"What do YOU do for a living?"

I've gotten quite a few queries regarding what pays my bills, and (more importantly), if I can get people employed in this spectacular market environment...

I will be describing what I do for a living, if this seems like something you're interested in, drop me a line and we can discuss potential career opportunities (I've got it pretty good with our Business Support team / HR, so as long as your resume doesn't suck as much as the dow did today, you should have a realistic shot at getting an interview...)

I work for Bank of America in Global Markets Risk Management: I will do my best to explain what that means. GMRM is directly aligned with the investment banking division of Bank of America and the brokerage arm, Banc of America Securities. We serve as risk managers for traded products, and thus are physically based around major BofA trading platforms (Charlotte, New York, London, Hong Kong, Tokyo, etc).

I'm primarily a credit risk analyst for structured products (awesome things mentioned in the news such as CDOs, SIVs, etc.) but also cover some market risk responsibilities for residential mortgage-backed securities (RMBS) trading. Yes, mortgage bonds, those things that have been on the news once in a blue moon.

In short, as risk managers, there are two types of 'risk' that we focus on: credit risk and market risk. I will provide an explanation of what credit risk is and compare it to market risk in very simple terms.

Credit risk is "the ability for a counterparty to honor an executed contract." For example, If your friend asks to borrow your car, promises to return it undamaged, and you agree, you have executed a trade with your friend (your counterparty) in which now you now have exposure to the credit risk of said friend being able return your vehicle to you in the condition you have delivered it.

If you dont think this friend of yours is a reliable driver, you'd consider this a riskier trade, and may choose to only trade under stricter terms or demand collateral ("I'll let you borrow my car, but i'm hanging on to your Xbox360, Wii, PS3, and all the games until you bring it back unscathed...").

Market risk is "the fluctuation of the value of an asset you hold." In the above friend-borrowing-your-car example, once you have executed the trade, your friend now has your car and you are holding on to his videogames. To keep it simple, let's assume that your vehicle has a market value of $10,000, and you estimate there is a 10% chance that your friend might total your car. Therefore, you have collected approximately $1000 worth of collateral (in videogame related assets...) -- a fair, expected value trade.

From a credit risk perspective, you have covered yourself -- you estimate this trade to be a negative $1000 expected value, and now have collateral that matches that exposure. However, here is where the market risk comes in: the changes in the value of what you hold. If Sony / Nintendo/ Microsoft all of a sudden announced a next generation gaming system, you would assume that the market value of your holdings will decrease significantly. However, if Nintendo announced that they dont have enough Wii's to go around, perhaps the value of your holdings will increase! That is market risk.

A financial institution with successful risk management capabilities will be able to monitor and analyze both their market and credit risk exposure properly and take precautionary measures to prevent them from experiencing a sudden large loss of capital, and be able to price the risk, and enter into trades that compensate them properly for taking that risk. It will always be a balancing act between taking market and credit risk.

In a nutshell, that's a very high level concept of what I do for a living.