Nonetheless, I moved through the system with the rest of them. First interviews on campus. Second interviews in hotel rooms downtown, where I tried to chat gaily about asset backed securities while pretending that I was not perched uncomfortably on a king bed with two strange men staring at me. If we were lucky, we were flown to New York for third rounds. The prestige banks were the independents: Goldman Sachs and Morgan Stanley at top, then Merrill Lynch, then CS First Boston, Bear Stearns, Lehman Brothers, Salomon Smith Barney. JP Morgan after them. Working for a commercial bank's investment banking arm was strictly the booby prize.
My worst interview was at CS First Boston, where an interviewer inexplicably asked me why I was not applying to Bear Stearns. Flummoxed by the bizarre interest, I stammered and told the truth, which was that they had a bad reputation with women. You may already have guessed that that interviewer had just moved to Bear Stearns from First Boston; he spent the rest of the interview grilling me about bridge (I had played, badly, in college) and asking me questions about the markets that would have been appropriate if I had been interviewing for a trading position, which I wasn't, but which weren't inside the domain of knowledge potential investment bankers were expected to know. At one point he asked me where the long bond had closed the night before, which I happened to know from the news that morning.
"6.37*", I said.
He glared at me. "Is that true, or did you just make that up?"
"I don't understand," I said. "Are you asking me questions you don't know the answers to?"
Needless to say, I didn't get invited for a second round. Late that night he called me to inform me, and as was customary, asked me if I wanted feedback.
"I don't think so," I told him. "Do you?"
He hung up the phone.
Nonetheless, other banks liked me well enough. I flew to New York with the other investment banking associates and now the herd was running through the canyons of Wall Street. Lehman and Merrill Lynch both toured me through their cool, quiet offices in the World Financial Center. I ultimately ended up at Merrill Lynch for the summer. In the Technology Investment Banking group. In 2000. Even without any actual work to do, it took little time to discover that I had no inner investment banker waiting to get out.
Now Bear is a fading memory, Lehman is filing for bankruptcy, and Merrill Lynch, who we barely had our eye on because we were so worried about Lehman, has sold itself to the Bank of America. A mole at Morgan Stanley reports that half the office is working on the Lehman disaster, trying to figure out how to terminate swaps and other counterparty obligations. The rumor mill is busy at work asking whether Goldman Sachs and Morgan Stanley can survive as independent institutions. When JP Morgan was allowed to go into the investment banking business, much was made of the end of Glass-Steagall. But this is the true end game: investment banking houses are folding back into commercial operations in order to take advantage of the stability of their gigantic balance sheets. In my 3 am moments, even I wonder if this is wise: are we making the system more stable, or merely lashing the traders to ordinary depositors they can take down with them?
Remembering all this, I am struck by something a JP Morgan banker said to me when I turned down their offer in favor of Merrill Lynch. "You know, ten years ago, no one wanted to work at Goldman," he said. "Things change a lot in this business." Now JP Morgan owns Bear Stearns, and Merrill Lynch is an arm of Bank of America. I wonder if he remembers those words as well as I do.
Brilliant post. Although I may disagree with you on a number of item, I like your spunk.
As someone who has had a close look at the maelstrom, believe me when I say that we should be very scared and be praying for the return of Glass-Steagall. (One could also hope for a return of responsible, level-headed management of all financial institutions, but that's not really possible in our world).
Your economy is only as good as the people in it. As bank after bank fails and crook after crook CEO walks away with millions leaving the mess to the creditors and the fed, I am starting to wonder if maybe the raw material, the people, of financial system just isn't very good anymore. I know they are smart people. Smarter than I am. But what on earth are they teaching at business school? Why do we even have business schools in the first place?
I am starting to wonder if perhaps the whole system is broken. We are taking some of our brightest people and educating them in nothing beyond the art of bean counting and number manipulation. We then have business ethics programs taught by people who think that that since all capitalism is evil and anyone involved in it has already sold their soul negating the need for actual ethics. These people are immediately given obscenely high paying jobs and told they are the best and brightest and given responsibility for untold millions and, after a few years, billions.
How is it that someone at Lehman brothers thought that investing the sub prime mortgage business was a good idea in the long run? How is it that no one saw the housing market for unsustainable bubble it was? These people get paid millions to know these things and they failed or they didn't care. What is worse the people most responsible will walk away will millions and no doubt continue to be given important jobs when they ought to be broke and managing a seven eleven somewhere.
WAWAWA
Come on, I understand these people make more money than you and it p*sses you off. Get. Over. It.
It's a choice right, and libertarians are supposed to be dogmatic about the sanctity of choice. If you are so bitter about how much you make, CHOOSE a different career.
The reason this happens is because we are human...and greedy. That is the natural state of things, and a good example of how regulatory oversight is not neccessarily a bad thing.
Megan, instead of carping full of hate for the people who choose a different path, why don't you get back up on your soapbox and defend your dogmatic ideals when the sh*t hits the fan for once?
Not exactly on point, but I'm very interested to hear your continued/developing thoughts as what looks very likely to be a bloodbath week progresses.
Joe,
There is nothing wrong with those people making money. Good for them. My problem is when they make money and still screw everything up. Where is the accountability for this? How did we get people who should have known better make such stupid decisions? I think it is deeper than just a few banks going under. I think it is a product of whole process by which we are training and hiring people in the financial sector.
Also, if you haven't figured it out yet, Megan claims to be a libertarian but can't stand people who chose a different lifestyle than her. This post is just another variant on that common theme.
John,
From what I've read, at least at some places, the people whose job it is to keep investments on the straight and narrow--risk assessors--were under a lot of pressure to make calls very fast, and to give the traders what they wanted, which was approval. Of course they should have been steadfast enough to make the traders wait, but when everybody seems to be making money no matter what they do, it's hard to be the naysayer in the room.
Furthermore, the rating agencies are very complicit in this by manipulating the rating system so that dangerous subprime loans were given AA or AAA ratings. At least one risk assessor I've heard from said that they really trusted the agencies and it was an outlandish idea to them that those ratings could be wrong.
Really, though, I'm commenting mostly to say that I go to UChicago, and I have seen exactly the parade you're talking about, Megan--from a looong distance.
Funny how things change. When I was getting my MBA, the most prestigious firm was Salomon Brothers. They were very thinly disguised as Sherman McCoy's firm, Pierce & Pierce. Now it's a small part of a very large company.
As someone who just went through that rigamarole last year, this brought back some still-fresh memories. I had a hotel interview where the banker was stretched out on a couch with his shoes off and feet up. Needless to say, it was hard to concentrate.
I wish I had your quick wit, though. Would have made recruiting so much more fun.
Lots of my friends worked at LEH / MER over the summer and have offers. I'm not looking forward to seeing them in class today.
Megan, the question about the bond rate was one you were not supposed to know the answer -- it was an interview test to find out if you would bluff your way out of that one or simply make something up. When your interviewer called "back side" on your answer, the correct response would have been "ordinarily I wouldn't know the answer, but it was on the news just before I came in" and you could even add "I am personally interested in the bond rate because I see it as a financial indicator for everything else."
Your interviewer should have been prepared with the correct answer if that interviewer wanted to use it to detect candidates who just make stuff up. You called "back side" on the interviewer, which was probably a satisfying thing to do at the time, but interviewers hold all the power, and generally there are no second chances -- lose the offer, better luck somewhere else.
About Governor Palin. So she drew a blank on the "Bush Doctrine." If Mr. Gibson wasn't trying out a "gottcha, you don't know this one", he would have asked "Bush Doctrine, the principle of defense through preemption", or "Bush Doctrine, nation building instead of working with dictators" and Governor Palin could have expressed an opinion, whether it was deeply informed or not.
Bush Doctrine. All of us political Web-site geek types, bloggers and blog readers alike, are saying, "Yeah, we have been debating 'Bush Doctrine' for a full seven years now and the woman from the wilderness hasn't given it a moments thought."
If it weren't Bush Doctrine, it would have been some other question, someplace, and at some time. I am so thoroughly blog-conditioned I would have been tempted to use snark. But Governor Palin handled the "don't have a clue what you are talking about" gracefully and responded graciously and snark free, and we may yet see her "get the job she is interviewing for."
"There is nothing wrong with those people making money. Good for them. My problem is when they make money and still screw everything up. Where is the accountability for this? How did we get people who should have known better make such stupid decisions? I think it is deeper than just a few banks going under. I think it is a product of whole process by which we are training and hiring people in the financial sector."
I think you are absolutely right, but I have two responses.
1) They have been made accountable, they are all of jobs, have years of their lives down the drain, and a large portion of their lifetime earnings went up in smoke.
There's your pound of flash.
2) This is where good governance comes in. It's one thing to be shocked when people get too greedy and put the entire financial system in jeopardy, it's another when this happens EVERY 8 YEARS and libertarians continue to screech for deregulation.
Bottom line, people are human, so we need to check their base instincts. But all we hear from libertarians is chatter for deruglation and post-hoc career choice justifications ("look how much better journalism or the academy is! I didn't f*ck up!")
Where's the accountability for the libertarian arguments which enable humans to put us all in harms way?
I'm sorry if you think this post reeks of seething hatred of people who make more money than I do. I feel no schadenfreude at their downfall--I knew exactly what I was choosing when I decided to become a journalist, and I don't envy them their money any more than they envy me my job. I was just struck by the way this seems to be nearly the end of a very particular era.
As for the bond question, the interviewer's demeanor became hostile and borderline inappropriate the minute I said something bad about Bear Stearns. He was behaving appallingly, and there was no way I was getting the job, so why cater to him?
This kind of behavior is all too typical. I worked for a large law firm in the Midwest when I first got out of law school. I am a guy and even I thought the place was sexist and unfriendly to women. They only hired women who were single and did not have a steady boyfriend when they were hired and they never hired an associate man or woman who had small children. Their view, and they were amazingly frank about this, was that they paid you to work and the less demanding a personal life you had; the better you would work for them. There were and are some good people who worked there. But there were also just some appallingly horrible people as well.
Your 3 a.m. moment should be one you have at noon. It is unwise and will end badly.
Joe,
I am not sure government regulation is the answer. Look at the Fannie Mae crisis. There is a case where political grandees like Jamie Ghorlick made millions lying about the firm's assets and buying off Congress to cover it up. With regulation comes corruption.
"I wonder...are we making the system more stable, or merely lashing the traders to ordinary depositors they can take down with them?"
Nice catch.
In fact, we're on our way to replicating Japan's banking system. I'll leave it to brilliant economic theorists like Phil Gramm to decide whether this is a good thing.
Even more painful than hearing Gramm, of course, will be the relentless parade of nimrods on TV today misquoting Schumpeter.
Miss McArdle,
Thank you for the illumination. To point up what was wrong with the culture at the Bear, the clumsiness of the thundering herd and the habitual longer perspective of J.P. Morgan in one anecdote is a triumph.
jk
Surely the USA is still a long, long way from replicating a system that pours retail savings into a politically governed Post Office Bank?
Incidentally, din't Schumpeter misquote Schumpeter on this?
@joe
The source of the problem was government intervention in the financial system.
1. Greenspan keeping the fed funds rate at 1% for some time, pretty much egging people to leverage themselves to the hilt
2. Since the 90s with Clinton, and carried on with Bush, was the agenda to push everyone into home ownership. Since the financial sector made money off of the government's agenda, they were ready to jump on the bandwagon. Now the government's push to have everyone be part of the american dream, has bred an american disaster like no other.
The true end of Glass-Steagall is still to come... when JPM puts the House of Morgan back together. Just wait.
I am currently working in one of these investment banks, and the mood here is sad. People are worried about their jobs. I don't blame them, and they know the risk of working in the financial industry (I knew full well before accepting a full-time), but looking at the whole picture, it's pretty sad. What I do hope for, however, is that people who did unethical or illegal actions are found out and punished. I think we are nearing the end of this whole debacle (the midway point at the least).
I don't comment often, but I wanted to do my little part in the battle against nonresponse bias and say how much I enjoyed this post.
From context,
"... that interviewer had just moved to Bear Stearns from First Boston; ..."
seems to get the direction of the move wrong.
"Megan, the question about the bond rate was one you were not supposed to know the answer -- it was an interview test to find out if you would bluff your way out of that one or simply make something up. When your interviewer called "back side" on your answer, the correct response would have been "ordinarily I wouldn't know the answer, but it was on the news just before I came in" and you could even add "I am personally interested in the bond rate because I see it as a financial indicator for everything else."
Your interviewer should have been prepared with the correct answer if that interviewer wanted to use it to detect candidates who just make stuff up. You called "back side" on the interviewer, which was probably a satisfying thing to do at the time, but interviewers hold all the power, and generally there are no second chances -- lose the offer, better luck somewhere else."
Meanwhile, out here, in a place called Grown up Productive Land, we play different games...
Look I understand why people object to regulation in Business, especially the Glass-Stengall act. It really makes it difficult for an investment bank to maximize its lending, and buying ability. But it is designed as a brake to keep bank collapse cordoned off into a specific area of the economy and not invade the large number of people who use a bank for a home loan, checking and savings account. 2 of which by the way are FDIC insured.
Right now we're stuck in the enforcement of the above mentioned regulation. But I worry that we're climbing down a ladder rung by rung trying to stave something off that will not abate. This leads me to wonder about what to do after it is over? I would say that if these banks become unwilling to separate themselves then they should be separated through legal force. I understand that this will cost these banks a large sum of money. This is their Frankenstein however, and if disaster is averted they are to be held responsible as a whole entity.
No need to apologize, MM. You clearly understood that interviews are a two-way street. You saw through the veils of the interviewer and recognized that you had no interest in working for a company who would employ such a man. You saved yourself quite a bit of aggravation with that one.
ben -
It, and regulations like it in other areas, that enforce walls and separations between market segments, or even directly segment the market, also can make problems more likely. If you have a bunch of businesses focused just on one area because they aren't allowed to be in another area, than problems in that first area might take them under where a more diversified firm might last through problems in one area, than later problems in another, than later problems in a third.
Not that diversification is a panacea, it has downsides as well. For one thing business diversification might mean that management is in a bunch of different business without understanding or having a competitive advantage in most of them.
hiRe: The rumor mill is busy at work asking whether Goldman Sachs and Morgan Stanley can survive as independent institutions.
GS avoided any major danage in the mortgage crisis, and MS took its lumps and got out early. Expect those two institutions along with JP Morgan Chase to emerge from the mess bigger and stronger. After all, they just lost some of their competition, an they stand to pick up new business in the long run
As for all the moaning and whining about Glass Steagall, that regulation was designed for a different world and had been made obsolete by the time it was repealed. Might as well try to deal with today's traffic congestion by reviving regulations on livery stables! Nothing in Glass Steagall would have prevented anything that has happened over the last year or so.
"@joe
The source of the problem was government intervention in the financial system.
1. Greenspan keeping the fed funds rate at 1% for some time, pretty much egging people to leverage themselves to the hilt
2. Since the 90s with Clinton, and carried on with Bush, was the agenda to push everyone into home ownership. Since the financial sector made money off of the government's agenda, they were ready to jump on the bandwagon. Now the government's push to have everyone be part of the american dream, has bred an american disaster like no other."
First of all monetary policy is NECESSARY intervention, you can say it is bad monetary policy, but unless you want to go off on the Fed in general, this is an implementation question not a legitimacy question.
#2 Fine, but again, this is intervention and not regulation. Glad to see Megan is admitting that there is a role for government, even though this conflicts with her ideology. Would be cool to see her try to bridge the gap (I think it is possible in a regulatory framework which allows for free markets in the things mkts do well.,,,just never see it from more orthodox libs)
Thanks for your amusing summary, Megan! For mine, the reason why so many of these brilliant analysts have failed to forecast the bursting of this, the greatest real estate bubble in history, is because a section of applied economics, viz, the goings on in the property market, location, location, location, Ricardo's Law - call it what you will - has been removed from the study of economics. I'm a valuer/appraiser and had little difficuly forecasting this or previous downturns, as you can see on our site at www.lvrg.org.au.
Well, Houston, we have a problem here. Having read this jeremiad carefully -- we know it is tough times in MBA-land and thus the need to vent -- it boils down to this: "It's not our fault, stupid."
Yes, it is.
While I am in no way capable of or interested in debating the complex financial details and issues with Megan, I know a hard sell when I see it, and the product here is a lack of responsibility.
Far smarter and even better educated financial masters than Meg (not a knock on you, I am a U of C grad myself) were pontificating and filling the financial papers and airwaves and business magazine columns with assurances on the market unbound, the freedom to fail, the genius of complex instruments and the antiquated silliness of, yes, Glass-Steagall.
Actual University of Chicago-trained economists, Wharton stars, Stanford-minted wise men and women, sat doing their econometrics, analyses, and investment strategizing on the bridge for Lehman and Merrill Lynch, Bear Stearns, etc.
They too talked a good game and knew quite a bit, more than we did, but not it seems as much as they should have. Their wisdom and judgment may have been relatively superior, but nevertheless woefully insufficient. There is nothing more dangerous than listening to the smartest person in the room when they've reached a state of enlightenment not only over the peons, but over the expert fogies who went before them -- aside from their gurus like Milton Friendman or, god help us, Ayn Rand.
Megan, if you and your brethren really knew what you were talking about, Lehman Brothers, Fannie Mae, Bear Stears, AIG, Wachovia, etc. etc. wouldn't have gone up in a raging puff of smoke. Period. As Archie Bunker might say,"It refutes itself."
What, one bank had lasted over 150 years, right? Until the Friedman MBA's got into Properity and set up a saloon on the outskirts of town. It corrupted many of the good townsfolk, and now we are paying the price.
Saying it was unavoidable and there was nothing you could have done -- It is just the way people are! -- when you and your fellow MBA's were at the heart of this arrogant, shameful, unprecedented and sorry, AVOIDABLE (for 75 years at least) disaster, is a crock. And I suspect you know it. Thus the heat in your comment.
We don't need to be experts to be able to look at the wreckage you and your fellow smartypants have left in your wake to know you didn't know half what you said you did. Please, empiricism is alive and well. And regulation worked. Your way didn't.
We can't go back to where we were, but we sure as heck don't have to listen to the folks who made this mess. And I say this with all due respect...