(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

[marginaleye.livejournal.com]

So when do we get to start building neat little pyramids out of their severed heads? It would make great political theater, and would undoubtedly lift the spirits of a weary nation. Or, to bring it down to a more realistic (but less viscerally satisfying) level, when do people start going to PMITA prison? Has anyone even been sent to Club Fed yet? Sure, these rascals might not have technically violated any criminal laws, but the U. S. stopped really being a "nation of laws" a while ago, so surely some plausible-sounding legal justification could be whipped up for the occasion.

[rmd.livejournal.com]

i assume most of them will assume that they, too, will have their shot at stupidly large levels of compensation rather than storming the walls.

these are people who read "liar's poker" and thought it sounded *awesome*.

I'm glad they're naming names!!

[ddreslough.livejournal.com]

And hopefully these turds can't wall themselves off too well on some private island somewhere. If we don't make pyramids with the heads (great idea, Marginaleye!), we should SHAME them. Seriously. Sack cloth and ashes. The stocks. I want to know who these people ARE, look them in the eye, and spit on them...and I want the million or so people they've hurt to do the same. And if that doesn't bring the point across, we should assign them to a bankrupted family as an indentured servant. ARG.

[karakara98.livejournal.com]

I tend to question our drive for continual growth in the economy. I'm starting to agree with those folks that there should be measures of success beyond increasing stock price and gdp, and in fact better measures of the health of the economy than gdp. Changing those incentives will help clean up this sort of behavior (not that these perpetrators shouldn't be publicly shamed).

Two quibbles though...


it's behind a paid registration wall, the bastards

I'm still amazed that other outlets (New York Times, etc) give away content for free. I think this is part of the way b-school changed the way I think. :-)

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.

The sexism inherent in this annoys me. I'm not sure that the author is sexist for writing it this way. I think it reflects a sexist reality that annoys me.

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.

[evilmagnus]

I'm still amazed that other outlets (New York Times, etc) give away content for free. I think this is part of the way b-school changed the way I think. :-)

They don't. Didn't you go to b-school? :-) Advertising!

[karakara98.livejournal.com]

It's true that they get advertising revenue, but so do paper based editions. In the world before the worldwide web, there were papers that were given away for free and got their revenues from ads, and then there were papers, like the New York Times, that expected people to pay for their content as well as collecting ad revenues.

It fascinates me that that model did not translate to the web. It also fascinates me that people feel entitled to free content on the web when they did not feel entitled to free content on paper, or at least lived with the fact that they had to pay for a subscription to high quality news.

[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.”

[r-ness.livejournal.com]

Catherine Bennett disagrees, however:

Now the rampant-hormone school of thought proposes that women were, indeed, temperamentally disqualified for City work in its irresponsible, pre-crunch condition, on account of their morally superior qualities. The suggestion immediately invites, as reductive biological determinism always has, less flattering forms of sexual stereotyping. Given the cost, particularly to women, of exaggerated claims of gender difference, and the persuasiveness of the "gender similarities hypothesis", which states that males and females are alike on most, though not all, psychological variables, it is bizarre to find so many of the current beneficiaries of sexual equality attacking one of the pillars of equal opportunities.

[r-ness.livejournal.com]

Hey, some of the angrier commenters over at the FT's blogs are talking about reopening the Tower of London and putting heads on spikes. (Sorry, read it this morning, can't find it again.)

I guess it's the advantage of a long, bloody history: you can always reach back into the past and revive hallowed traditions when the need arises. :)

Speaking of hallowed traditions, Londonist had great coverage of this year's Trial of the Pyx. I meant to post about it but ran out of time. Maybe if I get a free moment.

[marginaleye.livejournal.com]

I tend to question our drive for continual growth in the economy.

It seems completely and utterly obvious to me that "continual growth in the economy" is an silly fantasy. We live, after all, on a finite planet, with finite resources. At some point, it's inevitable that we're going to hit a wall imposed by, y'know, physical reality, and have to abandon the current system (God only knows what will replace it).

...there should be measures of success beyond increasing stock price and gdp...

The current model doesn't account for a huge number of negative externalities, no.

[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!

Re: I'm glad they're naming names!!

[marginaleye.livejournal.com]

Seriously. Sack cloth and ashes. The stocks.

Shaming and public humiliation are under-utilized, as punishments, in our culture. I suppose that to some degree, the government just "out-sources" it to the media, via the "perp walk" process, but I'm envisioning a "shame channel" on television, where white-collar perpetrators are forced to kneel in a brillantly-lit room and confess, in agonizing, blow-by-blow detail, all of their sins. Ideally, they will be haggard, sleep-deprived, and generally broken and at the edge of tears for their big appointment with the spotlights and the cameras. And then a few of their victims get to line up and each have a few minutes to excoriate them on camera. And, best of all, it will all be on YouTube, forever.

Oh, and there ought to be a "financial offenders registry," just like the one for sex offenders, which would be publicly searchable on the Internet. And, just as a registered sex offender is forever barred from working with small children, a registered financial offender is forever barred from jobs in investing, accounting, serving as a corporate officer, and so forth.

Re: I'm glad they're naming names!!

[ddreslough.livejournal.com]

Oh I LOVE that idea, the financial offenders registry. The Internet never forgets...well, after 2000 the internet never forgets, at least. :)

What's really getting to me is how the same...individuals...(put your own word there) from Countrywide are now BUYING up mortgages at pennies on the dollar and CONTINUING to profit from the mess they've made. They should have been barred from the mortgage business.

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

[tavella.livejournal.com]

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.

I wish, but I don't see any signs this is going to happen. Geithner's only concern seems to be that his dear pals keep their jobs and bonuses, and most certainly that they don't suffer the embarrassment of the government taking over their companies, no matter how many billions they lose.

I don't see any sign of new regulations or new limitations or anything. Just us giving them trillions for nothing.

[cks.livejournal.com]

Most newspapers traditionally make their money on advertising and apparently actually lose money (or barely cover costs) on circulation. The only reason that they don't just give away the paper to anyone who will take a copy is that they need audited circulation figures for the advertisers; that people are paying for a paper is taken as strong evidence that they are actually reading it.

Thus, the problem with the Internet is not so much giving the content away for free, it is the twin difficulties in getting audited circulation figures and in persuading advertisers that Internet advertisements are worth as much as print advertisements. (Things like Craigslist have not helped, since they have apparently devastated the small classified market.)

[achinhibitor.livejournal.com]

This sort of every man for himself, winner-take-all philosophy makes a mockery of the idea that investment banks are team-based businesses.

I'm sorry to say that Santa Claus isn't real, either.

Many will desert, never to return.

Nobody cares, since the number of people in the finance industry is going to shrink by 50% or more.

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.

That's the only sort who go into that type of job, anyway.