One of the stories of the financial crisis is that the bankers that ran big institutions, who had billions entrusted to them, and who projected the air of masters of the universe were in fact buffoons incompetent at anything other than organising their own bonus.
The air came out of financial markets when you realised you just can't trust anything they say. And most importantly you could not trust that you were getting your money back.
As an equity guy this has bugged me all my life. Genius is a bull market - and when the market is down hard you finally get to see who is the buffoon. In bear markets the buffoonery surely gets exposed. Mark-to-liquid-market is a tough but honest scorecard. One cycle and I know for sure who were the buffoons.
Fixed income seems more complicated than equities. It sometimes involves impenetrable math. And backing the air of difficulty is the simple fact that lots of this stuff isn't quoted - and when it is the spread is wide.
The more unquoted the stuff is of course - the more it is subject to the illusion that goes with fixed income - that some people are just especially good at "banking" - banking being the art of lending money out and getting it back again.
This illusion that the fixed income guys are smarter has always grated at me - as I am faced with what I sometimes think are a bunch of empty suits with fancy jargon.
Pyramid of Lies - Duncan Mavin's great book on the Greensill Capital debacle - tells us - as if we need to be told - that the illusion of omniscient bankers is just an illusion - and that dross masquerading as financial innovation continues well after the financial crisis.
Greensill is a story straight from the 2008 playbook. But it actually happened in 2016 to 2020. Yeah bad loans were made. Yes the bankers - or in the case the shadow bankers - liked to fly around the world in Gulfstream 650s. But what story illuminates is how the illusion is constructed by a consummate salesmanship and the reflected glory of major political figures.
The political figures amaze me. This picture of Lex Greensill and David Cameron glamping in the Saudi Desert whilst trying to charm MBS is a truly great image:
But I like this one more - Lex with Julie Bishop - the woman who could-have/should-have been Australian Prime Minister selling her very positive image at Davos for a few of Lex's dollars:
Credit Suisse also comes across as "accident prone" where "accident prone" means marketing machine where due diligence is a marketing function.
And the insurance companies - well they come across badly too.
I recommend Duncan's book. Really - buy it. The audiobook is great too - and Mr Mavin is good to listen to.
But it is an old story set in very recent times. Financial innovation is often bad credit made to look good. People are driven by image and the trappings of wealth, status and power. And the gate-keepers - fixed income asset managers responsible for billions, regulators paid to keep a watch on this - are often empty suits. They appear protective - but they are not.