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Economy
In reply to the discussion: Weekend Economists Reminisce: Black Monday October 19, 1987-2012 [View all]xchrom
(108,903 posts)66. How I Caused The 1987 Crash
http://www.businessinsider.com/how-i-caused-the-1987-crash-2012-10
I got a chuckle from the biz blogs and TV yesterday with the rehash of the 1987 stock crash. Twenty-five years is a very long time. Id forgotten most of the events of that day.
I was at Drexel, and at that time, Drexel was a powerhouse. The firm had plenty of capital and huge capacity to borrow money to fund positions. Money was rolling in; risk taking was encouraged. I was working with a small group of people on one of the screwier sub-sets of the high yield bond market. It was referred to as LDC debt (Less Developed Country debt). These were the busted bank loans of all of the countries in South America.
You might wonder why anyone would spend time mucking around with the debts of Brazil, Mexico, Argentina and Chile. Actually, it was a great business. We were coining money. The key to our (and others) success was the ability to make a price on illiquid assets. If some regional bank needed to sell $25Mn of Brazilian debt, we would make a bid on the phone. If a company were in need of some Mexican debt that would be used in a debt for equity transaction, we would offer the paper to the buyer, even though we did not own it.
My old days of currency trading came in handy as some of the paper we traded was denominated in currencies other than the dollar . The fact that I had a license to trade currencies gave me the opportunity to speculate pretty freely, and I/we did. The shop that I worked in was no different than any other on Wall Street. We had a book of positions. Some were outright specs, others were hedges against commitments we had made. To hold this book together, we required equity (cash).
Read more: http://brucekrasting.com/how-i-caused-the-1987-crash/#ixzz29wUloUq1
I got a chuckle from the biz blogs and TV yesterday with the rehash of the 1987 stock crash. Twenty-five years is a very long time. Id forgotten most of the events of that day.
I was at Drexel, and at that time, Drexel was a powerhouse. The firm had plenty of capital and huge capacity to borrow money to fund positions. Money was rolling in; risk taking was encouraged. I was working with a small group of people on one of the screwier sub-sets of the high yield bond market. It was referred to as LDC debt (Less Developed Country debt). These were the busted bank loans of all of the countries in South America.
You might wonder why anyone would spend time mucking around with the debts of Brazil, Mexico, Argentina and Chile. Actually, it was a great business. We were coining money. The key to our (and others) success was the ability to make a price on illiquid assets. If some regional bank needed to sell $25Mn of Brazilian debt, we would make a bid on the phone. If a company were in need of some Mexican debt that would be used in a debt for equity transaction, we would offer the paper to the buyer, even though we did not own it.
My old days of currency trading came in handy as some of the paper we traded was denominated in currencies other than the dollar . The fact that I had a license to trade currencies gave me the opportunity to speculate pretty freely, and I/we did. The shop that I worked in was no different than any other on Wall Street. We had a book of positions. Some were outright specs, others were hedges against commitments we had made. To hold this book together, we required equity (cash).
Read more: http://brucekrasting.com/how-i-caused-the-1987-crash/#ixzz29wUloUq1
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