In 1983, 42 years ago, I was sent by my bank to work on the downtown trading floor, in a building named BT Plaza, which sat next World Trade Center 2. I used to call it the shortest 40-story building in the world…because of its next-door neighbor. Not to be too dramatic or foreshadowing, but it is also the building that in 2001 got a 17-story gash down its northern side from the collapse of the World Trade Center on 9/11. Trading was just then becoming a respectable and professional activity in banking. Just a few years before that, the trading floors of banks were much dingier places that were mostly populated by big-knuckled operations sorts rather than brilliant arbitrageurs. It’s probably not altogether coincidental that this all happened at the same time as the computer age was beginning. My bank had just completed the building of a brand, new ultra high-tech (for the era) trading floor. Every turret or trading seat had at least four 9-inch green screens blinking with tables and charts, with numbers driven by centralized computer system. What that meant was that these computer screens could only be minimally controlled by the occupant of that seat, they only being able to decide which particular pages they wanted to look at, but not really being able to manipulate the programs by more than the prescribed screens. Think of this as being an intermediate step between the old-fashioned mainframe computer access where you would get reams of green & white sheets of paper output, and the soon-to-be-adopted standard of personal computing, where whoever sat at the keyboard controlled every aspect of the operating system and programming of the computer screen before them. It was a very poignant moment in industrial development, in some ways marking the shift from the second to the third Industrial Revolution, the Information Age in full bloom.
I was there to start the futures and options subsidiary for the bank and had come from the uptown banking platform, where whatever computers existed were considered toys for the amusement of banking officers who should have been spending their time moving papers form the inbox to the outbox. In those days there were cash trading markets (stocks, bonds and money markets) that traded in New York and London, and there were futures and options markets that originated out of Chicago and had, up until then, focused on grains, meats, metals and other related commodities. The reason I was there was to bridge that gap between those markets as people were starting to create new financial commodities that would then lead to the creation of derivative securities (forward market securities) and, eventually, structured financial products of increasing complexity. In financial terms, I was there watching and helping the world chisel the first wheel.
On the New York trading floor, people sat at concentric tiered desks, staring at those green screens, but also looking up at scrolling chyrons with news and prices and listening and watching the activity of others on the floor. The game was all about interpreting the various forms of information swirling around you. There were clearly people who could “feel” the markets more than others could. In Chicago, it was all much more physical. The trading was done in pits, again concentric in design with tiered platforms on which to stand, but with card stacks in hand and pencils to scribble with. People would press against one another while looking at one big pricing board and watching similar scrolling chyrons and listening to a different, and yet similar, market buzz around them. Since markets naturally want to equilibrate despite their differences, the efforts to merge those two distinctly different markets was like trying to control a force of nature like gravity or centrifugal motion. My job was more like engineering the convergence rather than really participating in the market interplay, and yet one had to understand the markets well enough to do that engineering properly. So I spent my time “in the market” and knew almost immediately that it was not my natural realm. Markets people thrill every day to the challenge of a new market. Once I had experienced an up, a down and a sideways market, I found much less thrill in the meanderings of this thing called a market. I was much more engaged by building a business or working out ways to solve problems like the intersection of the different markets for greater efficiency.
As we started to figure out the most interesting cross-rough of these markets, we stumbled on some fascinating arbitrage opportunities that had significant business implications. I recall that the traders in what we called the Cross-Markets Team, who took proprietary bets on arbitrage opportunities were excited to take what we had found and ride it to convergence. I, and luckily other senior people, found the longer-term product opportunities that emerged from these anomalies to be far more interesting than the simple trading opportunities. These were not mutually exclusive, but it became a first-hand example for me about the different kind of professionals who inhabit the financial markets.
I have spent some time thinking about it and have developed a context which helps me put it all in perspective. The business world has a need for people who build businesses and expand the economic pie for all. But the business world also has a need for a process to maximize efficiency, whether the bid/offer spread efficiency or the negotiated efficiency from people who spend their efforts getting the best deal for their side of any arrangement. In my venture business, we have one partner who is exceptionally talented at negotiation. Least you think I am suggesting this is a task best relegated to those with less capacity for complex solutions, this partner is probably the smartest among us, but he happens to enjoy and be good at negotiation. I consider that to not be one of my particular strengths and I am always happy to leave that part of business to others better at it than I.
I am prepared to say that while I do not believe business (or economics in general, whether macro or micro) must be a zero sum game. There are always ways to expand the economic pie and that is the sort of initiative at which I feel I excel. But, even in market-expanding initiatives, there is still a need for efficiency and some amount of zero-sum settlement. I recently reminded a natural-born trader friend of mine that while he was good at trading, I was, decidedly, not. Despite my best efforts to rationalize the value of trading (market efficiency, price discovery, and such), I honestly do not find it an inspiring way to spend time. The positive outcome of a positive credit balance is simply not enough. I have no interest in looking back on my career thinking I made more money than others. I far prefer to see accomplishment of other forms that benefit a far broader community ranging from the rest of my colleagues, the shareholders of my firm, my successors, and the broader marketplace and economy. This is not about naively bringing peace to the world, but rather about serving something larger than the zero sum game of my pocket.