Notes From: David Enrich. “The Spider Network.” (4/19)

September 23, 2017 

“John Ewan was born five years after Minos Zombanakis fathered his interest-rate mechanism. But by 2005, his professional life revolved around Zombanakis’s creation. Ewan didn’t have any particular interest in finance or banking. Raised in a family of quasi-socialists, he aspired to be a scientist, majoring in biology at the University of Bath in southwestern England. Tall and with muttonchop sideburns, Ewan played the guitar and loved the theatre. But his real passion was travelling. ”

September 23, 2017 

“Back in England, the twenty-nine-year-old Ewan applied for a number of jobs. He eventually accepted one at the British Bankers’ Association and started working there in April 2005.”

September 23, 2017 

“The BBA wasn’t a bank. It wasn’t a government agency. It wasn’t even a company. It certainly wasn’t regulated. But it was probably one of the financial world’s most powerful institutions. And that was because the BBA controlled something called Libor.”

September 23, 2017 

“Zombanakis’s innovative method of calculating interest rates on large loans had quickly become popular, but for more than a decade, it had remained an informal mechanism. Whenever a group of banks teamed up on a loan, they essentially would arrange their own version of the benchmark. There was nothing etched in stone, no way to easily replicate the rate for day-to-day use.”

September 23, 2017 

“One impediment to accommodating these nascent markets was the lack of uniformity in how banks calculated interest rates that fed into swaps and other instruments; negotiating interest rates on a contract-by-contract basis was hardly efficient. At the request of the Bank of England, in October 1984 the BBA set up a committee of commercial bankers and powerful central bank officials to contemplate the issue. After extensive deliberations, the group hatched an idea: Each day, the BBA would collect from a group of banks—not just British ones, but also American and European lenders—data about how much it cost each of them to borrow money from each other, on a percentage basis down to two decimal places”

September 23, 2017 

“BBA would disseminate the average to the banks and others for use in various financial instruments. The number was dubbed “the BBA standard for interest rate swaps.” That didn’t exactly roll off the tongue, so the group decided on a marginally catchier acronym: BBAIRS. That name didn’t last long. On New Year’s Day in 1986, the BBA for the first time published something called the London interbank offered rate—Libor, for short. Pronounced LIE-bore, it would soon be the basis for much of the modern financial world.”

September 23, 2017 

“By the 1990s, the phrase “London interbank offered rate” was buried in the fine print of an increasing number of American loan agreements. Before long, the fortunes of just about anyone who borrowed money in the United States and, to a slightly lesser extent, elsewhere in the Western world hinged on Libor.”

September 23, 2017 

“From the start, though, Libor was prone to problems. Chief among those was the potential for banks to manipulate it for their own benefit. Doing that was alarmingly easy. In the 1990s, junior bank employees would simply pick up the phone and call in their submissions to financial data company Thomson Reuters every morning around eleven o’clock. A low-level Reuters employee punched all the banks’ data into a computer and calculated the averages. Nobody of any seniority monitored the process. Virtually all it took for a bank to skew Libor was for it to skew its own submission.”

September 23, 2017 

“Big providers of financial data were among the entities paying licensing fees to use Libor. So were banks. But the largest, most lucrative clients were those (like the Merc) that were spending lots of time creating new types of derivatives. Those derivatives needed to be based on something, and Libor often seemed like a good bet. Ewan got to work expanding the menu of Libor varieties and licensing out the benchmark for use in what he called an array of “novel derivatives.”

September 23, 2017 

“Each spring, Ewan and Merriman or another colleague fanned out across the City of London and Canary Wharf to check in with the banks about how they thought Libor was working. As far back as 2005, around the time that Ewan started his job, the BBA had been hearing scattered complaints about Libor’s integrity. That year, Barclays was the main dissenter. Its concern was that Libor was too high; banks seemed to be reporting data that overstated their borrowing costs.”

September 23, 2017 

“For more than a century, UBS—its name an acronym for its predecessor, the Union Bank of Switzerland”

September 23, 2017 

“a conservative lender, not aspiring to anything more than being a trustworthy servant of its mostly Swiss clientele. It was considered the premier place to work in Switzerland. Like (of course) clockwork, bankers were rewarded with promotions every two years. When they reached the rank of vice president, managers got to line their new office with their choice of wood: mahogany, walnut, or pine. But the bank had started to stray from tradition during the last decade of the twentieth century. Enviously watching Wall Street firms, Union Bank embraced practices such as hedge fund investing.”

September 23, 2017 

“Smith, a Brit, hadn’t attended college, having gone straight into banking in 1989, joining a company that would one day be absorbed into UBS. In 2003, he was transferred from London to the Zurich office, where he was a midlevel trader”

September 23, 2017 

“There was a password-protected Excel spreadsheet into which he was supposed to enter data every morning about how much it cost the bank to borrow money from other banks. Then he would hit a “submit” button embedded in the spreadsheet, and off the data went. The system was an upgrade over the phone-it-in approach that the BBA had used in previous years, but it was still clunky and prone to crashing.

Smith had basically no clue what he was doing. ”

September 23, 2017 

“Even as a rookie on the desk, he understood what was going on. The traders had big positions whose values hinged in large part on Libor—precisely what Marcy Engel and Richard Ross had warned the CFTC would happen. A lot of money was on the line. So Smith generally followed their requests when it came to what he entered into his spreadsheet. He didn’t see any reason not to.”

Notes From: David Enrich. “The Spider Network.” iBooks. 

Check out this book on the iBooks Store: https://itunes.apple.com/dk/book/the-spider-network/id1145710390?mt=11

Notes From: David Enrich. “The Spider Network.” (3/19)

August 13, 2017 

“In many industries, that would have been the final straw, but London’s financial arena in the 1980s was a wild, reckless place. The City was about to undergo the violent tremors of Margaret Thatcher’s deregulatory revolution, and hungry young traders and brokers were in high demand. Spencer resurfaced at a smaller brokerage firm called Charles Fulton. By now, despite his money-losing ways, he was developing an expertise in a fast-growing corner of the markets called interest-rate derivatives. When Charles Fulton converted into a publicly traded company in 1985, Spencer took his earnings—about $200,000—and with a few colleagues decided to create a new brokerage firm that would specialise in matching up buyers and sellers of interest-rate swaps and other derivatives. They launched Intercapital in May 1986. Its name would later be shortened to ICAP.”

August 13, 2017 

“One of the pieces of sage counsel that Brent Davies pounded into his impressionable mentee’s head, over and over again, was the following: “Never trust a broker.” Brokers, he explained to Tom Hayes, were like the hyenas of the investment banking world, wild, clownish figures who feasted on the carcasses left behind by stronger, more cunning predators—namely, traders. These weren’t run-of-the-mill stockbrokers, the types who handled many grandparents’ portfolios of blue-chip stocks. These particular middlemen—known in the industry as “interdealer brokers”—solely interacted with people at big banks and other financial institutions.”

August 13, 2017 

“The brokers—few of them university educated, but most of them highly astute—also were infamous for spoon-feeding traders bogus information that had no purpose other than tricking them into doing trades that weren’t really worthwhile to anyone but the brokers themselves. Similarly, if a trader wanted to spread misinformation in the market—for example, nudging the price of a thinly traded instrument higher based on a hazy rumour about pent-up demand for that particular product—a broker could be an ideal conduit. One illustration of the industry’s culture was that brokers used the word broking to mean “tricking” or “misleading”—as in, I was broking him to believe something that wasn’t true.”

August 20, 2017 

“ For really high-end clients, the Tradition brokers took things a few steps further via a luxury villa they rented in the Moroccan desert. During the day, they lounged poolside; at night, they went out to clubs in Marrakesh. The brokers and their middle-aged guests often returned to the villa with prostitutes in tow. One guest referred to the occasional Marrakesh jaunts as his “week [of] joy in the NSL zone.” That stood for “no sperm left.” Once, laughing so hard that they nearly cried, the brokers offered to pay a Moroccan prostitute the equivalent of two dollars to be defecated upon. “Yup,” one of those brokers reflected, “we are classy people.”

August 20, 2017 

“Hayes had started feeling distinctly unloved at RBS. That summer, a batch of his trades had gone wrong. He had been up about £600,000 for the year. Suddenly, he was down £100,000. The £700,000 swing was a pittance for a bank of RBS’s size, but it meant that managers needed to be informed. That turned out to be a problem: Hayes had started trading a new type of instrument without getting the proper authorisation inside the bank. It hadn’t seemed like a big deal, but now that he had lost money, that decision was going to get someone in trouble. Hayes’s boss didn’t intend for that person to be him. He instructed Hayes to write an e-mail to a manager a couple of rungs higher, acknowledging that he had been trading when he wasn’t supposed to. Within a few months, Hayes was told to fall on his sword and hand in his resignation. With an offer from the Royal Bank of Canada in his pocket, Hayes followed orders. The voluntary resignation didn’t leave any blemish on his records and was undetectable for future employers. Indeed, when the Canadian bank asked the investigative firm Kroll to perform a standard[…]”

August 20, 2017 

“In a follow-up phone call a few weeks later with UBS, the RBC compliance executive concluded that Hayes “had not been openly underhand, but was in some respects perhaps young and naïve. RBC would have given him ‘a good bollocking’ and subjected him to enhanced supervision with the aim of making a better human being of him.” The RBC executive added that “they had no proof that this was down to deliberate dishonesty. It may have been that it was simply a poorly constructed model or even the result of inadvertent error.” RBC recommended that UBS subject Hayes to three to six months of enhanced oversight.”

Notes From: David Enrich. “The Spider Network.” iBooks. 

Check out this book on the iBooks Store: https://itunes.apple.com/dk/book/the-spider-network/id1145710390?mt=11

Notes From: David Enrich. “The Spider Network.” (2/19)

August 13, 2017 

“On the trading floor at RBS, Hayes noticed that it wasn’t the biggest clients who elicited enthusiastic laughter and applause when they”

August 13, 2017 

“called. Instead, it was small pension funds and other unsophisticated investors—so-called dumb money. They lacked access to high-quality financial data and generally weren’t as sensitive to tiny differences in the prices that banks would offer them. In other words, they were ripe for being duped, and RBS traders fought to get access to them.”

August 13, 2017 

“BM had a problem. The company, with operations all over the world, had issued debt to finance its European businesses in Swiss francs and German marks. But IBM preferred to have all its debts denominated in American dollars—otherwise its finances were tethered to volatile and unpredictable international exchange rates. In 1981, IBM turned to Salomon Brothers for help. The Wall Street firm approached the World Bank—one of the leading issuers of debt anywhere, and an entity with a tolerance for bonds denominated in a variety of currencies—and convinced it to sell a slug of bonds that were identical to the IBM debt except for one crucial difference: They were in dollars. Then IBM and the World Bank simply swapped responsibility for making interest payments and eventually repaying the principal on their respective bonds. It was the birth of a new financial derivative: the swap.”

Notes From: David Enrich. “The Spider Network.” iBooks. 

Check out this book on the iBooks Store: https://itunes.apple.com/dk/book/the-spider-network/id1145710390?mt=11

Notes From: David Enrich. “The Spider Network.” (1/19)

August 6, 2017 

“Tom can sometimes come across as arrogant about his abilities,” a teacher wrote in 1992. “He should appreciate the value of diplomacy!” his English teacher said on another occasion. Hayes acknowledged the problem: “I need to improve my attitude in that I respect ideas I disagree with,” he wrote in a self-assessment.”

August 6, 2017 

“And Hayes became obsessed with collecting things. He stock-piled used train tickets. He built a vast army of toy metal soldiers. He amassed dozens and dozens of football stickers, which he arranged in particular orders. His purest love, though, was mathematics. He cherished the simplicity, the objectivity of numbers. They never lied, they never disappointed you, unlike so many people in his life. You couldn’t misinterpret numbers—a valuable quality for a literal-minded boy like Hayes. Equations were beautiful, not to mention reliable: Marriages could fail, friends could fight, girls could ignore you, and QPR could (and often did) lose, but the square root of nine was always three, the angles of a triangle always added up to 180 degrees”

August 6, 2017 

“ Hayes was watching people robotically feed coins into the machines and calculating which machine was due to deliver the next jackpot. Then he would put his money in. The tactic worked”

August 6, 2017 

“After Hayes’s first year in college, Brown told Sandy that her son could have a summer job working in the Treasury. She turned down the offer on Hayes’s behalf, without asking him. Sandy felt her son was too conservative to fit into Blair and Brown’s centre-left government. She described Hayes to acquaintances as a Thatcherite, a reference to the 1980s Conservative prime minister Margaret Thatcher. Coming from Sandy, the label was derogatory.”

August 6, 2017 

“Pulling off profitable transactions on behalf of clients wasn’t the only way that traders made money. They also were expected to place their own separate bets on the direction of markets and to amass positions so that they profited if their bets turned out to be correct. This was fundamentally different from market making, but market makers were among those plying this type of trade in addition to their main jobs.”

August 13, 2017 

“Hayes cannily accepted the UBS operations gig, but when he returned to Nottingham in the autumn, he started applying for trading jobs at other banks: the Royal Bank of Scotland, J.P. Morgan, Goldman Sachs, and Deutsche Bank. He landed interviews everywhere other than at Goldman. When the Scottish bank offered him an entry-level position as part of the bank’s training program, he accepted and informed UBS that he no longer wanted the back-office assignment.”

August 13, 2017 

“Hayes started at the Royal Bank of Scotland that autumn. RBS’s office was on the bustling eastern edge of the City, just across a busy street from the Bishopsgate Police Station. Hayes’s starting salary was about £35,000, along with an expected £15,000 bonus—a substantial take for someone just out of university.”

August 13, 2017 

“Hayes spent most of his time doing menial tasks. There was a lot of data entry. He learned to use Microsoft Excel, whose spreadsheets served as the backbone for many of RBS’s trading models. He also scurried around doing personal favours for established traders—he got their keys cut, fetched their coffee, delivered their clothes to the dry cleaner, purchased gifts for their parents and girlfriends. Hayes, like plenty of grunts on trading desks, endured merciless mockery. One subject of harassment was his clothes—he still dressed too well. He wore a jacket and tie to work while most colleagues opted for a business-casual look of slacks and a light-coloured button-down shirt. One trader threatened to cut off his necktie if he wore it again.”

August 13, 2017 

“hen it came to obeying the rules, the only check was the bank’s legal and compliance department, which was supposed to make sure employees knew the rules—statutory, not moral—that they had to follow. ”

August 13, 2017 

“During compliance training sessions at RBS, traders hunched over their BlackBerrys playing the addictive “Brick Breaker” game. The goal was to knock out each layer of tiles, brick by brick, the high score the only measure that mattered.”

Notes From: David Enrich. “The Spider Network.” iBooks. 

Check out this book on the iBooks Store: https://itunes.apple.com/dk/book/the-spider-network/id1145710390?mt=11

Notes From: Tim Ferriss. “Tools of Titans.” iBooks (part 1)

Paul Levesque

September 9, 2017 

“During his peak travel period, Paul traveled 260+ days per year, performing in a different city each night. Here is one of his rules:

“When I landed, I would check into the hotel. The second we checked in, I’d ask them: ‘Is the gym open? Can I go train?’ Even if it was to get on a bike and ride for 15 minutes to reset things. I learned early that it seemed any time I did that, I didn’t get jet lag.”

TF: This absolutely seems to work, even if done at 1 a.m. and for 3 to 5 minutes. I don’t know the physiological mechanism, but I use it.”

September 9, 2017 

“There are a lot of things that he said to me then that I find myself telling the young guys now…. For example, if you don’t do something well, don’t do it unless you want to spend the time to improve it. Still, to this day, I see a lot of guys do stuff in the ring and think, ‘He doesn’t do that well, but he does it all the time.’ You shouldn’t do that.”

Chris Sacca

September 12, 2017 

“Chris elaborates: “Generally, what all of this comes down to is whether you are on offense or defense. I think that as you survey the challenges in your lives, it’s just: Which of those did you assign yourself, and which of those are you doing to please someone else? Your inbox is a to-do list to which anyone in the world can add an action item. I needed to get out of my inbox and back to my own to-do list.”

September 14, 2017 

“GOOD STORIES ALWAYS BEAT GOOD SPREADSHEETS”

“Whether you are raising money, pitching your product to customers, selling the company, or recruiting employees, never forget that underneath all the math and the MBA bullshit talk, we are all still emotionally driven human beings. We want to attach ourselves to narratives. We don’t act because of equations. We follow our beliefs. We get behind leaders who stir our feelings. In the early days of your venture, if you find someone diving too deep into the numbers, that means they are struggling to find a reason to deeply care about you.”

September 14, 2017 

“BE YOUR UNAPOLOGETICALLY WEIRD SELF”

“I gave a commencement speech in Minnesota few years ago [at the Carlson School of Management]. The core of it was to be your unapologetically weird self. I think authenticity is one of the most lacking things out there these days.”

Marc Andreessen

September 10, 2017 

“The number-one theme that companies have when they really struggle is they are not charging enough for their product. It has become conventional wisdom in Silicon Valley that the way to succeed is to price your product as low as possible, under the theory that if it’s low-priced, everybody can buy it, and that’s how you get to volume,” he said. “And we just see over and over and over again people failing with that, because they get into a problem called ‘too hungry to eat.’ They don’t charge enough for their product to be able to afford the sales and marketing required to actually get anybody to buy it. Is your product any good if people won’t pay more for it?”

September 10, 2017 

“To avoid the potential problem of newer hires getting battered more than senior folks, Marc and his founding partner, Ben Horowitz, make a point of smashing each other. “Whenever [Ben] brings in a deal, I just beat the shit out of it. I might think it’s the best idea I’ve ever heard of, but I’ll just trash the crap out of it and try to get everybody else to pile on. And then, at the end of it, if he’s still pounding the table saying, ‘No, no, this is the thing …’ then we say we’re all in. We’re all behind you…. It’s a ‘disagree and commit’ kind of culture. By the way, he does the same thing to me. It’s the torture test.”

September 10, 2017 

“Most people go through life and never develop strong views on things, or specifically go along and buy into the consensus. One of the things I think you want to look for as both a founder and as an investor is things that are out of consensus, something very much opposed to the conventional wisdom…. Then, if you’re going to start a company around that, if you’re going to invest in that, you better have strong conviction because you’re making a very big bet of time or money or both. [But] what happens when the world changes? What happens when something else happens?”

September 10, 2017 

“Marc and I are both huge fans of Steve Martin’s autobiography, Born Standing Up: A Comic’s Life. Marc highlighted one takeaway:

“He says the key to success is, ‘Be so good they can’t ignore you.’”

TF: Marc has another guiding tenet: “Smart people should make things.” He says: “If you just have those two principles—that’s a pretty good way to orient.”

September 10, 2017 

“To do original work: It’s not necessary to know something nobody else knows. It is necessary to believe something few other people believe.”

Seth Godin

September 9, 2017 

“BE A MEANINGFUL SPECIFIC INSTEAD OF A WANDERING GENERALITY”

September 9, 2017 

“Keeping track of all the times someone has broken our heart or double-crossed us or let us down. Of course, we can keep track of those things, but why? Why keep track of them? Are they making us better?

“Wouldn’t it make more sense to keep track of the other stuff? To keep track of all the times it worked? All the times we took a risk? All the times we were able to brighten someone else’s day? When we start doing that, we can redefine ourselves as people who are able to make an impact on the world. It took me a bunch of cycles to figure out that the narrative was up to me.”

September 9, 2017 

“Seth has published roughly 6,500 posts on his blog since 2002. Which blog post would he point people to first, if he had to pick one?

“The blog post I point people to the most is called ‘First, Ten,’ and it is a simple theory of marketing that says: tell ten people, show ten people, share it with ten people; ten people who already trust you and already like you. If they don’t tell anybody else, it’s not that good and you should start over. If they do tell other people, you’re on your way.”

Scott Adams

September 10, 2017 

“► Naval Ravikant (here) regularly credits Scott’s short blog post “The Day You Became a Better Writer” for improving his writing.

”

September 10, 2017 

“Scott believes there are six elements of humor: naughty, clever, cute, bizarre, mean, and recognizable. You have to have at least two dimensions to succeed.

”

September 10, 2017 

“Fundamentally, “systems” could be thought of as asking yourself, “What persistent skills or relationships can I develop?” versus “What short-term goal can I achieve?” The former has a potent snowball effect, while the latter is a binary pass/fail with no consolation prize. Scott writes about this extensively in his book How to Fail at Almost Everything and Still Win Big: Kind of the Story of My Life. Here’s one real-world example:

”

September 10, 2017 

“TF: At this point, I asked Scott about a clever line Trump often uses to shut down journalists, which is a quick interjection of “Check your facts, [insert journalist name].”

”

September 10, 2017 

“SCOTT: “‘Check your facts’ is what I call the ‘high ground maneuver.’ It’s the same thing Jobs did when he explained away Antennagate just by saying, ‘All smart phones have problems. We’re trying to make our customers happy.’ He made a national story go away in less than 30 seconds with those two sentences.”

”

September 10, 2017 

“To minimize decisions, Scott wakes up, pushes a button for coffee, and has the same breakfast every morning: a chocolate–peanut butter flavor Clif Builder’s 20-gram protein bar. The next step is exposing himself to new information to generate ideas for his comic strip:”

September 10, 2017 

“There’s a process where once you clear your mind, you have to flood it. You may use different words for this, but I know you do it. So you empty it, and then you flood it with new input that’s not the old input. So I’m looking at the news, I’m looking at stuff I haven’t seen. I’m not looking at yesterday’s problem for the fifth time. I’m looking at a new problem, I’m thinking of a new idea. But then you’ve got to find out where in that flood is the little piece that’s worth working with.”

September 10, 2017 

“if you want something extraordinary, you have two paths: 1) Become the best at one specific thing. 2) Become very good (top 25%) at two or more things.”

September 10, 2017 

“Capitalism rewards things that are both rare and valuable. You make yourself rare by combining two or more “pretty goods” until no one else has your mix. … ”

September 10, 2017 

“At least one of the skills in your mixture should involve communication, either written or verbal. And it could be as simple as learning how to sell more effectively than 75% of the world.”

Alex Blumburg

September 9, 2017 

“Prompts to Elicit Stories (Most Interviewers Are Weak at This)

“Tell me about a time when …”

“Tell me about the day [or moment or time] when …”

“Tell me the story of … [how you came to major in X, how you met so-and-so, etc.]”

“Tell me about the day you realized ___ …”

“What were the steps that got you to ___ ?”

Ed Catmull

September 14, 2017 

“We had to [start over internally] with Toy Story 2. We had to do it with Ratatouille … [since] all our films, to begin with, suck.”

September 14, 2017 

“This is the big misconception that people have, that [in the beginning] a new film is the baby version of the final film, when in fact the final film bears no relationship to what you started off with. What we’ve found is that the first version always sucks. ”

September 14, 2017 

“Right now, we have a three-picture deal with Disney.’ The financial [profit-sharing] terms of the deal, while they were as good as we could have gotten under the circumstances, once we [became] a successful company, then our share of the profits was actually pretty small.”

Maria Popova

September 9, 2017 

“ There is just so much—and I mean so much—universal timeless truth in his private reflections, on everything from the best definition of success to the perils of sitting, which he wrote about 150 years before we started saying, ‘Sitting is the new smoking.’”

September 9, 2017 

“Ours is a culture where we wear our ability to get by on very little sleep as a kind of badge of honor that symbolizes work ethic, or toughness, or some other virtue—but really, it’s a total profound failure of priorities and of self-respect”

September 9, 2017 

“If you don’t have the patience to read something, don’t have the hubris to comment on it”

September 9, 2017 

“Evernote has, as you know, optical character recognition. So, when I search within it, it’s also going to search the text in that image.”

September 9, 2017 

“When Kurt Vonnegut wrote ‘Write to please just one person,’ what he was really saying was write for yourself. ”

September 9, 2017 

“What is the worst advice you see or hear given in your trade or area of expertise?

“‘Follow your dreams.’ It’s impossible to do without self-knowledge, which takes years. You discover your ‘dream’ (or sense of purpose) in the very act of walking the path, which is guided by equal parts choice and chance.”