Category: International Finance

International Finance: Debut

To most people, international finance is an arcane topic, something most of us don’t think about. When asked about it, we might say it’s something that occurs on Wall Street by elite investment banks such as Goldman Sachs or what you read about in the Wall Street Journal or the Financial Times. We might also venture that it’s something taught at the Harvard Business School and at some law schools. But most of us, if prodded by the question, would throw up our hands and say international finance is a topic that occurs somewhere in the financial stratosphere, the province of international banks and other financial institutions, not people. But that’s just not true. Like any narrative, international finance is created and inhabited by people.

For that reason, as a professor at the University of Iowa College of Law, I made it my mission to explain international finance in plain English so that lay persons could understand it and how it might affect them. In the late 1990’s, I created the E-Book on International Finance & Development, a groundbreaking work that used the internet, which at the time had just developed the World Wide Web, to explain to a global audience the Asian financial crisis and other topics in the field. At about the same time, I established the University of Iowa Center for International Finance & Development, where I worked with fantastic students to expand upon my mission.

All of my work culminated in 2015, when I published a textbook titled, Fundamentals of International Finance: What You Need to Know. It was unique in that I used my skills as a playwright to explain the subject matter. I’ve been writing plays for some time, almost all in the genre of the short play, fifteen to twenty minutes in length. In 2002, my play, Soccer Moms, was selected for the Annual Festival of One-Act Plays at Theatre Three in New York. While I was at the College of Law, I produced a number of plays based on cases in my Contracts class. So in the textbook, I wove in vignettes to explain things in each chapter.

Now I want to reach non-students who might be interested in the narrative of international finance as presented in the textbook by using my blog to post just the vignettes along with some very limited explanatory prose. The narrative will begin with a profound event at the close of World War II. But to give you a taste of what’s to come, I’m going to jump ahead to give you a vignette relating to the financial crisis that shook the world beginning in 2008. It’s based on a story I read in the paper about how the crisis, which began in the United States, affected a community in Wingecarribee Shire, Australia. I used the vignette to explain the role of credit rating agencies in the crisis. It’s a story about how the CRA’s failed to fulfill their role as the “gatekeepers,” that is, conveying to the investing public the risks of holding highly complex securities. When I use quotation marks in the vignettes it signifies actual statements taken from the original sources.

I hope you enjoy it. If you don’t…well…there’s always Netflix,

“The Gatekeeper’s Reckoning”

Setting: 1:00 a.m., law office, New York, present day


David: lawyer

William: janitor

(lights up)

William: May I empty your trash, sir?

David: Sure. Thanks. Let me get out of the way.

(David stands up and William empties the trash can, noticing many empty cans of energy drinks; David catches William looking at the cans)

David: I know. Ridiculous. They fill the whole trash can.

William: To each his own, sir.

David: I live here. Catch a cat nap now and then.

William: A twenty-four hour operation, isn’t it, sir.

David: We’re global. Time zones keep us busy.

William: It would seem we’re all connected, sir.

David: You bet. And you can drop the “sir.” Call me David.

(William returns the trash can to its spot and faces David; David sits, William doesn’t move)

William: Okay. David.

David: There we go.

(William turns to leave)

David: Wait. How about you?

William: Me?

David: Your name, sir!

William: Smith.

David: No, I mean your first name.

William: William.

David: Can I call you Bill?

William: I prefer William, if you don’t mind.

David: Not at all. William it is.


David: You’re new here, aren’t you?

William: My first week, sir.

David: David.

William: Yes, David.

(David pulls a bottle of 18-year-old scotch and two tumblers from his desk drawer)

William: Quite nice.

David: Have some with me, to celebrate your first week.

William: Thank you, but no.

David: C’mon, William. You’re almost done, right? I can use a break before I call Singapore. Sit down and have a bit, just a bit. We can talk. It’s important for me to know the staff.

William: Why is that?

David: It’s in my best interest, William. I have the cleanest carpet of all the offices on the floor.


David: That was a joke, William.

William: You’re quite the comedian.

David: David.

William: David.

(David pours some scotch)

David: Let’s press restart. William, how nice of you to stop by. Please have a seat. You have a moment, don’t you?

William: But your work—

David: Will always be there. Sit, please. You look thirsty. How about a bottle of primo spring water? Got some in the little fridge here.

(Williams sits upright in an office chair facing David, David unscrews the bottle cap and hands William the water)

William: Thank you . . . David.

David: No problem.

(William holds the bottle on his lap, doesn’t drink; David puts his stocking feet on his desk, takes a drink of scotch)

David: Are you Australian, William?

William: Yes, I am. My accent—

David: I know it well.

William: How so?

David: Scuba diving. Heron Bommie.

William: The Great Barrier Reef.

David: Spectacular. Spent a week there just last June.

William: First time?

David: Been there about a dozen times. How about you?

William: A bit beyond my budget. Quite a ways from my town in any event.

David: Where’s that?

William: Burrawang. In Wingecarribee Shire.

(David takes a long pull, all the while looking at William, long pause)

David: Wingecarribee Shire. I’ve heard of it. About two hours from Sydney, yeah?

William: Indeed.

David: Beautiful place . . . I’ve been told.

William: Quite. Eucalyptus trees, roos, koalas, wallabies . . .

David: Why did you leave such an idyllic place for the craziness of New York?

William: I lost my church.

David: Your church?

William: Yes, my church. Not very big, but good congregants. I was the pastor. I lost it in 2008. My church.

(David takes another long pull and pours more scotch)

David: Sorry.

William: For what?

David: Your loss. Your church.

(William stares at David)

David: Drink, William. It’s good water, don’t you think?

(William doesn’t drink)

William: What do you do, if you don’t mind my asking?

David: Not at all, William. I’m a corporate lawyer.

William: What do corporate lawyers do?

David: Lots of stuff. I do finance. Everything from project finance to Eurobonds.

William: Bonds?

David: Yes. Sort of international bonds.

William: Sounds complex. You must have considerable expertise.

David: I would like to think so, William.

William: How have you come about it?

David: Degrees in business and law. Then lots of hard work.

William: Here? I mean, you’ve become an expert in finance here?

(David takes a pull)

David: I was at a credit agency before I came here.

William: Credit agency. What is that?

David: They’re private companies that rate the creditworthiness of companies or countries that issue debt securities, like bonds.

William: Creditworthiness?

David: Their ability or willingness to pay a debt.

William: This is quite interesting. May I ask you about these agencies? Could you spare a few moments?

David: Of course. I told you I needed a break.

(David takes a drink)

David: You haven’t touched your water, William.

(William takes a sip of water)

David: What you want to know?

William: How many of these agencies are there?

David: There’re two U.S. firms that dominate the market, Standard & Poor’s and Moody’s. Fitch Ratings, a British firm, has a slice of the market but not as big. Then you got a bunch of little fish.

William: So if I understand correctly, these firms issue ratings so people know how profitable these . . . securities, debt securities will be.

David: Not quite. Credit agencies aren’t like investment analysts that make recommendations on whether to buy, sell or hold a security. Their ratings are useful because they’re a standard way to figure out whether it’s worth lending to a company or government and at what price—you know, the interest rate on a bond.

William: I see. They’re sort of gatekeepers, aren’t they?

David: Precisely, William.

William: They tell the world if a security is gold or trash?

(David takes his feet off the desk)

David: That’s a colorful way of putting it.

William: What’s the gold rating? The best gold?

David: Triple A.

William: And the trash?

David: If you use Moody’s ratings, anything below BBB loses its “investment grade” status and become speculative. Sometimes it’s called junk.

William: Trash.

David: Sure. Trash.

William: Such a range. How do they do it?

David: They look at a bunch of data ranging from the issuer’s financial position to the quality of management.

William: Data. It seems that it’s at the heart of the ratings. How do they collect it?

(David starts putting his shoes on)

David (looking at his shoes): Good questions, William. Typically there’s a team of raters with a lead analyst.

William: Were you a lead analyst, David?

(David stops tying his shoes and looks at William)

David: Yes.

William: Hmmm . . . What did you do?

David: I coordinated the gathering and analysis of the data. Then presented it to the rating committee. It decides what rating the debtor or the financial instrument will receive.

William: Who pays for all of this?

(David finishes tying his shoes and stands up)

David: The issuer, William.

William: Are you saying that the very firm that has asked you to rate its securities is paying you?

David: Yes. The issuer pays the credit rating agency.

(William, still sitting upright, takes a sip of water)

William: You said you were a lead analyst. When? Perhaps 2008?

David: William, this has been a great conversation, but I have to start preparing for my call to Singapore.

William: May I finish my water, David?

David: Sure.

(William takes a sip of water)

David: Why don’t you chug it.

William: You didn’t answer my question.

David: What question was that?

William: Were you an analyst in 2008?

David: Yes, I was.

William: So you were turning trash into gold, weren’t you? Taking subprime mortgages and turning them into mortgage-backed securities with triple A slices. The same with collateralized debt obligations.

David: You seem to know a lot about finance for a janitor.

William: I’ve had a number of years to read books. After all, David. I lost my church.

David: I said I was sorry, pastor. Build a new one. I’ll make a sizeable donation.

(William takes a sip)

William: Have a seat, David.

David: Thank you, but no.

William: “Let’s hope we are all wealthy and retired by the time this house of cards falters.” Does that sound familiar? Was it in an email you sent to an analyst on your team?

(David walks to the office door and tries to open it and can’t)

William: Please, have a seat, David.

David: Open this door!

William: You and the others rated thousands of these securities worth trillions of dollars on paper without really knowing what you were doing. You conspired with your clients to maximize profits by making sure you could create securities with big slices of gold. Gold that was actually trash. But why would you care, David? You and your clients were making money hand over fist. You sold your soul to the devil. All for revenue.

(David reaches in his pocket for his cell phone)

William: Are you looking for this?

(William stands up and raises his hand holding David’s cell phone)

William: Don’t even bother with your office phone.

David: Look, Mr. Pastor-turned-wacked-out janitor, everybody had a hand in it—borrowers, mortgage brokers, investment banks, just to name of few. And let’s not forget about the investors, they blindly bought the stuff. They looked at the ratings as if we were making investment recommendations. We weren’t. And they should’ve known that. Everybody was having a party, including the investors, including Wingecarribee Shire. And what about the ultimate gatekeepers, the regulators? Why don’t you creep them out?

William: There wouldn’t have been a party without the gold, and you helped create it, David. The party came to an end in 2007, didn’t it? The housing market collapsed. Then all of you downgraded billions of dollars of these securities. The gold was downgraded to junk. Within a year, nearly $2 trillion securities were downgraded.

David: What do you want from me?

William: You haven’t asked me, David. Aren’t you curious?

David: Asked you what?

(William approaches David, standing close to him)

William: Why I lost my church. My lovely church in Burrawang.

(David rushes to the wall and starts pounding)

William: There’s no one here, David. Unusual, isn’t it.

David: Let me out of here, please!

William: My church along with others in the township of Wingecarribee Shire invested in the securities. The gold slices. I was hoping to build a children’s wing for my church. Many families in my church. Then the gold turned into trash. Into trash, David! We lost everything! Everything, David!


William: My families left. I preached to a nearly empty church.


William: I lost my church, David. It was torn down . . . God abandoned me. Abandoned Wingecarribee Shire.

(long pause)

David: If I could take it all back—

William: You all were the gatekeepers . . .

(William goes to his cart and pulls out a hammer and slowly approaches David)

David: What are you doing?

William: Those securities weren’t trash, really. No, that’s not the right word, David.

David: Please put that down.

William: They were a deadly virus.

David: I left the agency. I couldn’t stay there.

William: You could’ve contained the virus. But you did the opposite. And the virus went global, all the way to Wingecarribee Shire.

(long pause)

David: I’m truly sorry, William. Please don’t hurt me.

William: Do you pray, David?

(David starts trembling)

David: I used to.

William: I as well. I want to pray again.


David: You can build another church . . . in Burrawang.

William: Why do you think I’m here?

David: I’m sorry? What?

(William raises the hammer)

William: Are you good with a hammer, David?

(fade to black)