CNBC called and soon William and I were on the show for one of those 60 second spots with a 30 second commercial in the middle. You can watch it here, although to get a better sense of what we’re trying to say it is better to read the original articles.
The problem is that this is more easily said than done. Most people working on Wall Street can make ends meet while a small few can make vastly more money than they need. The trick is to make sure that the process of making money does no harm.
Question: How much money would all the participants in the mortgage securitization industry have to give to charity to undo the harm they have caused?
Answer: More than they have ever made.
The real opportunity to do good on Wall Street is to reform it from within. But to do the right thing you have to be able to recognize the difference between right and wrong, and then you must be able to say “no” when ordered to do the wrong thing.
Usually, employers rapidly scan the resume of each job applicant looking for relevant education, skills, and work experience. They select 10 candidates for telephone calls, invite three in for interviews, and hire the one they like the best.
This is a bad way to hire because at best it gets you nice people.
You don’t need nice people.
You need good people.
Good and nice are not the same thing. The opposite of good is bad. The opposite of nice is unlikable.
Nice people care if you like them; good people care about you. Nice people stretch the truth; good people don’t. If you tell a nice person to do something evil, they might do it because they do not want to upset you; a good person will refuse to do it.
You might think you are a good person, but you are fallible, so if you want to avoid inadvertently doing something evil you must surround yourself with good people, not nice people.
When I was in my early 30s with three young kids at home, I renounced my childhood religion—Mormonism. My father tried to talk me out of it by asking how else my children would learn moral behavior. “How will you reinforce what is right and wrong without going to church? I don’t know how I’d have raised you kids without Sunday school and the youth programs.”
I pointed out to him that we both knew good church-going Mormons with a lot of variation in their moral compasses. I particularly focused on a relative of ours who always held top church positions, but who we knew had swindled and cheated his way through life.
I also told my dad that I believe people learn ethics and how to live their values by example—more so than through any instruction they get in Sunday school or church sermons. What I didn’t say to him, though I was thinking it, was that I had always respected him for his natural honesty. I don’t remember getting a lecture from him on the topic, but I’ve tried to be really truthful my whole life—to be like him.
My son went to a good school, studied physics, and did well. Then, after his junior year, he got a glimpse of the life physicists lead and decided it wasn’t for him. He graduated with a physics degree and then asked himself, “Where do I go now?” I was relieved when he informed me he had no interest in going into my field, quantitative finance.
His physics education alone has not equipped him for what he will find in my field. Although he might have had a successful career as measured by income alone, I don’t want him to come home from work conflicted. Because much of modern economics and finance reads like physics, he will be able to read literature that many others cannot—perhaps not his boss, nor his clients. I would be afraid that he might someday build a financial model that blows up his firm or costs a client loads of money. I know he is a good kid, but I think the environment on Wall Street for people like him is bad.
I think the majority of problems in finance stem not from poorly designed regulations or lax enforcement but rather from bad parenting. I have never been saved from doing the wrong thing because of a regulator or a regulation or a manager or a compliance officer or a lawyer. I have been saved by the imagined voice of my father saying, “I’m ashamed of you.” (And once he was gone, now I imagine my children saying the same thing.)
What my father said to me, which is the same as what I say to my children
This past February, I retired from finance. Although I intend to continue to study the markets and write about them, I have no intention of ever working in the securities industry again. This makes it easy for me to talk to you about what I think is going on and what needs to be done.
I worked at Merrill Lynch as a computer consultant in the mid-1980s, and from 1986 through 1992 I was an employee—first doing research and later creating and running trading desks in New York and Japan. After a brief stint at Credit Suisse First Boston in Tokyo, I returned to the US in 1993 to work as a consultant to a couple of large Wall Street firms. In 1995, I built and ran a statistical arbitrage trading desk for the US branch of a medium-sized Canadian securities firm.
This February, at the age of 61, I retired from that job of 18 years. I can honestly say my time at that Canadian firm was the best of my entire working career and unlike anything I experienced at any other Wall Street firm. At first I could not put my finger on the difference, but at a Christmas party an elderly co-worker from South America I’ll call Eduardo told me he’d been wondering about the same thing. “I have figured it out,” he said, “The word is ‘decent’ and my theory is that in Canada they raise their children to believe that it is more important to be decent than to be rich.” Continue reading To save Wall Street, start with better parenting.
Reputation managers, public relations agents, and spinmeisters working their magic on a clueless press and a forgetful populace have re-defined words so frequently that they have lost their meaning.
“Financial engineers” used to be the “rocket scientists on Wall Street” who concocted esoteric “derivatives” but when these products went south they became “innovators” working on “alternative investments” – which were presumably alternatives to the stuff they came up with previously. Eventually the International Association of Financial Engineers changed its name to the International Association of Quantitative Finance with the goal of “advancing the field of quantitative finance.” Presumably, their members who once called themselves “financial engineers” are now “quantitative financiers.” After their next blow-up I wonder what term they will advance the art by calling themselves something else.
“Banker” used to mean someone who took deposits and made loans. There were variants: Retail Bankers, Commercial Bankers, Investment Bankers, Mortgage Bankers, and even Personal Bankers. But there are also speculators and hedge funds operating as banks, and some “bankers” are best described as “bank robbers.”
My favorite is “hedge fund manager.” The reason is that I used to be one, and I got a kick out of how many definitions people could come up with. The only one I’ve found that made any sense was, “A payout schedule in search of a strategy.”