(An excerpt from an interesting article by Michael Lewis, whose
investment banking job at Salomon Brothers provided the material for
"Liar's Poker". I worked under John Gutfreund at Salomon Brothers and
even fairly closely with Michael Bloomberg when I was developing a
system to automate their branch office in London. A few years later I
ended up at Goldman-Sachs where I worked under Robert Rubin and Henry
Paulson. It really feels good to see these characters get the opprobrium
they deserve.)
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom
The End
by Michael Lewis Nov 11 2008
The era that defined Wall Street is finally, officially over. Michael
Lewis, who chronicled its excess in Liar’s Poker, returns to his old
haunt to figure out what went wrong.
(clip)
I’d not seen [John] Gutfreund since I quit Wall Street. I’d met him,
nervously, a couple of times on the trading floor. A few months before I
left, my bosses asked me to explain to Gutfreund what at the time seemed
like exotic trades in derivatives I’d done with a European hedge fund. I
tried. He claimed not to be smart enough to understand any of it, and I
assumed that was how a Wall Street C.E.O. showed he was the boss, by
rising above the details. There was no reason for him to remember any of
these encounters, and he didn’t: When my book came out and became a
public-relations nuisance to him, he told reporters we’d never met.
Over the years, I’d heard bits and pieces about Gutfreund. I knew that
after he’d been forced to resign from Salomon Brothers he’d fallen on
harder times. I heard later that a few years ago he’d sat on a panel
about Wall Street at Columbia Business School. When his turn came to
speak, he advised students to find something more meaningful to do with
their lives. As he began to describe his career, he broke down and wept.
When I emailed him to invite him to lunch, he could not have been more
polite or more gracious. That attitude persisted as he was escorted to
the table, made chitchat with the owner, and ordered his food. He’d lost
a half-step and was more deliberate in his movements, but otherwise he
was completely recognizable. The same veneer of denatured courtliness
masked the same animal need to see the world as it was, rather than as
it should be.
We spent 20 minutes or so determining that our presence at the same
lunch table was not going to cause the earth to explode. We discovered
we had a mutual acquaintance in New Orleans. We agreed that the Wall
Street C.E.O. had no real ability to keep track of the frantic
innovation occurring inside his firm. (“I didn’t understand all the
product lines, and they don’t either,” he said.) We agreed, further,
that the chief of the Wall Street investment bank had little control
over his subordinates. (“They’re buttering you up and then doing
whatever the fuck they want to do.”) He thought the cause of the
financial crisis was “simple. Greed on both sides—greed of investors and
the greed of the bankers.” I thought it was more complicated. Greed on
Wall Street was a given—almost an obligation. The problem was the system
of incentives that channeled the greed.
But I didn’t argue with him. For just as you revert to being about nine
years old when you visit your parents, you revert to total subordination
when you are in the presence of your former C.E.O. John Gutfreund was
still the King of Wall Street, and I was still a geek. He spoke in
declarative statements; I spoke in questions.
But as he spoke, my eyes kept drifting to his hands. His alarmingly
thick and meaty hands. They weren’t the hands of a soft Wall Street
banker but of a boxer. I looked up. The boxer was smiling—though it was
less a smile than a placeholder expression. And he was saying, very
deliberately, “Your…fucking…book.”
I smiled back, though it wasn’t quite a smile.
“Your fucking book destroyed my career, and it made yours,” he said.
I didn’t think of it that way and said so, sort of.
“Why did you ask me to lunch?” he asked, though pleasantly. He was
genuinely curious.
You can’t really tell someone that you asked him to lunch to let him
know that you don’t think of him as evil. Nor can you tell him that you
asked him to lunch because you thought that you could trace the biggest
financial crisis in the history of the world back to a decision he had
made. John Gutfreund did violence to the Wall Street social order—and
got himself dubbed the King of Wall Street—when he turned Salomon
Brothers from a private partnership into Wall Street’s first public
corporation. He ignored the outrage of Salomon’s retired partners. (“I
was disgusted by his materialism,” William Salomon, the son of the
firm’s founder, who had made Gutfreund C.E.O. only after he’d promised
never to sell the firm, had told me.) He lifted a giant middle finger at
the moral disapproval of his fellow Wall Street C.E.O.’s. And he seized
the day. He and the other partners not only made a quick killing; they
transferred the ultimate financial risk from themselves to their
shareholders. It didn’t, in the end, make a great deal of sense for the
shareholders. (A share of Salomon Brothers purchased when I arrived on
the trading floor, in 1986, at a then market price of $42, would be
worth 2.26 shares of Citigroup today—market value: $27.) But it made
fantastic sense for the investment bankers.
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