Finance: more on those fat cats and running rats
[See this for background.]
I was contemplating just how it is that someone like Richard Fuld of Lehman can look himself in the mirror right now and not throw up. But I’ve got a hypothesis about people such as Fuld, who operate in the rarefied atmosphere of finance at its highest levels.
Some call what motivates them greed, and I’m not really disagreeing with that. But I actually think what drives them even more strongly has a slightly different flavor; I think much of it has to do with status and identity and a feeling of self-worth—run amok.
After all, what does it matter whether a person has fifty million dollars or a hundred million, or a billion? With any of those amounts, he/she certainly has everything he/she might ever want in terms of goods and services and financial security—at least it seems that way to the ordinary person struggling to make ends meet.
But people like Fuld don’t usually meet people like you and me. They live in a bubble of their own, and they are competing with others of their ilk. Money is the stuff they play with every day, and it becomes almost an abstraction past a certain point. If they trade in millions and billions at work, millions and billions become standard units of money to them and not incomprehensible enormities. In a certain sense it’s all Monopoly money, and winning more and more of it is the biggest game of all.
The outcome of that game is the measure of self-worth for many of them. I don’t know anything about Fuld’s personal life; perhaps he’s got wonderful values and a great family and knows that the best things in life are free yada yada yada. But I tend to doubt it, and I doubt it for so many of his fellow big-time CEOs.
When things are good, they take so much more than they need because the others are doing it, and their place on those lists featuring “the hundred richest people in America” depends on it.
And when things are bad, it makes sense to them to grab as much as they can on the way out, so they can continue to feel good about themselves. Paradoxically, that makes the rest of us look down on them. But I think they lost touch with the rest of us a long time ago.
[NOTE: The above post of mine is meant to offer a speculative explanation, not an excuse.]
[ADDENDUM: I keep thinking of a quote from “King Lear.” Not that Fuld is Lear, not by a longshot. But the passage is a rumination on the subject of need versus excess.
And boy, can I identify with that last line these days:
O reason not the need! Our basest beggars
Are in the poorest thing superfluous.
Allow not nature more than nature needs,
Man’s life is as cheap as beast’s. Thou art a lady:
If only to go warm were gorgeous,
Why, nature needs not what thou gorgeous wear’st,
Which scarcely keeps thee warm. But, for true need–
You heavens, give me that patience, patience I need.]
It really doesn’t help anything to dwell on these guys. The basic issue is that there will always be the ‘economic problem’, which is that some people are very productive and good at acquiring resources and some people are very bad at it. Socialism was an attempt to force people to share. The problem with that is that it is self-defeating in that it removes the incentive to produce. We are now seeing the limitations of free-market capitalism. So is it possible for a society to solve this problem? IMHO religion is the only instituation that has as a core principle that generosity is a virtue and greed is a vice and that this is what makes it possible for a society to deal most effectively with the economic problem. Of course individuals can be generous but from a societal standpoint it is precentages of people who are generous that is important. The more irreligious a society becomes the more it suffers through setbacks like the one we are going through. By the way it is a good idea to donate to local food banks right now.
Excessive spending and inadequate saving is everybody’s problem, not only of fat cats. Why people now see shopping not as rational economic activity, but as recreation or sport, and buy lots of not needed items? This crisis would be impossible if true Puritan values were followed. Easy credit (and even use of credit cards) has spoiled peoples. Let us hope that real economic hardships will teach them long needed lessons about thrift and self-restraint.
Never thought you’d be one to misuse the word “enormity”. Tsk, tsk.
In my life, I have only been concerned with how much money I make, not what anyone else makes. I’ve done the best I can (most of the time) to get paid what I’m worth, and be worth what I’m paid.
So I’m naive. What else is new?
I greatly enjoyed this post. I think you “nail, meet hammer”ed it. I also appreciate Martin Bebow’s call for religion as a moderating force, much as a woman moderates a man’s wilder drives, and the two form a stronger and more competent team. I also appreciate Sergey’s point about “shopping as sport”. Maybe that is a wilder drive of some women.
Because, in a free market economy, the more one produces wealth the more one therefore contributes to one’s fellow man, therefore Captain’s of Industry are certainly justified in producing as much wealth as possible. Such is virtuous. But not absolutely.
Thomas Aquinas attempted to create rules for when it is justified to take life. Part of his thinking concerned a Doctrine of Double Effect. This description is from Ronald Munson, in “Ethics for Military Leaders”, Simon & Shuster, 1998, p. 397:
While working to create wealth, Captains of Industry would do well to consider the Doctrine of Double Effect. I’ll wager many have violated all four rules.
If they cannot be bothered with the Doctrine of Double Effect, they might consider listening to that little voice inside of them – a voice I believe is Supernatural – which is nagging at them to do right, and which makes them feel guilty and responsible if they ignore it and do wrong. If only I myself listened to that little voice more consistently! 🙂
“It is not enough that I should succeed, others must fail” David Merrick, Broadway Producer, 1912
Bogart quips; “Rocco knows what he wants”
Robinson comes back with, “Yeah, thats right, I know what I want.”
Lionel Barrymore joins in with, “And whats that Rocco?”
Bogart answers, “Rocco wants more.”
Robinson, again agreeing, “That’s right, I want more.”
Barrymore’s character, beginning to recognize the nature of the beast, responds with a tired, “Will you ever have enough Rocco?”
Robinson, in blunt honest reflection, “Well….lets see, never have….nooo, I guess I never will.”
from the movie, Key Largo
Greetings:
I don’t think anyone teaches or reads Conrad’s “Lord Jim” anymore.
1. A lot of what neo said can be summarized: “Business is a competitive sport”. In other words, if you’re going to play, you may as well try to win the championship. Otherwise the game is no fun.
And somebody gets the gold, and somebody else the silver…
I’m in software, and I think Bill Gates and Steve Jobs treat business that way. Most working class folks don’t.
2. If you want to blame the failures on greed, it is only fair to blame the successes on greed also.
There is also a (serious) theory that the root cause is the do-gooders, not the greedy, who distorted the market with GSE’s to provide ownership to the underfunded.
The ethos at the top of large investment banks is driven by pride, and there is very much a shame culture at all these firms.Fuld is humiliated, as was Jimmy Cayne from Bear Stearns.I’ll wager that Alan Schwartz didn’t stay at JP Morgan because of his shame;facing that everyday eats at their guts,particularly when Bear prided itself on it’s own risk management skills,known to be the best on the street.They were known as the Sparta of WS for a very good reason.
Lehman was furiously bailing water, trying to avoid the appearance of panic so as not to precipitate a run on the company.To manage staying ahead of the tsunami is a terrible thing, especially for a driven type A like Fuld.He was a lifer, committed to the greater good of Lehman.Now it’s all gone.I’ve long thought it’s folly for IB’s to have such a huge amount of their comp in vested stock, just in case the worst does happen,but in these firms, they push loyalty and pride of place to the max,so to practice prudent savings and diversification gets treated as an act of betrayal.
Wall St firms are torn between shareholders wanting higher earnings growth,which requires more leverage on the balance sheet, and employees pushing risk levels so to keep up to their competitors and grow market share and book value of equity, and the risk depts that have to worry about overextension of the firm’s capital.
There is an irony missing in all the finger pointing about excessive comp levels.Investment banks do what all the good governance types want done: focus on shareholder equity,take large amounts of stock for employees so to align workers with shareholders,etc.Except there’s one variable that is outside their control, but can negate years of prudent management:confidence.Once that goes, these companies can go into a death spiral.
Fuld went to work for lehman at 23 out of school, he worked his way up in the company, its the only job he has ever had.
[cant post more than that… dont know why]
Artfldgr: I don’t know why either. I’m not censoring you for length (although it is definitely true that you have a tendency to run on). My spam filter sometimes has a mind of its own.
I didnt think you were… you have always been honest as far as i can tell, and fair.
Some call what motivates them greed, and I’m not really disagreeing with that. But I actually think what drives them even more strongly has a slightly different flavor; I think much of it has to do with status and identity and a feeling of self-worth–run amok. C.S. Lewis said somewhere that, after a certain point, greed does not account for the continuing desire to accumulate more money: after a certain point, it’s pride.
I would say that, after a certain level of income, occupations may become hobbies, with dollar amounts as the score.
…
Having written that, I am trying (unsuccessfully) to think of a how I could be wrong: I don’t think I like the implications of that thought. Um, help?
from a VCs perspective… i think it explains why these CEOs who are often founders get so much. for the most part, the public wants a good reason, not necessarily that the public wants remuneration to stop.
I am not certain how other VC’s feel, but I like to see the various members of the management team have enough equity each that they
a) think like equity holders versus just salaried employees and
b) are excited to come into work each morning to build value for themselves.
In a nutshell, you pay them less, they wont do so much as they are employees not stake holders.
fuld lost 485 million shares of lehman… he wasnt an employee earning a lot, he was a stake owner whos whole life and its outcome is intimately tied to the firm. they become married to the firm this way.
People in politics or in Hollywood have their value systems as well, money is important but acclaim, being seen as a power player, having successful and celebrity people regard them as peers… that becomes the primary motivation. The universities have their own hierarchies, and envious players seeking to claim their place in them.
In the commercial world, it is addiction to success and craving acceptance by the right kinds of high achieving peers that seems to matter once certain financial hurdles are passed.
I know a CEO and a private equity guy, both from mundane schools and modest small town backgrounds. They worked hard for career and financial success, and achieved that. In the process of thriving in that world, they continuously judged their progress against some other high achievers who were otherwise repugnant in their conduct and values.
Both now have a hard time avoiding making excuses for the crass robber barons and the disgraced white collar criminal types with whom they have crossed paths. After all, they know how hard it has been to achieve their own success, and can’t be too critical of even those who have violated their own standards of decency and honesty. Besides, that guy can’t be a total figure of shame, look how much he donated to his alma mater, they named a building after him…