About the Author

 

       I describe myself as a portly, often grumpy 73 year-old, retired single man. I completed two years of high school and joined the US Air Force at the age of seventeen, where I got my GED. After a few feeble attempts at jobs, I took a clerical position with a Wall Street firm. I remained on Wall Street for the rest of my working career (roughly thirty-three years). I retired unwillingly at the age of 58 due to a disability. 

 

       The reason I didn’t finish high school is a long story, but I confess I wasn’t exactly a model student. I had trouble passing most subjects, and when I quit school my self-confidence was at rock bottom. Then I chose the military option. The air force gives all new recruits an aptitude test to determine what jobs they might do best. Much to my surprise, they assigned me to the intelligence division. After some schooling, which included some training in cryptology, I was assigned the job of reviewing Russian radio traffic to scan for relevant intelligence information.

 

       My military experience had no value in the business world. I held a clerical position my entire three and a half years at E. F. Hutton & Co. I was in my fifth year of a twenty-year stint at Paine Webber before I entered my first supervisory position. About five years after that, I became a methods and procedures analyst. My job was to look at the way many departments in the firm performed their functions and look for procedural changes that would cut costs. Ironically senior management found another way to cut costs, and that was to eliminate the methods and procedures department.

A few years later, I became a credit analyst at Paine Webber and eventually became an assistant vice president and co-manager of the credit department, which was staffed by six MBAs. We were responsible for setting trading limits (credit lines) for institutional accounts that traded in Treasury and mortgage-backed securities. The institutional customer base consisted mostly of broker dealers, commercial banks, mortgage bankers, and savings and loan institutions.

 

       Credit limits are a regulatory requirement that served to protect the Paine Webber from losses in case an institutional customer walked away from its trades. Transactions in mortgage-backed securities are completed on a forward basis—i.e., buy now, pay later. Some of these trades took as long as a year to settle. The firm traded billions in securities every week.

 

       Credit limits are based on the financial strength of the institution. A determination is made as to how much of a loss the institutional customer could absorb without putting themselves at risk. In order to determine a credit limit, we would complete a thorough review of the institution’s financial statements. Needless to say this required extensive knowledge of how these institutions functioned.

 

       After leaving Paine Webber, I joined Nomura Securities, the US subsidiary of the giant Japanese broker. Nomura Securities is one of about thirty primary dealers, which the government uses to sell newly issued Treasury securities to institutions. I managed the reporting function that the Federal Reserve requires of these dealers.

I don’t know exactly how accurately the other primary dealers were in their reporting, but when I performed this function for Nomura I found that two of the reporting requirements were in fact not doable. When Nomura challenged them, the Fed responded that we must be wrong because the other primary dealers did not have the same problem. After a few letters to and meetings with the Fed, we were ultimately proven correct, and the Fed changed both of the reporting requirements. I think most of the other primary dealers probably knew of the problem but ignored it because they didn’t want to get the attention of the Federal Reserve. They took the “if it ain’t broke, don’t fix it” attitude.