T N Ninan: Get a life!

WEEKEND RUMINATIONS

If I could be born again, and I had a head for big numbers, I'd like to be an investment banker in New York. Look at what I would do for a living. First, I would play in the collateralised debt obligation (CDO) market. What this is, is not relevant, except to understand that CDOs are a more important cause of the financial crisis sweeping the western world than the infamous sub-prime mortgage market in the US. For those old enough to remember the jailed junk bond king, Michael Milken, CDOs were dreamt up by his firm Drexel Burnham Lambert. They became so popular that the fresh CDOs issued last year totalled nearly half a trillion dollars. As an investment banker, if I dealt in CDOs, I would get fees equal to a half of 1 per cent of the asset involved, for the life of the asset. So if I did a deal for a $100 million loan package that got broken up by risk category, and hawked the whole thing on the CDO market, I would get half a million dollars "" every year, for the life of the "product". If the "product" has been fashioned from 30-year home mortgages, I get that money for 30 years. Think about it.

Or, I could deal in the market for initial public offers (IPOs). The big firms routinely charge a 7 per cent fee for taking a firm public. Imagine: if I did a $100 million IPO (which is not big for even the Indian market these days), I would get a fee of $7 million. If those fees prevailed in India, investment bankers would have taken home so far this calendar year the best part of Rs 2,500 crore, because the IPO market in the first eight months of 2007 has already crossed Rs 35,000 crore. If they don't, it is because competition has driven down IPO fees to as low as 2 per cent and 3 per cent, even lower for some big public sector issues. But with only a handful of big merchant banking firms existing in the supposedly free market of America, where IPOs in a year have totalled $50 billion (twice as much in the best years), a 7 per cent fee translates into $3.5 billion.

Or, as a New York investment banker I could get into the private equity business, where again the rules are pretty standard. I would get an annual management fee of 2 per cent of the size of assets that I handle, and also get to take home 20 per cent of the profits made on behalf of my clients, who have given me their money to manage. If I manage a private equity business of $10 billion, my annual management fee alone would be $200 million, and if I manage a 15 per cent return on the assets, I pocket another $300 million. Half a billion, in all.

Of course, I would have to be a big investment banking firm to manage those sums, and IPOs of that size. But even as an individual in one of those firms, I wouldn't be doing badly: a good investment banker at Goldman Sachs last year took home a bonus of more than $20 million. Wouldn't people get jealous? Perhaps not, because the accepted wisdom is that good profits for investment bankers are a sign of a healthy economy""which is what you should expect, since financial services account for 8 per cent of the American economy.

The sweetest part is that, if what I have been up to in the CDO market gets the whole financial world into a tizzy, I can be like the chap who got onto CNBC in the US last week and screamed at the market regulator, the supposedly feared Securities and Exchange Commission, and the other rule-making gods for being stupid enough to not see that my world is collapsing all around me and for not doing something to hold the pieces together. All that money made, and now instant fame too! Yes, if I could be born again and I could do all that, it wouldn't be too bad a life, would it?