Friday, March 6, 2009

Diogenes' Lantern

"Your old man is worth a hundred million bucks, Mrs. Loring. I wouldn't know just how he got it, but I know damn well he didn't get it without building himself a pretty far-reaching organization. He's no softie. He's a hard tough man. You've got to be in these days to make that kind of money. And you do business with some funny people. You may not meet them or shake hands with them, but they are there on the fringe doing business with you."

— Raymond Chandler, The Long Goodbye (1954)

* * *
"I am looking for a man." 1

— Diogenes of Sinope (ca. 412 – 323 BC)

Having idled away much of my ill-spent youth in Southern California,2 Dear Readers, your Dedicated Bloggist has long been a devotee of Raymond Chandler's detective stories set in and around Los Angeles during the thirties, forties, and fifties. I can personally verify that there is no place seamier than the underbelly of America's Paradise, and Mr. Chandler gets the atmosphere pitch-perfect.

But his stories are dark. They do not normally appeal to the casual reader, or to the distracted beachgoer in search of fast cars, hot sex, and cheap heroics. They are soaked in a sort of existential despair, a cynical world-weariness that permeates the novels like the woof underlying the warp of mystery narrative and character development. Don't get me wrong: the stories are tough, fast, and entertaining, and there are plenty of heroics on display, especially by the main character, Philip Marlowe. They are also funny, in places, in a cynical sort of way, and leavened throughout with dialogue that carries a snap and fizz 21st century conversationalists can only dream of emulating.

If you want to understand why the Marlowe novels are this way, you could do no better than read an excerpt from a letter Chandler wrote in 1949:

Time this week calls Philip Marlowe "amoral." This is pure nonsense. Assuming that his intelligence is as high as mine (it could hardly be higher), assuming his chances in life to promote his own interest are as numerous as they must be, why does he work for such a pittance? For the answer to that is the whole story, the story that is always being written by indirection and yet never is written completely or even clearly. It is the struggle of all fundamentally honest men to make a decent living in a corrupt society. It is an impossible struggle; he can't win. He can be poor and bitter and take it out in wisecracks and casual amours, or he can be corrupt and amiable and rude like a Hollywood producer. Because the bitter fact is that outside of two or three technical professions which require long years of preparation, there is absolutely no way for a man of this age to acquire a decent affluence in life without to some degree corrupting himself, without accepting the cold, clear fact that success is always and everywhere a racket.3

This is strong, bitter stuff. I'm not sure I buy it, totally.

Chandler, while a successful writer and Hollywood screenwriter, lived a less than charmed life himself. He struggled with drinking, personal tragedy, and frustration, as well as the siren lure of the Great Babylon of the West, who always disappointed him in the end. He had lots of reasons to be bitter about the price of success. And let us not forget that his novels are detective stories. By their very nature, they deal with the dark underbelly of human nature: greed, deceit, larceny, murder. These are hardly the better qualities of anyone, rich or poor. Almost no-one comes out of his stories smelling like a rose.

Then again, based on recent events in the economy and on Wall Street, I'm not sure I don't buy it, either.

* * *

Wall Street sure seems to have been a racket. At least that is the conventional wisdom on Main Street and in the halls of Congress. It is hard to argue they are completely wrong.

I myself have recently pointed out—only partly tongue-in-cheek—that senior executives seem to require the character traits of a psychopath to succeed in finance. Whether this is true or not, it is abundantly clear that reams of senior professionals on Wall Street have been unapologetically greedy and pathologically tone deaf, to boot. Why is that?

I wish I knew. I do know that dozens if not hundreds of my current and former colleagues in investment banking are honest, upright, hard-working professionals, who everywhere and always try to do the right thing. They are not bad people. In fact, most of them are downright admirable: ambitious, intelligent, and productive members of the finance sector. Some of them even kiss their kids goodnight.

But let's be honest, folks. These are not the type of people who usually make it to the top of the slippery pole. These are not the type of people who set corporate policy.

You know what they say? "Honesty is its own reward." Well, that's absolutely true in investment banking, because most of the time you sure as hell aren't going to get any other rewards for being honest. The entire nature of the business—high-pressured, time-sensitive delivery of hard-to-measure, extremely expensive, irreducibly intangible intermediary services—depends absolutely on the self-policed integrity of those doing it. Therefore, it is tailor-made to reward people who cut corners, who steal credit for good deals and disavow responsibility for bad ones, who persuade clients to do bad deals or bad trades, and who backstab and scheme against their partners and colleagues to boost their own prestige, power, and bank accounts.

Smaller firms, like the old investment banking partnerships, could generally minimize such bad behavior because everybody knew each other, and their work, very well. (The same was true for external clients, as well.) But the bigger investment banks became, the less you understood what other bankers you didn't know personally were doing, and the more your internal reputation at the firm depended on how you managed your relationship with your boss and his bosses. Presto! Up popped functional silos, political fiefdoms, and obsequious toadying on an epic scale: investment banking feudalism.

The only ones in a position to prevent this, or at least control it, are the senior managers of the firm. But most of them nowadays have grown up in this system, and they know firsthand the advantages of gaming it. Besides, as long as someone delivers the revenues and profitability they are looking for, they don't really care who does it. Allocating credit, and assigning blame, becomes a political exercise. Earning money becomes less a result of delivering value for the firm and its clients and more a marker of personal and political status within the organization.

This sort of reward system, usually conducted under a hypocritical banner of "teamwork, integrity, and partnership," renders new recruits to the industry cynical very quickly. Some leave, some get fired, and a few—mostly those least encumbered by principles or integrity—flourish. The mechanism becomes self-selecting for institutionalized bad behavior. Is it any surprise that investment banks took reckless risks, cut dangerous corners, and helped drive us off a cliff?

* * *

But really, is success in investment banking "always and everywhere a racket," as Chandler says? Notwithstanding my 20 years in the business, I can't really say for sure. I have not seen enough of the industry to know. But I will say that opting out of the political racket in big firms is simply not an option anyone who wants to succeed can afford. You might think that putting your head down and delivering revenues will keep you safe, but you would be wrong. If you are successful, colleagues with better political connections will magically attach their names (and sometimes their persons) to your deals and take credit for them. You will get paid less. If you hit a rough patch, names like yours, with no political protectors among the high and mighty, end up on top of the layoff list. This doesn't even account for the low-life slimeballs who maneuver behind your back to steal your deals, your team members, and your position.

And these are the clowns who get profiled in the pages of The Wall Street Journal.

* * *

As for the rest of the economy, how many other "rackets" did the rest of us participate in? Housing? Hedge funds? Private equity? Tax avoidance?

When I am in a dark mood, I wonder just how many successful people in this country could well and truly look themselves in the mirror and declare that they never participated in something that didn't walk, talk, and smell like a racket at some point in the past seven years. Something they were tempted, at least once or twice, to wink at and look the other way because it seemed just too good to be true. Something they got a guilty twinge of conscience just thinking about.

Show me those people, and I will show you the next group of senior executives on Wall Street.

1 The ancient Greek philosopher's supposed response when asked why he was carrying a lighted lamp in broad daylight. Some have rendered it as "I am looking for an honest man." To be fair, Diogenes apparently was a weird dude: "Sympathizers considered him a devotee of reason and an exemplar of honesty. Detractors have said he was an obnoxious beggar and an offensive grouch." While I deny that I am an obnoxious beggar, I do see how some might consider me to be an offensive grouch, too.
2 "Aha!," you squeal, "a clue!" Okay, okay, I admit it: I am Iron Man.
3 Raymond Chandler, Later Novels and Other Writings. New York: Library of America, 1995, pp. 1038–1039.

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