Reform won’t change Wall Street pay

Marketplace Staff Sep 24, 2009
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Reform won’t change Wall Street pay

Marketplace Staff Sep 24, 2009
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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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