Did “Smart Guys” Destroy Wall Street?
It Is Nice To Be Part of the Elite!, IT'S ALL ABOUT POWER AND MONEY, Risk Management Strategies, The Consequences of Greed, The Danger of Volume Trading, The End of American Capitalism As We Know It? - Discuss, The Financial Elite, The Importance of Strategic Planning, The Inherent Disorder of Empires, THEY ARE ALL THE SAME, Time For A New Third Party, Unindicted Co-Conspiritors, We Are All Cooked, We Are All Guilty, We Have Become Beggars To The World, What Is An Investment Asset?, Who owns Congress-Still!
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Oct 312009
I think Calvin Trillin–or at least his bar-room companion–is really on to something here:
“The financial system nearly collapsed,” he said, “because smart guys had started working on Wall Street.” …
I reflected on my own college class, of roughly the same era. The top student had been appointed a federal appeals court judge — earning, by Wall Street standards, tip money. A lot of the people with similarly impressive academic records became professors. I could picture the future titans of Wall Street dozing in the back rows of some gut course like Geology 101, popularly known as Rocks for Jocks. …
“Two things happened. One is that the amount of money that could be made on Wall Street with hedge fund and private equity operations became just mind-blowing. At the same time, college was getting so expensive that people from reasonably prosperous families were graduating with huge debts. So even the smart guys went to Wall Street, maybe telling themselves that in a few years they’d have so much money they could then become professors or legal-services lawyers or whatever they’d wanted to be in the first place. That’s when you started reading stories about the percentage of the graduating class of Harvard College who planned to go into the financial industry or go to business school so they could then go into the financial industry. That’s when you started reading about these geniuses from M.I.T. and Caltech who instead of going to graduate school in physics went to Wall Street to calculate arbitrage odds.”
I’d put it just slightly differently (and I realize Trillin is only about three-quarters serious): The key change on Wall Street was more sociological than intellectual. That is, it wasn’t so much that the smart guys went to Wall Street–though the intellectual caliber of the financial sector certainly increased with all those quants running around. The relevant change was that a lot of “outsiders” suddenly came to Wall Street, which had previously been dominated by insiders.
Was Wall Street Safer in the Hands of Stodgy WASPs? Noam Scheiber
Oct 312009
Once the most famous and influential African American in the United States (and probably the world), Booker T. Washington has earned at best mixed reviews in the decades since his death in 1915. Black intellectuals and political activists, from W. E. B. Du Bois to the present day, have generally seen Washington as a conservative racial accommodationist, yielding to the repressive power of Jim Crow and urging American blacks to abandon their political struggles for equality and instead to set their sights on a future of manual labor and petty property ownership.
Nothing brought Washington more notoriety than the speech that he delivered in 1895 at the Cotton States and International Exposition in Atlanta when, before a racially mixed audience, he appeared to acquiesce to the imperatives of legal segregation (“in all things purely social we can be as separate as the fingers”) while encouraging African Americans to “cast down your buckets” in the Jim Crow South. Although he is still read in college (and some high school) classes, usually against Du Bois, and remains in the pantheon of black historical figures, Washington is widely ridiculed and derided in black communities for his seemingly shameless pursuit of white favor. For many, he is the classic “Uncle Tom.” Even his most distinguished biographer, Louis R. Harlan, could not do much better than find at Washington’s core a drive for personal power and a penchant for political manipulation. And now that we are in the Age of Obama, when a man of African descent who set his sights on higher education and threw himself into grassroots politics–in short, who did many of the things that Washing-
ton advised against–has been elected president of the United States, do we really need to reacquaint ourselves with the likes of Booker T. Washington? Do his life and views any longer have meaning for us? Do we need another biography?
We Now Have a Black President. Was Booker T. Washington Wrong? Steven Hahn
As the front-page story in today’s Times points out, the relationship between AIG and its longtime former CEO, Hank Greenberg, is getting more and more fascinating. On the one hand, Greenberg still owns a lot of stock in the company and is keen to see it become viable again. (I happened to speak with him a few weeks ago–I’ve got to make sure the conversation was on the record before providing more detail, but the short version is that his feelings on this point are pretty unambiguous. It’s a mixture of his personal pride in having built the company and his own financial interest.) On the other hand, Greenberg does seem intent on competing against it aggressively.
This particular detail from the Times story caught my eye:
The firm [that is Greenberg's current firm, C.V. Starr & Company] seems to be focusing on the specialized lines of business insurance that once made A.I.G. stand out. The government had hoped to leave those businesses at A.I.G. intact after selling off most of its other operations, like life insurance and household finance.
That’s basically what I’ve heard, too–I think the hope is to sell off the overseas life insurance and annuities business in particular. (The current CEO, Robert Benmosche, is a former life insurance executive and may decide to hang on to the domestic parts of those businesses.)
Now, if Greenberg were only making a push into the overseas consumer businesses, then there wouldn’t be much of a conflict. But commercial insurance is at the heart of AIG’s plans going forward. Moreoever, the reason those specialty lines have been so profitable over the years is that AIG has had little in the way of competition there and a lot of pricing power. If Greenberg and C.V. Starr are getting into those businesses, it could have a pretty direct effect on AIG’s bottom line.
What Is Hank Greenberg Trying to Do to AIG Anyway? Noam Scheiber
When Irving Kristol joined the new magazine Commentary, he distinguished himself from the other editors–Clement Greenberg, part-time then, Robert Warshow, and me. First, he had an interest in politics, real politics, electoral politics, and not just the politics of left-wing anti-Stalinists, mulling over what was living and what was dead in Marxism, the fate of socialism, the future of capitalism, communist influence in the intellectual world–no mean issues, but hardly ones to affect who won and who lost an election. So Irving discovered the wonderful political reporter and analyst Sam Lubell in the pages of The Saturday Evening Post, persuaded him to write for Commentary, and made me an enthusiast for his books, now hardly noted (although Sam Tanenhaus’s recently published The Death of Conservatism uses one of Lubell’s central theses as a guiding theme). None of the rest of us had ever read or noticed The Saturday Evening Post.
http://www.tnr.com/article/books-and-arts/the-interested-man
Saving Capitalism
We need to take a different turn. Bill Gates and Warren Buffet offer splendid examples of great, capitalist fortunes put to social use, making the capitalism they exemplify more palatable. When modern corporations do this, we call it corporate social responsibility. More of this will clearly have to be done.
But we also need to respond to the steady erosion of the American myth of mobility. Today, after nearly a quarter century of wage stagnation, and growing evidence that educational access for the poor has also declined, that myth is in a disastrous decline.
We have to respond by improving education and by relieving anxiety through reforms that make health care part of a basic provision for the poor. These reforms strengthen capitalism. Without them, the economic populists will enjoy a success that they do not deserve.
Jagdish Bhagwati is University Professor and Senior Fellow in International Economics at Columbia University. He is the author of In Defense of Globalization (Oxford, 2004) and Termites in the Trading System: How Preferential Agreements Undermine Free Trade (Oxford, 2009).
Feeble Critiques: Capitalism’s Petty Detractors
Jagdish Bhagwati