After a lifetime of providing for family and colleagues by trading MBS, one day Gregor woke up and found he had turned into a CDO asset manager.

Unlike Kafka’s protagonist, his boss and others act as if they love his new form, and the rotten MBS bonds they throw at him seem to be perfect to make new bonds.  If he has any doubts, the Wall Street dealers show him extensive spreadsheets explaining how he will eventually make millions of dollars by just buying the bonds Wall Street wants to sell, and by letting Wall Street sell the new bonds they make out of the garbage bonds they pelt him with.

Gregor goes on a worldwide road show, and everywhere the investors behind the glass walls marvel at how he can quickly capture every bond and assemble them into piles the Rating Agencies determine to be beautiful.

Gregor only questions his good fortune occasionally, wondering to himself why his fee as asset manager is only 5 basis points per year while the Dealers that sell bonds to him and for him take 500 basis points up front and the Rating Agencies take 50.

When the doubts creep in, the Wall Street alchemists take out their spread sheets again, and explain that for each deal he manages, Gregor becomes more important, and show him the hundreds or thousands of basis points he will make on each deal if he just lets the CDO deals mature in seven years.

Not only that, he was so popular on the Road Show that the Wall Street sales managers are now certain they can help him launch four more deals next year, adding up to over $2 million a year, even at the paltry rate of five basis points per year.

Gregor wonders whether he is really making $2 million a year when the systems, data and staff cost nearly that much, and the accountants ask for ten percent of his fees just to verify each year that he receives the fees his contracts call for.

Still, Gregor is now a structured finance asset manager, a much higher calling than the lowly trader that showed up for work every day and risked millions of dollars providing a market for the firm’s clients when they bought and sold MBS.

One of the rotten bonds he bought in the heady first days of his first CDO soon begins to putrefy, and he finds out it is lodged in an unreachable part of his portfolio, and somehow that bond starts an infection he can’t treat.

As he slowly succumbs to the rotting portfolio that now seems part of him, Gregor wonders what happened to his adoring fans in the Wall Street community.  His pay after covering expenses is less than a quarter what he got paid to buy and sell Ginnie Maes and CMO’s, and his family expects to keep going to the same schools and living in the same house they always lived in.

After only one summer without a vacation, Gregor realizes he has to sell some of his new business to keep his family happy.  That’s when he finds out that his asset management business isn’t worth much.

Wall Street tells him his portfolio is rotten, and the five basis points of management fees is not enough to interest anyone in buying his company.  They will help him reassign the deals to other managers, though, as long as he agrees to pay all the legal and accounting costs.

That’s when Gregor realizes he is dying, and that he is being blamed for the collapse of the entire world economy, making even six foot tall cockroaches more popular than he is.

Gregor takes the money he gets from selling his weekend house, and prepays the legal and accounting costs of reassigning management of his existing structured finance CDO’s.

He joins a group of other out-of-work CDO managers and pitches a new business that will buy distressed CDO’s for ten cents on the dollar from customers who thought they owned AAA bonds.

With seed money from a hedge fund manager that bet against the CDO’s, Gregor and his team give away 80% of their new company in order to become traders again.



One Response to Metamorphosis

  1. nester says:

    that is an unusually happy ending for you, Franz.

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