Monday, March 17, 2008

The Devil Went Down to Wall Street

With apologies to the Charlie Daniels Band:

The devil went down to Wall Street, he was looking for a soul to steal.

He was in a bind ‘cause he was way behind: he was willing to make a deal.

When he came across this young man trading credit, oil, and stocks.

And the devil jumped on a trading desk and said: “Boy, let me tell you what:

“I bet you didn’t know it but I’m a Wall Street trader too!

“And if you’d care to take a dare, I’ll make a bet with you.

“Now you got good performance, boy, but give the devil his due:

“I’ll bet a Ferrari of gold against your soul, that says I’m better than you.”

The boy said “My name’s Johnny and it might be a sin,

“But I’ll take your bet , you’re gonna regret, ‘cause I’m the best there’s ever been!”


Johnny, check your Bloomberg now and watch that market hard

‘Cause hell’s broke loose on Wall Street and the devil deals the cards.

And if you win you get this shiny Enzo made of gold.

But if you lose, the devil gets your soul!


The devil logged in at a desk and said “This starts with me.”

And made a hundred million bucks shorting the S and P.

As mortgage-backs took a big dive he made an evil hiss.

And showed Johnny his P/L, and it looked something like this:

When the devil finished, Johnny said: “Well, you’re pretty good old son.

“But you just sit down in that chair right there and let me show you how it’s done!”


Lever up the balance sheet, fifty-to-one

We look like the Land of the Rising Sun

A bull market baby, limit long

And pray like hell when things go wrong


Johnny bowed his head because he knew that he’d been beat

And he laid his Bear Stearns shares down on the ground at Satan’s feet

The devil said: “Boy, just come on back if you ever wanna try again,

I done told you once, you son of a bitch, I’m more powerful then Ben!”


And he sang, “Lever up the balance sheet fifty-to-one!

“You look like the Land of the Rising Sun

A bull market baby, limit long

But you gotta pay the devil when things go wrong.”


It's pretty hard not to have some sympathy for the devil this morning. For years, many financial market participants have engaged in a sort of Faustian bargain involving leverage, strategies that seemed too good to be true in real time, and betting large sums of other people's money. Now that the devil has come back to claim his own, should we really be surprised?

The Fed is attempting its best Daniel Webster imitation, but is finding it difficult to defend the indefensible. In return, the devil seems intent on dragging Bernanke and co. into the bowels of hell as well.

And as for Bear? Surely they are Berlioz, sentenced to a grisly death by Woland for not believing in the devil's existence. How else to explain Jimmy Cayne's almost comic bridge-playing timing and the obvious lies uttered by Alan Schwartz last week?

Macro Man doesn't know if Bear's demise is the beginning of the end, or just the end of the beginning; what he does know is that this is what happens when the devil goes to Wall Street to reclaim his own.

UPDATE: After some consideration and a query from poster MP, Macro Man has decided to sell out his 96 June Euribor puts for 33.5 ticks. Chances must be rising that the ECB is forced to blink, and blink soon.

21 comments:

Richy Rich said...

I ve started the stopwatch ..but I reckon "The Devil Went Down to Wall Street" will be in the financial press by lunchtime. It deserves to be and I ll do my best to make sure it is ..

Busy watching the secondary turmoil in Prime Broker land

Rock on Matey

Richy Rich

Richy Rich said...

I can hear the Ride of the Valkyries coming over the treetops. Ben's helicopter's on the way . God I love the smell of "strong dollar policy" in the morning.. They going to ultimately find a chinese central banker slicing up oxen in the jungle ?

Macro Man said...

So far I've heard rumours about 3 differnt banks being DK'ed by counterparties....this is going to end like a Roman orgy...i.e everyone gets f****d.

Barry Ritholtz said...

quite amusing!

Macro Man said...

What's funny is that when I wrote this piece over the weekend, it originally ended like the song...with Johnny tripumphing over the devil (courtesy of a bailout from Ben.) The overnight news forced a hasty re-write this morning.

Glad you like the Fed memo, btw...was surprised at how little comment it elcited when I published it...

MP said...

Brilliant piece of writing MM.
BTW: any thoughts about possible ECB actions? I suppose there must be some kind of an effort to intervene and calm the markets (in that sense even inaction might be an action).

Macro Man said...

While I still don't see co-ordinated intervention as likely aty this juncture, you'd have to say that the chances must be rising steadily that the ECB's hand is forced. In that vein, it makes sense to close my option spread on Euribor.

MP said...

Thanks MM. Just a suggestion: as most of the views expressed nowadays rather deal with the past and the present, maybe it would be a worthwhile exercise to draw possible scenarios on how things might look a few months ahead.

Macro Man said...

MP, that's the stuff of full-blown research pieces! Suffice to say that up til now, I and many othetrs have viewed the world through a binary lens...either the helicopter drop ends, in which case we get inflation...or it doesn't, in which case we get deflation.

Up til now, I have leaned towards the former...and I still do. But up to now, you could see characteristics of both outcomes priced into markets simulataneously. It seems to me that we are approachign some point of crux point where markets will more fully price in one or ther other...which will either mean a temporary spike in risk asset prices, or a large downdraft in commodites.

Hell, maybe we see both before its all said and done.

MP said...

Cheers. I agree that "binary outcome" pretty much describes what lies ahead. And adding a bit of Keynes wisdom:

The difficulty lies not so much in developing new ideas as in escaping from old ones.

Richy Rich said...

OK .. I put this forward as Quote of the year .. Its out on reuters and is real

13:47 17Mar08 RTRS-UBS CUTS BEAR STEARNS PRICE TARGET TO $2 FROM $94; HAS NEUTRAL RATING......

Genius .. These analysts certainly earn their livings don't they ..

Anonymous said...

MM,

Very entertaining indeed. I particularly appreciated the reference to Bulgakov's masterpiece.

Cheers,
-G

Macro Man said...

Cheers. I'm just pleased to have fit three differnet Satanic cultural references into one post...

Anonymous said...

MM,

Man Financial is falling apart. What's the action there?

Macro Man said...

I have zero insight there, other than to observe that MF Global operates in a world of leverage, margin, and counterparty risk...three things that you really don't want to be associated with right now, as if any of them go wrong you could find yourself buggered.

Anonymous said...

that story was funny, almost as good as Ben Bernake singing karaoke:


Yesterday,
All my troubles seemed so far away,
Now it looks as though they're here to stay,
Oh, I believe in yesterday.

Suddenly,
My portfolio is half it used to be,
There's a shadow hanging over me,
Oh, yesterday came suddenly.

Why Bear
Had to go I don't know, they wouldn't say.
I said,
Something wrong, now I long for yesterday.

Yesterday,
markets were such an easy game to play,
Now I need a place to hide away,
Oh, I believe in yesterday.

Why Bear
Had to go I don't know, they wouldn't say.
I said,
Something wrong, now I long for yesterday.

Yesterday,
Markets were such an easy game to play,
Now I need a place to hide away,
Oh, I believe in yesterday.

Mm-mm-mm-mm-mm-mm-mm.

MP said...

Re MF Global: the chatter is that there is a big outflow of client funds.

Anonymous said...

Hey, putting up my portfolio in public is just WRONG. :)

OldVet said...

You can now have fun watching the HF Implode-O-Meter: http://hf-implode.com/

Anonymous said...

The pound loses against the US dollar. That’s an achievement all by itself.

Anonymous said...

RC helicopters have become a very common RC toy lately and come in a variety of prices and types. Many problems that beginners face are what type of helicopter to choose, power source for it and whether they want an indoor or outdoor one. With many more options on top of those you can imagine how difficult it is for beginners to take off, literally. First let's talk about the different power sources that a RC model airplanes can have, and which one will best suit you. Forget cards and gentle aerobics - the best way to keep the elderly sharp is to teach them to play video game s , new research suggests.
led light®, Inc., a leading flashlight manufacturer for fire and rescue uses, has introduced the Vantage(TM), a compact, low-profile tactical flashlight that attaches easily to full-brim fire helmets. The new hands-free light features new C4(TM) power led flashlight technology which produces two to three times the output of Super High Flux led flashlights and a special safety tail light so firefighters can be followed in even the thickest smoke.