Casino on Wall Street

Securitizing learning with lessons from the downturn.
 
The economic meltdown provides a powerful inflection point to reflect, rethink and learn. This is an opportunity for CLOs to use learning as a lever to make the future for our people more stable, prosperous and secure.
 
During the past decade, many in the financial services industry provided loans and investments to customers who had a seemingly insatiable appetite for borrowing and speculating at levels of risk and requiring due diligence that they did not fully understand, or they ignored. Financial firms securitized by pooling and pricing subprime mortgage loans that they sold as financial investments called collateralized debt obligations (CDOs) - derivative securities.
 
They also met investor demand to create derivatives of these derivatives. Credit default swaps (CDSs) were created to function as insurance, backing up CDOs. Some investors bought CDSs that would pay off in the unlikely event that large numbers of underlying subprime mortgage holders defaulted on their loans. Though CDSs serve a legitimate purpose, they became yet another way of profiting from a propensity to gamble.
 
We developed sophisticated language, algorithms and models for calculating and managing risk. But any good builder will tell you that a model is only as good as the assumptions upon which it rests. It appears that the modelers at organizations such as AIG assumed that a global negative growth rate in the value of mortgaged properties was not possible.
 
The house of cards began to tumble at Lehman Brothers when the impossible became reality. When total home values fell below the value of their related loans, mortgage holders defaulted in record numbers. The CDS insurance payouts exponentially exceeded the real value of the underlying securities and the guarantor's capital, making it impossible for them to make their contracted payouts. When it started to get ugly, taxpayers were forced to cover the remaining bets because, as we have repeatedly heard, these companies were just too big and too essential to be allowed to fail. It's a bit like having to pay for your cousin Harry's failed fling at the roulette table because your parents tell you he's an essential member of the family.
 
One of the lessons of the crash must be an observation about rewards. Our economic system rewarded disproportionate risk takers handsomely. How can a mere mortal resist a legal activity for which he trained and worked diligently and for which he is rewarded with tens or even hundreds of millions of dollars - particularly when he wins 90 percent of the time, and any loss is not his loss. It is not merely the financial rewards. Our finest universities were placing as many as 25 percent of their graduates in jobs in the financial services industry where they lived an important and exotic life that was the envy of their classmates.
 
It was not merely the underlying assets that turned toxic. This entire system fed our worst instincts. Investments became speculative gambles, and banks, insurance companies and investment houses became casinos fueled by gambling consumers who borrowed as if there were no tomorrow. When the casinos made too many imprudent loans, we reached a tipping point, and the rest is history.
 
Perhaps I have been too harsh about the nature of gambling; after all, there is risk in everything we do. But we are suffering from the effects of a gambling binge that is exceptionally painful. As White House Chief of Staff Rahm Emanuel said, never let a crisis go to waste. CLOs have an unprecedented opportunity to help their businesses learn how this happened, how it could be avoided in the future and what to do about it now.
 
Here are some of the questions proactive companies are asking their people:
 

1. How does our reward system incentivize the right or wrong behavior?
    



2. What are the unwritten house rules about risk in our business?
    



3. How can we increase rather than decrease the quality of customer experience in the midst of this challenge?
    



4. How can we listen to and fully engage workers to be a part of the solution?
   
 


5. What are we doing to ensure standards of integrity trump greed and self-interest?
    



6. How can we make it part of every person's job to surface undue risk?
   
 


7. How can we help customers understand and manage risk, thus increasing loyalty and our value to them?
    

The current crisis presents an opportunity to help focus and harness the brains of our people to create solutions that are the source of real security. Don't waste it.

Correct Way of Eating Fruits

EATING FRUIT - Guide

We all think eating fruits means just buying fruits, cutting it and just popping it into our mouths. It's not as easy as you think It's important to know how and when to eat.

What is the correct way of eating fruits?

Women Can Tap Inherent "Strengths" to Succeed in a Tough Economy

Research shows women have a series of natural advantages over their male counterparts they can leverage to give them a boost up the corporate ladder.

"For a long time, women felt and were told: 'To be successful, you need to act like men in the workplace,' and at one point we even tried to dress like men with padded shoulders, dark suits and briefcases," said Catherine Kaputa, founder and president of SelfBrand and author of The Female Brand: Using the Female Mindset to Succeed in Business.

"That's a mistake because you should build your career identity based on something authentic. Part of our identity is our gender, and that's an advantage."

In fact, women quickly realized that "acting like a man" generally backfires because behaviors that are considered leadership qualities in men - such as assertiveness and aggressiveness - are often viewed negatively when displayed by women.

Kaputa outlined several traits the typical woman possesses that can help her stand out among her competitors:

1. Strong social perception skills.
   
   "Women are very good at picking up subtle emotions that men have difficulty reading," Kaputa said.
   
   This empathy - as she describes it - can be a tangible advantage when leveraged in the workplace.
   
   "Having empathy is a good tool for managing employees, understanding what client needs are, [carefully navigating] office politics, making personnel decisions and taking a more personal approach to assessing a situation," she said.



2. Strong verbal and communication skills.
   
   Research has shown that girls as young as two years old have a larger vocabulary and started speaking earlier than their twin brothers. Even in grade school, girls tend to outshine boys when it comes to speaking, reading, writing and listening skills - and strength continues through their adult lives, Kaputa said.
   
   "In the business world, possessing verbal and written communication is a very important thing - being able to communicate ideas, participate in meetings, write reports, etc.," she said.



3. Strong people power.
   
   "Women are good at building strong relationships; connecting with and nurturing other people; and in business, they build strong and supportive work relationships, networks and teams," Kaputa said.



4. Collaborative team-oriented leadership style.
   
   A hierarchical business model existed several decades ago - and even though it exists to some extent today, the global nature of business raises the need to create ad hoc teams that don't necessarily report to a single source, Kaputa explained.
   
   "This kind of collaborative, team-oriented [atmosphere] empowers people rather than seeks to have power over them and is associated with the female leadership style," she said.



5. More "Appearance Tools".
   
   "A big part of success is looking the part - and women have more appearance tools at their disposal," Kaputa said. "Compared to men, who kind of wear a uniform to work, women have more visual identity tools - hairstyle, makeup, clothing, color, accessories - and they can create an image that, from a branding perspective, that can make them stand out."