Hunter Wallace thinks the cancer of Wall Street can’t be contained in New York City, despite David Duke’s hatred of the place and support for Occupy Wall Street. Walter Russell Mead on the other hand notes the departure of some of the financial industry from New York. Does the location of the investment banking industry affect its nature?
When I was a community college student, I had a reduced rate prescription to the Wall Street Journal. Back in those days investment bank would announce deals with an ad called a “tombstone”- an ad with a black border with the amount raised, the type of security, and the name of the investment bank down at the bottom. It was both a simple announcement and a testament to the organization’s ability to get financing for its customers.
One time an investment bank- if I was a hip sophisticate I would just say “bank”, but it is understood by everyone that a “bank” is a regular bank- ran an ad they called “the empty tombstone”. As I remember it showed one of the plexiglass framed ads they would distribute, but blank except for the black border. The gist of the ad was that they realized that sometimes the best interest for the client was for no deal, sale, or placement to occur, and they understood that. (A web search seems to show this was JP Morgan, but the ad I saw was in 1980 or about, and their ad dates from 1988 or so, so I can’t say for sure it was the same one. The text of the Morgan ad says “The empty tombstone underscores a J.P. Morgan credo: We don’t do deals to generate fees. If a transaction isn’t in the client’s interests, we’ll recommend against it. ) Felix Salmon notes this noble sentiment was more a matter of theory than practice, as of course noble sentiments often are.
The idea that some kinds of deals might be bad for the customer, bad for the financial industry, bad for the economy, or unethical has been completely lost to Wall Street. In the mortgage fiasco the IBs not only sold mortgage securities they knew were worthless, they sold securities betting these securities were worthless. But back then, at the dawn of the Reagan era, investment banking was still a sleepy business run by the less ambitious scions of old elite families- George W. Bush but from Connecticut. Aggressive, ambitious Ivy League graduates went into other fields. With the junk bond era, people realized huge amounts of money could be made just through financial transactions, and investment bankers began to get very rich. Some Harvard class of the mid 80’s had half its graduates apply for jobs as trainees with just one IB, First Boston.
Manhattan began to change at this time as well. It became more international and much more expensive. The traditional lifestyle of investment bankers- a co-op apartment in the city, a home in the suburbs- began to get very expensive. Manhattan is an interesting place to spend a few hours or days, but it is not really a nice place to live. Its residents are obsessed with getting away for the weekend and taking vacations. To really live the life you need a nice condo or co-op in Manhattan, a suburban house outside the city, a beach house at a nice resort area on Long Island for the summer, a place in Florida for the winter, and vacations in the Caribbean and possibly a home there as well. This means a great deal of traveling as well; and not with the hoi polloi on JetBlue either. A private jet, if only a NetJets membership, is a distinct marker of elite status. The relative closeness of Long Island doesn’t mean you are driving to and fro on summer weekends; helicopter or possibly seaplane keep our Masters of the Universe out of traffic, even in a limousine. And everything in this lifestyle is relative; somebody always has more and bigger houses, yachts, planes, and cars.
The lifestyle of the investment banker or manager is then a frantic rush to make more, and more, and more money. There is really no point at which he can stop; he can feel poor, frustrated, and second class with a few hundred million dollars. If ethical considerations get tossed aside, well, think of the poor man sitting in his Learjet watching his rival in a Gulfstream go by, or looking at his neighbor’s house on the beach while he cools his heels a few doors inland, with only private beach access.
But greed is greed, isn’t it? If we wall off New York, or move it elsewhere, won’t the problem be the same? I say no. As we have seen, the insane need for money that Wall Street investment bankers and Greenwich, Connecticut hedge fund managers have is significantly related to their physical location.
Let’s take, for example, one of our new investment bankers working at Fifth Third Bank in Cincinnati. He’s an ambitious fellow, and wants a nice house. On a golf course even! But such a house, fine as it may be, just doesn’t cost very much money in Cincinnati, not in the greater scheme of things. I’ll guess the finest golf course mansion in Cincinnati or environs can’t possibly cost more than $1 million, a sum that won’t buy you a ratty two-bedroom condo in Manhattan. Our ambitious and, let’s admit, possibly greedy and felonious fellow doesn’t need a suburban country house as well, he lives full time in it. He will want a beach house, but he doesn’t need two, one on Long Island and one in Florida- just one in Florida, and in a much less pricy area than Palm Beach, will do fine. Such social competitions as super expensive clothing- particularly for his wife- buying modern art, and making huge charitable donations, will also be mostly absent. His wife will want to buy out the department store, but that can be done for a fraction of what it costs in Manhattan. Art will be disregarded entirely, and charitable giving will be to his church and not done for elaborate show.
Our Cincinnati investment banker doesn’t need to make nearly as much money as our Manhattan investment banker, and so has less pressure to be unethical. A couple other factors are at play. Our Puritan/Jewish elite are uncomfortable away from their homeland, so this man will probably be of more wholesome American stock. He will not likely have the Puritan/Jewish belief that great wealth, the more the better, is a sign of election by God. And the super-ambitious Ivy League graduates, who have lived since kindergarten with a philosophy of win at all costs, will also find life in Cincinnati- even in a golf course mansion- unappealing, and devote themselves to other pursuits in New York or Boston.
It seems to me that removing the financial industry from New York can only have the most salutary effect on its functioning, its ethical and moral conduct, and its beneficial relationship with the nation as a whole. New York is a glamor place. People who work there want what they do to be glamorous, if only by virtue of how much money they make. But the financial industry is not, and should not, be glamorous. It’s a fundamentally very prosaic business that must meet the dual and conflicting needs of widows, orphans, and retirement investors on the one hand, and the desire of businesses for low-cost capital on the other. It needs to be run by personally and philosophically conservative people who understand the critical importance of maintaining a proper balance between these two needs.
Were we to achieve this, we would have a lot less demand for Gulfstreams and Palm Beach mansions on one hand, and a lot more empty tombstones on the other.