How Cultural Corruption Breeds Great Bankers
Want to be a great investment banker? Sure, you do! Do you want to be the one they call in to make the big deals with your expert team that you’ve built? Why not, you’re the Managing Director and your salary reflects this great achievement. So how did you become not just a good banker but one of the best? You checked in your morals at the front door because in order to make it further than any of your peers you had to get creative in bringing in big ticket transactions.
This creativity fits well with Wall Street’s long history of questionable transactions but before you take your first steps towards getting that corner office, you should consider the limitations of your own moral compass and be aware of Wall Street’s culture of corruption and Kozlowski-like thinking. Here are three recent examples of unethical practices that so-called great bankers have engaged in…
Barclay’s, the United Kingdom’s second largest bank was convicted in purposely manipulating interest rates and falsified LIBOR from 2005 to 2009. There was collusion between bank traders and senior officials in treasury units as evidenced by an incriminating e-mail from a trader to another bank:
If you know how to keep a secret, I’ll bring you in on it. We’re going to push the cash downwards. ... I know my treasury’s firepower ... please keep it to yourself otherwise it won’t work.”
Since this discovery, CEO Robert Diamond has resigned and the firm has agreed to pay penalties of $455 million to both the United States and United Kingdom but they’re under further investigation by the Department of Justice for collusion with firms, C, DB, HBC, and UBS.
Have you even considered a situation like this where you may be called upon to do something questionable and how would you respond?
JP Morgan was fined $700 million by the Securities and Exchange Commission for bankrupting a municipality, according to Matt Taibbi. Recently, they were involved in a $300 million sewage renovation for Jefferson County, AL in which they courted politicians into swap agreements that bloated their financing up to $3 billion and engaged in bribery. Additionally, JPM was also fined $228 million for colluding and systematic municipal bond rigging of auctions with major banks across all states and $153 million for CDO fraud trades. Taibbi sums it up nicely when he says,
…the icons who built Wall Street, they’re not the same anymore.”
Goldman Sachs aided Greece’s financial problems through questionable practices which has been sharply criticized in both Greece and Germany but has been muted state-side. In 2001, in a deal considered a currency trade instead of a loan, Greece borrowed billions of dollars in a swap costing $300 million in fees before its admittance to the Euro. Derivatives provided by both GS and JPM were used to artificially reduce deficits rather than cutting expenses and boosting revenues. Banks provided upfront cash in return for government payment streams in projects such as Ariadne and Aeolos, a packaging of national lottery proceeds in 2000 and airport landing fees in 2001. By 2008, the Eurozone’s statistics agency Eurostat, found that,
...in a number of instances, the observed securitization operations seem to have been purportedly designed to achieve a given accounting result, irrespective of the economic merit of the operation.”
These activities were treated as off-balance sheet transactions and not reported to Euro regulators or bond investors. Then in 2005, GS also sold interest rate swaps to Greece's largest bank, the Bank of Greece which ultimately resulted in a 2008 legal creation called Titlos, a new home for the swap where GS retained the entities’ bonds as collateral so that Greece could borrow from the ECB. Later in 2009, President Gary Cohn then presented yet another option to push Greece’s healthcare debt far into the future but was ultimately declined.
How does this bode for you as a potential employee and what does that say about Wall Street’s culture?
In my opinion, I don’t suspect that there is a systemic culture of corruption on Wall Street and I think the majority of people working there are of sound moral character. However, it’s evidenced that there is a minority that generates a significant amount of revenue that are “great bankers” with questionable behaviors. I’ve only given three brief examples but further research will unveil countless instances of similar practices I’m sure. This article was presented to get you monkeys to consider some real Wall Street practices, not just the position generalizations, compensation bonuses and dotted life stories. They say that your true character shows when know one is looking, so what can be said about yours when it comes to Wall Street’s influences as an agent of the firm no matter how removed you are, do you think your moral character can lead you to be a great banker?
Comments
We already know this. As
We already know this.
As long as it doesn't cause direct harm (and is thus harder to turn to a conviction) IBs have no problem indirectly hurting people...
GS Food Index, I mean what the fuck?!?!
We know the culture and we accept it; most monkeys here want to be part of it. WSO has never made any bones about it and that's what's so great about it.
I am going to call my kids Ctrl, Alt and Delete. That way if something is going wrong I can beat them all at once.
You're making the same
You're making the same mistake everybody makes. You're looking at these actions made by the whole organization/company and assuming the cause is that people who work there have bad morals, or all people have bad morals.
Banks are made up of LOTS of people who are not all similar. Of course traders are only concerned with their bottom line. They're not paid to think about the ethics of their transactions, and they don't have time to figure it out - some economist can figure that out.
The manager of the traders has the responsibility to care a tiny bit about firm reputation and whatnot, but when the traders are putting up numbers and pressuring you not to ask questions, do you really want to dig deeper.
The manager's manager has more of a responsibility to look out for the firm's reputation, but the first manager never asked enough questions, so he didn't escalate the information to his manager.
You see what happens - nobody's like fucking evil. Human organizations just allow multiple members to each make small mistakes that add up to really bad headlines
There is already a book on you. That book is already being written. And if I talked to your friends, your teachers, your professionals, your family, I would know so much about you I wouldn't even have to meet you. You write the book the way you want to be
I'll agree with you that most
I'll agree with you that most people on Wall Street behave within a normal moral tolerance. But, the better question would be do those high up also fall into this moral tolerance or do they tend to go beyond it to more extremes and more often then you're normal guy working in a cubical.
Personal wealth is not how much you have in the bank or the worth of your portfolio. But, rather how you've used the wealth to make your life and those around you better.
JDimon: You're making the
You're making the same mistake everybody makes. You're looking at these actions made by the whole organization/company and assuming the cause is that people who work there have bad morals, or all people have bad morals.
Banks are made up of LOTS of people who are not all similar. Of course traders are only concerned with their bottom line. They're not paid to think about the ethics of their transactions, and they don't have time to figure it out - some economist can figure that out.
The manager of the traders has the responsibility to care a tiny bit about firm reputation and whatnot, but when the traders are putting up numbers and pressuring you not to ask questions, do you really want to dig deeper.
The manager's manager has more of a responsibility to look out for the firm's reputation, but the first manager never asked enough questions, so he didn't escalate the information to his manager.
You see what happens - nobody's like fucking evil. Human organizations just allow multiple members to each make small mistakes that add up to really bad headlines
So just a follow up to my point - there is not a problem in the quote"culture on Wall Street." And I say that because you will never change the "culture on Wall Street." Cultures reflect incentives. Politicians lie - but do you think they think they're bad people. They chose their profession because they wanted to make a difference.
The way things like this are changed is by controls and regulations that reduce conflicts of interest. Humans are faulty - a trader with a trader psychology is very susceptible to becoming a rouge trader - he's the type who's likely to cover up a small set back because he believes he can make it back later. And then it get's bigger. And bigger. And suddenly a series of gradual mistakes has created a horrible situation. So the company builds out a controls department to check the traders, to protect them from their flaws.
Similarly banks are known to pursue their own interests, sometimes giving them a conflict of interest with the greater economy. So when responsibility is spread among a number of people this can result in bank actions that hurt the greater economy. So governments establish regulations that protect for these conflicts of interest.
So you don't try to 'fix the culture' you fix the system to avoid conflicts of interest as much as possible. If this is something you feel passionately about, perhaps working for a regulator would be a good role for you to play in the world
There is already a book on you. That book is already being written. And if I talked to your friends, your teachers, your professionals, your family, I would know so much about you I wouldn't even have to meet you. You write the book the way you want to be
I think it all comes back to
I think it all comes back to this question.. What is your ultimate goal as a banker? A trader? A PM?
And the answer has always been 'to rake in massive amounts of $$'.
Of course, we'd like to think we are giving back to society as well by keeping equity markets liquid and accurate so companies are priced correctly and can in turn be financed through legitimate investment.
All too often today though, it's pretty apparent that the latter is NOT even an afterthought. Instead, equity markets have been replaced by HFTs who's ultimate goal is to make $$ off of those who don't have premium access to the markets. It's even come to the point where some HFT firms are even trading with themselves which technically I believe is market manipulation.
Literally, these HFTs are shifting $$ back and forth, taking pennies from retail investors and those who don't have real-time access to market data, etc.
What kind of benefits does this give to humanity?
At least back in the day making money on wall street was respected because we were somehow all connected to the labor markets and individual companies underneath the symbol.
Investing in a company somehow made you 'feel' like you were doing something positive for them. Now it means nothing, because 70% of the market is driven by HFTs who's major goal is take make pennies on the dollar at the speed of light.
End rant..
However I think it's this same 'make money now' mentality that drives most of the greed in the street. What is the point of your existence? To make a shit load of money and exit, possibly giving some back to philanthropy?
If that is our model for the next 50 years, then no offense--humanity is doomed. Because it's blatantly obvious that everyone can't live like this. It's not possible.
Just like these guys manipulating the LIBOR didn't care about the people/corporations/gov'ts it affected.. the new HFT cartel doesn't care about the underlying companies it trades as well. It's one end game.. make $$ and get out.
As long as it doesn't cause
As long as it doesn't cause direct harm (and is thus harder to turn to a conviction) IBs have no problem indirectly hurting people...
We know the culture and we accept it; most monkeys here want to be part of it. WSO has never made any bones about it and that's what's so great about it."
Is this how you would build a world-class and respected firm by accepting the fact that you knowingly cause economic harm to your clients as a necessary mode to success? If such malicious practices are not allowed in corporate America, like Enron, WorldCom, or MF Global then why does Wall Street get continually exempted? I think it’s the result of a lack of competitive business and market punishment to these firms due the oligopolistic nature of BB firms. I mean who else can the client turn to if other firms behave in a similar fashion, since Washington is funded by Wall Street the game then goes on…
You're making the same mistake everybody makes. You're looking at these actions made by the whole organization/company and assuming the cause is that people who work there have bad morals, or all people have bad morals.
Banks are made up of LOTS of people who are not all similar. Of course traders are only concerned with their bottom line. They're not paid to think about the ethics of their transactions, and they don't have time to figure it out - some economist can figure that out.
The manager of the traders has the responsibility to care a tiny bit about firm reputation and whatnot, but when the traders are putting up numbers and pressuring you not to ask questions, do you really want to dig deeper.
The manager's manager has more of a responsibility to look out for the firm's reputation, but the first manager never asked enough questions, so he didn't escalate the information to his manager.
You see what happens - nobody's like fucking evil. Human organizations just allow multiple members to each make small mistakes that add up to really bad headlines
It may be a sweeping generalization but the conclusion is deductive in that the instances I wrote about support my opinion, that a specific unnamed minority are engaged in questionable practices at best while the majority is not. By both your comments and browniepoints you both seemingly seek to justify such practices by feigning ignorance but to what ends, money? Why is this mode of thinking as if an otherwise honest functioning of investment banking is somehow sub-par profitability? I'm not anti-Wall Street at all but perhaps the focus should be on CRM and long-term profitability rather than short-sighted gains which seem similar to a compulsive addiction, where the focus is only on the next profit.
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