Rob Johnson, President of the Institute for New Economic Thinking, is not your average economist. He’s got heart and soul, or if you’ll have it, the blues! With his deep connection to the arts and humanities, Rob leads the new economic thinking not just with a sharp mind, but also with sensibility.
This article is part of an ongoing series in which Rob shares his life experiences, and biggest lessons learned. If you’re an aspiring expert in economics or a related field, this is for you. It might mitigate the depth and duration of your mid-life crisis. Earlier articles in this series can be found here.
4 – When to get your marbles off the table
After working at the Senate Banking Committee, when Senator Proxmire retired, I became curious about the private sector and interviewed with a place called Bankers Trust. There was a brilliant man there at the time, Jay Pomeranz, who was the head of the foreign exchange trading floor, and an ordained rabbi.
As part of the hiring process, I first had a whole day with all of his deputies and it all seemed to go very well. But then Jay walks in. He’s got big fluffy hair, looks like Carlos Castañeda, and he’s got Birkenstock sandals on. He says “well, you had a good day with everybody, and these guys want to make you an offer, but if you and I don’t connect, you’re toast.”
I said, “no, I’m not toast. I just don’t get the job here.” And I do want the job here. So he asks me “well, what do you want?” And I said “well, talk to me about what the terms are.” So he lays out a whole thing with a guaranteed bonus of a hundred thousand dollars. And I looked at him and I said “you know what? You can keep that bonus, if I get the chair on the floor sitting next to you for the first year.”
At this point Pomeranz goes, “ahhh I don’t know if I can do that!” but I persisted. I said “how you expect how you expect your strategist to learn unless you put me in the flow? I’m not gonna sit back here in some office and try to figure out what you guys need. I gotta be here, in the turmoil. I have to connect with people and be the guy they call late at night. I gotta learn how to provide this service! I’ll make a lot more money for you, for me, for the firm, if you give me that.” And then he walked out. He went and had some kind of consultation. A few minutes go by but then he calls me onto the trading floor, with 400 people sitting there. And Pomeranz just jumps up on top of the desk and starts walking down and says “I want everybody to meet our new foreign exchange team member!” and everybody started yelling.
I ended up really enjoying my work with them. There was an ethical frame that their best people adopted. You’d make mistakes. You lose money, you make money, whatever. But they didn’t they didn’t have a sneaky bone in their body.
I was paired with a man called Norman Weinstein, who was a grandmaster in chess. He and I ended up co-managing an intra-European long/short leveraged currency fund. Usually long the periphery, short the core. To a large degree, my job was to be on airplanes, in the field, using my policy language and training to meet with finance ministers, central banks and the like all over Europe.
Then a couple of things happened in 1991. After the Berlin wall had come down, the Soviet Union was collapsing. At the time, we had a two billion dollar position long in the Finnish Markka. But I figured out that Finland might actually get hit hard because they were economically deeply intertwined with a collapsing nation (USSR). So I basically went and lived in a hotel room in Helsinki. I was well-connected there, had friends from graduate school and I knew all the central bankers. Plus, at Princeton, one of my professors had been a disciple of the famous Finnish economist Pentti Kouri.
So I was in Finland, meeting with everybody. I’d take the policy officials out and if they’d have a lot to drink (which was not something I had to induce) I’d say things like “you guys are talking like if you devalue, there’s gonna be inflation. But you got 14% unemployment; you’re not gonna get inflation!” Then, they would all start talking about the simulations they were doing on devaluation. So once I heard that directly from the central bank and finance ministry staff, I figured I better get my two billion dollars out of there.
Now, Finland only had about eight billion dollars worth of reserves. So ours was a big position in relation to that. So I told the postal bank and the Finance Ministry that I will not short against them, but that I need to get my money out–right at the boundary, but in one swoop. They agreed to that as a way of not starting a storm. So I did that and then I got on an airplane and flew back to New York
It turned out I was correct, Finland blew up. So when Soros heard the news, he called Pentti Kouri and asked him “who got this right?” And Kouri said, well, there was a guy from New York named Rob Johnson who was over here, staring in the whites of their eyes. He got his marbles off the table. So soon after, when I was at a birthday party for Richard Medley that Soros was at as well, he came right up and started talking to me…
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