Sunday, April 5, 2015

Out of Service

I met a traveller from an antique land
Who said:—Two vast and trunkless legs of stone
Stand in the desert. Near them on the sand,
Half sunk, a shatter’d visage lies, whose frown
And wrinkled lip and sneer of cold command
Tell that its sculptor well those passions read
Which yet survive, stamp’d on these lifeless things,
The hand that mock’d them and the heart that fed.
And on the pedestal these words appear:
“My name is Ozymandias, king of kings:
Look on my works, ye mighty, and despair!”
Nothing beside remains: round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away.

— Percy Bysshe Shelley, “Ozymandias”

Look on my works, ye mighty, and take care:
Table of Contents
Preface to the occasional reader
Oop. Time, She’s Up


© 2015 The Epicurean Dealmaker. All rights reserved.

Sunday, March 1, 2015

Uncle Warren Explains It All to You

Time for Daddy’s little dividend
“Sure, sure.”

— Sidney J. Mussburger, The Hudsucker Proxy

Apparently some doddering old fart in Omaha, Nebraska published a celebratory letter yesterday in connection with an obscure anniversary some of you might have heard about. Something to do with a mid-range furniture store or failed textile mill or something. Anyway, I felt compelled to read it, if only because every financial pundit in the Western Hemisphere has been recommending its salutary virtues to me with a fervor approaching the evangelical. Personally, I found it more hokey and self-congratulatory than illuminating, but then again I tend to prefer my moral fiber to come unencumbered by six cups of refined sugar and smug self satisfaction per serving. I know, I know: I am downright un-American.

If you care about the content of this man’s nattering—and the compl(i/e)mentary nattering of his partner in cast iron cheer—I would refer you to Matt Levine, who offered a very serviceable summary unburdened by the usual encomia breathlessly showered on this duo by all and sundry. He points out that the success of the business purchasing part of this entity can be neatly reduced to the skill with which the principal buys and sells said businesses, and not hands on management and supervision thereof, which said demiurge studiously avoids. This strikes me as essentially correct. He also calls attention to an aspect of the jolly old elf’s behavior that tends to be overlooked by his cheerleaders: he is a ruthless allocator of the bounteous capital at his command. Far from his image as a genial rich uncle offering cozy and undemanding shelter from the withering blasts of shareholder capitalism to skittish families and corporate management teams in search of a few shekels to renovate their yachts, Mr. Buffett drives a hard bargain going in and, in the event the bloom comes off the rose, delivers an even harder kick in the pants going out.

Warren buys cheap, and then he owns your ass in perpetuity, unless he decides to dump you. Which is just fine, by the way: it’s what his shareholders want him to do, and he has been very successful at it. It just amuses me this incontrovertible characterization seems to elude almost everybody who has gushed about him in the past.

* * *
Aaannnyhoo, Warren Buffett is a serial acquirer of companies, inter alia, and he is indisputably good at it. And this explains (if does not condone) the snarky barbs he sends my direction, railing against investment bankers, to which my response is the entire point of this peroration. Now everybody knows, your defensive correspondent included, that nobody likes investment bankers, so I do not anticipate my remarks will undermine the regard in which the Great Man is held by anybody. Nor do I begrudge a beloved financial celebrity and multibillionaire a little fun in kicking the mangy village cur everybody hates, but I do hope to persuade at least a few of you that Mr. Buffett’s critique of my industry is not disinterested.

Uncle Warren’s critiques of investment bankers are scattered throughout his missive, but probably the highest concentration is located in his section on Berkshire Hathaway as a conglomerate, starting on page 29. The money shot, so to speak, is concentrated on pages 31–32:
Berkshire has one further advantage that has become increasingly important over the years: We are now the home of choice for the owners and managers of many outstanding businesses.

Families that own successful businesses have multiple options when they contemplate sale. Frequently, the best decision is to do nothing. There are worse things in life than having a prosperous business that one understands well. But sitting tight is seldom recommended by Wall Street. (Don’t ask the barber whether you need a haircut.)

When one part of a family wishes to sell while others wish to continue, a public offering often makes sense. But, when owners wish to cash out entirely, they usually consider one of two paths.

The first is sale to a competitor who is salivating at the possibility of wringing “synergies” from the combining of the two companies. This buyer invariably contemplates getting rid of large numbers of the seller’s associates, the very people who have helped the owner build his business. A caring owner, however – and there are plenty of them – usually does not want to leave his long-time associates sadly singing the old country song: “
She got the goldmine, I got the shaft.

The second choice for sellers is the Wall Street buyer. For some years, these purchasers accurately called themselves “leveraged buyout firms.” When that term got a bad name in the early 1990s – remember RJR and
Barbarians at the Gate? – these buyers hastily relabeled themselves “private-equity.”

The name may have changed but that was all: Equity is dramatically reduced and debt is piled on in virtually all private-equity purchases. Indeed, the amount that a private-equity purchaser offers to the seller is in part determined by the buyer assessing the maximum amount of debt that can be placed on the acquired company.

Later, if things go well and equity begins to build, leveraged buy-out shops will often seek to re-leverage with new borrowings. They then typically use part of the proceeds to pay a huge dividend that drives equity sharply downward, sometimes even to a negative figure.

In truth, “equity” is a dirty word for many private-equity buyers; what they love is debt. And, because debt is currently so inexpensive, these buyers can frequently pay top dollar. Later, the business will be resold, often to another leveraged buyer. In effect, the business becomes a piece of merchandise.

Berkshire offers a third choice to the business owner who wishes to sell: a permanent home, in which the company’s people and culture will be retained (though, occasionally, management changes will be needed). Beyond that, any business we acquire dramatically increases its financial strength and ability to grow. Its days of dealing with banks and Wall Street analysts are also forever ended.

Some sellers don’t care about these matters. But, when sellers do, Berkshire does not have a lot of competition.
This really is masterful trolling. In one sequence, investment bankers, corporate acquirers, and private equity firms are all depicted by the Oracle of Omaha as modern day Snidely Whiplashes, evilly twirling their mustaches as they sell unnecessary transactions, “invariably” fire trusted and loyal employees, and repeatedly ravage the sanctity and probity of the acquired company’s balance sheet with dat ole debbil Debt. In contrast, Berkshire Hathaway is characterized as a veritable lavender-scented bosom of motherly protection and comfort.

Old Warren knows his audience, and his audience in this section is family-owned businesses or professional managers of corporate subsidiaries who aspire to get off the big company hamster wheel. The former, in particular, tend to be less sophisticated when it comes to matters financial, and hence are ripe targets for terrifying with images of slick, rapacious professional rapscallions just waiting for a chance to spring upon Aunt May and ravish her repeatedly over a cracker barrel. But of course most of it is tendentious bullshit.

* * *
I will not try your patience or mine by responding to each attack detailed above. Instead, I will only note that Warren is so eager to characterize non-conglomerate corporate acquirers and private equity firms in so unflattering a light because they are his competitors for buying companies. Likewise, he takes a swipe at my profession because our job and livelihood is attempting to get the best possible deal for our clients who are sellers. An important part of this for most sellers, of course, is maximizing the monetary value they receive for their companies, subject to other interests and constraints. And because Berkshire Hathaway brings no revenue or cost synergies to the table, unlike non-conglomerate corporate buyers, and can be disadvantaged against financial sponsor buyers due to their ability to pay with very cheap, tax deductible debt, Warren is often the least attractive buyer in terms of price offered. Not all potential sellers care only about receiving the highest possible price, but almost all of them are interested in price to some degree, so it is our duty as sell-side representatives to make this dynamic clear to our client. This, I am confident, does not please the Great Man.

This is also why Mr. Buffett refuses to participate in auctions for companies, since auctions are usually recommended and run by investment bankers for price discovery purposes and tend to result in higher realized prices than proprietary negotiations with one buyer. As a sophisticated serial acquirer of businesses, Warren would much prefer to deal with wet behind the ears families lacking professional representation, since the presence of the latter can end up making the terms he has to offer, if he can bring the seller to the finish line in the first place, much less attractive to Berkshire Hathaway and its shareholders than might otherwise happen. A professional advisor, even if her client decides he wants to join the warm embrace of Mother Buffett at a lower price than he could achieve in a more thorough market test with different kinds of buyers, can also help by pointing out potential pitfalls and precedents that might attend such a decision.

Personally, I thought two stories Mr. Buffett related at separate points in his letter were revealing in ways highly pertinent to a client considering selling his business to him. In the first, Warren proudly related how he beat down the family owners of See’s Candy in 1972 from their asking price of $30 million to $25 million. He later revealed that See’s subsequently generated over $1.9 billion in pre-tax earnings, cash flow which Warren diverted from growing the candy business to buy unrelated portfolio companies. It made me wonder what the poor saps in the See’s family did with what was left of the $25 million in cash Warren gave them after they paid taxes. I sure hope they used some of it to buy Berkshire Hathaway stock, because it’s undeniably true that BRK shareholders (including Mr. Buffett) are the only ones who got a good deal from that transaction. The second story, which represents a mirror image to See’s, is Dexter Shoe, in which Warren complained about buying a doomed shoe company for $433 million in 1993 for which he paid the owners BRK shares worth $5.7 billion today. Notwithstanding any present value advantage to a tax deferred sale of your company for Berkshire Hathaway stock instead of cash (consult your tax advisor), it’s clear the preferred currency for any seller to the Sage of Omaha should be BRK stock, since that is the one currency he prefers to keep to himself.

Anyway, Mr. Buffett is, among his other talents, a serial buyer of companies. Unlike the other big class of professional company buyers, however—private equity companies, who tolerate investment bankers because they need us to help finance and eventually sell their purchases—Mr. Buffett needs no help financing and never intends to sell the companies he buys. Accordingly, he despises investment bankers and employs his considerable folksy charm to scare potential business sellers away from using us for the plain and simple reason that we make his job harder and more expensive. For sellers of companies, investment banks level the playing field.

We all know Warren Buffett is a very clever, very successful investor. Warren Buffett hates level playing fields.

Related reading:
Warren Buffett and Charlie Munger, 2014 Annual Letter to the Shareholders of Berkshire Hathaway Inc. (February 28, 2015)
Matt Levine, Warren Buffett Explains His Cozy Embrace (Bloomberg View, February 28, 2015)

© 2015 The Epicurean Dealmaker. All rights reserved.

Saturday, February 14, 2015

Goldman Sachs Doesn’t Care What You Think

A cat may look at a king.

— English proverb

So, in an apparent effort to raise its rank in the Most Recognized Polling Firm in America Sweepstakes, Harris Poll recently published a survey of 27,278 individuals across this fine land to determine America’s 100 most- and least-loved corporations. Bloomberg Business subsequently took time out of its busy day to gleefully report that Goldman Sachs, investment bank and über squid of the global financial markets, finished dead last:
People hate Goldman Sachs more than oil spills and the Koch brothers.
Well, far be it for me to rain on Bloomberg’s and Harris Poll’s parade, but I am here to tell you children, with complete confidence, that Goldman Sachs just doesn’t care what you think.

Now this does not mean there isn’t some poor (relatively) underpaid slob scurrying around Goldman Sachs’ Public Relations Department pulling out his or her hair, fretting that you and your Aunt Millie in Rochester think poorly of his or her employer. After all, big corporations like Goldman Sachs have to employ people like that whose job it is to care, if only for appearances’ sake. Generally conveying to the public at large that you don’t give a fuck tends not to play well and can introduce all sorts of petty annoyances and frictions in the conduct of one’s business, so spending a few otherwise forgettable millions on PR can work out to be a good investment.1 This is common knowledge.

But deep in the bowels of Goldman’s money spinning machine and high in the corridors of the executive suite at its West Street headquarters, you may safely assume the people who matter do not give a flying fuck in a rolling donut that you don’t like them. Sorry to be harsh, but there it is.

* * *

Now I realize such indifference to negative public opinion may strike you as odd, given that our culture’s highest aspiration seems to be getting Kim Kardashian to “like” your Facebook post gushing over her latest dress, so I am happy to take a few hours from my Saturday morning to explain.

First of all, of course, there is the fact that Goldman Sachs does not sell soda pop. The Bloomberg article ventures:

A bad reputation can affect a company’s bottom line. Harris Poll says 36 percent of adults have decided not to support a business because of something questionable they learned about its conduct. And more than half of consumers now do some research on the businesses they’ve either heard about or are about to spend money on. The findings suggest that companies aren’t as immune from moral blunders—be it expired meat or toxic mortgages—as they once might have been. “The American public strongly believes reputation matters and acts on that belief,” said Carol Gstalder, Harris Poll’s reputation and public relations practice leader.

How, pray tell, do you and your Aunt Millie intend to act on your disgust with Goldman? Do you intend to boycott their supermarkets, buy your cell phone from another manufacturer, or drive a mile out of your way to get gas from a less despicable energy company? Oh, I know: you’ll refuse to invest in their mutual funds or use their mobile trading app to make $9.99 option trades, right? Fat lot of harm that’ll do Lloyd Blankfein: Goldman isn’t in any of those businesses. Goldman Sachs operates in wholesale finance—buying and selling securities and other financial instruments across global markets on behalf of itself and institutional clients, advising on mergers and acquisitions for corporations and private equity firms, and underwriting securities for issuers who want to raise money from institutional investors.2 They wouldn’t recognize you or your Aunt Millie if they ran you over in a Wegman’s parking lot. You—America’s vaunted consumers, Harris Poll’s respondents—are not Goldman Sachs’ clients. Your principled pocketbook wields no power over them.

Furthermore, among Goldman Sachs’ real clients—hedge funds, large institutional investors, corporations, and private equity firms—I would suggest that the Squid’s slightly salty reputation in society at large may actually act to attract and retain the wholesale business it seeks to conduct. For one thing, many of these clients either have or are not unfamiliar with slightly disreputable public reputations themselves, and they understand that the criteria which the hoi polloi use to judge large, powerful organizations harshly are, in many if not most respects, completely beside the point. Goldman Sachs is where it is—and, frankly, recognizable to Harris Poll’s respondents—because it is and has been extremely successful at what it does. Clients who can choose tend to work with powerful, successful firms who can serve their needs effectively, whether it is raising capital, buying or selling a company, or helping them trade their investment portfolio. Success breeds success in investment banking, and choosy clients want to work with a winner. To hell with its reputation.

There is more. Goldman Sachs’ clients also understand that the markets and services in which it operates are tough, unforgiving, sharp-elbowed places. Having a bad reputation—scary, ruthless, willing to throw your weight around—is exactly the kind of banker many (most?) clients want at their side. This is the very same sort of thinking that compels common folk like us to hire flesh-eating lawyers when we get into a legal dispute, notwithstanding the fact lawyers’ reputation for probity has ranked somewhat beneath pond scum for, oh, approximately forever. Nobody wants to bring Mother Theresa to a knife fight.

Lastly, you may be surprised to learn Goldman’s appeal even extends to those institutional customers who take the position of counterparties with the Squid, rather than as clients. These are firms which trade with Goldman as principal or which purchase its structured products like CDOs and other nasty items and whose interests, you would correctly surmise, are not at all aligned with those of the Great Blue Beast. But they still do business with Goldman because it is the axe (best source of opportunities) in certain areas, because it is extremely well connected in the markets, and because it comes up with some nifty investment products that investors want to own or trade. Even during the height of the Financial Crisis, when Goldman’s public reputation for probity was in tatters over the Abacus trades and suchlike, intrepid reporters could find almost no-one in the markets who would admit they would not trade with Lloyd’s cephalopods. Goldman’s reported financial results since have demonstrated beyond doubt that it remains one of the leading trading houses in the world, notwithstanding (because of?) its fearsome reputation.

So much for consumer boycotts.

* * *

Bloomberg also advances the notion that Goldman’s naughty public reputation might degrade its ability to attract and retain bright young squids-to-be. This is more plausible, since I think we can all agree little Muffy and Bif do not want—other things being equal—to spend Christmas vacation watching Aunt Millie’s upper lip wrinkle in disgust whenever they mention their summer internship at 200 West Street. A firm’s public reputation does matter to potential new recruits, simply because it is one of the very few things most young aspirants actually know about a firm or the business it conducts before they actually start to work there.3 (I’m sorry, children: most of you graduate college without a clue.) Surely a scarlet letter from the Department of Public Opinion will scare away some of the Best and Brightest young snowflakes from the Squid’s gaping maw?

Well, let’s take a look at the data, helpfully released five days later on that very same Bloomberg Business website wherein the poll piece appeared, no doubt courtesy of the follicly-challenged Goldman PR factotum we speculated on earlier:

Goldman Sachs Group Inc. hired just 3 percent of more than 267,000 job applicants last year, as the firm told investors it’s still the top destination for bankers.
Fortune magazine named the New York-based bank one of the 100 best companies to work for, a citation Goldman Sachs has received every year since the list began in 1984, according to [CEO Lloyd] Blankfein’s presentation.
Huh. So, not so bad then.

Sure, there may be a few eager young beavers sporting brilliance, drive, and impeccable credentials who decline to investigate career paths to filthy lucre at the Squid, but I doubt anyone will notice. As I have banged on about repeatedly in these pages before, investment banks do not really need the Best and Brightest. (Whoever they are supposed to be. Also, who judges?) We just need smart-enough, driven, ambitious grinders in sufficient quantities to lubricate our millstones with their blood and a significantly smaller number thereof who discover or develop a talent and taste for the business to stay on and lead the troops. Let the will-o-the-wisp starfuckers—those pathetic creatures who follow every social trend pointing to the conventionally agreed upon “best” college/job/spouse/mobile dating app—enjoy their indentured servitude at Facebook, Google, and Uber. Goldman Sachs and its competitors will have plenty of talented youngsters to choose from.

Besides, as Lloyd’s PR rep pointed out, they don’t need that many:
The firm said in May 2013 that it had 17,000 applicants for 350 spots in a summer analyst program in its investment-banking division.

* * *

So let’s recap. Goldman Sachs is ranked dead last in reputation among the 100 best-known companies in America by people who do not buy its products or services and, more likely than not, don’t even know what it does. But Goldman Sachs is also ranked among the top 100 best employers for people who do add value to the firm by joining it and slaving in its salt mines. That looks like a pretty comfortable calculus to me. This is not what keeps Lloyd Blankfein up at night.

However, there is a third force at work in Lloyd’s world that does nag at his equanimity. A force which relies almost exclusively on the aggregated opinions of individuals who have little or no insight or knowledge to back them up. A force which makes enormous efforts to shape public opinion to advance their collective agendas and personal careers. A force which, while it understands that public opinion can be empty of reasoned judgment, easily swayed and manipulated by emotional appeals, and incapable of other than fickle attention, also knows that it can be shaped into a powerful force for change, good or bad. A force which empowers bureaucrats to harry and constrain banks like Goldman with the power of law.

This force, of course, comprises the politicians, who have languished at the bottom of public opinion polls themselves—below lawyers and pond scum—for longer than forever.

You can bet Senator Warren and her kind enjoyed that Harris Poll.

* * *

Disclosure: I do not now nor have I ever worked at Goldman Sachs, I have no financial interest, direct or indirect, in the firm or any of its securities, and I don’t really even have any friends there. Frequent readers of this jeremiad emporium will remember that I am of the firm and repeatedly expressed opinion that, while Goldman Sachs is amazingly successful and powerful as a firm, its members and employees are often underwhelming on an individual basis. I marvel—and, as a competitor bested by Goldman bankers many more times than I care to remember or relate, chafe—at its success and can only regret that I have not had such a powerful platform from which to ply my trade during my career. So, as much as it can be, you may take this defense as a disinterested one.

Related reading:
Akane Otani, America’s Most Loved and Most Hated Companies (Bloomberg Business, February 5, 2015)
Michael J. Moore, Goldman Sachs Hired 3% of 267,000 Job Applicants Last Year (Bloomberg Business, February 10, 2015)
The Fish Stinks from the Head (July 30, 2009) – Goldman Sachs’ culture and success

1 In the good old days, Goldman did not agree with this sentiment. In the good old days, they employed Lucas van Praag. I miss the old bugger.
2 Yes, it’s true that Goldman Sachs does offer wealth management and retail brokerage services to rich individuals and families, also, so they do have a presence in retail financial services. (It is not large in the context of Goldman’s revenues.) But I venture to guess that individuals and families with tens if not hundreds of millions of dollars under management with the Squid do not have quite the same consumer preferences as the rest of us poor slobs. If your Aunt Millie is loaded, maybe she will prove me wrong.
3 You can take my word for it that the reasons Goldman’s clients and counterparties do business with the firm are the same reasons the much smaller number of lateral hires and later-stage career recruits want to join it. Almost everybody wants to work for a winner, too.

© 2015 The Epicurean Dealmaker. All rights reserved.

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.