The Unemployed Life

Out on the Street: Time Value of Me

Each week, “Joe the Trader” will chronicle his experiences with life after Wall Street just for Recessionwire.

Classical economic theory teaches that wages are equal to the productivity of labor; the more productive a worker is, the more he or she will earn. In our service-based economy, productivity is largely a function of what economists call “human capital”—a person’s education and experience.  More modern theories have tried to explain the tremendous salaries that movie stars, sports heroes and corporate executives earn on the theory of rent. That is, these people have a uniqueness— or a perceived uniqueness—that allows them to charge astronomical prices, because they are the only people in the world who can do what they do.

I’ve been thinking a lot about this issue as I go about my day, meeting with ex-colleagues and visiting the kids at their mom’s. Over the past two months, my time has declined dramatically in value. My education hasn’t changed. My work experience hasn’t changed. I would certainly argue that my talent hasn’t changed. But as with the superstars, perception is reality.

I spent the past 11 years working for a major U.S. bank that recently laid off 20 percent of its workforce and eliminated my division. As an emerging markets proprietary (“prop”) trader, my job was to invest the bank’s money.  I would have short-term investments across all time zones–Brazil, South Africa, Malaysia–and I had to be ready to react to news. Moreover, prop traders eat what they kill; in other words, we get paid a percentage of what we make, usually around 10 percent.

As a result, I was in the office by 6:30 and I regularly snuggled with my Blackberry in the dark of night. My subway commute from Brooklyn to midtown was just 25 minutes long, but I worried about missing market moving news. It was easy to justify paying $20 for a 15-minute cab ride—the extra $18 saved me 10 minutes commute time and gave me continuous Blackberry service. Effectively, I valued my time at a minimum of $108 an hour.

Rarely did things move that fast. However, last October, for example, the financial markets went into shock.  On October 8th, I made a short-term bet—a punt—on the Mexican peso, buying $10 million worth of the currency. I expected the peso to appreciate around 5 percent over the next two weeks, earning the firm $500,000 in profits. Even if my thesis was wrong, I figured the position would lose no more than $100,000.

Initially, the trade was working. The value of the peso rose and within 20 minutes I was up $105,000. Then it slowed, stopped and slammed into reverse. Something was very wrong. I needed to cut my losses and called one of my counterparties that I traded with.

“I need to buy $10 million USDMXN.”
“Price is 12.30 for 10.”
“12.30? No way I see it 12.26 offered.”
“Sorry, liquidity blows.”
“Ok, done. 12.30.”
“Let me check. Nope, 12.33 for your size. Off 12.45.”
“Done.”
“Sorry only got you 2 million.”
“Crap, buy me the 8 million now.”

My bet, which was supposed to lose no more than $100,000, cost $400,000 in a less than an hour—or $40,000 of pay.

As quickly as that trade went against me, though, what happened in the next hour was amazing. The USD/Peso exchange rate exploded up to 14.35 as rumors spread of a local Mexican corporation defaulting. The peso moved 25% in one day. If I had stepped out for a coffee, my book would have lost over $2 million, which would have cost me $200,000.  How much would that have been per hour?

Tonight, I am planning to have dinner with my kids in Westchester. I can take the train, which gets me back to Brooklyn around 10:30, or Zipcar, which will get me back an hour earlier. A roundtrip train ticket will cost $20, plus $4 for subways and $20 for taxis to and from my kids’ house. All in for $44.  The Zipcar will cost $60. The difference is $16, about the price of a cocktail. I guess I’ll take the train.

Joe the Trader spent 11 years as a proprietary trader at a major U.S. bank. He has three children and currently lives in Brooklyn. For more, see our Contributors page.

Tags: layoffs, Out on the Street, The Working World, Wall Street