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Street Freak
- Money and Madness at Lehman Brothers
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Reviews
Bloomberg (9/6/11)
One grim night before Lehman Brothers Holdings Inc. (LEHMQ) imploded, trader Jared Dillian drank himself into a frenzied scream, hugged his cat and downed half a bottle of the only drug on hand: Tylenol PM, he says.
“I could not even kill myself properly,” he rages in his disturbingly candid memoir, “Street Freak: Money and Madness at Lehman Brothers.”
The cause of Dillian’s distress wasn’t Lehman’s collapse; that drama unfolded some six years later. His despair reflected something much more common and corrosive about markets. His job, index arbitraging, had been automated by a computer program.
“The diabolical index arb robots had taken over my trade,” he writes in the mocking voice familiar to readers of his financial newsletter, the Daily Dirtnap.
Like many desk warriors before him, Dillian had learned that trading is a brutal battle in which every soldier is expendable. Self-pity would get him nowhere; he simply had to find a new way to make money. His struggle to survive and thrive is what “Street Freak” is all about.
The dust jacket compares the book, perhaps inevitably, to Michael Lewis’s classic take on Salomon Brothers Inc., “Liar’s Poker.” That does Dillian a disservice, prompting readers to expect his book to widen out into a picaresque portrait of Lehman and the grotesquely inflated egos who flipped the 158- year-old firm into the graveyard.
What we get instead is the highly personal journal of a poor kid who quit the U.S. Coast Guard to chase his dream of becoming a trader. Though his story traces the arc of Lehman’s last years -- from the terrorist fireballs that engulfed its World Trade Center offices to its bankruptcy filing -- the focus from start to finish is on Dillian’s trade-to-trade conflict. It’s a business that brings out the worst in humans, as he says. It also can threaten their sanity.
Not long after his over-the-counter overdose, Dillian opted for proprietary trading, placing bets on futures contracts. Soon he was back in the game, buying, selling, cursing and -- on one rough afternoon -- smashing his desk phone to smithereens. The trading floor roared in approval, granting him “a long, lusty standing ovation,” he says.
Memoirs are like bonds: You don’t necessarily buy them at face value. Our recollections of past events are fickle, and Dillian has changed “some names and identifying characteristics,” as the book says in a stealth note buried on the copyright page.
Yet his narrative crackles with authenticity. Though he can get boastful and vulgar -- obscenities and crude sexual allusions punctuate his patter -- the dominant tone is unsparingly confessional and even modest. He doesn’t pretend he was a big wheel. In his years at Lehman, he rose from raw recruit to head trader of exchange-traded funds. Fancy titles -- even senior vice president -- eluded him.
“I went into trading to become a rock star,” Dillian says early on. “What I was, in effect, was one of the snails that cleaned the fish tank of the financial markets.”
Dillian had no special knowledge of what Richard S. Fuld Jr. was plotting in “Club 31,” as the 31st executive floor was known. He didn’t realize that Lehman’s real-estate portfolio had become “absolutely pornographic,” as he puts it. The only glimpse he gives us of Fuld is on the bizarre day in September 2008 when the chief executive made a rare visit to the trading floor to rant about short sellers.
Yet Dillian’s snail’s-eye view is what makes his book a valuable companion to previous volumes on Lehman, including Lawrence G. McDonald’s “A Colossal Failure of Common Sense.” From hair-trigger decisions to trashy banter, Dillian captures how the market feels from inside the belly of a trading room.
The market possesses “a malignant omniscience,” he says. “You are a sinner in the hands of an angry God, and your positions are going to pay.”
In this environment, common norms of behavior fall away. On Wall Street, you can call a guy a jerk, or worse, without provoking him, Dillian says, because jerks often make bags of money. The real insult is to call someone a bad trader.
“It implies that there is something fundamentally wrong with that person,” he says. “He’s unfit. He’s weak. And worst of all, he’s a mook. A loser.”
Judging from this blunt and sometimes hilarious account, Dillian was a good trader. He also was so unhinged that you wonder why Lehman allowed him past the front desk, let alone trusted him to execute billions of dollars of trades.
Publishers Weekly (08/08/2011)
This revealing, personal memoir of a volatile period in the dual lives of a big-time trader and the fallen American giant Lehman Brothers is depicted in the fueled words of Dillian, a major figure at the company. Dillian, the son of a Coast Guard aviator and a teacher, rose through the ranks of Lehman’s highly competitive traders, trying to beat the roller-coaster market by gambling on debt. As Lehman’s head trader, he exposes the chief reason why one of the most profitable Wall Street investment firms collapsed in a storm of scandal and disgrace: “Traders trade everything, not just stocks or bonds. They like to assess probabilities and they’ll bet on the outcome of just about anything.” He writes in a style that veers from gonzo lucidity to precise trader chatter: he believes only insane people who do insane things make money. Dillian draws parallels between his own bipolar and obsessive-compulsive disorders and the problems he witnessed within the Lehman Brothers. In the end, Dillian offers a candid look at the demise of a corporate behemoth. (Oct.)In Dillian's debut memoir, the author recounts his time as a Lehman Brothers' associate in the firm's final years. His experiences betting big with other people's money—as well as the psychological toll he incurred as a result—provides a scathing critique of selfish, scrambling men so driven to earn a buck that they lose all sight of the world beyond the tickers. Dillian's portrait of the mid-level Wall Street employee confirms all of the industry's clichés—that the stock market is, in fact, run by "men and boys,” many of whom understand little more than a single mantra: "Make money, good. Lose money, bad.” This simplistic approach causes Dillian to view Wall Street as a land of squandered talent, in which money-grubbing citizenry sacrificed their potential to play the numbers. "And here we all were," Dillian recounted," with our Ivy League educations and our social class and our pedigrees and our friends, and we were all in one big room on a daily basis pissing into the wind." Yet as a nontraditional student from the University of San Francisco, Dillian hardly fit the mold of the rich, Northeastern prep-schooler, and his outsider status served as a great attribute, offering him a clearer view of an industry both morally and economically bankrupt. However, the author often fails to bring readers fully into his colorful milieu.
A dramatic rendering of the financial crisis in which readers are often left on the outside of an insider's world.
Fortune (9/16/11)
Jared Dillian is a bipolar math whiz whose path to Wall Street led through the Coast Guard rather than the Ivy League. He also is an amusingly caustic writer whose new memoir pulls no punches about a financial career that nearly cost him both his sanity and his life.
Street Freak opens on September 11, 2001, when Dillian was scheduled to begin his first rotation as a trader after graduating from Lehman's training program. It ends seven years later, when Dillian quits amid the chaos of Lehman's sudden bankruptcy. But neither bookend gets more than a few pages of attention. Dillian wants us to understand what happened in between.
It's a bleak story, to be sure. Dillian's bipolar disorder -- not diagnosed until late in the book -- leads him to phone-smashing tantrums on the trading floor, alcohol-fueled blackouts after client meetings, and an unsuccessful suicide attempt.
And Lehman's trading culture seems to feed Dillian's sickness. The author portrays trading as a manic sprint of decision-making that is part mathematics, part intuition and part speed. Tens of thousands of dollars rest on every click of the button, hundreds and sometimes thousands of times per day.
The reader may not understand all of the mechanics -- Dillian sometimes tries to explain them, sometimes not -- but the dizzying pace is made palpable by dozens of pages of play-by-play on past trades. It's an effective technique, albeit one that compelled me to gloss over more than a few sections.
In some cases, Dillian revels in how he outsmarted competitors. For example, he realizes that the market seems to stand still for a couple of seconds whenever major economic data is released. What if he could trade just milliseconds earlier, by sitting with his finger at the ready? It was a strategy that would make millions of dollars for Lehman and help Dillian get promoted, eventually, to the firm's ETF trading desk.
At other times, however, Dillian makes clear that he only really cared about the money, which represented his standing within Lehman and, ultimately, his level of success. In this he was not alone. Lehman may have considered itself a scrappy team, but in the end, everyone was out for himself at the expense of everyone else. A smaller bonus for you means a bigger bonus for me, which is what I'm here for.
It is a corrosive mindset, and the accompanying pressures eventually became too much for Dillian to handle. In a way, Lehman's bankruptcy functioned as the author's personal bailout. Had the bank not collapsed, he might have had a tougher time walking away.
Street Freak's main failings are twofold. First, Dillian's wife barely makes a cameo. Here's a guy whose life changes in momentous ways over a seven-year stretch, but his spouse is completely absent apart from minor pop-ins. Did he leave her out intentionally? Or was Dillian's marriage more about the official stability than the day-to-day relationship? It's an odd omission in such a personal book.
Second, it's not always clear whom Dillian is writing for. Other traders? Lay people trying to better understand Wall Street before the crash? Or himself, as a sort of catharsis, not to mention promotion for the financial newsletter he now runs? The answer seems to change depending on the chapter, which may reflect how Dillian views both himself and the career he left behind.
Library Journal (10/6/11)
Writing in a kind of gonzo journalism style, Dillian recounts his years as an exchange-traded funds (ETF) trader at Lehman Brothers, beginning just before 9/11 and ending with the firm’s implosion in September 2008. While his book adds nothing to the literature of excess that documents the testosterone-driven, juvenile, and frequently grotesque corporate culture of Wall Street, two angles serve to differentiate this from similar titles. One is the author’s detailed descriptions of his work; the multimillion-dollar fluctuations in his profit and loss statements offer readers vicarious thrills, and the intricacies of big-league trading will fascinate financial voyeurs. The other is Dillian’s personal story, interwoven through his chronicle of victories on the trading floor, of his downward spiral into alcoholism and mental illness. He is diagnosed with bipolar disorder and spends a short time in a psychiatric ward before returning to work.
VERDICT: Dillian’s book will appeal the most to hard-core trading junkies or those who seek a comprehensive view of the post-9/11, pre-crisis Wall Street.
Ludwig Von Mises Institute (2/14/12)
Wall Street traders, like high-stakes poker players, are a different breed. The constant pressure, the appetite for risk, the ability to think and react in split seconds, all the while calculating odds in their heads that most can't do with an HP12C.
"These guys are a pretty weird bunch," Dr. Paul Zak says. "They're very rational and very competitive." Zak is a neuroeconomist at Claremont Graduate University who is studying the brains of traders to find out if this personality type has a certain genetic signature.
In his "Head Case" column in the Wall Street Journal, Jonah Lehrer writes that Dr. Zak and fellow Claremont neuroeconomist Steve Sapra have analyzed the genes of 60 professional traders working at five major Wall Street firms. Zak and Sapra focused on the genes known to affect the activity of dopamine.
Dopamine is a neurotransmitter in the brain that "helps to regulate decisions involving risk and reward," Lehrer writes, "allowing us to experience both the thrill of getting what we want and the pain of losing it all."
Traders who manage to last on Wall Street for a long time, "tended to hit a sweet spot of dopamine activity: their genes kept them from experiencing either very high or very low levels of the molecule," explains Lehrer. "These prosperous professionals were much more likely to have so-called Goldilocks genes, placing them solidly in the middle of the dopamine distribution."
Goldilocks is not what comes to mind as we watch the frantic activity on any trading floor. In fact, it's just the opposite, with people yelling, screaming and gesturing wildly. As Jared Dillian says in this video clip promoting his book Street Freak: Money and Madness at Lehman Brothers, "For someone who has bipolar disorder, being on the trading floor is the absolute worst place to be, because no one's going to notice that anything's wrong, because everybody is crazy." If Dillian had been working at Starbucks, his mercurial behavior might have called attention to his disorder. As is was, at Lehman, being manic, yelling and screaming, was "considered functional behavior on the trading floor."
Dillian tells his story in a fast-paced style that sweeps the reader up into the author's two worlds: the bare-knuckle world of price discovery on the trading floor, along with his descent into depression and the constant coping with his nearly debilitating obsessive-compulsive behavior. All of this makes the book hard to put down.
Street Freak is a great American success story — with a twist. A young man gets out of the Coast Guard and dreams of having a Wall Street career, working in the center of capitalism — the World Trade Center. But he doesn't have the top-tier college pedigree that paves the way to the brass ring. The competition is fierce in the Lehman Brothers training class. He has a slim chance of earning a position.
His training is rudely interrupted by 9/11 and the author must live with the memory of watching the second plane ram into the second tower right above him. Training resumes across the Hudson and would eventually include performing security-guard duties. But while his classmates don't take the menial job seriously, Dillian does, and it serves him well.
He's granted an interview and tells of reading Burton Malkiel's A Random Walk Down Wall Street, a book extolling the virtues of efficient-market theory. "I read the book," Dillian tells the interviewer, "decided it was loathsome, nihilistic, academic bullshit, and set out to spend the rest of my career proving it wrong."
Dillian gets his start in index arbitrage, only watching at first, then calculating his mentor's P&L, and finally was allowed to trade. When the firm moves back to New York, and the head man Dick Fuld abolishes business casual, the author goes on a cheap suit shopping spree at Men's Warehouse, spending for five suits what his coworkers pay for one. But his frugality put him on the wrong side of the "Lehman Handshake." (You'll have to read the book.)
The author has a gift for math, while knowing little about finance when he began. As he writes, "I just wanted to create money out of speed and pure intimidation." He says he had no idea what the market was doing, but tick by tick Dillian developed an extraordinary sense for the direction of the beast that is the futures market.
Street Freak is chalk full of market jargon and trading lingo and, occasionally, Dillian stops to explain a trade that tells you all you need to know about modern finance.
I was expressing a view, not just on interest rates but also on forward interest rates, through a cash-settled future. Furthermore, I was doing so in a nonlinear fashion, using options on futures. I'd used a derivative of a derivative to express a view on an imaginary concept. It was downright magical.
While Dr. Zak calls traders very rational, Dillian writes that to get anything done on Wall Street you have to not only act irrationally but also be insane: "Only insane people do exactly the opposite of what common sense tells you to do."
Very little of Dillian's recount of trading resembles deliberate rational thought. But perhaps there is no distinction between rational and otherwise. Ludwig von Mises wrote that there is only purposeful behavior or human action. "Praxeology does not employ the term rational," Mises wrote in Money, Method, and the Market Process, explaining that the "opposite of action is not irrational behavior, but a reactive response to stimuli on the part of the bodily organs and of instincts, which cannot be controlled by volition."
In Mises's view, economics doesn't deal with homo economicus at all, but with homo agens: man "as he really is, often weak, stupid, inconsiderate, and badly instructed."
Dillian's weaknesses overtake him. He attempts suicide unsuccessfully and later on exits the trading floor suddenly, checking himself into a psychiatric hospital. He emerges medicated but healthier, bolstered by the insight that he can write.
However, the Lithium wrecks his concentration (and sex drive) and the patterns and flows that he once saw so naturally are fuzzy and incomprehensible. He must learn to trade all over again.
As impregnable as its employees thought it was, Lehman Brothers was allowed to fail for its overexposure to real estate. While its trading floor was making millions, Lehman brothers amassed a real-estate portfolio that was, in Dillian's words "absolutely pornographic."
According to rumor, Dick Fuld refused an offer of $40 a share for Lehman from Korean Development Bank in its dying days. But unlike his traders, Fuld allowed his pride to get in the way of making the best trade possible.
When capitalism is allowed to work, liquidation creates new beginnings. This was the case for Lehman. The New York trading operation was bought by Barclays, and Nomura Securities purchased the overseas operations. Most everyone kept their jobs.
As for Jared Dillian, he's created the financial newsletter the Daily Dirtnap and is doing what he enjoys most.
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News/Events
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NEWS: Street Freak named Bloomberg Businesweek's best General Business book of 2011!
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5/26-27
Carolina STA conference
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Bio
- Jared Dillian
Jared Dillian graduated from the United States Coast Guard Academy in 1996 with a B.S. in Mathematics and Computer Science, and from the University of San Francisco in 2001 with a Masters in Business Administration, concentration in Finance. Jared worked for a small floor market maker on the Pacific Options Exchange from 1999-2000, and was a trader for Lehman Brothers from 2001 to 2008. He specialized in index arbitrage and ETF trading. Jared is the author of Street Freak: Money and Madness at Lehman Brothers, published by Simon and Schuster, which was named the number one general business book of 2011 by Bloomberg Businessweek.
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