting our Series 7 license to work in Manhattan’s Wall Street district during the bull market of the 1980’s.  The fact that we both left after the 1987 crash is hardly surprising but it is gratifying to know that he also found a safe haven in the economy of the time.

Well, we swapped stories about what had happened to us since that time and then we asked each other if we knew of any of the other people we worked with.  But mostly we had lost touch with a former life.  And then we reflected on that life.  We agreed it wasn’t a place you would want to stay in for long but that it taught you a lot about people and a lot about yourself.  We exchanged info and we plan on getting together for a reunion.

But it’s got me thinking about some of the things that went on back then.  And some of them are pretty good stories.  I think they’re worth relating.

I got involved with Wall Street when I ran out of money to complete the last few credits of my engineering degree.  I had a wife and three young kids and bills and things that needed buying.  So, I decided to become a “stock broker” and make my fortune or at least get enough money to finish my degree.

That was a different world.  You see the retail brokers of back then were being replaced by the “discount brokers.”  And shortly both would be replaced by electronic trading that would sweep away the old Wall Street completely.  But back then we still had accounts and clients and commissions and had to wear suits and ties.  We had to know the floor brokers and know how to deal with the various options exchanges and we had to at least hint to the customer that we could do magical things with his order.  There was a definite P.T. Barnum aspect to the customer relations side of the job.

And this bull market was a magnet for people looking to live in the New York City area and wanted to “get rich.”  Almost all of the brokers traded their own accounts and many of them dreamed of building up a stake and making a living day-trading.  And it was this powerful force that ensured that the entrants were a motley crew.  We had all kinds.  And some of them were quite colorful.  Some were actually crazy.  This was partly due to the drug culture of the time.  Several of the people I worked with had a cocaine problem.  One fellow in particular named Joe eventually was forced out when he started having real problems.  Joe was a colorful character.  He was always using small exercise devices to strengthen his hands and wrists and he was constantly throwing karate punches and blocks in the air around his desk.  He was quite a sight.  On Halloween he brought in a black velvet bag that had what looked like an actual human skull.  And one evening when his supervisor Rich was berating him for not handling his fair share of the work load Joe picked this little man up by the forearms and walked him over to one of the windows and asked him if he’d like to be thrown out.  Joe was a pretty big guy and we were on the 15th floor of an old building that had old style windows that could be opened.  Nobody thought Joe would throw Rich out the window, except maybe Rich, but it was a serious breach of office etiquette to say the least.  Luckily for Joe, Rich never said anything about it and afterwards gave Joe a wide berth.

Later on, I was Joe’s supervisor and he came to me to complain that people were talking about him.  You can imagine I wasn’t particularly surprised to hear this.  So, I took him into a conference room and asked him to tell me about it.  He said that he heard them talking about him in the lunch room.  He was sitting next to the soda machine so he was sort of hidden from the rest of the room.  He heard some comments about himself that were very insulting.  They made him pretty mad but rather than start a fight he came to me.  I complimented him on his restraint and then asked him who made the comments.  He said, “The soda machine.”

Well, that slowed me down.  I said, “Joe, I’m going to have to kick this upstairs to Bill.”   Bill was the senior manager for the brokers.  I said, “Bill deals directly with all vending machine related issues.”  Then I told Joe that he looked a little tired and considering what he had been through I thought he should take the rest of the day off and get some rest.  He thanked me and went home.  When I passed this along to Bill his eyes bugged out and he told me to leave this to him and not mention it to anyone.  Joe never came back to the office.  But about three months later he called me at home and told me that the company had helped him find a good rehab program to get off the cocaine.  And he had left Wall Street behind and was working for his uncle who had a printing business in Brooklyn.  He sounded as happy as I’d ever heard him.  Joe may not have been the craziest guy I worked with on Wall Street but he was surely one of the most colorful.  And he had one of the happiest endings to his story there.

Gameplay and Reddit and Melvin.  OH MY!

This morning the Fatman sent me this link to Glenn Greenwald trying to shed some light on the meltdown that some Reddit investors inflicted on Melvin Capital for their obviously obscenely extreme short positions against Gameplay.  And recently he had reminded me of a story I told him about the 1987 Black Monday Wall Street crash that I was involved in.  Back in the mid-eighties photog was a young struggling engineering student working all kinds of crazy jobs to feed his family and looking at an economy that didn’t particularly need engineers.  So, I got my Series 7 license and went to work at a number of different Wall Street firms, some more and some less reputable.  But by 1987 I had been employed at a discount broker taking orders on their options desk for a couple of years and was about to move over to a small specialty firm that handled institutional accounts.  In fact, the week before the crash I had accepted the offer and I would be leaving that next Friday.

Now back then if the Dow Jones Industrial Index dropped fifty points that was a really bad day.  So, as you can tell on Wall Street numbers have changed orders of magnitude in term of impact on the economy.  And the whole Black Monday drop was only 500 points but back then that was an earthquake.  But probably what very few people remember is that the Friday before Black Monday the market dropped a hundred points.  And that was a very big deal.  And for one small investor that first smaller drop was even more important.

Options are a way to bet on the market when you don’t have the wherewithal to buy stock and certainly don’t have the money in your account to be allowed to short a stock.  Back then the equity requirements to short stocks were a lot lower than they are now but still you needed at least 25% of the value in your account to short shares of a stock.  But options are a way to leverage changes in stock price by paying someone who does have stock to guarantee a buy or a sell at a particular price by a particular date.  And as a consequence, a market can then be made in those options.  But since these options expire at a certain date, on that last day if the option price is “out of the money” meaning that exercising the option by buying or selling the stock at that required price wouldn’t make the one exercising the option any money then it is worthless and the option itself has no trading value.  At that point the option trades for almost nothing.

So, every month when various options expired, we’d see the index options, the OEX options, that traded against a basket of blue-chip stocks reach down to the lowest levels they traded at like an eighth or a sixteenth before expiring worthless.  And every month like clockwork we would have a visit from the cabbie.  He was a Jamaican cabbie who would come in with his paycheck and put in a buy order for as many out of the money OEX put contracts as he could get for five hundred dollars.  Five hundred dollars was his paycheck that he would deposit in his account.  And every month he would call up just before the end of the trading day and ask what they were trading at.  And every month we would laughingly tell him that they were worth squat.

But on that Friday before the crash, he bought his options for pennies on the contract and then in the last hour the market went down a hundred points.  And the value of his puts went from virtually nothing to fifty thousand dollars.  And everyone on the trading floor was flabbergasted that the cabbie had pulled off a home run.  So, when he called up and asked for the quote on his OEX puts I respectfully told him.  He told me to sell them at the market price which I did.  But when I asked him if he wanted to have the proceeds sent to him, which I assumed he would, instead he said to buy as many contracts of out of the money OEX puts as I could get.  So, I bought him $50,000 of out of the money OEX puts.  And then the trading desk went wild laughing at this madman who had just flushed the biggest bonanza we had ever seen down the drain.  Because after a 100-point loss, the market would regain the value or at worst hold steady there for a month or two before it continued its way up.  Those puts would slowly erode before expiring worthless.

That night Camera Girl and I joined a friend from the office and his wife at an off-off-Broadway play about, of all things, a stock investor who loses his shirt and kills himself and finds himself in hell.  It was a pretty terrible play.  My friend and his wife were struggling actors who worked other careers to enable their avocation.  And after the play we laughed and talked about the cabbie and how foolish he was but I remember saying to my friend, “Yeah, but what if the market crashed on Monday and went down two hundred points, then he’d have the last laugh.”  And we all laughed at how unlikely that would be.

So, the market tanked Monday and went down five hundred points and the cabbie made some millions.  I didn’t get to speak to him because I was too busy with the fallout of the crash to care about anything but getting through the day.  First, I called my new employer and made sure I still had a new job to go to next week.  Then I slogged through thousands of calls to former investors who would have to liquidate their accounts to meet their margin calls.  It was a crap storm of mammoth proportions that taught me many valuable lessons about the cyclical nature of human endeavors.

But the story of the Jamaican cabbie was an object lesson that combining intelligence and a little luck can accomplish some remarkable results.  I hope that guy took that pot of gold and lived a very happy and useful life.  That kind of luck and courage deserves to be rewarded.

Now back to the Reddit boys.  Regardless of anything else this Gameplay “play” means, it has highlighted just how horrible Wall Street has become.  To relentlessly short a company out of existence is so emblematic of the bloodless inhuman nature of our financial system.  And now that the governmental and industrial powers-that-be are rushing to the defense of one of their fellow vultures it’s plain for all to see that there are two different systems available.  One for the corporate titans that are too big to fail and one for the rest of us who are meant to fail whenever it is necessary to squeeze a little more blood for the vampires to suck.  Maybe it’s a case of the vampires deciding Melvin Capital is just one more victim for their feeding frenzy.  I’m sure honor among thieves is pretty thin.  Or maybe it really is David vs Goliath.  Who knows?  But what is clear is that America is broken.  To the Masters of the Universe in Silicon Valley and on Wall Street we are cattle and slaughtering us is just part of the business cycle.  After all you can always get more cattle.