For some time now I have struggled to give an abbreviated version of what I do.  When “I’m a lawyer” elicits the question, “What sort of law do you practice?” I find that there is no short, layman’s-terms explanation of structured finance that doesn’t put people to sleep.  Recently I have resorted to saying, “I do the sort of stuff that caused the credit crunch,” but some people, on hearing that, start backing away in horror as though I myself am as toxic as the assets in some of the transactions.  At that point, I usually mumble something about trying to be funny and move on to another subject.

All that changed last month.  As Fabrice Tourre went on trial for selling risky investments in complex financial products, the judge urged the banning of certain terms from the courtroom, including “CDO,” “asset-backed,” “securitisation,” “short and long investors,” and “credit default swap.”  “Have a heart,” she urged, “Keep the mumbo-jumbo to a minimum.”

So now I have a new, succinct description of what I do:  “mumbo-jumbo.”

To try to make sense of the mumbo-jumbo, I think in terms of an analogy:

Assume you are given some ingredients such as sugar, flour and butter, and asked to use them as the basis to make a finished product of your choice.  It may turn out to be a cake, a pie, cookies, or perhaps something more exotic.  Even though your dessert may be different each time – using a little more of this and a little less of that – the end result is nonetheless a unified, customized creation composed of those basic ingredients.

If those ingredients are financial – loans, assets, insurance – and you package them into a cohesive structure that can then be sold as a unit or indeed in slices, your “cake” is now a structured finance product.

If you add dodgy ingredients to your cake mixture the final product may be inedible, but it is still a cake.  Similarly, a structured finance transaction or product can become tainted by the inclusion of toxic assets, for example, but the structure – e.g., the “cake” – is not itself a flawed structure.  These complex financial products have helped fuel ten years of growth for banks and markets all over the world, but the misunderstood nature of what they are caused them to be blamed when some of the individual elements failed.

My area of the law deals with creating the structures; my clients identify the components we put into them.  Then they are sold to investors with full disclosure about the degree of risk involved.  If I use baking powder that is past its sell-by date, there is a risk that my cake won’t rise.  Investors may be willing to take that risk if the price is right; if not, they can simply pass on the purchase.

Which brings us back to the self-styled “Fabulous Fab.”

A former mid-level investment banker with Goldman Sachs, 34-year-old Mr Tourre has been depicted as the archetype of everything that is wrong in the financial world.  Driven by hubris and blinded by greed, bankers like Tourre seemingly play king-of-the-mountain with other people’s money: the winner is the one who is left when all the others have lost their investments.  This sort of competition has been depicted in films and documentaries about the credit crunch, and more recently, revealed in emails that Tourre sent to his girlfriend, in which he bragged about selling exotic financial products that he didn’t understand.  The synthetic collateralised debt obligations (that’s one of the mumbo-jumbo words) that lost investors $1B in 2008 were simply structures for the trading of very risky investments, but shortly after the crash, those very structures were restricted, as though the CDOs were to blame.

In all the books and films about the credit crunch, the people who are shown to be responsible for the financial crisis are predominantly male.  Remember Nick Leeson, the young banker whose risky trading caused the collapse of Barings Bank in 1995? His story, and that of others in his position, is one of irrational exuberance and overreaching ambition, energized and invigorated by an apparent addiction to risk.

Recent studies have shown a distinct correlation between testosterone levels and risk.  In one study of Wall Street traders, the testosterone level in the morning would predict how much money they would make that day: high testosterone=high earnings.  Furthermore, their success – or at least their own perception of it – would generate more testosterone, creating the “winner effect,” whereby greater hormone levels would encourage more risk, more success, and more testosterone.  Since women have only about 10% of the testosterone level of men, their approach to the market is more cautious.  They are not unwilling to take risks, but they like to have sufficient information to adequately evaluate them before they do.  As a result, their success on the trading floor actually exceeds that of men, but you don’t hear about them because they aren’t bringing down major banks or being prosecuted for losing investors’ money.  It is unlikely that a woman would be caught sending emails bragging about selling complex instruments she didn’t understand.

Important in the studies is that men’s behaviour is fuelled by their own perceptions of their success, not by actual verification of such.  In this area, women fall short, as recent books such as Sheryl Sandberg’s Lean In will attest. Too many of us lack confidence in our own abilities; thus we are all too willing to step aside and let a man push his way ahead of us in the working world.  Then his own hormone level will tell him how good he is and he will continue to bully his way around his female counterparts on the corporate ladder.  This is not a conscious action on his part – it’s just the testosterone talking – but a conscious reaction on the part of women is needed to ensure that we don’t hide our merits under a bushel of insecurities and timidity.

For me, I will confidently tell strangers and new acquaintances that I deal in financial mumbo-jumbo.  No apologies.  I’m good at it.