Saturday, December 31, 2011

Turn the Page

Ansel Adams, Yosemite Valley Thunderstorm
“Everybody’s coming back to take stock of their lives. You know what I say? Leave your livestock alone.”

— Grosse Pointe Blank

One more rotation of a small blue planet on its circuit around a minor yellow star at the edge of an unremarkable galaxy in an accidental universe is flimsy justification for the importance which so many of us put on the turning of the year. But we have agreed to take this day and night as a sign of something larger, something more important than our quotidian lives. It is simple convention, yes, but it is our convention. And who is to say we are wrong?

So raise a glass: To absent friends. To present friends. To family and everyone else we love. To life, and the chance to keep on living it, if only for a little longer (who knows how long). To paths taken, and untaken. To the promise and hope of a new year. To the wishes in your heart. To the hopes of all humankind.

To the words and motions of that ancient toast:

Never above you,
Never below you,
Always beside you,
And forever in your glass.

Happy New Year.

Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth;

Then took the other, as just as fair,
And having perhaps the better claim,
Because it was grassy and wanted wear;
Though as for that the passing there
Had worn them really about the same,

And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads on to way,
I doubted if I should ever come back.

I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.

— Robert Frost, “The Road Not Taken”

© 2011 The Epicurean Dealmaker. All rights reserved.


Do not disturb
Je souhaite dans ma maison:
Une femme ayant sa raison,
Un chat passant parmi les livres,
Des amis en toute saison
Sans lesquels je ne peut pas vivre.

In my house I wish:
A woman with her reason,
A cat passing among the books,
Friends in every season
Without which I cannot live.

— Guillaume Apollinaire, “Le Chat”

Enjoy your weekend.

© 2011 The Epicurean Dealmaker. All rights reserved.

Thursday, December 29, 2011

In the Nation’s Service

An unpleasant but necessary part of the system
“They all have husbands and wives and children and houses and dogs, and—you know—they’ve all made themselves a part of something, and they can talk about what they do. What am I gonna say? ‘I killed the President of Paraguay with a fork. How’ve you been?’”

— Grosse Pointe Blank


It is a common situation in human society that we often encounter significant moral dilemmas, situations in which we must make a choice between terrible evils in order to advance some agenda. Should we continue an unjust war when immediate cessation could cause worse harm than a temporary continuance? Should we torture a prisoner for the location of a nuclear device primed to incinerate innocent civilians? Should bankers crash the entire global financial system and plunge us into recession simply to ensure a steady stream of material for journalists and pundits to write about? These are difficult choices.

Within larger, more complex societies, we often deal with such regularly recurring dilemmas by establishing and empowering groups of individuals to take care of our dirty work for us. Whether it is Seal Team Six, the United States Congress, or Goldman Sachs, many of us prefer to tut-tut from a safe distance about the naughty things these agents do to advance our interests, while secretly enjoying both the benefits they help provide and the fact we ourselves are able to maintain righteously clean hands while doing so. I leave it to you, O Thoughtful Readers, to reflect on the justice of such moral hypocrisy and, indeed, whether is it truly avoidable in any practical sense.

More to the point, however, is the question whether such groups and individuals actually provide a service to their societies. I say they do. You may not agree with their actions, or even the sociopolitical agenda which engenders such choices, but you cannot deny that society as a whole depends and relies upon such agents to do its dirty work. And there is plenty of dirty work to go around. Some claim, for example, that the entire industry of financial intermediation “is a superposition of fraud and genius” designed to trick the rest of us into taking investment risk, therefore ensuring economic growth instead of collective stasis, even if the price is unequal distribution of risk and loss and the extraction of intermediary rents by financiers. This may well be true. But it is a collective fraud which advanced societies have foisted upon ourselves, and in most instances we enjoy substantial (if not unalloyed) benefits from it. What would you propose in its stead? Lower living standards?

And even if you are skeptical that the financial industry’s actions are the moral equivalent of shooting terrorists in the head or firing remote-controlled missiles into Afghan villages—as I am—you can still acknowledge that perhaps the societal function it performs, while unpleasant, is one of more pedestrian utility, like taking out the garbage or cleaning toilets. Call it the “wrinkled nose” problem. There are lots of those jobs which need to be filled in society. In fact, one might argue that most jobs fall somewhere along the spectrum from mildly disgusting to slightly repellent in moral terms. As a wise man once observed, that’s why they call it work.

So I fear I must take exception when Princeton students exhort their peers to eschew jobs on Wall Street for more noble ones “In the Nation’s Service.” We all work in the nation’s service, children, whether you like it or not: garbagemen, IRS agents, commando assassins.

Even investment bankers.1,2


There is another, more prominent strain to the critique of Wall Street’s hiring among college students. That is, it is argued that the financial industry is so lucrative and glamorous that it has—at least for the past many years—hoovered up all the “best and brightest” among this nation’s young people, leaving too few for the really important work of innovating, inventing, producing, and addressing the truly pressing problems our society faces. The example typically used to illustrate this argument is the large number of science, math, and engineering graduates Wall Street has hired into sales and trading positions to construct, market, and trade structured products and derivatives.

Put aside, for a moment, the question whether we really face a shortage of technically trained young people in science, math, and engineering roles in this country when we can afford to devote a significant number of them to programming virtual farm animals and glorified online diaries. Put aside the question why the supposedly daunting technical problems we face are not serious enough to have created well-paid jobs for hundreds of otherwise unemployed, highly-educated PhDs in science and engineering. Put aside the fact that many of these wonderfully innovative and productive jobs are either highly risky entrepreneurial positions with no financial security or low-paid internships with charitable organizations or NGOs. Put aside, in other words, the fact that no-one has demonstrated to me that there is any real demand out there in the real economy for these supposedly “productive” positions, or at least any demand that can translate into a living wage sufficient to support a young college graduate without her having to live in her parents’ basement. No, we can address the larger argument directly with several different points.

First, there is the simple matter of demand. Wall Street and finance are currently shrinking rapidly, due to a combination of lousy cyclical market conditions and hostile secular regulatory shifts. Simply stated, Wall Street will continue to shrink over the next several years, because we can no longer make the kind of money structuring, selling, and trading securities and derivatives we did before the financial crisis. We just won’t need to hire as many people as we did in the last decade. Most of the best and brightest will have to look elsewhere for job offers anyway. Problem sorted.

Second, it is not clear that finance ever did monopolize hiring of the best and brightest among our young people, anyway. There are two components to this observation. As Bryan Caplan observes, “elite”—that is, lucrative and socially prestigious—employers like investment banks and management consulting firms tend to recruit new hires from a very narrow and select list of undergraduate and graduate schools, consisting primarily of the Ivy League and cognate institutions. Investment bankers and management consultants tend to look for new employees like themselves, and they tend to be more comfortable recruiting either from the schools they went to or from schools just like them. But, as Megan McArdle points out,

The Ivy League is full of smart, interesting people. But it is not full of all of the smart, interesting people in the country, or even a majority of them. And given the résumés required to get there, it produces a group of people who are narrow in certain predictible ways. (I include myself in this: just because I can see it operating doesn't mean I can escape it.)

The problem is that actually seeking out a wide variety of graduates would be much more expensive and time consuming. Why spend the effort searching for “best” when you can easily access “very, very good”?

This is spot on, as I can attest from my own experience. Over the years, my employers, peers, and I have been completely uninterested in recruiting the “best and brightest” from among the flower of our youth. Instead, we look for bright enough (i.e., very, very bright, but not necessarily the brightest), very hard working, and supremely ambitious. This is entirely due to the requirements of the jobs we hire for: we need young men and women with quick, flexible intellects who can pick up the tricks of the trade in very short, very accelerated apprenticeships; people who are gregarious and fun to be with at 3:00 in the morning after three all-nighters together; and people who are phlegmatic and driven enough to withstand the inhuman punishment we dish out during the early years of their careers. The nature of investment banking—and, dare I say it, management consulting, too—is not one that demands deep thinkers, brilliantly inventive innovators, or even virtuoso synthesizers of disparate intellectual strands. We want smart, fun, dedicated, aggressive youngsters who can work like animals, day-in, day-out, for as long as it takes. As you can tell, this is not a particularly nuanced or diverse set of criteria.

At most you can say that, up until now, investment banks have been aggressive employers of a particular kind of person from among the best and brightest, and they have sought their candidates from among a particular subset of educational institutions which generate them. The intense selectivity of the most elite universities in this country guarantees that there a legions of brilliant, driven, accomplished youngsters stretching their intellects and learning valuable skills outside the penumbra where Wall Street looks for its hires. Furthermore, as Megan McArdle says, the eye of the needle through which young people must pass to gain entrance to the Ivy League and other super-elite universities tends to select for just the sort of highly ambitious, aggressive individuals who make good candidates for investment banking.3 This leaves a tremendous number of highly intelligent, creative, and non-conventional individuals firmly outside the clutches of evil investment banks, whether they like it or not. Those who despair that the cream of our youth are disappearing down the maw of Mammon should take comfort that a very large number of them—probably the majority, and perhaps even the best of the best and brightest, given what we want them for—escapes permanent dissolution into ignominy.

Finally, even those who fall into the gaping gullet of finance are not necessarily lost forever. Students hired out of college are typically employed for two years at most, after which they can leave to go to graduate school or rejoin the productive economy, wiser for their scars and sporting a highly marketable work experience on their résumés. Even among those who go to business school, not all return to my industry. Ones who stay or return with MBAs don’t all stay forever, either. They get fired or laid off; they burn out under the unrelenting strain; they become disgusted with the miserable lifestyle, the continual sacrifices, and/or the moral compromises they feel compelled to make. The ones who manage to make full careers in my business are few in number, even though a “career” in my business normally lasts less than 20 years. Investment banking is a young person’s game, or the calling of an individual like me who has found nothing more exciting and satisfying to do that will actually pay him money. Some—a very few—even manage to come out the other side of the tunnel with their morals intact and the financial security and means to give back to society in a meaningful way. They go into politics, they become philanthropists, they build schools in Bolivia.

They might even write a blog.


So, don’t despair. The deluded and confused flower of our youth will have broader, more socially constructive paths available to them than investment banking, whether they want them or not. Investment banks’ demand for cannon fodder is plummeting almost as fast as their social prestige, and pay is likely to follow. Eventually, unless current trends reverse, investment banking will return to what it was not so long ago: an obscure, thinly peopled backwater too mysterious for most trend-following college kids to even contemplate, and too abhorrent in polite society for their parents to recommend. The hard-core wanna-be bankers—high-functioning autistics, budding psychopaths, etc.—will always beat a path to our doors, however, as they always have done. And we will welcome them with open arms. Perhaps even motivated, intelligent candidates from non-Ivy schools will have a chance to break in, too, after the Ivy Leaguers have moved on to the next hot employment trend. That would be a good thing, since they tend to be better candidates for the long run anyway.

We don’t need or want all the best and brightest. Just the best and brightest investment bankers. Not much has changed in that regard over the past 20 years I have been in the saddle. But one thing has changed for good, and for the better. No longer can a privileged dilettante get a job at Salomon Brothers simply because Mummy knows the Queen of England. Sorry, Michael Lewis.

Related reading:
Steve Randy Waldman, Why is finance so complex? (Interfluidity, December 26, 2011)
Kevin Roose, An Orange and Black Eye for 2 Banks (DealBook, December 9, 2011)
A Hard Rain’s Gonna Fall (September 30, 2011)
Bryan Caplan, How Elite Firms Hire: The Inside Story (EconLog, November 18, 2011)
Megan McArdle, Elite Firms Fishing in a Very Small Hiring Pool (The Atlantic, November 18, 2011)
If the Phone Don’t Ring, You’ll Know It’s Me (October 1, 2011)

1 Which is not to say, of course, that we must allow the people who do our dirty work to do whatever they want or abuse their legal and extralegal powers for their own benefit and the detriment of the greater good. After all, we empowered them. They work for us. So it is up to us to direct and monitor what they do and are allowed to do. In the case of the financial system, this means regulation and oversight. I have consistently advocated close, stringent regulation of the financial sector, for the very reason that a malfunctioning, overly self-interested financial system can cause all kinds of nasty problems. As I think we all can attest.
2 Furthermore, when students such as these talk about jobs in the nation’s service, they most often mean civil service, bureaucratic, and political positions. Oftentimes, these are the very individuals who commission society’s dirty work in the first place. Who is more culpable, the commando who shoots the terrorist in his bed, or the National Security Advisor who authorized the raid? The structured products banker who sold toxic securities, or the stream of regulators and politicians who loosened the rules enough for him to get away with it? Hmm...
3 The most select schools make heroic attempts to enroll diverse student bodies, and they certainly have the numbers of applicants to make that possible. However, the center of the bell curve at any Ivy League university remains squarely in the sights of my industry, and it is arguable that pressures both within and after school tend to push everyone toward the middle. There was a humor book in the 1980s, The Preppy Handbook, which joked that 20% of each entering class at Princeton were preppies, but 80% of graduates were. One might say the same thing about students who want jobs in investment banking and consulting nowadays.

© 2011 The Epicurean Dealmaker. All rights reserved.

Monday, December 26, 2011

TED’s Greatest Hits of 2011

Charming, aren't I?
True, true, 2011 isn’t officially over yet, but I am happy to hurry the good-for-nothing wastrel out the door. What promised to be a busy and productive year in my business fizzled out pathetically after Labor Day, leaving me far too much time to blog for my own comfort. Readers continued to trickle in to this site over the course of the year, however, so either I must be doing something right here or there are vastly more masochists peopling the world than I ever suspected.

While the following 10 “most popular” blog posts from 2011 are not based on anything more scientific that Google Analytics page rankings,1 they are not an unfair representation of the general tenor, topics, and tone of my work. Feel free to while away the interstitial period before the official beginning of the Mayan Year of Catastrophe by revisiting the pieces below (or diving in for the very first time). As a special, one-time, limited holiday offer, there is no charge.


THE CANON, 2011 Edition

1) Jane, You Ignorant Slut (May) — In which I trenchantly and comprehensively respond to some of the idiotic gasbaggery circulating the interwebs over the pricing of LinkedIn’s initial public offering. Targets for my righteous fury include the normally sensible Joe Nocera, intermittently unhinged Jim Cramer, and former investment bank research analyst2 and current blog spammer Henry Blodget, whom I take to task for promulgating “The Stupidest Analogy About IPOs Ever Conceived.”™ Due in no small part to the fact that Mr. Blodget took umbrage at my attack and attempted to paint himself out of the ridiculous metaphorical corner he had invented in a follow-on post, this article attracted by far the greatest number of pageviews of any individual post during 2011. It also reaffirmed my long-standing policy of preventing comments at this location to be the only tenable one for an individual uninterested in marinating himself in the idiocy of the legions of mouthbreathers and internet trolls which populate one of the leading business-oriented blog sites in the English language.3

2) First, Let’s Shoot All the Philosophers (April) — The head of the Department of Philosophy at UNLV argues that the study of philosophy should be supported at his university due to its practical benefits, and I counter that the salient characteristic of philosophy is exactly its radical non-practicality. Picked up like a shiny new toy for some reason by folks over at ycombinator, whose inclusion of this piece on their news feed drove thousands of unsuspecting hackers, venture capitalists, and other hapless start-up junkies to a site which they could only have been too happy to leave as quickly as possible.

3) Come Fly With Me (February) — Wherein I puncture the twin myths of the glamor of investment banking travel and the independence of Big Swinging Dicks like me. It’s a client service business, people, after all. Complete with a nifty cinéma vérité snap by your very own Dedicated Bloggist and Budding Professional Photographer.

4) Bar Nothing (January) — An autobiographical anecdote from serial confessor James Altucher forms the basis for this meditation on the attractions of “hot clients” and “hot deals,” which together reduce normally dignified, self-contained, and highly principled investment bankers4 to slavering crack whores desperate for a hit. Illustrated with a spiffy pic of Rita Hayworth as Gilda, sadly not taken by this Author.

5) If the Phone Don’t Ring, You’ll Know It’s Me (October) — For all those eager beavers who continue to want to break into my industry—regardless of parental advice, social opprobrium, and diligent demythologizing by Yours Truly—I lay out a few pointers which might do the silly buggers some good. Hint: an Ivy League degree in finance is not required.

6) Dan, You Pompous Ass (May) — A follow up post to my original LinkedIn IPO piece (q.v. #1, above), in which I provide more details of the IPO distribution process while simultaneously debunking the notion that the fact that investment banks treat institutional buy-side investors differently reflects underhanded or illicit behavior. As I did not bother to attack Henry Blodget again by name in this piece, pageviews were materially lower. Paraphrasing Jane Austen, I hope and suspect Mr. Blodget was so perfectly satisfied with our first conversation that he will never again distress himself by introducing the subject of it again.

7) She’s Got Legs (June) — In which I offer fashion advice to aspiring young women in my industry and similar ones. Said advice mainly boils down to the following: “sexy” ≠ professional. Period.

8) A Victim of Soycumstance (September) — Your Diligent Reporter spotlights a story on divisional infighting at Morgan Stanley to explain why the historically contentious and structurally conflicted corporate finance and sales & trading divisions of traditional investment banks do much better when they cooperate. Encompasses both management philosophy & practice and firm strategy in investment banking, which may be the first time anyone in my industry has ever actually thought about the two topics together.

9) You’re Doing It Wrong (October) — Your Humble Blogosophist loses patience, once again, with the pace and direction of financial reform in this country. I spray the landscape liberally with machine gun rounds, in hopes of winging a recalcitrant legislator or lobbyist or two, but I fear the result will once again be for naught. Pretty much summarizes the kind of regulatory regime I think would work, though. For the archives or for shits and giggles, depending on your preference.

10) A Hard Rain’s Gonna Fall (September) — Sales and trading professionals are getting fired by the thousands, in a massive bloodletting designed to shrink that overgrown side of the house back to normal after years of cheap credit, massive investment flows, and lax regulation. So, what’s a clever sales and trading manager to do? Plant stories in the gullible media attacking mergers & acquisition advisors, of course. Being one of the latter, I fight my corner. I think I win.

* * *

Let’s all hope 2012 won’t be such a pisser. Here’s mud in your eye!

1 Approximately 185,000 pageviews came in over the course of the year to the home page of this blog and are therefore not identified with any one post. Splitting these up equally over the total number of posts this year gives a page view count per page roughly equivalent to the identified page views for the tenth-ranked post above. Which is only to say, I have no fucking idea what you people like to read.
2 Who, one would think, should know better.
3 Yes, you may take that last bit as ironical.
4 I’m pretty sure there is more than one of these in my industry.

© 2011 The Epicurean Dealmaker. All rights reserved.

As Good as It Gets

Edouard Manet, Le Dejeuner sur L'Herbe, 1863
Carol Connelly: “OK, we all have these terrible stories to get over, and you...”
Melvin Udall: “It’s not true. Some of us have great stories, pretty stories that take place at lakes with boats and friends and noodle salad. Just no one in this car. But, a lot of people, that’s their story: good times, noodle salad. What makes it so hard is not that you had it bad, but that you’re that pissed that so many others had it good.”

— As Good as It Gets

Here’s wishing all of you lots of noodle salad in 2012.

Happy New Year.

© 2011 The Epicurean Dealmaker. All rights reserved.

Sunday, December 18, 2011

Walking Song

NGC 6302
I sit beside the fire and think
of all that I have seen,
of meadow-flowers and butterflies
In summers that have been;

Of yellow leaves and gossamer
in autumns that there were,
with morning mist and silver sun
and wind upon my hair.

I sit beside the fire and think
of how the world will be
when winter comes without a spring
that I shall ever see.

For still there are so many things
that I have never seen!
in every wood in every spring
there is a different green.

I sit beside the fire and think
of people long ago,
and people who will see a world
that I shall never know.

But all the while I sit and think
of times there were before,
I listen for returning feet
and voices at the door.

— J.R.R. Tolkien, The Fellowship of the Ring

NGC 6302 is a gaseous nebula in the constellation Scorpius which surrounds an immensely hot white dwarf star. It has one of the most complex planetary nebula structures known. The cloud is unconscionably gigantic, with lobes extending out as far as two light years (12 trillion miles) from the central star. Given that it is located approximately 3,400 light years (20.4 quadrillion miles) from Earth, it is in no conceivable way a structure which I will ever have the opportunity to visit, even if someone invented fast-as-light space travel tomorrow. Add to this the fact that the photons we see today left the nebula over three thousand years ago, and it is also true that the nebula as it exists now no longer looks like the picture above.

It is both a wonder and a sadness that we humans have developed brains which can conceive of a universe so vast as to literally be forever beyond our individual grasp. I suspect we are the only species on this planet which can not only contemplate our own individual extinction—intellectually, if not emotionally—but also conceive of a future world—happy, beautiful, alive—without our own presence. We need not turn our eyes to the stars to do so, either.

What will the world be like when winter comes without a spring that I shall ever see? What will my children and grandchildren and future generations of human beings see, and do, and experience? How I should like to see what they will see.

How I should like to see just one more spring after my last winter.

© 2011 The Epicurean Dealmaker. All rights reserved.