Galactic Bitch Award: The woman who built financial 'weapon of mass destruction' [12/09/09] "In the article below we said that Blythe Masters of JP Morgan
developed the credit derivatives which were at the heart of the current financial crisis. We apologise for unfairly failing to give her an adequate opportunity to respond and for making inaccurate personal references about her. The guide to which we referred was a general guide to credit derivatives and not just about those she created; she was 34, rather than 35, when she became chief financial officer of JP Morgan; and she was not working in hospital before having her baby, but viewing financial data to pass the time. ..... British-born Masters is one of the most powerful women on Wall Street and is widely recognised as one of an elite group dubbed the "JP Morgan mafia" that fostered the creation of the complex credit derivatives at the heart of the current crisis ripping through Wall Street. Many of the highly qualified mathematicians and academics who worked on the credit derivatives market in the early days have gone on to run hedge funds and into high-powered jobs at other investment banks, but most of them started out at JP Morgan. ... Masters was raised in south-east England, where she attended the exclusive King's public school in Canterbury on a scholarship. She got a economics degree from Cambridge, and from the beginning had been attracted to the esoteric world of derivatives. In her spare time, she is a keen horsewoman. She joined the JP Morgan commodities desk and worked her way up the organisation. At the age of 35 she was appointed chief financial officer of the investment bank, but for the past two years has been head of currencies and commodities. Her focus on the job reached almost comic levels when she famously took her wireless device into the hospital to get quotes on commodity derivatives as she was having a baby. The banks argued that by trading credit derivatives of the kind pioneered by Masters, they had spread their risk elsewhere and therefore needed lower reserves to protect against loan defaults. Regulators rolled over and the banks loaned ever more. It was a huge success and the market for credit derivatives grew rapidly. But the instruments might not have much longer. One of the fall-outs from the current crisis is the call that banks should carry their own risk."
Note 1: The story of Blythe Masters and the group at J.P. Morgan who created the credit derivatives that figured so prominently in the financial crash of 2007-08 has been documented (and verified) by Gillian Tett of the FInancial Times, in her book, Fool’s Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe (Free Press, 2009). Tett quotes Masters’ SIFMA address on p. 250. It’s a gripping book that also has the best explanation of all the different complex securities that were part of the story: credit default swaps, collateralized debt obligations, asset-backed securities, etc.
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