I remember doing informational interviews on the Merrill trading floor back in 1999. Now, that was one great trading floor, have you ever been there? It was like a big bowl in the financial centre, with different levels of desks, so you could achieve something of a vista across the floor. It looked like what a trading floor should look like. So some guy from credit was pointing out the various groups on the fixed income floor, rates over here, mortgages over there, and I saw, in the top row, a bunch of guys packing up their stuff, putting it in boxes, and leaving. “Who are those guys?” I asked. “Oh,” he said, “Those are the commodities guys. We don’t need them anymore.” Like I said, it was 1999.Wall Street is notorious for hiring on the top and firing on the bottom. In 2001, when I joined Lehman Brothers, the associate class was the biggest ever, over 300 MBAs. Even Joe Gregory knew it, and had a laugh at our expense. “You guys are the last ones in,” he said; it was a known fact at the time that stocks were already entering a bear market.
And now , banks are blowing out people (especially equities people) left and right. The employment situation on the Street is as dire as I have ever seen it. Banks are in ruins. And, just like before, people are saying that the jobs are never coming back, owing to market microstructure changes in the market.
After 14 years or so doing this, I have learned to never say never. In fact, I’m downright optimistic. The financial stocks have been rallying for a while now, and the stock market is pretty good at discounting these sorts of things. Without getting too much into the details, households are deleveraging, the housing market is levitating, and mortgages that were once underwater are coming up for air. The S&P just printed 1500, the first time in 5 years. Things seem to be getting better, financially speaking, which can probably be attributed to aggressively easy monetary policy, but they are getting better, nonetheless.
But it’s no secret that our business, the financial business, is under assault from all quarters. Democrats hate Wall Street. Republicans hate Wall Street, though to a lesser extent. And even modern economic libertarians, our so-called ideological cousins, have turned on Wall Street because of bailouts, crony capitalism, and government subsidies, particularly in the form of zero interest rates.
The public is beyond sceptical. My dentist is convinced the whole thing is rigged. And even amongst ourselves, many of us are in such a state of disillusionment that we would, ideologically, prefer a gold standard and a drastically smaller financial industry, but those are not the cards we are currently dealt.
Let’s be truthful with ourselves. Some of it we deserve. A lot of it, maybe, we deserve. But the Street does not deserve all the blame it gets. There are a lot of good people in this business, people who work hard and care about their families and care about their country, and who are deeply saddened by the events of the last five years. It is hard to work in finance, these days, to know that people don’t like you at all, to be aware, in a visceral sense, of the crowds in the park downtown, who, if not separated from you by steel barricades and lines of uniformed police, might wish to do you physical harm.
It hurts when people paint the industry with a broad brush; the epithet “bankster” is a new one, and when you dehumanize people like that, when you strip them of all their individuality, usually bad things follow. So we think to ourselves: do I deserve this? I’m not a bad person. I have a talent for money and a head for numbers and I love what I do. What is wrong with that?
Nothing used to be wrong with it, not in sort of-recent past, the days when financiers, with a tailwind from supply-side tax policy and free-market economics (so the mythology goes), built the staggeringly successful society that we live in today. These men and women were supermen. They bought companies. They merged companies. They issued stock and bonds. They literally built, from the ground up, entire industries. They undid, singlehandedly, the mysterious “malaise” of the Seventies, the sense of impotence that we all had back then. They developed liquid secondary markets. They innovated, financially, in ways that were beneficial, not in ways that were superfluous, speculative, or systemically dangerous.
There is a school of thought that has grown in the last several years that finance is irrelevant, that the real economy of nuts and bolts and physical labour is indeed the only economy, that we should annihilate all financial products, going back to before paying interest was legal, that the world of finance should be detonated in a giant mushroom cloud, and we believe this because finance has become so maddeningly complex as to render itself nearly irrelevant.
Paul Volcker says the last good financial innovation was the ATM. I think he’s a doughnut, but I will say that if you trade a product that is so nonlinear that only 25 people in the world know or even care about it, and yet you can change the shape of the earth; you are one of 25 people that can literally affect the course of human history, you should think seriously about what you are doing. I am no financial Luddite, as you know, so this means a lot, coming from me.
I don’t think Wall Street folks are satisfied with this state of affairs. I also don’t think that they really know how we got here, either. The reflexive response from the general public is greed, greed, greed, but as we all know, it has little to do with that at all. We just like to have fun with numbers and come up with ways to do things better. But the one question that has never adequately been answered, by anyone, ever, is this: is there a limit to financial and technological innovation? Loosely translated, is a world with HFT and CDS more dangerous than a world with paper tickets and non-callable bonds?
Nobody knows. And everybody knows that capitalism relentlessly replaces labour with capital. Efficient markets are better, right? Isn’t this what we wanted, moving quotes in a matter of microseconds?
I’m not here to answer these existential questions. They cannot be answered, even by the smartest among us (though the boldest will try, annoying everyone in the process). What we can do is look backwards in time, to the golden age of Wall Street, whether you consider that to be the eighties or the fifties or the twenties, and to celebrate Wall Street as it once was, a place where wealth was created, and not merely moved around from one pile to the next. We want to celebrate Wall Street where banking was about relationships, where money was only lent to people who we believed could pay it back. We want a Wall Street where finance is not an end in itself, but a means to an end; a world teeming with economic activity, with factories running at full capacity utilization. We want to celebrate a pure meritocracy, where a man with a brain and an attitude can make himself a millionaire. And most importantly, we can visualise a period of time where Wall Street and modern finance achieves that once again.