Five Pound Box of Money

Hey Santa Claus,
You want to make me happy this year?
Listen to me, honey:
Give Pearl something that'd be of some use to me, like a ...
Like a five pound box of money.

Now, now there’s a little gift
That’s loaded with
Lots of sentiment.
See, when uh ever I get blue, Santa,
I’m gonna think of you,
But at the same time have a little change to pay my rent, you see?

— Pearl Bailey, Five Pound Box of Money

Compensation, O Dearly Beloved, is a complicated thing.

I say this without fear of contradiction, because I have been thinking carefully about this subject for quite some time. In particular, I have been thinking and writing about compensation in the investment banking industry on this site for many moons, ever since a rag-tag collection of highly-credentialed yet woefully uninformed pundits began taking potshots at the source of my livelihood early last year. However, whenever I think I have the broad outlines of the conundrum clearly in my sights, I find that concentrating my attention on any one aspect of it tends to make the problem skitter away like mercury on a mirror. At other times, I feel like I am trying to nail jello to a wall.

In other words, Dear Friends, figuring out compensation is a bitch.

* * *

I should know this, of course, from my many years in the industry, both as a junior investment banker hanging breathlessly on some pompous Managing Director's pronouncement of the one number which represented the culmination of a year's worth of difficult, demeaning, and exhausting work and as one of those aforementioned MDs watching the frightened eyes of my junior bankers as I delivered the news. It is indicative of the tension and emotions boiling beneath the surface of the annual bonus discussion that the firms I worked for discovered they should separate the announcement of a banker's annual compensation from his or her year-end performance review. They soon figured out that once a banker heard The Number, all prior and subsequent conversation might as well have been conducted in Swahili.

People who do not work in investment banking simply cannot relate to this process. That is because, for most workers in most other industries, an annual bonus is a purely discretionary award, given to acknowledge good or exceptional performance, and one which they learn not to expect as an entitlement. Furthermore, a normal bonus outside the investment banking echo chamber is something like 10% or 20% of an employee's annual salary. For the big cheeses, sometimes you will even see a bonus of 100% or more of salary, for a year in which senior management really knocks the cover off the ball.

In banking, by contrast, bonuses—except for the most junior footsoldiers—can range from 200% up to 100 times or more of base salary. This is because bankers' base pay is a comparatively tiny proportion of their expected annual compensation. No matter how senior or how well-compensated a banker expects to be at the end of any year, it would be hard to find anyone in the industry who makes a salary in excess of $650,000 per year, including my favorite balding squintillionaire, Goldman Sachs CEO Lloyd Blankfein. This system is an historical artifact, dating back to the annual "draw" members would take from the equity of the original investment banking partnerships to pay personal expenses until they could divy up actual profits at the end of the year. (It is also a dusty relic of a time when $200,000 was a lot of money, even in New York City.)

While this legacy plays havoc with the personal finances of all but the most wealthy of investment bankers, it actually makes a good deal of sense. By paying even the most senior investment banker a relatively small percentage of his or her expected earnings as salary, the bank not only keeps the banker honed to a keen, aggressive, business-getting edge but also maintains a call on revenues the banker expects to bring in with a relatively low-cost option. If the banker doesn't deliver, poof!: he is fired, or paid a pittance as an option on next year's revenues, and told to pound sand if he doesn't like it. It is about as draconian a system of pay-for-performance as can be found anywhere.

It also makes sense because many business lines and forms of revenue at an investment bank are highly lumpy and extremely volatile. In any one year, a highly effective client-facing MD in traditional M&A or corporate finance can bring in anywhere from a few million to $100 million or more in revenue (net of direct expenses), depending on luck, fate, timing, and a million other circumstances beyond his or her control. It makes good economic sense to keep people like this on a small retainer, in the expectation that sooner or later they will hit the cover off the ball.

In contrast, what is an outstanding performance at a typical consumer goods company, selling another 500,000 units of Huggies to WalMart? Not to denigrate Huggies, or WalMart—God forbid—but you can see why a run-of-the-mill banker without management responsibilities can earn a $10 million bonus, while a consumer goods product manager is happy with a 20% bump to his salary.

* * *

Now this venerable system of paying your revenue-generating partners just enough to keep them solvent until the end of the year, when the bank's net profits after expenses were divvied up and distributed, began to change when investment banks began taking corporate form and retaining equity to fund their growth. Participation in growing global capital markets became a necessity, according to the heads of most of the leading investment banks, and funding that balance sheet and income statement growth was increasing leverage that required a growing cushion of equity. Eventually, of course, most of the old partnerships went public, and got public shareholders to fund their growth. But before that, and afterwards as well, they accumulated substantial equity by deferring a substantial portion of their bankers' annual pay in the form of restricted stock and options (or, as cynics like me like to think of them, interest-free loans).

As this practice spread, there was at first some lip service paid to the notion that bankers holding stock in their own firm aligned their interests with those of the public shareholders. Certain firms—most notably (and sadly for their employees) Bear Stearns and Lehman Brothers—developed very strong employee ownership cultures, and thousands of employees ended up retaining large holdings in their firms even after they vested. But no matter how much stock a banker might have, if he or she isn't in a position to make decisions which directly affect the management and direction of the firm, this "alignment" is mere window dressing, a canard. (You tell me: would you really feel like an owner if you held $10 million of unvested equity in a firm with a $50 billion market cap? Would you feel that almost anything you did or didn't do would have any noticeable effect whatsoever on such a behemoth? I wouldn't.)

Later, banks began imposing more and more onerous vesting schedules and restrictions on bankers' deferred pay, typically preventing them from taking delivery of deferred stock for up to three years (or even more) from the year it was granted, and forcing any banker who resigned to join a competitor to forfeit unvested awards. Management's nominal argument for these practices was that they encouraged employee retention, making it difficult for bankers to job hop around the Street.

But if this was indeed the reason, it was a very blunt and usually ineffective instrument in practice. It certainly did little to prevent other banks from hiring your star performers, since all they had to do was "buy out" a banker's unvested pay with an equivalent amount of unvested stock and options of their own. The only people these practices really encouraged to stay put were the average and even poor performers, who could not dream of getting bought out by a competitor. There was no clawback option in these plans, either, other than the nuclear option of confiscating an employee's unvested pay if he or she was fired for "cause," usually criminal. On the positive side, a bank which lost a star performer to a competitor could take some consolation by canceling the departing employee's deferred pay—thereby reducing past and future compensation expense—or, more commonly, turn around and use the freed-up stock to poach some other bank's rainmaker.

* * *

The thing which really broke the old Wall Street compensation system beyond repair, however, was the rise of proprietary trading at investment banks. As these banks bulked up their balance sheets to take advantage of larger and larger trading opportunities, traders on the prop desks began making bigger and bigger bets with more and more borrowed capital. Investment banks began emulating hedge funds, albeit highly leveraged ones, and the traders who placed these bets began pulling down enormous paychecks, even by the jaded standards of the dusty old i-bankers in corporate finance and M&A. Twenty-five, fifty, even sixty million dollar paydays became regular occurrences, and caused no end of envy and hate among the traditional investment bankers who used to rule the roost on the Street.

Of course, based on the old system of eating what you kill, those paychecks did make some crazy kind of sense. If a prop desk booked a billion dollars of net profit in a year—as the Salomon Brothers traders who later founded Long Term Capital Management were reputed to have done—why shouldn't they share a $75 or even $100 million bonus pool? Top management of investment banks, who increasingly came from the capital markets side of the house themselves as profits from that division ballooned, began to rely heavily on the supercharged profits successful proprietary trading generated to meet growth targets and satisfy shareholders. They did all they could to keep prop traders fat and happy, which became increasingly difficult as the independent hedge fund industry blossomed and any trader worth his salt could get a better bid away just by picking up the phone.

In addition to corrosive pay envy from bankers on the other side of the wall, this system also exacerbated the age-old tensions between the agency side of the business and the principal side. Client bankers may have groused when a successful prop trader took home a $25 million windfall in a good year, but they screamed bloody murder when he lost $300 million the following year. The injury that an M&A banker with a blowout year could see his bonus halved because some knucklehead on the govvie desk blew a half a billion dollars was only compounded by the insult that his unvested stock got slaughtered when the news hit the tape. It was no consolation that the offending trader was usually fired without a bonus.

Agency business—advising companies on mergers, underwriting stocks and bonds, and trading securities for clients' accounts—generates very little downside risk: whether you think it's right or not, the M&A advisors on the AOL Time Warner merger were not held liable when that deal went down the toilet. Similarly, an investment bank is usually only on the hook for its commission and incidental losses if an IPO tanks immediately after the offering. In contrast, principal activity can generate enormous losses, as we have all seen. This problem was compounded by the traditional Wall Street practice of paying bankers each year for the results they generated that year. When proprietary profits begin to act like insurance premiums, and a $100 million "profit" in year one carries a substantial risk of a $1 billion loss in year three, traditional pay-as-you-go comp practices—even with heavy emphasis on deferred pay—simply break down.

In fact, one could easily accuse the old system of making the reckless risk taking which has landed us in our current soup even worse. A clever trader who built up a $50 million position in unvested stock at Lehman Brothers on the back of risky long-tailed mortgage trades and who saw trouble coming had every incentive to jump ship and get another bank to buy him out. That way, when Lehman blew up, he was sitting pretty with stock in a firm not subject to those risks. One wonders whether some of these job-hopping superstars would have been quite so cavalier with their own bank's balance sheet if they knew that their net worth would remain exposed even if they swapped employers.

* * *

Anyone with half a brain realizes that Wall Street, with few exceptions, is badly broken. Its compensation practices either contributed to the mess or did nothing to prevent it. So where do we go from here?

First, I think we must realize that putting arbitrary pay caps on investment bankers and traders will be counterproductive. Our financial system is in a deep and muddy hole, and I, for one, have no interest in demotivating M&A advisors, capital markets bankers, and prop traders from making lots and lots of money for the US government and the banks' shareholders to fill in the hole. I don't think the Treasury does either, which is why the plan it proposed last week governing pay for senior executives at financial institutions suckling at the taxpayer's teat imposes no explicit limitations on total compensation for CEOs or anyone else. Sure, the plan imposes a $500,000 limit on annual cash compensation for "senior executives," but it makes provision for potentially unlimited amounts of deferred compensation for them and non-senior execs.

Believe it or not, my friends, half a million in cash, before taxes, is a pretty skimpy wage to support a CEO-type lifestyle in New York City. Nevertheless, most of the people who will be looking for these jobs are rich already, and I am sure their personal fleet of accountants, compensation experts, and tax advisors will be able to find them enough of the folding to keep the wife and mistress in Prada. As long as they can margin the Degas to pay the rent, I can think of a hundred guys who would love to book $25 to $50 million in deferred stock every year for three to six years, especially at the ridiculously depressed levels at which the banks in question currently trade.

As long as they repay the Treasury, and repair their institutions, I see no reason why we shouldn't wish them Godspeed. Furthermore, deferring the bulk of every banker's pay in like fashion makes eminent sense, too. M&A bankers, corporate security underwriters, and other investment bankers whose revenues carry no long-tail risk might legitimately complain that they are being tarred with the same brush as proprietary traders, and deferring the bulk of their pay constitutes an unfair hardship. But there are two reasons to disregard their complaints. First, one of the first things the walking wounded banks subject to these rules must do is re-equitize their balance sheets, and what better captive source of interest-free loans common equity is there than your employees? Second, while bankers like these on the agency side of the business contribute little risk to the overall organization, they definitely draw a substantial portion of their legitimacy, stature, and revenue-generating capabilities from their firm's franchise. Locking them up with long-term deferred comp seems a modest price to pay for renting Goldman Sachs' or JPMorgan's good name, in my humble opinion, especially since the bid away is practically nonexistent.

Prop traders, of course, should be locked up until Kingdom come, or at least until the cows come home. The ideal solution, actually, would be to set up internal hedge fund accounting at each bank. Track prop traders on their individual results, and pay them with long-vesting "shares" in their own trading book, just like real hedge fund managers. That'd align those little buggers, alright. Unfortunately, this solution is probably administratively unworkable, even if it is theoretically very neat. As a distant second best, pay them in restricted shares of the parent bank that vest on a schedule which matches as closely as possible the long-term risk profile of their trading activities. Effectively structured, such a program would render bonus "clawbacks"—and all such similar proposals being floated in the court of public opinion right now—effectively moot. (Given their position at the top of the food chain, and their responsibility for using proprietary trading to dig their banks out of the holes they have put themselves in, senior executive management pay should be structured in the same way.)

Of course, pushing the entire industry to deferred compensation will work much better if bankers can take their stock with them when they move. Let a banker jump ship to a competitor, if he or she wants to. Let them keep their currently unvested stock, with all restrictions and required holding periods intact, and the incentive to jump off a sinking platform onto a new one will be replaced by a clear self-interest in helping right the ship. Competitors who want to poach a rainmaker from another bank won't have to buy out his lifetime earnings from the previous employer, and the pressure to make big guarantees will moderate at the margin, too. The additional fact that no-one is hiring, and any bankers still employed will feel lucky just to have a seat, won't hurt either.

Finally, if the Treasury really wants to align incentives for banks under the TARP umbrella, they should stipulate that each bank's Chief Risk Officer should be compensated no less than the CEO for the duration of the restrictions. Some meaningful portion of the CRO's pay should be tied to the maintenance of low volatility and low net losses at the bank.

* * *

Does all this sound excessively simple, or naïve to you? It probably is. If there is one truism we can take to the bank, it is that well-designed and well-managed compensation systems are never simple. There are unintended consequences from every decision on pay, and comp systems must be constantly tweaked and adjusted to achieve their primary objective of motivating employees to effect the company's goals. The involvement of the government as regulator, lender, and shareholder only complicates a muddied picture even further.

But there is a simple solution for this, too. Employ executive compensation expert and gadfly Graef Crystal to review every compensation plan drafted by a bank receiving TARP funds. Bill his services at a rate of $500,000 per hour, and deduct his charges from the aggregate bonus pool available to senior executive management.

I bet you will see some of the shortest compensation plans ever drafted come out of Wall Street then.

© 2009 The Epicurean Dealmaker. All rights reserved.

The Dirt Bag Chronicles

'N every gimmick-hungry yob digging gold from rock 'n roll
Grabs the mike to tell us, he'll die before he's sold.
But I believe in this—and it's been tested by research—
he who fucks nuns, will later join the Church.

— The Clash, "Death or Glory"

Seriously, now, can we all just agree to put a stake once and for all in this Goldman Sachs reputation-thingy?

I have repeatedly shaken my head in wonder over the years at Goldman Sachs' apparently preternatural ability to maintain an absolutely spotless public image while simultaneously soiling itself in full view of everyone in the most miserable and abject manner possible.

The white shoe investment bank has slip-streamed for years on its hoary reputation as the industry's premiere, incorruptible bastion of unbiased advice for corporate clients, even as it has led the industry in self-dealing and unprecedentedly egregious conflicts of interest, like the famous example of being on all three sides of the NYSE/Archipelago transaction. Its proprietary trading operations continue to awe and terrify spectators and participants alike in the capital markets, even as its internal hedge funds have tripped over their own genitalia more times than can be recounted in a family newspaper. And, most impressively of all, the storied house has developed a reputation for grooming leaders and senior executives for high position in industry, academia, and government which even David Halberstam's Best and Brightest would envy.

Unfortunately for its boosters and acolytes, however, the wheels seem to be rapidly coming off the last carriage in this juggernaut. Henry Paulson, who looked like he stepped right out of Central Casting on his way to Treasury, proved himself not only tongue-tied and inarticulate in his role as chief spokesman for the American financial system but also shortsighted, ill-prepared, and inept in dealing with its burgeoning collapse. Robert Rubin, who has been walking on water for, oh, the last ten years or so, not only tripped and fell headfirst into the soup but also made a fool of himself by arguing indignantly that he is not even damp. Today, we get the spectacle of former Golden Boy and Christopher-Reeves lookalike John Thain getting frogmarched out of Bank of America on the back of an $87,000 rug.

How far the mighty have fallen.

* * *

There was a day, I grant you, not too long ago, when Goldman's reputation was frustratingly well-earned. Speaking from my long experience as a competitor and collaborator with GS on many deals, I rarely met anyone from its investment bank who ranked better than a B+ player in terms of intelligence, transaction skills, or client management capabilities, no matter what his or her resumé might lead you to believe.¹ But those boys (and girls) were disciplined, and they communicated the hell out of each other all the time. They were fierce about protecting and burnishing their firm's reputation, and they arguably spent more time managing and massaging their clients' perceptions about Goldman's performance than they did actually serving them. This, plus the firm's no-star culture, gave most clients a tremendous sense of security and institutional competence that assuaged any doubts they might have had about the individual bankers on their own deal.

As for themselves, Goldman Sachs bankers below the level of Partner were famous on the Street for being both significantly underpaid (and sometimes even overworked) relative to their peers at other firms. The firm did not hire or tolerate prima donnas. Before the firm's IPO, the prestige and set-for-life wealth which accompanied a Goldman partnership were what kept most of the rank and file slaving away in relative obscurity. Its employees had tremendous esprit de corps, and top management did an outstanding job both harnessing and preserving that resource. Goldman bankers were like the Borg, and that's who most clients wanted in their corner.

But it has been some time now since Goldman's reputation has outstripped both its capabilities and its intentions. Gus Levy's brilliant strategy that GS should be "long term greedy" is clearly a dusty relic honored in name only within the confines of 85 Broad Street. More than a year and a half ago, before Wall Street and the rest of the global economy decided to skydive without a parachute, a grizzled veteran of the ancien régime, John Whitehead, launched an unprecedented broadside at his former colleagues and mentees. His basic criticism: in a futile attempt to keep up with pay levels at hedge funds and other principal investing firms, Goldman executives were gutting the institutional culture of their firm by stoking the destructive fires of personal greed.

Nineteen months later, I find it hard to argue with Mr. Whitehead's analysis or predictions.

* * *

I don't know about you, Dear Readers, but I find the spectacle of Mr. Thain spending over $1.2 million to redecorate his already palatial office at Merrill Lynch at the same time he was cutting back on employees' use of car service, business travel, and client entertainment—expenses normally made in the service of revenue generation—a wee bit tasteless. Certainly, the sense of entitlement implicit in such behavior seems of a piece with the fat signing bonus Mr. Thain negotiated for himself when he jumped to head Merrill and the packages he arranged for chief lieutenants as well.² (Capital markets head Thomas Montag, another Goldman alum shitcanned today, will walk away with the tidy sum of $39.4 million in cash for less than six months' work, plus accelerated vesting, also in cash, of the restricted Merrill stock he received for the Goldman shares and options he gave up when he joined the Thundering Herd.)

Some people might ask what's the big deal. Surely Bank of America negotiated these employment packages at arm's length, and Thain and Montag simply demonstrated their excellent banker skills by negotiating great packages for themselves, no? And, in the context of Merrill Lynch's then-monstrous income statement, a $1.2 million redecoration expense cannot have even risen to the level of a rounding error. The CEO of a global investment bank needs an impressive office to wow clients and cow subordinates, doesn't he?

Yes, but.

* * *

Thain is certainly not alone in exploiting his position atop a gigantic global investment bank to indulge his personal pleasures at shareholder expense. During his empire-building phase at Citigroup, Sandy Weill installed wood-burning fireplaces in both his Midtown and Tribeca offices for a rumored cost of several hundred thousand dollars apiece, continuing a tradition he had begun all the way back to his stint at Shearson.

During good times, no-one seems to notice or mind such extravagances, because they are so small in the scheme of things. When the worm turns, however, as it is doing now, the long knives come out, and it is an entirely different matter.

Perhaps Mr. Thain is simply unlucky, someone who rose to power at the best-reputed investment bank on Wall Street during a time when shareholders, lenders, and prime brokers could not wait to throw their money at the money spinners of 85 Broad Street and who now does not know how to behave in these straitened times. Perhaps Goldman itself is an institution whose time has come and gone, and whose reputation now faces a long, hard decline from the pantheon of banking greats. Messrs. Thain, Paulson, and Rubin certainly rode Goldman's coattails into positions of wealth, power, and reknown. It does not seem unreasonable to expect Goldman's own reputation will wither as its former demigod alumni crash and burn all around it.

In any event, I think it fair to let everyone at Goldman in on a secret the rest of us have known for quite some time: Your shit does stink, after all.

¹ Lest my Patient Readers suspect an unalloyed case of sour grapes in their Dedicated Correspondent, be it known that I claim no special gifts in these areas either, just the ability to judge them in others, which is not that difficult. Also, for full disclosure, I admit that I too tried to get into Goldman Sachs as a wee bairn fresh from business school, but I tested too high for independence and insubordination, which were not viewed kindly by the firm at the time.
² And of a piece, as well, with the approximately $115 million Bob Rubin siphoned out of Citigroup since 1999, in recompense for performing an advisory job with no explicit duties, responsibilities, or even—as he currently insists—accountability, all the while helping persuade the Board and CEOs to steer the company into a ditch.

© 2009 The Epicurean Dealmaker. All rights reserved.

The Choice of Herakles

A dialogue, from The Memorabilia, or Recollections of Socrates, by Xenophon, translated by H.G. Dakyns:

I. Duty, or Virtue:

"I will not cheat you with preludings of pleasure, but I will relate to you the things that are according to the ordinances of God in very truth. Know then that among things that are lovely and of good report, not one have the gods bestowed upon mortal men apart from toil and pains. Would you obtain the favour of the gods, then must you pay these same gods service; would you be loved by your friends, you must benefit these friends; do you desire to be honoured by the state, you must give the state your aid; do you claim admiration for your virtue from all Hellas, you must strive to do some good to Hellas; do you wish earth to yield her fruits to you abundantly, to earth must you pay your court; do you seek to amass riches from your flocks and herds, on them must you bestow your labour; or is it your ambition to be potent as a warrior, able to save your friends and to subdue your foes, then must you learn the arts of war from those who have the knowledge, and practise their application in the field when learned; or would you e'en be powerful of limb and body, then must you habituate limbs and body to obey the mind, and exercise yourself with toil and sweat."

II. Happiness, or Vice:

"I see you, Heracles, in doubt and difficulty what path of life to choose; make me your friend, and I will lead you to the pleasantest road and easiest. This I promise you: you shall taste all of life's sweets and escape all bitters. In the first place, you shall not trouble your brain with war or business; other topics shall engage your mind; your only speculation, what meat or drink you shall find agreeable to your palate; what delight of ear or eye; what pleasure of smell or touch; what darling lover's intercourse shall most enrapture you; how you shall pillow your limbs in softest slumber; how cull each individual pleasure without alloy of pain; and if ever the suspicion steal upon you that the stream of joys will one day dwindle, trust me I will not lead you where you shall replenish the store by toil of body and trouble of soul. No! others shall labour, but you shall reap the fruit of their labours; you shall withhold your hand from nought which shall bring you gain. For to all my followers I give authority and power to help themselves freely from every side."

III. Duty, or Virtue:

"Nay, wretched one, what good thing hast thou? or what sweet thing art thou acquainted with—that wilt stir neither hand nor foot to gain it? Thou, that mayest not even await the desire of pleasure, but, or ever that desire springs up, art already satiated; eating before thou hungerest, and drinking before thou thirsteth; who to eke out an appetite must invent an army of cooks and confectioners; and to whet thy thirst must lay down costliest wines, and run up and down in search of ice in summer-time; to help thy slumbers soft coverlets suffice not, but couches and feather-beds must be prepared thee and rockers to rock thee to rest; since desire for sleep in thy case springs not from toil but from vacuity and nothing in the world to do."

* * *

The long and fevered pursuit of Happiness we have followed in this country for many years is over. We have woken with a start from our beguiling dreams of effortless success, enduring fame, and endless wealth, nursing a raging hangover. Before us lies the dispiriting vision of a steep and stony road out of a dim and drear valley.

Many have speculated on the various reasons we have come to this pass. Commentators, spectators, and participants all flog their pet theories, and the only thing more certain than their pointing of fingers at every culprit they can imagine is that virtually no-one is pointing his finger at himself.

But the moralist in me—repressed, ignored, and ridiculed most of the time, I grant you—begs to differ.

It has been a long time in this country since the ideals of sacrifice, honor, courage, and integrity were both admired and aspired to by the common man. (These words sound so dusty and awkward that I am almost—almost—embarrassed to write them here.) What is admired now is fame and its idiot cousin, celebrity, and wealth and its bastard offspring, money-for-nothing. How else can you explain the millions of column inches wasted on the vapid self-promotion of a brainless, talentless, beauty-less hotel "heiress?" Or the fact that Steve Schwarzman is mostly known outside financial circles for the egregiously self-congratulatory 60th birthday party he threw to crown himself the new King of Wall Street?

Sure, we make an occasional nod to the old virtues, like when we applaud the tense and wary knots of servicemen and women passing through an airport on our way to a Disneyland vacation or a billion-dollar closing dinner. We know we are supposed to admire such things, and the people who embody them. At some level most of us probably do. But what have we Americans sacrificed lately? When did you last act with honor, courage, or integrity?

Much is made by everyone about the greed and rampant, unbridled speculation that convulsed Wall Street over the last several years. Billions, if not trillions, of dollars were squandered in pursuit of ever-increasing bonuses for bankers and ever-increasing profits for shareholders (many of whom were the very same bankers in charge of the asylum). Of this, there can be no doubt. But these bankers did not act in a vacuum. Everyone who purchased a stock, or mortgaged a house, or took out a home equity line over the last seven years helped inflate the bubble which continues to burst.

Do not plead ignorance to me. No matter how far you were from the centers of finance, did you really believe it was your God-given right to enjoy 20+% annual price appreciation in your cookie-cutter Vegas mini-mansion? Did you really think it was clever or even prudent to treat your home like an ATM, withdrawing cash every quarter to purchase the cars, clothes, and plasma televisions your bog-standard middle management job wouldn't allow you to afford? Really?

I didn't think so. Just as all those rich pals of Bernie Madoff knew, at some level, that something just wasn't right with his year-in, year-out 10–12% returns, come hell or high water. But they took the plunge anyway. Who wouldn't want into a sure thing, even if it smelled to high heaven? Who, indeed, would turn down money for nothing?

* * *

Well, the days of the apparently free lunch seem well and truly over. Masters of the Universe face the prospect of working for years just to get back to breakeven, much less earn performance fees, and Titans of Wall Street are busy helping the Missus shop for bulk toilet paper at Costco, if they are not testifying in bankruptcy court.

Tomorrow, we will witness the swearing-in of the first black President of the United States. Many of us in this country voted for this man under the rubric of change. Most of those who voted for his opponent advocated change, as well. But now that we have it, just what sort of change have we voted for? Do we even know?

I don't know, and I refuse to make any predictions about this administration or the next few years in our economy. But what I will say is that the change we should be looking for—the change that will ultimately make a lasting difference in our country, our economy, and our lives—better come first from within.

It is not too late to take the high and stony road to Virtue. It is not too late to remind ourselves what it means to exercise restraint, to celebrate the old virtue of simple competence when we undertake a job. To do well, to work hard, because it is our job; to take pride in a job well-done, not because we think we're going to win the lottery. It is also time, in my humble opinion, for integrity to replace unprincipled greed, for humility and modesty to replace hubris, and for honor and courage to replace opportunism. The good news—and the hard news, as well—is that all of you get to make your own decision on the subject.

And there, Dear Readers, is the rub. For, in the immortal words of Pogo:

"We have met the enemy and he is us."

© 2009 The Epicurean Dealmaker. All rights reserved.

A Garland Briefer than A Girl's

Robert Rubin is retiring.

It is past time. He has had a long run, but I am afraid the former charter member of the Committee to Save the World has worn his honors and his reputation out.

Now he must play an old man's game, working long days and nights, against declining health and energy, to salvage the reputation he squandered in his dotage. There certainly is no upside to him remaining at Citigroup, where he has been reduced to shooting holes in his own resumé by defending the indefensible.

I used to like and respect Bob Rubin. Not so much any more. No-one gives a shit what I think, but I know I am not alone.

They say investment banking is a young man's game. Rubin is yet another example, from a sad and unexpected direction, of the ultimate truth of those words.

* * *

The time you won your town the race
We chaired you through the market-place;
Man and boy stood cheering by,
And home we brought you shoulder-high.

To-day, the road all runners come,
Shoulder-high we bring you home,
And set you at your threshold down,
Townsman of a stiller town.

Smart lad, to slip betimes away
From fields where glory does not stay
And early though the laurel grows
It withers quicker than the rose.

Eyes the shady night has shut
Cannot see the record cut,
And silence sounds no worse than cheers
After earth has stopped the ears:

Now you will not swell the rout
Of lads that wore their honours out,
Runners whom renown outran
And the name died before the man.

So set, before its echoes fade,
The fleet foot on the sill of shade,
And hold to the low lintel up
The still-defended challenge-cup.

And round that early-laurelled head
Will flock to gaze the strengthless dead,
And find unwithered on its curls
The garland briefer than a girl’s.

— A.E. Housman, To an Athlete Dying Young

© 2009 The Epicurean Dealmaker. All rights reserved.

Greatest Hits of 2008

Whew! I'm glad that's over.

What a miserable and bloody year 2008 was. I don't know about you, Dearly Beloved and Much Suffering Readers, but I couldn't wait to see the back of it. Alas, my relief is tempered by certain knowledge that we will only be allowed to doff last year's stylish habiliment of funereal black in exchange for donning this year's model of sackcloth and ashes.

This is the way the world ends
This is the way the world ends
This is the way the world ends
Not with a bang but a whimper.

— T.S. Eliot, "The Hollow Men"

Anyway, I am sure many of you are wondering why I am troubling you on the morning after what should have been an epic quest to forget 2008, so I will make my remarks brief.

Dedicated followers of these pages will remember that I have been accustomed in the past to intermittently publish a brief list or two of posts appearing on this site which my Esteemed Audience has deemed worthy of particular attention, under the characteristically modest rubric of "The Canon." Attentive readers will also have noticed that it has been some time—since mid-2007, in fact—since I have updated this list. At the same time, this very period has been one during which an unusually large and varied quantity of folly, hubris, incompetence, greed, and other forms of Human Ordure particularly susceptible to your Dedicated Correspondent's gimlet gaze has been hitting the Fan of History.

I would apologize to you for this omission, but I must admit I have been rather too busy trying to keep my own head above water, and dispatching real-time reports from the front lines of chaos and despair, to be much concerned with conducting retrospectives. After all, when you are up to your ass in live alligators, it is usually considered ill-judged to devote much time to skinning, tanning, and mounting the hides of the few you have managed to kill.

Fortunately, you busy little scamps have continued to click away on this site throughout my absence, and, through the good offices of Google ("Do no evil [which does not lead to increased profits and the humiliation of Jerry Yang]") Analytics we have the results of your voting at hand. I must say I am gratified by the continuing increase in traffic to this little opinion emporium. Why, total page views on this site during 2008 edged comfortably into six figures, even after subtracting the tens of thousands of hits generated by the small army of Howler Monkeys I employ to boost ad revenue. (Word to the wise: bananas, bought in bulk, are still cheaper than AdWords.)

By a huge margin, the vast majority of you Dear Readers seem to come to this site via the main page. This indicates to me that either a) most of you are eager to sample my nutritious and tasty morsels of wisdom the minute they have been published—fresh from the oven, as it were—or b) most of you have shockingly indiscriminate taste. (Being in reasonably equable temper this morning, I will be magnanimous and assume the former.) The second most frequent page visit last year was to my profile, presumably by readers new to the site, email-harvesting spam-bots, or those few deluded souls who still look forward to the day I reveal my true identity (q.v., when Hell freezes over).

Barring these two entries (and the former's paler, wonkier cousin, /index.html), seven actual posts show up in the top ten list of visited pages for 2008. Without further ado, here they are:

THE CANON, Special Limited 2008 Edition

1) Overheard at 85 Broad Street (June): Venerable former white-shoe investment bank and now toaster-retailer Goldman Sachs demonstrates conclusively how not to fire people. (Warning: rated 11 on a scale of 1 to 10 on the Excoriometer, for very, very naughty language. TED was—how shall I put this—more than mildly pissed.)

2) The K-T Boundary (September): My prediction for the "future"—if one can call it that—of the investment banking industry after The Panic of 2008. Many, many words, most of which actually mean something for a change.

3) Ring, Ring! It's the Cluephone, for You (October): Pity the poor investment bankers. They really, really wanted bonuses this year and were hoping against hope a few months ago they might actually receive them. In cash. Oh well.

4) Scatology (March): Bear Stearns takes the pipe, in every sense. I would not object if you characterized this as a rant.

5) Et in Arcadia Ego (November): TED takes advantage of the recent ass-whuppin' of Harvard University's endowment to draw a few measured conclusions about higher education in America. Hey, I just spent a small fortune on private school tuition, so I'm allowed.

6) Molon Labe (September): Ruminations on the parallels between soldiers of fortune from different ages: Sparta and the present day. TED feels besieged by political correctness, and wallows in paranoid self-pity.

7) Bubble Land (May): A semiotic deconstruction of the Blackstone Group's first annual report as a publicly-owned company. Given that BX has lost almost 79% of its value from the 2007 IPO price, this annual report may soon become a one-of-a-kind collector's item. Snap it up, campers!

And for those of you with absolutely nothing to do over the long holiday weekend, feel free to peruse some previous entries from the list.

Look On My Works, Ye Mighty, and Despair!
More Works to Look On and Despair

One of these days, I might actually get around to filling in the lacuna from the second half of 2007, as well, but I wouldn't hold my breath if I were you.

Happy New Year.

© 2009 The Epicurean Dealmaker. All rights reserved.