Sunday, January 18, 2015

Passing Fair

Change can be beautiful
What though the sea with waves continuall
Doe eate the earth, it is no more at all ;
Ne is the earth the lesse, or loseth ought :
For whatsoever from one place doth fall
Is with the tyde unto another brought :
For there is nothing lost, that may be found if sought.

― Edmund Spenser, The Faerie Queene

Municipal bond market maven, government official, and longtime Twitter fixture Kristi Culpepper penned an interesting riposte yesterday to Leon Wieseltier’s recent jeremiad against the disruptive cultural effects of technology in The New York Times. Leon, you may recall, laid about rather vigorously with his rhetorical cudgel in defense of humanism against the allied evils he sees arrayed against it today, including technologism, scientism, data fetishism, and commerce. He declared—correctly if rather dramatically—that “A culture is an internecine contest between alternative conceptions of the human.” And he, if I may be so blunt, came down on the side of writing, art, and Western cultural patrimony and against the forces who wish to strip, devalue, and denature same in the name of technological progress and efficiency.

Now, being as I have consistently declared myself an amateur and aficionado of such arty, literary, cultural-y things, I am sympathetic to Mr. Wieseltier’s arguments, although I do think he lays it on a bit thick in the straw man department. I also have reservations that his full-throated defense of writers and thinkers against the commoditization, devaluation, and impoverishment of a certain sort of careful, deeply informed thinking and writing by the forces triumphant of digital and social media is a bit overblown. For one thing, I would observe Mr. Wieseltier himself seems to have had no problem securing a soapbox at the paper of record for the liberal intelligentsia to spout his opinions, mere weeks after the implosion of his prior perch at The New Republic due to the machinations of the sort of technologist philistines he decries. Second, I utterly fail to see a shortage of intelligent, hardworking writers pontificating on important matters and sundry throughout the English speaking opinionsphere. It seems that everybody and his brother and his brother’s three-legged cat are scribbling as journalists, bloggers, opinion editors, MFA students, novelists, and nonfiction writers nowadays. When I walk into the ground floor of my local 50,000 square foot Barnes & Noble bookstore, I am not struck by any dearth of written material for my perusal, and the ground floor of my store is not filled with the works of dead white men (those are in the basement). Speaking as an acolyte of microeconomics (and a minor unpaid contributor to the general oversupply of published dreck), it strikes me that writers face a supply problem in the market for their wares, not a lack of demand. Maybe if writing weren’t so popular as a lifestyle choice, rather than an actual calling for a dedicated few (as it has been for most of recorded time), fewer professional writers would be bemoaning the parlous state of their bank accounts.

Be that as it may, Ms Culpepper takes issue with our Cultural Cassandra from another direction:
First, innovation presents new opportunities to define oneself for those that are willing to invest the time and effort. The same is true for society as a whole. That Wieseltier doesn’t want the character of society to be determined by engineers overlooks history. Feats of engineering have been a conduit for conversations about the public good and the ambitions of civilization from ancient Rome to NASA. I don’t understand the temptation to hold art or poetry above these endeavors. I would trade all the Jeff Koons in the world for a better understanding of what lies outside our solar system.

(Personally, I would be content to pack all of Jeff Koons’ art and the artist himself on a spaceship launched into the Sun for no counterbalancing intellectual recompense whatsoever. I’d even be willing to erase some string theory and most of Jacques Lacan’s drivel from the cultural patrimony for the privilege. Mais à chacun son goût.)

Second, most criticisms of technology are highly selective. Why is it that garbage media is the first thing people think of when they lament the invention of the smartphone? This is the same device that allows a trauma surgeon to know a patient’s statistics as he sprints to the operating room. Where’s the angst in that?
This is an excellent point. Technology is by definition a tool. And while tools are by definition teleological in nature, they are usually far more value neutral than we reflexively consider. A hammer can be used to build a prison, a library, or a church; a hammer can be used to repair a child’s dollhouse or murder an enemy. The same thing is true of digital media. While Ms Culpepper is no fan of modern journalism, she draws attention to the fact that current technology has enabled an enormous explosion in democratic access to ideas and information, a point Mr. Wieseltier concedes himself. And yet the same tools which enable on-demand, real time access to almost all of humanity’s accumulated knowledge to anyone are the same tools that let almost anyone produce and contribute to them at will, regardless of quality or credentials.

The sword of innovation almost always has (at least) two edges. It is up to the user to use the tool properly and deliberately, and to minimize the harm of unintended effects or negative outcomes.

* * *

More broadly speaking, I get the sense Mr. Wieseltier is fighting a rearguard action against change itself. He does not like the current technology, science, and economic triumphalism sweeping through Western society because it does not value—and it may actively harm—those things he holds most dear, the things he has spent his life learning, loving, and fighting to preserve. This is understandable, if only as human psychology, but it is not an argument. Change is natural. Change is ineluctable. Life is change.

I am not afraid of change, even if not all of it is for the better. Frankly, there are very few human societies—ours included—that couldn’t benefit from a little disruption. The opposite of technological change and disruption is stagnation and the ossification of socioeconomic power structures. Human beings are lazy. (Or, if you prefer a less pejorative characterization: humans naturally and quite sensibly conserve their own energy.) If something does not force us to change, we will not do so. It is too… disruptive. Internally and externally imposed disruption is what forces us, both as individuals and societies, to adapt and change to new circumstances and environments. And let us not kid ourselves: not all change is good, and very little good change is unalloyed with bad. Change, even when positive overall, is painful and annoying, and it often destroys things we hold most dear.

We must strike a balance here. We must neither champion change mindlessly nor suppress it willfully. Neither extreme is healthy, for change will come whether we want it or no, and change is dangerous, for we cannot see all ends. I have cited the maxim of Chesterton’s Fence before, which encourages reformers to educate themselves about the history and intent of social institutions before they decide to destroy them, as a bar to change for change’s sake. But conservatively minded people should heed its message, too: if you discover the purposes for which an institution were created no longer apply, or its effect has evolved into a positive impediment or harm to current objectives, it is incumbent upon you to destroy it also. Chesterton’s Fence is no bar to change or reform. It is a warning to manage change mindfully.

* * *

So far we have talked about intentional change, at the level of culture and society. But we must not forget that our intentions are guided in part by our predictions of the effects our changes will have. And, in this respect, our track record as a species is abysmal. It is a truism by now—or should be—that forecasts of the future are reliable only as a guide to what is most certain not to happen. Railways to the Moon, flying cars, sentient artificial intelligence, post-apocalyptic dystopia: none of these predictions, serious or semi-serious, over the past 100 years has come remotely true. Part of this must be due to our intellectual energy-conserving tendency (q.v. supra) to extrapolate the future from the confines of our current environment. A railway to the Moon was obvious. Nobody predicted Facebook.

But another part is due to our ignorance and blindness. We are ignorant of how major changes are incorporated into, adapted to, and create second and third order feedback effects within something as complex and changeable as a culture or society. We underestimate our own social and cultural inertia. We cannot foresee how human actions will affect our physical and natural environment, or how extra-human feedback effects will dampen or amplify our behavior to our benefit or detriment. We see but little of this even now, and that through a glass darkly. Finally, we forget just how small and insignificant we are in the scheme of things. I love wilderness and Nature as much as anyone, but I can’t help but laugh when I hear activists freak out about preserving spotted owl habitat, when neither human beings nor spotted owls existed for 99.9% of this planet’s physical existence. As if it matters in the context of the Cambrian Explosion, or the Permian Extinction, or the inevitable future subduction of virtually all evidence of human habitation on this planet into the Earth’s mantle.

Yes, Children: flowers wilt. Beauty fades. Human beings are born, grow up, age, and die. Societies and cultures do too. The Earth keeps spinning in her orbit, and the icy vacuum of space marches inexorably on toward… something. Change is inevitable. Not all of it is pleasant, but it has its beauty, too. Change gives an edge of poignancy to the things and people we love, because we know, if we are honest with ourselves, that these too shall pass. We can try to hold onto them, cling to them tightly and never let them go, but go they do. It is up to us to enjoy them, love them, appreciate them while they and we are here.

So with all due respect to Dylan Thomas and Leon Wieseltier, I would rather not rage, rage against the dying of the light. Instead, I’d like to sit down with a drink and a cigar and enjoy the sunset.

Related reading:
Kristi Culpepper, A Defense of Disruption as a Cultural Phenomenon: Responding to Leon Wieseltier (Medium, January 17, 2015)
Leon Wieseltier, Among the Disrupted (The New York Times, January 7, 2015)
Chesterton’s Fence (March 5, 2012)

© 2015 The Epicurean Dealmaker. All rights reserved.

Friday, January 2, 2015

Nerd Intersectionality

Are we having fun yet?
Infancy is not what it is cracked up to be. The child seems happy all the time to the adult, because the adult knows that the child is untouched by the real problems of life; if the adult were similarly untouched he is sure that he would be happy. But children, not knowing that they are having an easy time, have a good many hard times. Growing and learning and obeying the rules of their elders, of fighting against them, are not easy things to do. Adolescence is certainly far from a uniformly pleasant period. Early manhood might be the most glorious time of all were it not that the sheer excess of life and vigor gets a fellow into continual scrapes. Of middle age the best that can be said is that a middle aged person has likely learned how to have a little fun in spite of his troubles.

It is to old age that we look for reimbursement, the most of us. And most of us look in vain. For the most of us have been wrenched and racked, in one way or another, until old age is the most trying time of all.

— Don Marquis, “The Almost Perfect State

I was browsing the online portal for the My Emotional Wounds Are Bigger Than Your Emotional Wounds Victims’ Society1 this morning, O Dearly Beloved, when I encountered an essay by feminist firebrand Laurie Penny in which she took MIT Professor Scott Aaronson to task for justifying nerds’ insensitivity to male privilege in the technology industry. Notwithstanding some hyperbolic posturing about what Penny calls the “disaster of heterosexuality” [sic], it reads as a sensitive and revealing first person demolition of the notion that white male nerds faced some sort of unique hell growing up that can possibly justify their current behavior. I’ll let you go ahead and read it, if that’s your sort of thing.

If it is not, or you are back already, I would prefer to direct you to an earlier essay by computer nerd Pete Warden, cited approvingly by Penny and unfamiliar to me until now. In his essay, Warden, a die-hard, early adopter hacker type übernerd, correctly points out (in inimitable nerd fashion) that technology nerds, far from being the underdogs they so painfully remember being in their adolescence, are now Kings of the Hill:
We’re still behaving like the rebel alliance, but now we’re the Empire.
This is spot on. But then Warden goes and ruins the ride when he corrects Marc Andreessen’s assertion that nerds and bros are natural enemies with this:
Sure, we used to be picked on or ignored by the bro’s, but that was when we had no money or power. Now we have status, bro’s are happy to treat us as buddies instead of victims, to the point that we’re unlikely to think of them as bro’s. I’ve pitched most VC firms in the Valley at one time or another, and a lot of the partners come from business or finance backgrounds. There are nerds in there too of course, and they do control the culture, but they also get along perfectly well with the preppy MBAs. The same holds true across the whole tech industry – they might have tried to steal our lunch money twenty years ago, but now they’re quite happy running biz-dev while we do the engineering.
This is very muddled thinking as well as remarkably tone deaf observation as to what and who constitutes a “nerd” and a “bro” and the differences between them. But what should one expect from a nerd?2

* * *

Mr. Warden seems to identify the venture capitalists (“VCs”) and business development (“biz-dev”) colleagues he interacts with as bros because they have business or finance backgrounds, MBA degrees, and/or wear “preppy” clothes. This is just dumb. I have met a number of Silicon Valley venture capitalists and BD personnel over the years, and I can tell you from personal experience most of them would only come across as bros to someone who lives in a basement cave and thinks real women look and dress like Lara Croft in Tomb Raider. These people are as nerdy as they come. Sure, they prefer to geek out over cash flow statements and Definitive Purchase Agreements rather than hexadecimal code and API protocols, but geek out they do. They are just as scary smart, obsessive compulsive, and single minded as any computer hacker/programmer, and they tend to have the same awkward social skills as everyone else on the Asperger Syndrome spectrum they share with Mr. Warden and his peers. To the casual observer they may look and dress the same as a B– average fraternity brother from a state school, but they didn’t earn summa cum laude economics degrees from Stanford or the Ivy League, get Baker Scholarships at Harvard Business School, and claw their way into a partnership on Sand Hill Road from Morgan Stanley or Goldman Sachs because they liked to drink beer and flick bottle tops at computer science majors from the porch of their frat house.

Successful venture capitalists, private equity professionals, hedge fund managers, and investment bankers are as nerdy as they come. I mean, please: look at John Doerr, David Bonderman, Bill Ackman, and Lloyd Blankfein, for chrissakes. Those were the kids the football team beat up for lunch money in high school. Apart from shorter haircuts, plaid shirts, and an unfortunate predilection for chinos as casual wear, financial professionals share remarkably few of the features of true bro culture. In fact, you’re much more likely to find them running an ultramarathon or climbing Machu Picchu in their spare time than eating nachos on the couch in front of a football game. They are weird, they are driven, and they are the same awkward misfits who spent Saturday nights in high school doing extra credit calculus problem sets while the popular kids went out to drink beer and try to get laid. That is what I did, and I guarantee you it is what most of my colleagues and counterparts did too.

Now as is the case for all such qualities (and inconveniently for our current cultural obsession with identity politics), nerd-ness and bro-ness do not fall neatly within clearly identified boundaries of specified human communities. There are individual variations, there are community sub-groupings, and there are temporarily adopted behaviors that blur the picture. Within investment banking, for example, the tendency toward bro-ness tends to be larger in the capital markets division and, within that grouping, most strong among salesmen and traders. These are often the closest you will find to the backslapping, hail-fellow-well-met stereotype of good looking, easygoing bros who would be happy to watch football on TV instead of running another ultramarathon with that nut job client Ted from Citadel. But these folks have good degrees and sharp intelligence and nontraditional pastimes, too. The days of the high school graduate or C student on the trading floor are long gone. You’ll also find derivatives structurers within large bank capital markets divisions who I wager even Messrs. Warden and Andreessen would have a hard time differentiating from hardcore hackers and computer geeks. That is because that is exactly what they are, or were, before they donned the button-down and chinos uniform of their chosen career.

There is also, at junior levels, a lot of bro-ish posturing done by male investment bankers early in their careers when they are young, single, and so overworked they couldn’t spend all the money they make if they tried. In the boom years before the Crash, this often manifested itself in the desire to live the “models and bottles” lifestyle, where 23- and 24-year-old men went hunting for pretty women and expensive booze and mostly made obnoxious fools of themselves instead. (Of course that lifestyle—or, rather, the aspiration to that lifestyle which mostly generated exaggerated stories and outright lies—is long gone.) It still takes the form of the aggressive one-upmanship and macho dick measuring3 junior bankers haze each other with when they feel insecure, which is almost always. You only have to overhear this once, however, to realize it is nothing more than a bunch of awkward, self-conscious nerds who didn’t get laid enough in high school desperately trying to convince each other they did.

Of course, for some of us, this never changes.

* * *

Stepping back a little, I think I can assert without meaningful contradiction that, far from being limited to nerds or geeks or some other subculture, having a traumatic adolescence is almost universal. Everybody who makes their way through high school is, in some more or less meaningful way, faking it. Everybody wants to belong, be liked, fit in, and be popular. Everybody. It is human nature at that age, when we are still trying to define who we are. Why shouldn’t we look to our peers and popular culture for affirmation? But very few of us get it, to our satisfaction, so we channel our energy and ambition and hurt into schoolwork, or programming, or geeky hobbies instead. And many of us turn that sublimated effort into meaningful careers in geeky, nerdy fields like technology or finance, and find ourselves many years later, grown up, to be the socioeconomic successes we never dreamed we could be when we looked longingly at the cheerleaders and football players we could never have or be.

There is no cure for adolescence but to grow up. There is, however, a cure for adolescent trauma: get over it. And don’t use it as an excuse to oppress or traumatize others.

Unless, of course, you are Carl Icahn.

Related reading:
Laurie Penny, On Nerd Entitlement (New Statesman, December 29, 2014)
Pete Warden, Why nerd culture must die (Pete Warden’s Blog, October 5, 2014)
Taxonomy (January 14, 2007)

1 Also known as the internet.
2 Please, before you embarrass yourself, let me stop you before you argue there are very specific definitions for terms such as “nerd,” “geek,” “bro,” and the like. Really? You want to go there? Trust me: you don’t. Go back to arguing about lightsaber construction methods on the Star Wars wiki instead.
3 About pivot tables in Excel and PowerPoint formatting, no less. I ask you.

© 2015 The Epicurean Dealmaker. All rights reserved.

Thursday, January 1, 2015

The Morning After

Wakey wakey, eggs and bakey
Frans Hals, The Laughing Cavalier, 1624
There is an inn, a merry old inn
beneath an old grey hill,
And there they brew a beer so brown
That the Man in the Moon himself came down
one night to drink his fill.

The ostler has a tipsy cat
that plays a five-stringed fiddle;
And up and down he runs his bow,
Now squeaking high, now purring low,
now sawing in the middle.

The landlord keeps a little dog
that is mighty fond of jokes;
When there’s good cheer among the guests,
He cocks an ear at all the jests
and laughs until he chokes.

They also keep a horned cow
as proud as any queen;
But music turns her head like ale,
And makes her wave her tufted tail
and dance upon the green.

And O! the rows of silver dishes
and the store of silver spoons!
For Sunday there’s a special pair,
And these they polish up with care
on Saturday afternoons.

The Man in the Moon was drinking deep,
and the cat began to wail;
A dish and a spoon on the table danced,
The cow in the garden madly pranced,
and the little dog chased his tail.

The Man in the Moon took another mug,
and then rolled beneath his chair;
And there he dozed and dreamed of ale,
Till in the sky the stars were pale,
and dawn was in the air.

Then the ostler said to his tipsy cat:
“The white horses of the Moon,
They neigh and champ their silver bits;
But their master’s been and drowned his wits,
and the Sun’ll be rising soon!”

So the cat on his fiddle played hey-diddle-diddle,
a jig that would wake the dead:
He squeaked and sawed and quickened the tune,
While the landlord shook the Man in the Moon:
“It’s after three!” he said.

They rolled the Man slowly up the hill
and bundled him into the Moon,
While his horses galloped up in rear,
And the cow came capering like a deer,
and a dish ran up with the spoon.

Now quicker the fiddle went deedle-dum-diddle;
the dog began to roar,
The cow and the horses stood on their heads;
The guests all bounded from their beds
and danced upon the floor.

With a ping and a pong the fiddle-strings broke!
the cow jumped over the Moon,
And the little dog laughed to see such fun,
And the Saturday dish went off at a run
with the silver Sunday spoon.

The round Moon rolled behind the hill
as the Sun raised up her head.
She hardly believed her fiery eyes;
For though it was day, to her surprise
they all went back to bed!

— J.R.R. Tolkein, The Fellowship of the Ring

Happy 2015. May your new year be a pleasant, safe, and prosperous one.

© 2015 The Epicurean Dealmaker. All rights reserved.

Saturday, December 27, 2014

Greatest Hits of 2014

I’m always happy to show you people a little leg
“I think it’s just elegant to have an imagination. I just have no imagination at all. I have lots of other things, but I have no imagination.”

— The Seven Year Itch

Yes, O Dearly Beloved, it’s that time of year again. Time to dust off the circuit boards of the dedicated Google Analytics server farm for this two bit opinion emporium and determine which of my 37 beautiful children attracted the most attention from you delightful readers, spambots, and web crawlers in the Year of Our Lord Two Thousand and Fourteen. As I have explained before, this may be the last year I bother to conduct such a shameless exercise of self-congratulatory back patting—and I have already graced these archives with an All Time Greats victory lap—but I am nothing if not attentive to the proclivities of the three obsessive compulsives among you who could not rest if I did not. (And of course that little jolt of ego gratification I receive from enticing a few hundred more of you to click on these links one more time.)

Anyway, the way these things work should not be a mystery to you by now, so I will stand discretely in the back while you explore TED’s very own People’s Choice awards. I hope you enjoy them, but if you do not, well, you’re probably not my demographic anyway.

THE CANON, 2014 Edition:

1) A Fine Disregard for the Rules (January) — A cabal of the largest investment banks on the planet joined together this year and last to institute policies designed to limit and control the near-legendary workloads imposed on their most junior professionals. In this post, your Guide to All Things Workaholic, Finance Edition explains just why it is these poor slobs work such long hours. I won’t give away the punchline here, but you may safely assume it has something to do with client service.

2) Where Did He Learn to Negotiate Like That? (August) — There are right ways and wrong ways to employ investment bankers when you want to sell your company. The idiot savants at online real estate company Trulia gave us a master class in the latter, while simultaneously demonstrating that it can be dangerous to negotiate with professional negotiators.

3) A Cure Worse Than the Disease (August) — A lawyer took to the pages of to explain, among other things, when and why to hire a mergers & acquisitions advisor to sell your private company. I took to my own to provide what I believe to be a more comprehensive, helpful, and only mildly self-promotional gloss.

4) Touring Test (June) — A tendentious screed prompted by more idiocy emanating from the incontinent bowels of Silicon Valley, some of whose boosters and visionaries continue to argue, against all evidence and two decades of wasted technology spending to the contrary, that in-person business meetings can and should be dispensed with in favor of remote, virtual, “telepresence” substitutes. I calmly remind my readers that meetings—and indeed business itself—still actually do involve those pesky entities known as people, most of whom continue to prefer to interact with their counterparts in person, rather than in the pixellated confines of World of Warcraft. For good reason.

5) This Situation Absolutely Requires a Really Futile and Stupid Gesture (March) — Gawker editor Hamilton Nolan Is Full of Shit, Part 572. I think it had something to do with hedge fund managers and their earnings this time. Moral: populist polemics based on a fundamental untruth may1 attract page views, but they only make you look stupid to the people who matter.

6) Even Cowgirls Get the Blues (February) — Two of the dead horses I most like to beat in these pages—junior banker working hours and women’s career challenges in my industry—come together in one convenient pile of moldering horseflesh for me to flail away at. You may watch the proceedings with amusement from the sanitary safety of your virtual armchair.

7) You Go First (July) — The private equity industry has always acted like a tick on the dog of investment banking when it comes to sourcing and hiring its junior professionals. Now that the tick is approaching the size of the dog, the old accommodation between the two symbionts is breaking down. I object.

8) All Hail and Farewell, the Trophy Kids (August) — Apparently the cream of America’s youth is spurning Wall Street for the glittering garages of Silicon Valley. I say good riddance, and helpfully explain why.

9) The School of Hard Knocks (April) — That’s the transcript I want to see from my job applicants, not a 4.0 GPA meal ticket from a degree mill on the Charles River. I fear I am fighting an inexorable tide, however.

10) Oop. Time, She’s Up (September) — That’s right: after almost eight years of an on-again, off-again tempestuous relationship with you Darling People, I am bored. As you might suspect, even my breakup texts are overlong. Time to stop phoning it in.


Previous entries in this series:2
TED’s All Time Greatest Hits
Greatest Hits of 2013
TED’s Greatest Hits of 2012
TED’s Greatest Hits of 2011
TED’s Greatest Hits of 2010
Greatest Hits of 2008
More Works to Look On and Despair (August 2007)
Look On My Works, Ye Mighty, and Despair! (May 2007)

1 Sigh, I know: they do. But let me entertain my cherished illusions, please. It’s my blog, after all.
2 Apparently I never did a greatest hits collection for 2009. Sorry.

© 2014 The Epicurean Dealmaker. All rights reserved.

Tuesday, December 2, 2014

Show Me the Money

I don’t like the way Ulysses S. Grant is looking at me
“Money changes everything.”

— Some guy, probably without any money

Andrew Ross Sorkin, access journalist extraordinaire and alleged shill for the Great and Good,1 put up a sensible op ed this morning to which I thought I would contribute a few brief supporting remarks. It seems Mr. Sorkin has taken somewhat of a shine to Antonio Weiss, a successful Lazard investment banker whom the current Administration has advanced as its candidate for under secretary of the Treasury for domestic finance, and he has been defending this paragon of sharp-dressed competence against detractors great and small.

Today’s fresh character assassination outrage comes from the capitalist shills [sic] at the AFL-CIO, who have apparently addressed a letter to the boards of several Wall Street banks which takes umbrage at the policy, to be enjoyed by Mr. Weiss among others, that employees leaving their firms for government service can take their unvested pay with them:
Why, the letter asked, do banks routinely pay out special compensation packages to executives who leave to take government jobs when those packages were intended to retain them?

“Unless the position of these companies is that this is just a backdoor way to pay off a newly minted government official to act in Wall Street’s private interests rather than the public interest, it is very difficult to see how these policies promote long-term shareholder value,” the letter declared.
Now Mr. Sorkin waxes poetic and high minded in response to this challenge, nattering on primarily about how we should encourage banks and other employers of bright, shiny, would-be technocrats to doff their gilded yokes of service to Mammon and don the austere chains of public service to the rest of us. He assures us that the interlocking web of influence, conventional group think, and apparent if not actual conflict of interest such revolving door practices engender are indeed problematic, but that the net gain of brilliant, accomplished, successful financiers to the government payroll is worth it, and the aforesaid conflicts can be managed with an unburdensome modicum of care and attention. This is all well and good, and even Your Altruistically Challenged Correspondent can recognize the merits of this argument in the chilly chambers of his frozen heart, but it does not go far enough. As a result, Mr. Sorkin has no compelling response to Big Labor’s additional complaint—bless their capitalist-friendly hearts—that such policies represent a squandering of shareholder value. The thrust of his reply seems to be, yes, these policies cost shareholders money, but they probably help attract some additional members of the Best and Brightest who might have a few public-service-inclined bones in their sleekly coiffured bodies, so that must be a non-numerically-quantifiable Good Thing.

This is unnecessarily weak sauce. Let me explain.

* * *

The principal issue seems to be that our intrepid financial journalist and the shrill harridan of special pleading for labor share a common confusion concerning the payments in question to Mr. Weiss and other would-be servants of the public good. For one thing, they are not special payments at all, as in, “Well done you. Here’s a couple of million or so leafy simoleons to stack alongside your Rembrandts and ill gotten bearer bonds in reward for your selflessness. Remember us kindly.” Rather, when Lazard hands Mr. Weiss a check for twenty million smackeroos give or take on his way out the door, it will be releasing into his sweaty hands money he has already earned.

The distinction which Ms Slavkin Corzo draws between this and what Mr. Weiss, e.g., would receive should he instead choose to decamp from the mahogany clad offices of Lazard for some other investment bank—bupkis, plus a swift kick to the seat of the pants—while correct, misses the point. As Your Tireless Explicateur of All Things Compensatory has often explained on this site, investment bankers are commonly paid substantial portions of the mouthwatering bonuses you read about in the form of what is affectionately known in my industry as “funny money” or “toilet paper”; i.e., deferred compensation. Such deferred compensation usually takes the form of restricted stock which vests over some period of time, phantom stock units, stock options, deferred cash payments, or some other such bullshit which replaces freely spendable legal tender with a conditional promise by one’s employer to pay one the money one has earned in the past sometime in the future, depending.

To illustrate a simple case, a modestly successful senior banker might get “paid” $2 million for her moneymaking efforts over the year, but receive only $250,000 of that in the form of biweekly salary, $500,000 in a cash lump sum payable shortly after the turn of the year, and the balance of $1,250,000 in the form of restricted shares of stock in her employer which vest in equal installments over the next three years.2 Now, should she be so rash as to decide to jump ship from her existing employer to a competitor before the stock she earned by making money for the firm and its shareholders vests, in almost every case she loses it entirely. Given that most bankers stay with their employers for several years and have this or similar pay regimes inflicted on them every year, you can understand that most senior bankers tend to have quite a substantial “nest egg” of deferred pay locked up in restricted shares that are subject to forfeit in such circumstances. This explains why, unless a banker is desperate to switch employers (or, like most Lehman bankers post crash, has unvested stock which is largely worthless anyway), she is likely to extract a large payment from her new employer which is designed to replace the deferred compensation she is giving up by jumping ship. Sadly for her, such replacement payments are almost always granted in the form of—you guessed it—restricted shares with deferred vesting. So, no matter whether she hops from bank to bank like a Mexican jumping bean or stays with one her entire career, a successful senior banker is likely to have accumulated several if not tens of millions of dollars of deferred pay for her pains. The only way off this treadmill is to die, retire completely from investment banking, or, yes, join the government or some other non-competitive corporate entity.

Seen in this light, the forfeiture of unvested pay which a banker suffers when she leaves for a competitor is not the avoidance of further payment but rather the recapture or clawback of previously earned and allocated compensation. Little Muffy got “paid” those two million clams because she made, let’s say, ten million clams for her firm and its shareholders. Those ten million clams were real, deposited and cleared cash money,3 which paid real creditors and light bills and lap dance club dues and which, after said normal course operating expenses and the government’s rake were creamed off the top, were distributed to shareholders in the form of dividends and/or retained capital. Little Muffy only got $750,000 of that munificence and was forced, mutatis mutandis, to extend the balance as a long term interest free loan to the company.4 Sure, the shareholders face eventual dilution when and if Muffy’s shares vest, but until this happens they haven’t really fully paid her for her services. Other things being equal, shareholders should be delighted when bankers resign to work for competitors, because all those unvested share awards are cancelled and they retroactively get all those bankers’ revenue production for below market rates.

Of course, other things often are not equal, and investment banks usually have to replace the departed bankers with new ones, sometimes from other firms for which they have to allocate a lump sum of restricted shares out of treasury that negates all the wonderful savings shareholders got from the resignations. In this respect, deferred banker compensation is sort of like a hot potato: you can pass it around, but somebody is going to have to hold it as long as the banker is working in the business.

* * *

Ergo, paying Mr. Weiss and any other loyal bankers who decamp from our industry’s fetid shores for the sweetness and light of public service (or some other employment which does not try to take money out of the mouths of investment bankers) harms shareholders virtually not at all. It does normally accelerate payment of any unvested shares or other deferred compensation, which eliminates the present value discount of deferral which shareholders otherwise enjoy, but in point of fact all such payments do is give their departing employees the pay the firm has promised them for work already done. It is a greedy and incontinent shareholder who cannot agree to that.

In fact, politically ambitious investment bankers who have a notion they might like to try public service eventually usually negotiate explicit conditions in their employment agreements up front to pay all unvested compensation in just such circumstances, and banks are happy to agree to them. It is no skin off their shareholders’ noses, it renders contractual the right thing to do, which is to pay your employees what you have agreed to pay them, and it may even generate some goodwill or at least friendly feeling in someone who might be leaning over the dais at a future Senate probe or showing up to your Executive Suite with a raft of burly auditors on Christmas Eve. It’s not bribery. It’s just good business. Plus, as Mr. Sorkin avers, it’s probably socially constructive as well.

Only an ungrateful son of a bitch of an investment bank shareholder cannot appreciate that. But I’m being redundant.

Related reading:
Andrew Ross Sorkin, Encouraging Public Service, Through the ‘Revolving Door’ (New York Times DealB%k, December 2, 2014)
Defending the Indefensible (September 22, 2012)
Five Pound Box of Money (February 9, 2009)

1 Hey, even the Great and Good need positive PR. Besides, notwithstanding populist firebrands’ complaints, it does add materially to the public weal to have someone reporting directly from inside the belly of the Beast, and the Beast needs to give someone access to his belly for that to happen. What, you think John Mack was going to recount his conversations with Tim Geithner during the financial crisis to Yves Smith?
2 Don’t get hung up on the bigness (or smallness, bless you Executive Committee members) of these numbers, children. Yes, even modestly successful investment bankers can make what in normal circumstances can rightly appear to be a metric shit-ton of money, but that is not the point of this illustration. Think about all that money tied up in restricted shares which little Muffy Megabucks thinks is rightfully hers for revenues and hopefully profits she already earned for her employer. Can’t do it? Never mind, then, you might as well switch over to BuzzFeed.
3 For clarity and simplicity I am assuming these revenues were really earned funds, like fees from closed M&A transactions or security underwriting. The same argument carries less force when the money a banker “earns” for the firm is, e.g., the calculated and booked net present value profit for a long-term trade which remains at risk for the entire term of the trade, as my colleagues on the sales and trading side of the industry are so fond of claiming.
4 The “principal” of which, by the way, is tied to the actual, fluctuating stock price of her employer’s shares, which can work either to her benefit or to her lasting despair (Lehman Brothers). Deferred stock is calculated as a number of shares at the time when compensation is set, not when the shares vest. The holder is exposed to changes in the firm’s stock price over the entire vesting period.

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