(no subject)

[randomness]

The Epicurean Dealmaker wrote Tuesday about the WSJ's story (it's behind a paid registration wall, the bastards) detailing the compensation Merrill's top bankers were paid in 2008. From http://epicureandealmaker.blogspot.com/2009/03/lawyer-up-boys.html:

Lawyer Up, Boys

Crack muckraking over at the Wall Street Journal this morning, detailing how the top 10 earners at Merrill Lynch pulled down $209 million in compensation last year while Mother Merrill soiled her undergarments to the tune of $27.6 billion. Citing "documents and interviews with people familiar with Merrill's compensation," the WSJ reveals a raft of details, dishing dirt and naming names with abandon.

The contrast between Merrill's largess to its senior executives during a year (and particularly a quarter) when the repo man was banging on the front door of its headquarters and the pay practices of a traditional investment banking partnership could not be more stark. At the latter, when the firm has a bad year, the partners pay the operating bills and their non-partner colleagues first, then they distribute whatever is left over among themselves. If a partner doesn't have enough cash to pay his bills, he draws from or borrows against his equity in the partnership and tells the wife she better put plans for a vacation home on Mustique on hold for a year or so. A partner who has a bang-up year when everyone else doesn't mans up, accepts perhaps a slightly larger equity stake in the partnership in recognition of his outperformance, and eats rice and beans with the rest of his colleagues. That's how it's done when you play with your own money.

But that's not how it worked at Merrill. Thain and his partners in crime were playing with other people's money, in this case Bank of America's, so they played by different rules. Anecdotal evidence and the Journal article itself indicates that lots and lots of Merrill bankers got whacked—and whacked hard—in terms of total pay last year (e.g., 17 fewer senior bankers and department heads breaching the $10 million mark), but the cabal at the top seem to have gotten off relatively unscathed. No wonder John Thain was rumored to have initially proposed a $40 million bonus for himself. After all, he couldn't let Montag, Orcel, and Kraus beat him in the moolah sweepstakes, could he?

This sort of every man for himself, winner-take-all philosophy makes a mockery of the idea that investment banks are team-based businesses. If the generals salve their wounded pride on the beach with Mai Tais and cigars while the troops get slaughtered and the shareholders get bankrupted, you have all the conditions necessary for a revolution. Most of the battered troops remaining in the industry will look at this self-serving behavior with disgust. Many will desert, never to return. One or two might even roll a fragmentation grenade into the Executive Committee meeting room during morning call. A few, of course, will grin with delight, convinced in their psychopathic little hearts that they, too, will be sitting on top of the greasy pole in a few years.

Comments

[r-ness.livejournal.com]

I'm still amazed that other outlets (New York Times, etc) give away content for free.

Race to the bottom, I think, caused originally by a failure in implementation of micropayments, and then caused by the proliferation of independenthigh-quality free content. The papers weren't able to figure out how technologically to get people to pay, and now that they think they can, there's too much content that's free.

(I don't make any claims that's authoritative; I'm just thinking aloud.)

Also, I'm merely complaining because I find the WSJ less useful than the FT and yet the FT is much better about letting me at their content.

At a lunch time discussion, one of my co-workers wondered how many of the wall street execs who got into trouble were women, and how does that compare to the proportion of wall street execs who are women at all. That's a question I'd love to see further investigated.

Someone has, in fact. Michael Lewis, in the Iceland article I posted about earlier, references an MIT study from 2001:

Back in 2001, as the Internet boom turned into a bust, M.I.T.’s Quarterly Journal of Economics published an intriguing paper called “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment.” The authors, Brad Barber and Terrance Odean, gained access to the trading activity in over 35,000 households, and used it to compare the habits of men and women. What they found, in a nutshell, is that men not only trade more often than women but do so from a false faith in their own financial judgment. Single men traded less sensibly than married men, and married men traded less sensibly than single women: the less the female presence, the less rational the approach to trading in the markets.

One of the distinctive traits about Iceland’s disaster, and Wall Street’s, is how little women had to do with it. Women worked in the banks, but not in the risktaking jobs. As far as I can tell, during Iceland’s boom, there was just one woman in a senior position inside an Icelandic bank. Her name is Kristin Petursdottir, and by 2005 she had risen to become deputy C.E.O. for Kaupthing in London. “The financial culture is very male-dominated,” she says. “The culture is quite extreme. It is a pool of sharks. Women just despise the culture.” Petursdottir still enjoyed finance. She just didn’t like the way Icelandic men did it, and so, in 2006, she quit her job. “People said I was crazy,” she says, but she wanted to create a financial-services business run entirely by women. To bring, as she puts it, “more feminine values to the world of finance.”

Today her firm is, among other things, one of the very few profitable financial businesses left in Iceland. After the stock exchange collapsed, the money flooded in. A few days before we met, for instance, she heard banging on the front door early one morning and opened it to discover a little old man. “I’m so fed up with this whole system,” he said. “I just want some women to take care of my money.”

[karakara98.livejournal.com]

Your assessment of the business model makes sense. I agree with you on the WSJ. I stopped paying for a subscription about a year ago. They kept trying to charge me more money while changing the paper editorially to make it less different from other free media out there, so they lose!

Thanks for the thoughts and quotes on the gender issues. Previously, I was inclined more to Bennett's point of view, but actual experience in corporate America has shown me that sexism is a real and pernicious problem in the working world even if it isn't necessarily based on biological differences. I've been meaning for a while to concoct a post about my post b-school work experiences and how they've given me new insights into gender and minority politics, but I simply haven't taken the time to do so. Someday I'll make my thoughts coherent and share them.

[r-ness.livejournal.com]

Someday I'll make my thoughts coherent and share them.

I'll definitely be interested in reading that!

Sexism in investment banking

[epicureandealmaker.blogspot.com (from livejournal.com)]

Dear karakara98 -- You are correct, I am not sexist. However, I have become far less scrupulous than I used to be writing "him or her" because it is patently unreflective of reality in my industry. There is a vanishingly small number of women in investment banking in professional roles (whereas they predominate in support and staff functions, as in many other industries).

There are lots of reasons for this, many of which I do not know the answer to. If, however, you are in a humorous and forgiving mood, feel free to read an earlier take I did on the subject some time ago:

http://epicureandealmaker.blogspot.com/2007/05/fingernails-that-shine-like-justice.html

Regards,
The Epicurean Dealmaker