“It became clear to me that something quite extraordinary was happening in the financial markets” – 9th August, 2007

When I received a phone call from the Merrill Lynch office on 9 August 2007, I was in the middle of chopping wood in the Swedish countryside. Although I trusted my assistant who covered for me whenever I took a few days off, I always had my mobile with me just in case.

It can sometimes be difficult to connect to a trader when you are ‘off’. The buzz in the dealing room is contagious, and traders often become hyper without any particular reason. Sometimes, when you are not there, you almost have to pump yourself up to get a certain level of heartbeat in order to have a meaningful conversation. But this time it was different. I repeatedly had to ask him to calm down as he kept on stuttering about FX swaps, dollars, prices people had dealt at – without making any sense at all. He kept repeating that things were ‘crazy’ and ‘completely mad’ out there.

There was not much I could do about it from a woodshed more than 1,000 miles away, so I asked him instead whether our trading positions were OK.

‘It’s difficult to say,’ he said, ‘but I think we’re OK.’

During our phone conversation, it became clear to me that something quite extraordinary was happening in the financial markets. Something I had never seen or heard of before. At the time, there was nothing in what he said that made me worried about my position, let alone the global financial system. However, it prompted me to buy an earlier Ryanair flight back to London. I had to see it with my own eyes. I needed to get back into the game.

As a trader, you regularly have to change your opinion. The market changes every second and new information constantly feeds your brain. Often, you have to accept that you were wrong, take the loss, forgive yourself and move on. However, some trading ideas might be more long term. They can become fundamental to how you see the market, and such convictions can stay with you not for days or weeks but for years. They become part of your ‘trading style’ and shape the person you are as a trader. I had several trading styles, certainly, but one of them was that I normally thought that short-term interest rates would go up rather than down. Having been trained in the aftermath of the Scandinavian banking crisis, and then having experienced the Japanese banking crisis, I always had an underlying fear that another banking crisis loomed around the corner. Consequently, I tended to ensure that my long-term trading position took that into account. This view often deviated from the market consensus and was sometimes both irrational and foolish.

I did not, of course, predict the global financial crisis. I did, however, ensure that my trading book would generate money should the global financial system tip over into disaster. I also happened to be working for a bank that had a reputation for taking risks, and for encouraging traders to do so too. I generally took a lot of risk, and risk taking as a banking activity had increased exponentially since I had become a trader. The net outcome was that my trading positions were enormous. Overall, I had put bets on LIBORs, on the barometers of fear. Bets that a vicious storm would come in.

The world did not end on 9 August 2007. But my trading positions were definitively more than just ‘OK’. They were magnificent.

About Alexis Stenfors:

Alexis Stenfors spent 15 years as a foreign exchange and interest rate derivatives trader at HSBC, Citi, Crédit Agricole and Merrill Lynch. In 2009, he found himself at the centre of a ‘mismarking’ scandal that resulted in a 5-year prohibition order by the FSA. Returning to academia the same year, he completed his doctoral thesis with the title ‘Determining the LIBOR: A Study of Power and Deception’ at SOAS (University of London) in 2013. Alexis’ recent and current research includes the Eurozone crisis, financialisation in Sweden, Abenomics, manipulation and anti-competitive behaviour in OTC markets and high-frequency trading. He is currently Senior Lecturer in Economics and Finance at the University of Portsmouth and also the author of ‘Barometer of Fear: An Insider’s Account of Rogue Trading and the Greatest Banking Scandal in History’ (Zed Books, 2017).

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