Posted on 09/15/2009 7:25:49 AM PDT by SeekAndFind
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. It's sink or swim. You do a trade and it makes money, then you're a hero (for a moment anyway) and deserve a bonus. You bring in a deal, you get paid. You lasso more clients' assets under your firm's roof, you're a hitter. I once discovered some good news on the stocks I followed before the rest of the Street, and mentioned it to the sales force at a morning meeting and moved markets in New York, Tokyo and London. I had the head of global equities pat my head on the elevator ride up the next morning. Pat my head! I was told he never does that.
The flip side, of course, is what makes Wall Street so dangerous. You lose money for the firm and you're a heel. Do it again and you don't get paid that year. Do it a third time and you're out of a job. Just like that. Gone. I've seen it happen to friends and acquaintances at just about every firm up and down Wall Street. There is no tenure on Wall Street, no job security, no long-term guarantees. Ten- and 20-year careers end in a flash. Happens all the time, and everybody who works in the business knows this.
That's one reason why everyone is paid so well. Think of it as combat pay.
(Excerpt) Read more at forbes.com ...
In the rest of the working world, the downside risk is still the same, just not the upside potential. That is why folks outside wall street have no sympathy for them.
Let’s summarize his reasons as to why Wall Street pays so well :
* Trading stocks, doing IPOs, merging companies, managing money is a very lucrative business. Not everyone can do it. It’s hard. Wall Street hires in that 99 percentile zone. And then 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.
* The score, like an SAT test, is kept with real money—how much your trading desk makes for the firm—how big a chunk of the bonus pool you command for your do-or-die heroics day in and day out.
* The job ain’t fun. ou have to one up on the Goldman Sachs of the world, generate as good a return on equity and earnings growth so that you could win the meritocracy game and get paid in spades. How dare Bear Stearns’ CEO make more than ours! Let’s lever this sucker up with mortgage-backeds and create a trillion-dollar balance sheet. If not us, who?
Every company I have ever heard of, has a ‘gating function’ to determine if any bonus is going to be paid to anyone.
Did the company make a profit?
If the company did not make a profit, no one gets a bonus. If the company made a profit, the bonus paid is a function of how much profit was made.
How can any company pay out billions of dollars in bonus, when the comapny lost money? Is it any wonder they went belly-up?
And then the well-paid take significant risks to stay that way, because the guy sitting next to them is doing just that, and damn the exposure next year to what made you the profits this year. I wouldn't care, except that the likes of GS and MS now expect Uncle Sugar will backstop their risk-taking. So I'm on the hook for their downsides.
If it’s such a meritocracy, then how did Corzine last so long?
I am sure all those who saw their 401k’s dive off the cliff will feel better now, knowing how dynamic the Wall Street guys are.
parsy, who says we should maybe make the work on Wall Street a whole lot easier for them, by banning hedge funds, most derivatives, and imposing the transaction tax
I really, really resent politicians, business folks, sports figures, etc. who have never spent day one in uniform talking about what "warriors" they are, and how they've "done battle" on Wall Street, or on the football field.
I suppose these people have an inferiority complex and really feel the need to portray themselves as soldiers for self-aggrandizement, but it really rings hollow with me, and lessens them in my eyes.
My brother worked on Wall Street for years, and then invested for companies after that. He was always pretty conservative regarding risks, but managed a solid 8-10 percent return per year anyway. But that wasn’t good enough for him to fly with the hotshots - the same hotshots who ended up taking the financial system to the edge of ruin, and who always ended up adversely impacting my brother because their risk ended up screwing up his division’s profits.
This current economic disaster was almost exclusively caused by the banksters (with Dim politician assistance). How many paid the price for their stupidity and greed? Not very many - they were bailed out by Bush, Paulson, Timmy the Tax Cheat, and the Dhimmocrats.
What your brother experienced is exactly what this guy is talking about.
I don’t know how high up the corporate ladder your brother is, but a lot of decisions made regarding risk taking is made very high up.
As the author states :
“And by the way, very few people at Lehman really understood how upper management was playing this meritocracy game with the rest of Wall Street with the rank and files’ careers.
When that trade went south, and their creditors pulled their short-term financing, (OK, Jamie Dimon at JP Morgan was particularly egregious pulling a $5 billion plug), the ugly side of meritocracy reared its head. You lose money, you’re out. Goodbye. It was nice knowing you. Every single person working at Lehman knew this personally, or should have known. That’s the giant sword hanging over everyone’s head, the stench of fear, that keeps the game going and going. I’ve got to use my 99 percentile smarts and win. If I don’t, I’m toast, so I’ll work harder, think harder, and of course play harder with my winnings that everyone else. The outside-meritocracy downside became the inside-meritocracy homicide.”
>>How can any company pay out billions of dollars in bonus, when the comapny lost money?
You’re thinking of these companies as monolithic entities. There’s been a lot of consolidation on Wall Street and when a smaller company gets acquired, their bonus pool is often kept separate based on their own performance rather than the company-wide performance. So, a company can be an overall loser, but the few REALLY profitable sub-units will still be paying out big bonuses.
By the way, there are lots of organizations with pathological problems that think of themselves as meritocracies (La Cosa Nostra).
This reminds me a lot of the movie in the 80’s — WALL STREET ( where we got the phrase “Greed is Good”). Has anyone out there ever stop to consider if what they’re doing has any real social or economic value ? Are they really creating anything ?
The Mafia believes that they are too.
He never made it that far up, mainly because he avoided the high-risk stuff - thought it was unsound for the long-term - he takes seriously the need to manage risk against reward.
One of the things I enjoyed about being a salesrep was the “I’ll cut you some slack because you are putting-up the numbers, or I’ll have security escort you from the building immediately” attitude that prevailed in the office. That being said, I didn’t consider myself a “warrior,” although our casualty-rate was high . . . and I didn’t have Uncle Sugar bailing me out for stupidity.
To a certain extent, I really don't care. However, I expect the line to be drawn at zero - once the company takes such risks that they can implode the system, it's time to look at how risk management should be monitored and regulated.
So when it’s “bonus time” the small companies are independant; but when the company fails, everyone goes bankrupt.
Sorry, the banking industry is no different from any other large industry. If the processor division of Intel makes big bucks, but the memory and motherboard and chipset divisions all lose money - then INTEL didn’t make money. At that point, no one gets a bonus - that is the way you keep a large company in business.
Now, frankly I wouldn’t cry at all of these big companies fold, inept managment is its own reward. A smaller and better ran company will simply assume a larger role. However, when Pres Bush and Pres. Zero put a gun to the head of the US Taxpayer and take money out of our pockets, and place a debt onto our children, so they can give it to poorly managed companies - I have a problem with that.
Especially, since after TARP 1 and TARP 2; they have not changed the way they conduct business. Why the heck should they? There have been ZERO consequences for playing fast and lose with our money. What are you going to do? Take away their birthday?
No, until they learn that there are consequences to their actions, there is no reason for them to change the way they run their business. Once again, the Gov’t has rushed in and screwed a completely viable business model.
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