Reform won't change Wall Street pay
Lawmakers may try to regulate Wall Street compensation, but commentator Andy Kessler says no amount of meddling is going to fix the pay scales.
Andy Kessler (kellogg.northwestern.edu)
More on Wall Street, Commentaries
Links
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.
Comments
Comment | Refresh
From New York, NY, 09/28/2009
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.
From Lincolnwood, IL, 09/25/2009
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.
From Seattle, WA, 09/25/2009
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.
From San Diego, CA, 09/25/2009
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.
From Dayton, OH, 09/25/2009
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.
From Bethel, CT, 09/24/2009
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.
From Richmond, VA, 09/24/2009
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.
From Augusta, ME, 09/24/2009
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 ?
From Santa Barbara, CA, 09/24/2009
I have a reform to stop excessive pay: How about if we tax all income, salary and bonuses, over $500,000 at 79%? That should put a damper on pay.
From San Francisco, CA, 09/24/2009
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
From New York, NY, 09/24/2009
Andy Kessler makes the Wall Steet meritocracy sound a lot like the Mafia. People get "bumped (off)" in that organization, too, if they fail to perform. Despite RICO laws, they will always be with us, too. If Goldman Sachs at least donated some money to some worthy causes (as Mafioso allegedly do to their churches), like nonprofits that have been devastated by the current economy and have laid off useful people, perhaps we wouldn't despise them quite as much.
From Wichita, KS, 09/24/2009
Fine. You want to preserve your meritocracy, Mr. Kessler, do it on you own dime. You seem to imply that we should have let AIG, and the others go down. Well, from what I understand, this would have taken all of our life savings, not just 30%. And, many more of us would now be unemployed, staring foreclosure, and loss of medical insurance in the eye.
You people are infuriating. You seem to think that you should be allowed to continue playing in your private casino with our money. Arrogant, greedy Wall Street parasites, every last one of you.
09/24/2009
Of course Wall St. is a meritocracy. All systems are meritocracies, the difference is in what is valued as a "merit." The military of... well, anyplace... is a meritocracy, with value placed on tactical, strategic, management, and political ability, in what ever order is valued in that situation. What we need to question is what values Wall St. has. Based on a couple hundred years of evidence, it's clear that they value the ability to screw over others while covering their own asses. We have the responsibility to disincentivize this behavior. Markets love people who screw over others and cover their own asses, but I don't think that we, as a society, want to stand by while this behavior is richly rewarded.
From New York, NY, 09/24/2009
Andy Kessler has a peculiar idea of "merit" in describing Wall Street as a "meritocracy." The ability to toss around other people's money--savings, retirement funds, mortgages, now life insurance policies--like confetti, and to be exorbitantly overpaid for creating fantasy worlds of "derivatives" and "securitized" confetti that everyone else pays for ... Well, gee, those are the most merit worthy people in our culture? Guess I'm glad I'm just average.
From Washington, DC, 09/24/2009
My eyes got misty hearing about those vulnerable Wall Streeter's, trading untold millions one day, yet not knowing if their jobs would be there the next. When they guessed right, they made millions -- when they guessed wrong, someone other than them lost millions. The traders, well they simply take took books to another company and did it all over again. Hearbreaking isn't it?
From Sierra Vista, AZ, 09/24/2009
Just heard Andy Kessler's hymn of praise to a Wall Street meritocracy. I was not impressed. Enough with all the giant egos who think they deserve giant rewards for dubious contributions.
From Los Angeles, CA, 09/24/2009
If only what Andy Kessler was true. If Wall Street is "as close to a meritocracy as exists on this earth" then people wouldn't have been paid bonuses as their companies crashed all around them. Wall Street sounds more like robbery - make a lot of money fast, and get the hell out of the bank before the police (or in their case, the Feds) come.
Post a Comment: Please be civil, brief and relevant.
Email addresses are never displayed, but they are required to confirm your comments. All comments are moderated. Marketplace reserves the right to edit any comments on this site and to read them on the air if they are extra-interesting. Please read the Comment Guidelines before posting.
You must be 13 or over to submit information to American Public Media. The information entered into this form will not be used to send unsolicited email and will not be sold to a third party. For more information see Terms and Conditions and Privacy Policy.