March 17, 2009
Wall Street: Is Greed the Problem?
Lori and I stick to a budget today and we worry about the next tuition installment with three boys at school. We, like most people, have seen our 401K—not to mention the equity in our house—drop like a rock in value. We’d like to sell our place and buy something smaller, but that might not be possible for years to come. I don’t know when I’ll be able to retire.
One day, while I was pondering these circumstances, I began to apologize to Lori about the twists and turns in our lives. We didn’t start out wondering how to make paychecks last. At one time we didn’t worry about money at all. Saving was something we could do without much thought or planning, but not anymore. Before I could finish my apology, Lori interrupted with what I thought were the kindest possible words: “I love that you turned your back on a good paying career to be a better person.”
I had to look away so she couldn’t see the feelings running through me—emotions as varied as they were powerful. On one hand, I felt grateful that she believed I’d left Wall Street to become a better me, but in truth, I wasn’t sure it was the best explanation for what I’d done. In the back of my mind, I’ve always wondered if I simply wasn’t tough enough to keep going.
It took me a long time before I could think of those years without hyperventilating or feeling a wave of nausea. Today my memories of Wall Street are accompanied by a feeling I can only describe as a murky cloud. It’s the same cloud that sought to engulf me every day I sat at a trading desk. Perhaps you will understand a portion of what I’m saying if I mention that I started my career structuring CDOs and went on to run a Structured Product desk that turned out, among other esoteric instruments, Credit Default Swaps. Both, as you probably know, have been significant contributors to our current financial debacle.
What you won’t know, however, is how much of my business was about avoiding regulations that were meant to protect shareholders and the integrity of financial markets. Nevertheless, I can say without equivocation that I never did anything illegal. In fact, I can point to a mountain of legal opinions to prove it. But therein lies the conundrum: If you need a legal or accounting opinion to prove you’re in compliance with regulations, chances are you’re trying to get away with something.
I learned early on that the most profitable Wall Street deals never appear on trading screens or League Tables, but are consummated quietly in order to hide embarrassing situations or past mistakes. Since confidentiality is always essential for these quiet deals, they're seldom subject to open bidding. Many are meant to fabricate income that isn’t really there, or avoid losses that really are. Some are tax-related and designed to assign losses to a party that needs them.
Even as I tell you this, I know what you’re thinking. I know because I've heard dozens of people say it, including the President: There's too much greed on Wall Street. Yet, if that’s the case, then I must suggest the problem is not limited to high finance. I’ve met executives from a range of industries who were just as greedy as people working on trading floors. If greed is the underlying problem with our economic malaise, it’s a general problem of which the majority of Americans are at fault. I will, in future blogs, describe the cause of Wall Street's risk taking and management problem and what can be done to fix it (Surprise! The solution is related to ownership!) but for now let me say this: Maybe I wasn’t tough enough to survive Wall Street, but I’m certainly a better person for having left it.
Posted by Alan Bahr