Holiday Weekend Interlude

As you set out for Ithaka
hope the voyage is a long one,
full of adventure, full of discovery.
Laistrygonians and Cyclops,
angry Poseidon—don’t be afraid of them:
you’ll never find things like that on your way
as long as you keep your thoughts raised high,
as long as a rare excitement
stirs your spirit and your body.
Laistrygonians and Cyclops,
wild Poseidon—you won’t encounter them
unless you bring them along inside your soul,
unless your soul sets them up in front of you.

Hope the voyage is a long one.
May there be many a summer morning when,
with what pleasure, what joy,
you come into harbors seen for the first time;
may you stop at Phoenician trading stations
to buy fine things,
mother of pearl and coral, amber and ebony,
sensual perfume of every kind—
as many sensual perfumes as you can;
and may you visit many Egyptian cities
to gather stores of knowledge from their scholars.

Keep Ithaka always in your mind.
Arriving there is what you are destined for.
But do not hurry the journey at all.
Better if it lasts for years,
so you are old by the time you reach the island,
wealthy with all you have gained on the way,
not expecting Ithaka to make you rich.

Ithaka gave you the marvelous journey.
Without her you would not have set out.
She has nothing left to give you now.

And if you find her poor, Ithaka won’t have fooled you.
Wise as you will have become, so full of experience,
you will have understood by then what these Ithakas mean.

— C.P. Cavafy, “Ithaka”

Happy Labor Day, voyagers.


© 2011 The Epicurean Dealmaker. All rights reserved.

Too Funky for Me

Hey, you’re just too funky for me
I gotta get inside of you
And I’ll show you heaven if you let me
Hey you’re just too funky for me
I gotta get inside, (I gotta get inside)
I gotta get inside of you (so when will that be?)

I watch your fingers working overtime (overtime)
I’ve got to thinking that they should be mine.
I’d love to see you naked baby
I’d like to think that sometime maybe
Tonight, if that’s all right, yeah!

— George Michael, “Too Funky”

As a devoted husband and father of a certain age, Dearest and Most Indulgent of All Readers, I normally make it a practice to skirt the festering cesspool which is contemporary sexual mores and politics. For one, I am woefully underqualified to comment on what transpires under bedsheets and on top of refrigerators nowadays among young people, having sown most of my wild oats at a time when newlyweds consummated their union by negotiating a bedsheet with a hole strategically cut in it. (I am still trying to wrap my head around the bewildering notion that some women actually want and enjoy sex.) For another, Mrs. Dealmaker tends to regard my contemplation of non-uxorial pulchritude with a steely and unforgiving eye, and she has taken far too much training in back-alley knife-fighting from the Mossad for me to take her displeasure lightly.

Nevertheless, I have been inspired by a couple of recent reviews to pop my head up briefly from my hidey-hole to deliver a few considered comments on a recent book by academic Catherine Hakim entitled Honey Money: The Power of Erotic Capital. I should preface my remarks by noting that I have not read Ms Hakim's treatise myself—and do not expect She Who Must Be Obeyed will allow me to—so my thoughts are directed less at her work than her work as presented and interpreted by her reviewers. That being said, some of you might find them mildly interesting in spite of this shortcoming.

According to The Economist, Ms Hakim’s primary premise is the existence of erotic capital.

She argues that “erotic capital” is an underrated class of personal asset, to set beside economic capital (what you have), human capital (what you know) and social capital (who you know). Ms Hakim attempts to quantify a complex mix of physical and social assets, consisting of beauty, sex appeal, self-presentation, social skills, liveliness and sexual competence. Like other sorts of capital, the erotic kind is important for success; but unlike others it is largely independent of birth and class. It is especially valuable for poor people, young people, the newly arrived and the otherwise unqualified. In heterosexual settings it belongs primarily to women.

For what it’s worth, I can testify from my own personal experience and that of friends and relations that erotic capital is not wholly or even primarily determined by physical attractiveness. I know of incredibly beautiful people—men and women—who have the sex appeal of a moldy dishrag, and, contrariwise, physically plain individuals who make the objects of their sweltering attention anxious not to embarrass themselves by slipping in puddles of their own making.

Her secondary premise is that erotic capital is not equally distributed across both genders:

Ms Hakim suggests that women have more erotic capital than men to start with, mainly because they have had to work at it for centuries. But women have the erotic upper hand for another reason: the male “sexual deficit”. Despite the fact that both sexes are more sexually active than ever before, from the age of about 30 women’s libido tends to fall off while men’s does not. Because women have less interest in sex than men, it is, to put it crudely, a seller’s market. In the power dynamic of couples, controlling access to sex is more important than earning more money, says Ms Hakim. It is the woman’s main bargaining chip, as most still earn less than their partners. Feminists who want women to throw away their femininity are overlooking a powerful asset, Ms Hakim argues.

The existence of a “sexual deficit” is presumably an empirical question, although I do know enough about sexual politics, axe-grinding, and self-delusion to venture we will never answer it to everyone’s satisfaction in our—or any other generation’s—lifetime. (It is not inconsistent with my upbringing and personal experience, but, as I told you, I come from another era.) However, I have also been well-enough trained in Husband School to know it is the woman you’re next to whom you agree with, if you don’t want any trouble. Given that Ms Hakim is the only one in the room at present, I will concede her point. It is not critical to my argument.

* * *

No, what I find objectionable about Ms Hakim’s argument has less to do with whether women as a gender like to get their freak on as much as men and more to do with simple economics. For, let us be clear, that is what the honorable Professor is talking about. She claims that our Western patriarchal culture has consistently devalued women’s erotic capital for its own selfish purposes and, moreover, that the cure consists in freeing women to spend their erotic capital freely and at will according to their own, unconstricted desires. This means, in The Economist’s coinage,

the full legalisation of prostitution and surrogate pregnancies for profit, thus giving women the freedom to earn a return on whichever personal asset they choose.

On this, I am happy to say, I call bullshit.

For let us consider, Dear Friends, what we are talking about. If there is indeed a market in sexual favors—where sex is exchanged for economic support, emotional commitment, and the like—then it is by definition a two-way market. Assume, for a minute, that women are the “producers” in this market, and men are the “consumers.” (We all know what the product is.) Assume, as well, with Ms Hakim that there is an artificially restricted supply of this product. In aggregate, demand exceeds supply. To whose benefit does this market imbalance accrue? Cui bono?

Why, the producers, of course. Women. Duh.

To whose benefit would a removal of these restrictions accrue? The consumers. Men. A complete liberalization of the market for erotic capital—deregulation, in other words—would lower the scarcity, price, and value of sexual favors across the entire market. Men could presumably purchase or acquire by other means all the sexual satisfaction they desired at a going rate likely to be well below the standard price exacted today. At the margin (and perhaps well beyond that), marriage, committed fatherhood, and men’s financial and emotional support to their women and children would likely decline materially. Is that what women want? Really?

I will presume to speak for the fairer sex now: Of course not.

This is why the argument that sexual repression of women arises solely from patriarchy makes no sense to me. Will Self elaborates:

It is, quite simply, not in the interests of all those priapic patriarchs to allow women to actualise their erotic capital, for to do so would seismically alter the balance of power between the sexes.

That the religiously dogmatic and the merely male chauvinist should have both demonised – and, paradoxically, diminished – the impact of female sexuality from time out of mind, is, following Hakim, only to be expected. ... According to Hakim, Christian monogamy is, quite simply, a “political strategy” devised by the patriarchy in order to ensure that even the least attractive/wealthy/powerful men gain at least one sexual partner.

Huh? I thought we had determined that, other things being equal, the unfettered man wants lots of partners, or at least lots of sex. Why would a system which restricted supply and raised the price to every man be to men’s benefit? On the contrary, such a system would be entirely to the benefit of those women who could reasonably expect to trade on their erotic capital to secure social and economic benefits, especially in a patriarchal society where most positions of political and economic power are reserved for men. In such societies, erotic capital is women’s primary asset. Why would they not want to protect it, and its value, by restricting the ability of other women to flood the market with supply? Whence otherwise the legal restrictions and traditional social opprobrium attached to prostitution, promiscuity, and (literally, I kid you not: English is a remarkably transparent language) “cheap” women?

This argument gets at two crucial points which I think many feminists—and perhaps Ms Hakim—seem to gloss over or ignore completely. First, women’s “interests” are not monolithic. This is simple economic fact, if nothing else. If you are inside the system, and have taken advantage of the socially and legally regulated environment to sell your erotic capital at an otherwise higher-than-market price, you have no interest whatsoever in opening the market to poor, beautiful, desperate, sexually skilled and aggressive competitors from outside. Do you? This is particularly true because it is generally agreed that women’s erotic capital depreciates over time: if nothing else, the older you get the less you can rely on energy, youth, and dewy beauty to bolster your account.

The second point is that, consciously or not, I believe most women understand this extremely well. In fact, it has been my experience that women are the primary carriers of cultural and social values in this sphere. You don’t usually hear men or fathers making a big deal about loose women, adultery, prostitution, and the like; it is the wives and mothers. Why? Because it affects them directly. Patriarchal socioeconomic structures or not, it is usually women who set, monitor, and enforce basic social and sexual mores and expectations.

It’s in their own self interest.

* * *

Will all this change as society continues to evolve away from dated patriarchal structures? Probably. But I would be surprised if it changes to a complete liberalization of the market for sexual favors and erotic capital in the way Ms Hakim seems to recommend. If nothing else, such a utopia (for men?) would be wracked by Hobbesian economic competition among women for the resources they desire, whether those be sexual gratification, emotional commitment, marriage, or children. As producers of the same good—a commodity which generally gets harder to differentiate the more it is consumed and which can depreciate over time—women, like all economic agents, should prefer a protected market, where competition is limited. Life is easier inside a regulated, protected market.

Unless you’re on the outside. Or a consumer.

Love and marriage, love and marriage
Go together like a horse and carriage
This I tell you brother
You can’t have one without the other

Love and marriage, love and marriage
It’s an institute you can’t disparage
Ask the local gentry
And they will say it’s elementary

Try, try, try to separate them
It’s an illusion
Try, try, try, and you will only come
To this conclusion

Love and marriage, love and marriage
Go together like the horse and carriage
Dad was told by mother
You can’t have one, you can’t have none,
You can’t have one without the other!

No Sir!

— Sammy Cahn and Jimmy Van Heusen, “Love and Marriage”

© 2011 The Epicurean Dealmaker. All rights reserved.

The Devil's Book of Aphorisms: Part 1

The safest road to Hell is the gradual one—the gentle slope, soft underfoot, without sudden turnings, without milestones, without signposts.

All mortals tend to turn into the thing they are pretending to be.

— C.S. Lewis, The Screwtape Letters

From the archives...

Screwtape’s Hierarchy of Greeds:

Those who can, Create.

Those who cannot create, Execute.

Those who cannot execute, Finance.

Those who cannot finance, Do Deals.

Those who cannot do deals, Trade.

Those who cannot trade, Write about the rest.

Those who cannot write, Pay for all this activity.

* * *

Thank you for your support.


© 2011 The Epicurean Dealmaker. All rights reserved.

How Did I Do?

So finally Roderick looks at me and says, “If you don't get this guy out of here in 30 seconds, I'm gonna slice his balls off.” As I walk out with Leon, Leon looks at me and says, “How did I do?”

So, squeaky-voiced were-bear Leon Black threw himself a little clambake out in Southampton last weekend in celebration of his 60th birthday. It seems that a sixtieth birthday blowout featuring aging rock stars of similarly creaky vintage has become de rigeur among the caviar and pointy-toed shoe set of baby boomer private equiteers. David Bonderman of TPG had one, Steve Schwarzman of Blackstone had one, and now Leon of Apollo gets his own. It's only fair.

And, notwithstanding the clashing of pitchforks and gnashing of proletarian (and bourgeois) teeth in the comments section to DealBook's newest chronicle of 21st Century plutocracy, the affair seems to have been a relatively tame example of its kind. Unless they happened offscreen, away from the privileged confines of approved journalistic access, we learn of no infants being roasted on a spit, underaged Eastern European “models” sporting multi-colored armbands, secret auditions of the latest Michael Bolton hit to select insiders, or similar ethical outrages. Based upon the known moral fiber of Mr. Black and the other baby-seal-blood-drinkers who came with him from Drexel Burnham Lambert to found Apollo, I for one find this positively restrained.

But the financial class has learned a lot about public relations since Steve Schwarzman made everyone crazy with his onanistic love fest in 2007. In fact, much is made in the DealBook article of Lloyd Blankfein's no-doubt carefully staged tête à tête with the tiny Lehman Brothers relic:

Before the concert, around 8 p.m., as a full moon rose over the Atlantic, Mr. Blankfein and Mr. Schwarzman stood at the foot of the stairs leading down to the beach. Guests overheard Mr. Blankfein playfully ribbing Mr. Schwarzman about his fin de siècle affair.

“Your 60th got us into the financial crisis,” Mr. Blankfein is said to have told the private equity titan [sic]. “Let’s hope this party gets us out of it.”

Ha ha ha.

What's the economic multiplier effect of a seared foie gras station?


© 2011 The Epicurean Dealmaker. All rights reserved.

Investment Banks of the Plain

Robert Rauschenberg, Monogram, 1955–1959

Awww...

Passion aficionado and sesquibajillionaire Ken Griffin has finally “given up his dream”—according to a slightly breathless New York Times DealBook—to create an investment bank with the heft and prestige of Goldman Sachs. According to reports, he is shutting down the sell-side equity research division of his hedge fund, Citadel Securities, and putting his runty investment bankers out on his front lawn in a cardboard box marked “PUPPIES – 20¢ Eech, or Free 2 a Gud Home.”

Somewhere, Lloyd Blankfein is heaving a sigh of relief... — No, scratch that. He’s saying “Ken who? He was trying to build what?”

I mean seriously, people, the only sleep Lloyd Blankfein and the other CEOs of established Wall Street firms lost over Griffin’s quixotic quest these past three years has been prior to industry social functions—like the Robin Hood Foundation gala, where hedgies compare the size of their penises charitable contributions in public—where they’ve had to listen to him boast about how he was going to eat their lunches, before asking in a hushed aside whether they knew any good candidates to head his pissant investment bank. And the only reason they lost sleep, and didn’t spin on their heels and sprint away the minute they caught sight of him, was because the hedge fund side of his business was such a monstrous (potential) contributor to their sales and trading and prime brokerage revenues.

In contrast, Ken Griffin’s investment bank was a bad joke.

* * *Now, an onlooker sympathetic to Griffin’s chief premise—that there was an opening in 2008 for another major investment bank, one which could compete with reputationally damaged, financially weakened giants like Goldman, Morgan Stanley, and Bank of America Merrill Lynch in the immediate aftermath of the financial meltdown ¹—might claim that Ken’s fundamental error was one of execution, not conception. Certainly, he seems to have made a monumental hash of the most important task before him: hiring the right professionals to staff his folly. Over the course of its brief existence, Citadel Securities became an industry laughingstock for the frequency with which Griffin hired and fired the heads of his bank and senior business unit managers. You just can’t do that if you intend to build an investment banking franchise, for the simple reason that no-one below the level of Master of the Universe who doesn’t have fully portable compensation and a self-sustaining reputation will risk their career to work for such a shitshow. And any MoU worth his or her salt won’t sign up either, because whatever ruinously excess pay Griffin had to offer to lure them in wouldn’t be worth the brain damage of adapting to a constant merry-go-round in the executive suite.

Corporate finance and M&A are labor intensive in a way the typical capital markets salesman or trader has no idea: you need good people below you programming the models, writing and producing the pitchbooks, and handling the myriad details of an active deal process to run any sort of functioning business underwriting new issues and doing deals. You just don’t sashay into the office at 7:30 am every morning, plug your headset into the turret phone, fire up the MBS derivative valuation model, and try to make some money. We chase clients and opportunities for years before we see revenue dollar one, and much of the time we never earn anything. But like Woody Allen supposedly said about life, 80% of investment banking is just showing up: year-in, year-out, building presence, reliability, and credibility with clients so that when they eventually do have a deal to do, you have a decent chance of winning it.

Also, unlike much of capital markets, investment banking (corporate finance and M&A, natch) does not lend itself well to economies of scale. It takes approximately the same effort and labor to execute the sale of a $150 million company that it does to sell a $5 billion one. In fact, given the usual relative lack of sophistication and experience of smaller clients, it often takes more. It is a further truism that every deal is different: there are no clients in M&A or equity underwriting where a banker can take a prior deal summary down from the shelf, dust it off, and present it to the client to win the deal. Finally, the scale and financial heft of an investment bank matters less to most clients in selecting new issue underwriters and M&A advisors than does its reputation, credibility, and track record. This is one reason why deals on my side of the house are rarely won by the bank offering the lowest price, and why prices for IPO underwriting and M&A deals remain stuck stubbornly at the same levels they have been for 30 years.

* * *Notwithstanding my undeniable joy in busting their balls, I admire talented traders and hedge fund managers immensely. They have a rare and distinct skill set and personality which is tailor-made for success in today’s global financial markets. But almost to a man, they are lousy at building real operating businesses. One of the key psychological traits of top traders—their ability to change their minds on the fly, experiment with risk where they see financial opportunity, and change business models as often as they change clothes—is fundamentally incompatible with building stable operating businesses where success and profitability rely upon consistent execution and sustained market presence. Hedge fund managers I know treat operating committee meetings like investment committee meetings: this strategy isn’t working, let’s shut it down; this market is on fire, let’s throw another 20 people at it and see if we can make money; here’s a talented banker in an industry we have never covered, let’s hire her and see whether she can build a business by herself before we give her any resources. You just can’t run a real business—including, believe it or not, an investment banking business—like that. It’s stupid to try.

I suspect Ken Griffin failed at building the next Goldman Sachs for a number of reasons. For one, he misunderstood the source of Goldman’s (and others’) success in investment banking. He thought it derived from their gigantic, market-moving presence in global financial markets. Instead, Goldman has maintained a market-leading spot in M&A and underwriting almost in spite of their position as one of the world's largest hedge funds. Goldman is strong in those areas because it has always been strong there, because it has been a premier advisory bank for almost its entire history. If anything, Goldman's strength as a white shoe advisory boutique enabled its evolution into a world-straddling financial behemoth, not the reverse.

Second, Griffin’s undeniable talents as a hedge fund manager and trader made him far too mercurial to be the strategic visionary behind a major investment bank. While I would not discount the corrosive effect of his famous temper on employee relations, I guarantee you the main reason so many senior investment bankers left so quickly from Citadel is that Ken kept changing his mind about strategy and tactics. Investment banking just isn’t that hard. You pick a strategy, you pick the right personnel to execute it, and you wait. Investment banking on my side of the house requires the virtues of an investor: careful thought, committed investment, and patience. I know few top-flight traders who possess anywhere near the required measure of the latter.²

* * *In any event, the reverse of Ken Griffin’s strategy—building a world class hedge fund within a full-service investment bank—hasn’t worked out very well either. As soon as a trader gets enough experience and reputation to strike out on his own, he’s gone. Good hedge fund traders who can make money on their own don’t need or want the massive infrastructure, byzantine bureacracy, compliance strictures, and cap on upside compensation which a modern global investment bank demands for its very existence. Perhaps if Mr. Griffin had spent a little more time trying to understand the incompatibility of banks and hedge funds from this, very well-documented direction, he might have spared himself a few years and several hundred million dollars worth of trouble. But then again, I suppose he’ll just chalk it up to just one more bad trade in a lifetime of many: no harm, no foul.

Investment banking + hedge funds. Like most unnatural acts, it always sounds better in concept than it turns out in execution. And it always hurts way more than you expected.


¹ I would not be one of them. Investment banking has never wanted for ass-chafing competition in any of the 20+ years I have practiced in it. I daydream fondly about the day it will.
² Most of them would ask, “Why throw good money after bad?” I (and other investment bankers) would retort, “If the strategy is correct, you have to give it time to bear fruit.” You may guess that traders and investment bankers rarely agree.

© 2011 The Epicurean Dealmaker. All rights reserved.