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{{a|negotiation| | {{a|negotiation| | ||
[[File:Claudis Blankie.jpg|450px|thumb|center|[[Eye-ess-dee-aye]], yesterday.]] | [[File:Claudis Blankie.jpg|450px|thumb|center|[[Eye-ess-dee-aye]], yesterday.]] | ||
}}{{wasteprov|Downgrading}} {{wasteprov|personnel}} is the process of finding a cheaper unit to do the same job. It is | }}{{wasteprov|Downgrading}} {{wasteprov|personnel}} is the process of finding a cheaper person/unit of [[meatware]]/[[chatbot]] to do the same job. It is meant to save money and avoid the tiresome and messy [[human error]] that infect the otherwise flawless, crystalline, money-printing system. | ||
In the guise of “juniorisation” it was cited, accurately, as a contributing cause of the [[Archegos]] debacle at Credit Suisse where, but for the grace of God, go the rest of us. | |||
{{subtableflex|45| | |||
===Once upon a time=== | ===Once upon a time=== | ||
When | When [[JC|I]] was but a stripling clerk, my supervising [[partner]] assigned me the job of reviewing this speculative new contract for an important finance client. This was in about 1995. It was in Wellington, New Zealand. | ||
“Our client [''a high-country sheep farm'']<ref>Okay, it wasn’t ''really'' a sheep farm.</ref> will take potentially massive, long-tenor exposures under this new [[contract]],” said he, knocking his pipe out on my young contrarian head. “Potentially ruinous ones. It is our sacred duty to make sure our client is safe! And that means —” | |||
The partner’s eyes glittered. | The partner’s eyes glittered. | ||
“Daily [[mark-to-market]] [[variation margin]]?” I offered.<ref>Yes, ''of course'' this is an outrageous lie: I was an [[ISDA ingénue]]; I had not the first clue about [[derivatives]], and certainly nothing so sophisticated as [[credit support]], if it even ''existed'' at the time.</ref> | “Daily [[mark-to-market]] [[variation margin]]?” I offered.<ref>Yes, ''of course'' this is an outrageous lie: I was an [[ISDA ingénue]]; I had not the first clue about [[derivatives]], and certainly nothing so sophisticated as [[credit support]], if it even ''existed'' at the time, which it didn’t.</ref> | ||
“No, boy, no!” he shrieked | “No, boy, ''no''!” he shrieked, “no, no, no!” | ||
For a moment I was flummoxed, but then I saw in those black eyes the fierce gleam that comes from countenancing vast professional fees, and I understood. | For a moment I was flummoxed, but then I saw in those black eyes the fierce gleam that comes from countenancing vast professional fees, and I understood. | ||
“''Billings''!” he shrieked, jumping up and down and clapping his hands. | |||
He held out his hand. In his palm: a red pill and a blue pill. | He held out his hand. 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 {{isdaprov|Schedule}} | I regarded the document, and then the pills. The contract was slim, rendered on crisp onionskin. It had a five-part {{isdaprov|Schedule}}. It was beautiful — ineffable — ''alien'' in its obliqueness. I mouthed its title, printed in block capitals across the front page: “[[Eye-ess-dee-aye]]”. | ||
“Exactly!” said he. “A [[sw-æp]] agreement!” | |||
I flipped the pages. My mind whirred with the other-worldly concepts I beheld: {{isdaprov|Single Agreement}}. {{isdaprov|Merger Without Assumption}}. {{isdaprov|Netting}}. {{isdaprov|Gross-Up}}. {{isdaprov|Default Under Specified Transaction}}. ''What could they all mean?'' I | I flipped the pages. My mind whirred with the other-worldly concepts I beheld: {{isdaprov|Single Agreement}}. {{isdaprov|Merger Without Assumption}}. {{isdaprov|Netting}}. {{isdaprov|Gross-Up}}. {{isdaprov|Default Under Specified Transaction}}. ''What could they all mean?'' I didn’t — ''couldn’t'' — understand. How could I? But, yet, I felt it, deep in my fibre. ''I needed to know.'' | ||
I took the red pill. | I took the red pill.}} | ||
And, ladies and gentlemen, that is how we find ourselves looking at each other today, through the vale of tears and resentment we both know as a liquid crystal display. Yes: it ''is'' a [[matrix]], and I ''am'' stuck in here. But, look: don’t worry about me: I can’t bear mawkish sentimentality. And ''I'' wouldn’t feel sorry for ''you'' if our positions were reversed. And, after all, ''I shall outlive you all''. | And, ladies and gentlemen, that is how we find ourselves looking at each other today, through the vale of tears and resentment we both know as a liquid crystal display. Yes: it ''is'' a [[matrix]], and I ''am'' stuck in here. But, look: don’t worry about me: I can’t bear mawkish sentimentality. And ''I'' wouldn’t feel sorry for ''you'' if our positions were reversed. And, after all, ''I shall outlive you all''. | ||
===What does this all mean?=== | ===What does this all mean?=== | ||
Ok: enough of the cod-philosophical sci-fi. The notional amount of [[OTC]] [[derivatives]] traded | Ok: enough of the cod-philosophical sci-fi. The notional amount of [[OTC]] [[derivatives]] traded in 1995<ref>According to BIS Triennial Review, since you are asking. {{google3|BIS|Triennial|Review}}.</ref>, when I took my red pill, was roughly USD12 trillion. By 2018 it was nudging USD600 trillion<ref>According to [https://www.isda.org/a/9atME/Key-Trends-in-Size-and-Composition-of-OTC-Derivatives-Markets.pdf ISDA].</ref>. ''Six hundred trillion bucks''.<ref>I know, I know: that is gross notional and not net outstanding exposure. But still.</ref> | ||
In any case, an {{isdama}} was once a rare and special beast. Nowadays it isn’t — financial institutions negotiate thousands of them every year — and, | In any case, an {{isdama}} was once a rare and special beast. Nowadays it isn’t — financial institutions negotiate thousands of them every year — and, for fifteen or twenty years [[management consultant]]s all over the globe have pored over the ''{{wasteprov|cost}}s'' of [[negotiation]] to see how to bring them down. This means some kind of [[triage]]. The [[partner]] flipped it to the [[associate]], to the [[trainee]], to the [[in-house lawyer]], to the [[ISDA negotiator]], to the operations clerk. | ||
It has led to the ''great {{t|dogma}} of {{t|contract}} [[negotiation]]'': ''We must do this cheaper.'' The cry went out. “Percy! Find me people cheaper units to negotiate these contracts!” | It has led to the ''great {{t|dogma}} of {{t|contract}} [[negotiation]]'': ''We must do this cheaper.'' The cry went out. “Percy! Find me people cheaper units to negotiate these contracts!” | ||
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But throughout it all the {{isdama}}, with its different editions, its insufferable [[Tax Representations - ISDA Provision|tax representations]], its {{isdaprov|schedule}}, [[Credit support annex|annexes]], [[The ISDA Protocol|protocols]], [[2002 ISDA Equity Derivatives Definitions|definitions booklets]] — every word of which rendered in committee-crafted 19th century prose — remained the same. Never once did anyone ask: do we really ''need'' all of this? Is it really feasible to expect school-leavers from Bratislava to wade through all this? Could we not make it ''simpler''? | But throughout it all the {{isdama}}, with its different editions, its insufferable [[Tax Representations - ISDA Provision|tax representations]], its {{isdaprov|schedule}}, [[Credit support annex|annexes]], [[The ISDA Protocol|protocols]], [[2002 ISDA Equity Derivatives Definitions|definitions booklets]] — every word of which rendered in committee-crafted 19th century prose — remained the same. Never once did anyone ask: do we really ''need'' all of this? Is it really feasible to expect school-leavers from Bratislava to wade through all this? Could we not make it ''simpler''? | ||
And then, in March 2021, came [[Archegos|an example to illustrate the very point]]. | |||
{{sa}} | {{sa}} | ||
*[[Archegos]] | |||
*[[Private practice]] | |||
*[[Close-out Netting]]: the [[Red Flag Act]] of finance. | *[[Close-out Netting]]: the [[Red Flag Act]] of finance. | ||
*The {{Wasteprov|great dogma of contract negotiation}} | *The {{Wasteprov|great dogma of contract negotiation}} | ||
{{ref}} | {{ref}} |