Remember the 80’s stockbrokers? They fueled the big money on Wall Street charging huge commissions and making huge margins on sub par returns until the tech bubble burst. That coincided w/ the highly profitable and unethical research craze that Spitzer eventually shut down. After the margins became squeezed by Schwab, TDAmeritrade, and volume dried up in the markets, the rocket scientists found a new money machine: leverage and OTC customized derivatives. This was borne out of the cheap money, easy credit, a housing bubble and also desperation. Wall street was able to perpetuate and amplify their returns for a few more years. That was obviously the next shoe to drop, and the Street is going to have to forgo their monster margins on customized OTC products in lieu of standardized exchange traded investments (which yield NO big returns), and the fact that they are no longer able to amplify returns using 40:1 margin. HF’s, once considered the new paradigm and destined to replace the big bulges, are similarly f*cked, as people realize they are designed for huge payouts to managers and FoF managers, and their easy leverage will be cut off. Once watermark mechanisms are ignored as HF’s managers realize it’s easier to raise new capital after a 2 year hiatus than it is to get 45% returns, that business will cut off it’s nose to spite it’s face. So, what will the rocket scientists dream up next? How will they be able to create and amplify their returns? Amid the cacophony of shareholder screams for outsized quarterly returns, and desire for monster bonuses, what new high margin product or service will the new bank holding companies come up with? One new product I hear about is digital or binary options…but that’s not going to be enough…whats your guess?
I think it’s going to be bailout-bonus swaps.
Pretty amazing that people are asking what the next money machine is while the printing presses are wildly printing bailout money.
bailout bonus swaps lol