Downgrading

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Downgrading personnel is the process of finding a cheaper unit to do the same job.

Once upon a time

When the JC was but a stripling clerk, his senior partner assigned to him the job of reviewing this speculative new contract for an important finance client. This was in about 1995.

“The client will take potentially massive, long-tenor exposures under this new contract,” said he, knocking his pipe out on my head. “Potentially ruinous ones. It is our sacred duty to make sure it is safe! And that means —”

The partner’s eyes glittered: the fierce gleam of eyes belonging a man countenancing enormous professional fees. He held out his hand to me. In his palm: a red pill and a blue pill.

I regarded the document, and then the pills. The contract was slim, rendered on crisp onionskin. It had a five-part Schedule at the back. It was beautiful — strange — alien in its ineffable obliqueness. I mouthed its title, printed in block capitals across the front page: “Eye-ess-dee-aye”. My mind whirred with the other-worldly concepts: Single Agreement. Merger Without Assumption. Netting. Gross-Up. Default Under Specified Transaction. What could they all mean? I didn't know, I didn’t understand, but I was hooked. I took the red pill.

The notional amount of OTC derivatives traded in 1995 was about USD12 trillion. In 2018 it was nudging USD600 trillion<ref>According to ISDA.<ref>.

Little did I know haw tediously familiar it would all become. ISDA negotiation moved from massive fee-generative bespoke legal work to inhouse teams, to negotiators, to operations clerks, to operations clerks in India.