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Reform won't change Wall Street pay
Andy Kessler
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TEXT OF COMMENTARY
Kai Ryssdal: We should all have troubles like Lloyd Blankfein and Goldman Sachs, right? So much money you don't know how to talk about it.
The fact is that out-of-whack pay scales on Wall Street have been part of the problem. Commentator Andy Kessler says no amount of regulation by Congress, the president, or the G-20 for that matter, is going to fix things.
ANDY KESSLER: Part of the charm of Wall Street, and what scares most reasonable people away, is that it is as close to a meritocracy as exists on this earth. It's Dog Eat Dog, sink or swim. You do a trade, and it works, you're a hero. Lasso in clients, you're a hitter.
The flip side, of course, is what makes Wall Street so dangerous. You lose money more than once, and you're out of a job. Just like that. Gone. There is no tenure on Wall Street, no job security. Ten and 20-year careers end in a flash.
That's one reason why everyone is paid so well. Think of it as combat pay. They make your life miserable hoping you'll quit before they break you. Or hoping they break you before you lose money for the firm. It's not the post office. It's trial by fire.
You would think that would make the entire workforce afraid to do anything for fear of being tossed out on their can, back into the cruel, cruel averagely paid world. But a meritocracy works in the opposite way.
You have wicked smart people trying to prove to each other that they are smarter than everyone else. Unlike acing a chemistry final or even nailing your SAT tests, the score is kept with real money -- how much of the bonus pool you command for your do-or-die heroics.
Lehman Brothers was a classic Wall Street meritocracy. They wanted to one up Goldman Sachs to win the meritocracy game and get paid in spades. Let's leverage this sucker up with mortgages. A trillion dollar balance sheet. Hey, if not us, who? When that trade went south, Lehman went bust. You lose money, you're out. Goodbye. Unless of course the government bails you out.
To prevent the next blowup, the G-20 is trying to limit pay and banish risk. But no matter what bureaucrats do, Wall Street's meritocracy of getting paid will live on. They're going to figure out a way around any new rules. The game might move to hedge funds or some other dark corner of the financial market, but no amount of reform is going to kill Wall Street's animal instincts.
RYSSDAL: Andy Kessler a former hedge fund manager. He writes books now.
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In the sage words of Mutual Fund Legend, John Bogle, "Wall Street has been hoisted by its own pitard." In a business that is largely based on Trust and Confidence from clients, investors, and consumers, it has been torn apart by a flawed ideology that believed to hustle and scam is the best way to make a buck. Leaving that to ordinary Street thugs, finance pros were supposed to use their intelligence and education to make the big money, or so everyone thought. The public was shocked when the lid came off and the massive fairytale was exposed. There is nothing "smart" about trading fake "paper" like Credit Default Swaps, or hiding toxic loans in 10,000 page CDOs; cunning is the better word to use. But then so are dogs cunning when they hunt in the garbage for leftover bones. The "charm of Wall Street," as Kessler calls its habit of deception and destruction, has worn out this year even among the industry itself. These statements by Kessler reveal how remarkably out-of-touch he is, since his views are a throw back to another century, the 20th that is. In the second decade of the 21st century, Wall Street is anything but charming, and nothing if not seen as extraordinarily stupid. The myth of the "wicked smart" has blown itself up with the Myth of Alan Greenspan as the Money God and the Free Market as anything resembling free. Merit has nothing to do with dishonesty as Kessler claims. Kessler is a dinosaur from another place and another time; even Goldman's chief Blankfein, Citi's Pandit, JPM's Dimon would not utter these words or even hint at them. They know how the Greed is Good era of Gordon Gekko is dead and gone and best not mentioned again. Merit on Wall Street is a farce and always has been, examples like Howard Rubin abound- a trader who was fired for losing $358m at Merrill Lynch for bad mortgage trades and hired immediately by Bear Stearns only to bring that House down. So much for merit. And so much for "wicked smart." A loan trader once said, "I couldn't believe it when they (Lehman) paid me $2m to ski, talk football, and sell a few loans." Trader, neither can we.
People with low morals or weak ethics always think that they succeed in taking from others because they are smarter. Mr. Andy Kessler's commentary yesterday demonstrates the egotism and selfishness of his profession. But I am really encouraged by the people who submitted comments here, because every single one is critical of Mr. Kessler. Many are so well written, and I hope you put them on the radio.
That Wall Street is a meritocracy is a myth. To twist Andy Kessler's words, that myth is the reason why everyone on wall street is paid so well. Wall Street success is a measure of luck, not merit.
If Wall Street were a meritocracy, only the best would make it to the top. Yet CEO failing after CEO failing belies this myth. Over the past year I have heard story after story of people making money from short term illusions at the expense of the long term health of the world as a whole.
The men of wall street would love for everyone to believe that they have super-secret powers that teach them how to make money. This is narcissistic. No such secrets exist, no matter how strenuously Mr. Kessler insists they do. Successes on Wall Street aren't wicked smart, but wicked lucky.
Mr. Kessler, it's not Wall Street's meritocracy that will preserve. It's Wall Street's reckless narcissism.
You sir, Mr. Kessler, should be ashamed of yourself.
As a veteran, I find any comparison between bonuses and combat pay to be completely misplaced. In the risk vs. reward tradeoff, on Wall Street if I don't perform, I may not get a bonus or be fired. In combat the risk is much, much higer, it is your life, loss of limbs or mental and emotional stability at stake.
I'm alittle puzzled by Mr. Kessler's ideas on reward based on merit. While I do realize that not every employee is responsible for bad decisions made by those in an organization,everyone does fall under the bottom line.The employees of Lehman Bros.paid with their jobs for decisions and the lack of foresight and dicipline of the "WickedSmart" managers.Others didn't. I fail to see the rational of rewarding failure with bonuses,especially when, I'm sure there is a glut of "Wickedsmart" financial geniuses out of work.
Mr. Kessler's argument depends on a very narrow definition of 'merit' as 'what I can book this quarter'. If he and his former colleagues were half as smart as they think they are, they would have figured out how to align individual incentives so as to contribute to the long-term financial strength of the firms that employed them.
No, no, no, no, no. Traders do not make combat pay. You cheapen the lives of those few Americans who stood up to be counted and volunteered to do something. I mean, please: you're going to lose your Manhattan office and scrape by on the millions you've socked away? And please don't claim a monopoly on living in a meritocracy, either. Do you think policemen and nurses get by on inertia? Finally, let's not kid ourselves about the "real money" at stake in investment banking. Policemen and nurses have real LIVES at stake, but you don't see them earning incomprehensible paychecks. You folks have an ENTITLEMENT culture, and you're entitled, apparently, to the money you're charged with managing, as if policemen and nurses could be entitled to skim the life out of the lives they're managing. It's very bad.
To paraphrase a favorite American saying,
If the people on Wall street who manage our money are so smart, why aint we rich ?
Funny thing is their Japanese and German counterparts don't get paid so much have done a much better job.
I remember the people in my high school who went off to business college. They certainly weren't the brightest or the best. I recollect they were kinda dumb and really lacked imagination.
I am not at all surprised that these same "wicked smart" people caused the latest debacle, peddling their mortgage-backed security scams.
Andy Kessler - does the term self-serving mean anything to you ?
I beg to differ with Mr. Kessler's commentary. I found his logic tortured with self-serving arguments to rationalize his and others' greed that created the financial debacle with the ensuing fall-out. He fails to realize that the workplace has many jobs and professions that are meritocracies, requiring performance, and some just as cut-throat even though news of them has not reached people who work on Wall Street. His shot at the post office was cheap, uncalled for, and hackneyed. I'd expect a far more intelligent argument from someone managing millions of dollars.
Where is his sense of ethics and moral compass? It is clear that he has no sense of community or shared sacrifice, even though his style of high risk trading and deals were at the heart of the world-wide recession. Why can't these high-flyers forego their bonuses and excessive pay while people are un and underemployed? There are many no or low cost means to retain talent. If he doesn't know, I would be glad to consult with him. I have a question for him: where will all this talent go with fewer jobs and firms on Wall Street? Couldn't he do better than use scare tactics?
This is precisely the time when there needs to be leadership to change the moral compass, turn down the greed, and act as a community. I found Mr. Kessler's argument both arrogant and more emotion than reality.
Sanford Friedman
Independent Consultant
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