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Pay Dirt: Watching Wall Street
By KARA McGUIRE, Star Tribune
March 7, 2009
It all started with massive downsizing at AT&T. In the mid-1990s, Karen Ho was studying anthropology as a graduate student at Princeton, searching for the focus of her dissertation. Ho, now an assistant professor of anthropology at the University of Minnesota, remembers thinking that 40,000 workers losing their jobs was horrible news. But the stock market applauded it, sending AT&T shares up.
Fascinated and confused by the different reactions, she'd found her dissertation topic. Ho took a leave from graduate school and embedded herself as a business analyst at Bankers Trust, now part of Deutsche Bank, to "learn the language of finance." She stayed for a year, until, ironically, her entire work group was downsized.
She spent the next few years working on her ethnography, or study of Wall Street culture, by being a self-described pain in the you-know-what: interviewing hundreds of people, shadowing investment bankers at work and hanging out with them at bars and industry conferences. She's turned that research into her forthcoming book "Liquidated: An Ethnography of Wall Street," out this summer. Today, amid Wall Street's biggest crisis since the 1930s, her insights are fascinating for investors and regulators alike.
Q How are investment bankers different from the rest of us?
A Investment bankers are structured toward the next bonus. They're compensated on how many deals they can push through, not on the quality of the deals or long-term strategy. Investment bankers have tons of job insecurity; they are a total revolving door. But what's interesting is that because of their fairly elite biographies and kind of privileged networks they move in, as well as their lavish compensation, the way they experience downsizing is very different from that of the average worker.
One of the things I argue in the book is that they cultivate a culture of liquidity, of continual restructuring and downsizing that they understand from their particular cultural point of view and privileged location as a productive challenge, as a building of character, precisely because their cushion is so thick. They can say, "Hey look, I have a really risky job, but that's why I just got paid $1 million last year." They'll actually recommend this kind of churning for other workers who have a very different experience. This actually affects corporate America, how other industries are operating.
Q What are some other themes in the book?
A One of the main ideas is to figure out how short-term shareholder value became the undisputed mission of most corporations from the 1980s onward. Throughout the mid-20th century, Business Roundtable leaders would say: "Our mission is to negotiate the long-term interests of multiple stakeholders -- consumers, employees, distributors, as well as the shareholder." After 1980, it's: "We don't have to negotiate all these other interests; we just have to be concerned about the shareholder." The corporate takeover movement Wall Street led in the 1980s helped to culturally make that shift so CEOs now imbibe that Wall Street mantra.
Even though Wall Street investment banks represent themselves as champions of shareholder value, their very recommendations and advice and actions actually undermine shareholder value through these continuous booms and busts. Corporations get rewarded and investment bankers get rewarded for financial dealmaking that actually does not increase productive capability. When two companies merge, many business economists will say the actual long-term shareholder value is lukewarm at best. You might actually see shareholder value spikes, but not long term.
Q This book is based on your 2003 dissertation. But it could have been written today.
A Wall Street's dominance has always been characterized by a boom-and-bust cycle. In many ways, this current subprime-generated crisis is par for the course based on their cultural practices.
But in this particular boom-and-bust cycle, I think investment bankers' actions have so boomeranged that they themselves have really been negatively affected and they haven't been as cushioned. In all the previous debacles -- the junk bond crisis of 1987, the emerging markets crisis of 1998, the dot-com bust of 2000-2001 -- those all were moments where most workers really suffered increasing job insecurity, continual layoffs. But investment bankers really bounced back.
This time, bankers doubled down and intensified the very practices that created the bust. They engaged in so much risk that they themselves don't know what's on their own books. They got caught up in their own hype, to their own detriment.
Q So you think Main Street is going to insist Wall Street changes?
A I think so. For example, the critique of banker bonuses: How can you pay $18 billion in bonuses in 2008 when Wall Street investment bankers were involved in instigating the second Great Depression? I think people are beginning to realize that what Wall Street was doing was not only delinked from the well-being of most people but actually produced the crisis.
Individual investors are caught in a bind. We might actually have a critique of Wall Street actions, but our very retirement savings are invested in Wall Street being happy. It's really hard for us to disentangle our own security with a very much needed re-regulation of Wall Street. And Wall Street does not think a severe, total dismantling, restructuring of its very culture is good news, even though that might actually be what's needed.
Q Did you find the investment banking lifestyle a tempting alternative to graduate work?
A You know, I wasn't enticed at all. I wasn't at all motivated by the money; I really wanted to figure out what was going on. I actually made more money that year than in the previous four years of graduate school put together, so I saved up enough to do research in addition to getting some grants. But bankers would boast about the 100-plus hours they would work. They would talk about how they slept under their desks, in their cars.