To summarise: trust. In this article from Business Insider, Lloyd Blankfein's speech in Goldman's annual meeting highlights the issue of trust in Wall Street and investment banking processes.
In investment banking, when people are confident there are “more financings, more equity raises, because people invest more money in their own businesses when they’re confident,” ...The problem is that “confidence” doesn’t go far enough. More than confidence, for people to invest in the world they have to trust in it — in the systems and people that make it work....
The financial crisis, the scandals and the fraud and the dark headlines, have all helped erode that trust. And that lack of trust is what is holding the world back right now.
The article also references Tesla's issue of equity which I posted a few days ago.
Of course I'd imagine none of this 'trust problem' is new to anyone, but given the dynamic nature of finance and deals, what are some potential implications?
How much of all this do you guys think is valid or true? What needs to change, or rather, do any of you actually care what non-finance people think? I'd love to hear your thoughts.
Most of these articles are completely unrelated to us. The media and those outside of the finance world lump everything from risk management to derivatives trading to M&A advisory services into the term "Wall Street" or "investment banking". So, when people say they do not trust investment bankers or the industry in general, they are not referring to the M&A advisory services that we on WSO call "investment banking".
That's very true. What specific part of IB do you think most of the doubt arises from then?
People hate investment banking because they have no idea what it even is. The public thinks that wall street guys stroll into their office around noon to fuck some shit up, are out before 4 and then collect their 10 million dollar check at the public's expense.
People would be much more tolerant if they knew that in reality at the junior level, your days are spent as a hermit with 12-16 hours spent looking into a computer, being OCD about avoiding making (largely meaningless) mistakes, and collecting a fraction of the presumed millions.
It would also help if the pubic was educated about the imperative nature of investment banking to economic growth and progress, specifically access to the capital markets. People are afraid of that which they don't know.
I hear what you're saying, but I doubt people would trust wall street more if they knew junior bankers looked at financial models and slide decks for hours on end.
And would still be upset about how much we make (relatively) for such work
Many people basically think that if someone makes more money than they do, then it must be fundamentally unfair. The fact that profits seem to come from nowhere makes it 10X worse. If you defaulted on your mortgage in the financial crisis, it's much easier to assume it was the fault of someone else rather than acknowledge your share of the blame.
Hit the nail on the head
This is the most correct observation of all time. The fact that the average American fundamentally doesn't understand the importance of capital markets means that Wall Street is automatically "the other". Also, people, at their core, are envious and they envy people with money.
Personally, I'm not a huge fan of New York City Wall Street because a lot of the companies, such as Goldman Sachs, are crony capitalists and give a bad name to true capitalists.
@DickFuld I hear what you're saying about a certain population of people always looking to cast blame and shift responsibility for their shortcomings, regardless of the validity of doing so. I still think that most of the vitriol for Wall Street from the average Joe in America comes from a misguided perception of Wall Street glamour. They can't fathom that it's just another un-sexy, high paying office job.
Then, they see the news headlines of some of the packages the top .01% of guys working on the street come home with. They literally have no idea how anti-glamour the job is, and are equally unaware that only a fraction of people are coming home with these insane packages. Yes, it's obviously a very high paying career. But I think if the Wolf of Wall Street media sexiness was removed and it went back to being a "private club" mentality ala the old days, a lot of the stigma would subside. Just my opinion.
@etx This is essentially the discussion I was looking to pose! Thanks for pulling this one together haha (it's what happens when you write some shit at 1am on a Friday after a few!)
IMO, banking looks like it will have to return to the dark crevices of society. Finance has taken center stage recently, from the Fed to Goldman Sachs to legends like Jordan Belfort. This has done nothing but cause a deep anxiousness for people to understand how it works. If the only thing you know is from pop culture, you'll fail the 'what good is banking' test every time. Unless we enter socialism, banking will move past this point but it might look more like Skull and Bones than the sexy popular thing to do that it has been from the 80s until now.
I'm pretty sure glorifying "legends" like Belfort doesn't help the trend of admiration by the new generation of kids in banking.
True. But legends are born out of fame and infamy. Needless to say, none of today's kids will have the chance to become a Belfort since the many changes to the industry.
I believe there are three main points related to this lack of trust:
1) Anti-banks and anti-big business leftist movements. People who don't understand a thing about economics, finance, scarcity of resources or capitalism simply don't like big banks, or big anything (apart from big government and big tax rates of course).
2) "Main Street" vs. Wall Street kind of (idiotic) comparison. People can "see" airplanes being made, bridges being built and crops being harvested in agriculture. On Wall Street, however, the final output is much less "tangible" for the non-financial part of society. And people do have the impression that we're creating money out of thin air, almost as if we were "bending the rules" in money making.
When a multinational automobile company is caught in a fraud scheme, despite lawsuits and protests, in the end of day people still say: Yeah... Cars are still needed, engineers are awesome. But since we're talking about financial (intangible) output, things are much worse.
3) Bailout priveleges of banks in recessions. Other companies outside banking were also helped, but not with the same controversy. The tax payers are pissed. Of course, the bailout happened because of the government (and FED) policies, not because associates and analysts went to the FED dressed as bank robbers and forced our dear FED to bailout their employers. Of all three, this is probably the only one that makes a little bit of sense.
In my opinion banks are just reacting to certain incentives as any other industry would if they were in the same position, therefore in order for this situation to be changed, the right policies need to be done. Deregulation? Yes! But also higher interest rates, no more government interference on markets (no more Fannie Maes) and a strict law that makes it impossible for banks to ever be bailout again. Those are the right incentives.
This thread is living proof that everyone on this forum is young. You all act like people only started hating wall street after 2008 but that couldn't be further from the truth. Wall street was always hated and it can't be explained by only a couple of reasons. The movies have always put wall street in a poor light. The stories about insider trading which lead to small slaps on the wrist for the wealthy. And it produces more billionaires than any other industry, but no one really understands why it does. Today it seems like the hatred is focused on hedge fund managers. The general public does not care about junior bankers. Actually, I would say there is some sympathy for some of the junior bankers today - far more than there used to be. Some of the stories about junior bankers being worked to death, suffering from depression, and sometimes hearing stories of suicide has, in my opinion, brought more sympathy than there ever was before. Back in the day everyone was hated on wall street though. Junior bankers to junior brokers were making a fortune and were used to push a perception of greed and immaturity by the media, which in fairness, did exist.
I also love how people hate HFs and PE shops when in reality the returns are really just juicing the average joe's pension plan. There is an element of debate as to whether people earning too much in the space (at the highest levels). I'd bet dollars for donuts that people have no clue that the largest investors into funds are pension / universities / endowments, etc.
Because others always suffer when Wall Streeters make themselves richer, and most of the time, it wasn't because they created better products (cough ... cough ... junk bond, adjustable mortgage with "teaser rate", CDO, CDO-squared) or provided better services (cough ... cough ... advising on investment banking side while merchant banking the same deal, pre-regulation FD with information released to big mutual funds first).
If you flood markets with overly complex derivatives, then lose control of them, they blow up in your face and you hold the rest of the economy hostage demanding a bailout, why would you expect people to like you? The fact is basically noone was held responsible for the subprime mortgages to begin with. You had courts literally saying ''too big to jail or too big to fine''. Once you are above justice, it's laughable to expect sympathy from the masses. Instead of fixing the problem now we not only have subprime mortgages (again) but subprime loans on pretty much everything, starting with the student debt.
Fines when it comes to market rigging or other dishonest practices are in the size of millions when profits coming from those very same practices are in the size of billions.
I don't expect people here to take personal responsibility for anything; most people will come out with their own version of ''I'm just a middle man'' because at the end of the day that's what banking is. Failing to grasp the big picture doesn't make anyone innocent anyway.
Blaming derivatives for financial risk is like blaming thermometers for fevers.
Advising a REIT on its acquisition of a telecommunications company so that it can maintain its tax structure has absolutely nothing to do with subprime mortgages, which were mandated by law and driven by depressed interest rates (by a government controlled central bank).
The public's hatred of Wall Street is actually the perfect argument for (little "r") republicanism vs popular (Jacksonian) democracy. The ignorant public, left to its own devices, would cut its own nose off to spite its face. The "evil Washington elite", thank God, are too sophisticated to allow the lifeblood of American prosperity to be brought down by the intellectually unsound ravings of the masses.
I think there are a few reasons
1) perception that finance is disproportionately associated with dishonesty and greed. This is bolstered by all sorts of scams and scandals, as well as all the cutthroat personalities that are found in the industry
2) Aside from private wealth / financial advisors, most areas of finance deal with markets and businesses, not with people directly. This makes its benefit seem impersonal and intangible and at odds with the immediate interests of the common man. This is similar to corporate law and in contrast to something like a family physician
3) Last and certainly not least: jealousy. In almost no other profession can someone with limited higher education or formal training become so wealthy so quickly. Just recently there was that WSO thread about some 31 yr old MD, whereas a 31 yr old in medicine is barely allowed to put a band-aid on someone. When all is said and done, always beware the green eyed monster
Most people think AIG=Goldman=Wells Fargo=Citizens=WAMU.
You needn't go further than that to realize the time it would take to educate a normal person they would be lost. Therefore, it's easier to just say F the banks, i.e all of the above.
don't care what other people think, unless they insult my team or my firm directly, but even then I'll hardly engage, not worth the frustration. also, it's mostly misguided, almost all of the harm that was done was in the creation of investment products, rather than IB type deals. the guy who's working on the Bayer/Monsanto deal has nothing to do with the creation of CDOs or CDSs.
beyond that, people love to complain. they think just because your business card says ABC bank, that you were part of the problem. as long as money has existed, there have been people trying to get their hands on it in unscrupulous ways, it's the way humans work. what people refuse to believe is that the crisis wasn't caused by wall street guys taking money from average joes, it was caused by greed and a bubble. the broker that sold the CDOs got his commission check, the mutual fund manager who bought them gets his annual fees, and the poor shmuck who bought 2 condos in boca for 5x his income with an interest only loan is back on the street, so it's natural for the public to blame "wall street." no one was saintly in that exchange, and it's easier to feel sorry for the homeless versus a guy with 7 numbers on his W2, but can we really say that finance is to blame? if banks didn't exist, NO ONE would get a mortgage, it'd be all cash buyers.
until people are incentivized for outcomes instead of volume, there will continue to be integrity issues. no one disputes that finance is a valuable service, but there's a tremendous degree of moral hazard the way things are set up now. example: say for every financial product created by a bank, a portion their fee is tied to its performance. my firm has structured products that I think pay about 2-4% commission and are as transparent as black tar, so I don't use them, but I know lots of people do, and I'm betting these were the same people selling garbage to mutual funds and insurance companies that partially lead to the financial crisis. you'd think twice about recommending something to a client if your comp was tied to its performance, and while you can't control performance, I think it would be a step in the right direction.
also OP, I work with a lot of different types of families, and they're not rothschilds, they're normal people who've worked hard and saved money their whole life and want someone to manage it for them. you might say it's a good sampling of the population who's had some level of financial success in life. they're either consultants, business owners, or work for large corporations. they have children, mortgages, the normal stuff, but not a private island or an original matisse. the perceptions about our industry aren't as bad as the media would let you believe. most people I talk to with $1-10mm have a generally neutral view of the industry. they believed it was gluttonous back then (and before in the 80s with limited partnerships and in the 00s with tech stocks), but they realize that 99.9999% of people in finance are not crooks. I think the perceptions you're talking about are skewed because you're in college which is a breeding ground for bernie supporters and occupy wall streeters, there are very few conservatives who are professors at universities. it's also skewed because the media is largely against wall street because that's an easier headline to sell, and again they're mostly liberal so naturally finance is the enemy, and also because most people who are demonized (blankfein, gorman, dimon, moynihan) don't care enough to comment on all of that. they sleep well at night because they don't fuck people over, and they don't care what some journalist says about them, they're trying to improve ROE, so the coverage of "wall street" is completely one sided.
in summary, someone will always try to bring you down. if you have integrity, don't worry about public perception, they can write a mean blog about bankers from their mom's basement. in the end, what they think doesn't matter.
Lots of good discussion and analysis in this thread. My take on this whole thing?
Fuck'em.
"If you really want to do this with your life, then you have to believe that you're necessary, and you are. If people wanna live like this, in their cars and big f****n' houses they can't even pay for, then you're necessary. The only reason that they all get to continue living like kings is because we've got our fingers on the scales in their favor. I take my hand off...well then the whole world gets really f****n' fair really f****n' quickly, and nobody actually wants that. They say they do, but they don't. They want what we have to give them, but they also wanna, you know, play innocent and pretend they have no idea where it came from. Well, thats more hypocrisy than I'm willing to swallow, so f*** 'em. F*** normal people.
You know, the funny thing is, tomorrow if all of this goes tits up, they're gonna crucify us for being too reckless. But if we're wrong, and everything gets back on track...well then, those same people are gonna laugh till they piss their pants, because we're gonna look like the biggest p*****s God ever let through the door."
-Will Emerson in "Margin Call"
People also don't like Wall Street because of the high-horse mentality many bankers carry. Just because you're in a prestigious industry and make a lot of money doesn't mean you are superior to someone else. There are plenty of bankers who don't act/think this way, but a lot of them do, which doesn't help banking's reputation
I don't completely endorse Will Emerson's perspective, but it's the best devil's advocate defense I've ever heard for securitizing subprime debt. He makes a damn good point...the supply wouldn't exist without demand from the same people casting stones.
I think in some respects, our industry lacks voices defending it. People are too busy making money to try to explain to the general public (that's already made up its mind) what we actually do. The points made above hit the nail on the head about universities and Hollywood being liberal propaganda machines for the masses.
I think it's very hypocritical that most of the same people who get upset about Trump vilifying Muslims and Mexicans for the actions of some members of those groups (and that outrage is justified) then turn around and applaud when Sanders vilifies an entire industry of full of hardworking, tax-paying Americans due to the actions of a few. 99% of people in financial services had no direct hand in causing the financial crisis, and fervent Sanders' supporters don't know any more about finance than fervent Trump supporters know about the Koran.
Also, anyone who vilifies our industry for the housing crisis, yet conveniently forgets to mention the fact that Congress required more subprime loans be issued and many of the borrowers were lying on their applications and/or trying to make a quick buck "flipping houses" (those guys were everywhere in 2005 or so) really isn't credible. They're either disingenuously pushing an agenda or they're totally ignorant.
Wall Street isn't innocent, and I wish a few people would have done time for the subprime mortgage crisis. However, the fashion and entertainment industries as bad or worse. Medicine and law have their share of crooks. Oil men aren't saints, and real estate is grimier than people realize. As said above, the general public doesn't understand (let alone appreciate) the importance of finance to their everyday lives, so they hate us for what they think we do. Those who do understand and still hate "Wall Street" are mostly just jealous.
"Liberals vilify Wall Street, yet embrace the fashion and entertainment industries. We're not the ones with slave labor and casting couches." -@GSElevator"
Hi, I am not a Yank, still this ambivalent feeling for Wall Street (by that I mean Finance) has existed since your country's founding (Think Jefferson's firm opposition to Govt. Bonds instituted by Hamilton or Jackson's war on the Bank of the United States). So, all this vitriol is not really new. I would recommend reading some books on the Gilded Age America like those on Vanderbilt and the Robber Barons as a starter to see that all this is nothing new. If you want a Birds eye view of the development of the US Financial History, I recommend, "Every Man a Speculator", there the author clearly explains the long list of Wall Street Shenanigans of outrageous amounts as well as Wall Street's Nation Building and Saving incidences of equally outrageous amounts
The fact that the Financial sector has always been free in the United States warrants Responsibility to be Associated with the Immense Power which was misused in some cases throughout history. When the balance between the perceived benefits from Wall Street vis a vis the Greed and Abuse of Power tilts towards the latter, the people are bound to become angry.
Because they don't understand the role it plays in society and never will. Their minds have been corroded by the lies propagated by the media and Hollywood to sell their shitty "news" and entertainment products.
That's not entirely why. It's because people think that "Wall Street" is simply shady traders and it's what they see in movies like the Wolf of Wall Street or "Wall Street".
Additionally there is extremely visible regulatory capture on the part of American Bulge Bracket firms. Goldman Sachs has (justifiably) caught a huge amount of flak for trying to buy legislators, less noticed is how well they've effectively captured New York State's judicial system through judge appointments.
And quite frankly you all are either lunatics or so desperate to feel like one of the "cool kids" that you refuse to acknowledge any information that goes against the party line. There's some extremely shady shit that has gone and goes on every day.
The problem is that the largest headlines and the biggest drama get the most attention. For every Barclays trader rigging LIBOR or Goldman Sachs executive appointed to run competing firms while still serving with Goldman (Look up Alan Cohen's involvement with Princeton Economics, or watch "the forecaster"), there's multiple other advisors providing top notch capital markets solutions for their clients. It's wrong to lump all firms/bankers in together but if you aren't familiar with the industry it's very easyt o do that.
AWESOME POST. Thank you for sharing this article (i also read the 25 page speech - there are some nuggets there as well).
I believe it is very important that we as a community understand and work to close the "Great Divide." It's a real thing and if we don't properly educate others, the general populace may at some point turn against us and our industry as a whole (just think of Occupy Wall Street x100) - thereby robbing us of the very work we love to do and the direct value we offer to our clients.
Building trust has been a big topic of conversation at our company. People often glaze over it, but Trust really is a quintessential part of any type of business. As a mentor once said to me (he owned a financial services firm), "A lost client will give you a hundred reasons as to why they left, but it all points back to one glaring fact....they no longer trust you."
(Some supplemental reading if you are interested) 1. Traction - Gina Wickman 2. Daring Greatly - Brene Brown 3. Speed of Trust - Stephen M. R. Covey
Also - Ended up posting the following to my firm (and wanted to share it with you all too!):
Team,
Stumbled across this article and wanted to share it with you.
I don’t agree per se with everything this author is saying, but she brings up some good points and helps shed some perspective on how some people outside of investment banking/finance view firms within our industry.
All in all though, it affirms in my mind the importance of what we at Our Company are doing.
Would love to hear any further thoughts on this.
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