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Wall Street Smarts (The smart guys destroyed Wall Street)
New York Times ^ | 10/15/2009 | Calvin Trillin

Posted on 10/14/2009 8:54:44 AM PDT by SeekAndFind

“IF you really want to know why the financial system nearly collapsed in the fall of 2008, I can tell you in one simple sentence.”

The statement came from a man sitting three or four stools away from me in a sparsely populated Midtown bar, where I was waiting for a friend. “But I have to buy you a drink to hear it?” I asked.

“Absolutely not,” he said. “I can buy my own drinks. My 401(k) is intact. I got out of the market 8 or 10 years ago, when I saw what was happening.”

He did indeed look capable of buying his own drinks — one of which, a dry martini, straight up, was on the bar in front of him. He was a well-preserved, gray-haired man of about retirement age, dressed in the same sort of clothes he must have worn on some Ivy League campus in the late ’50s or early ’60s — a tweed jacket, gray pants, a blue button-down shirt and a club tie that, seen from a distance, seemed adorned with tiny brussels sprouts.

“O.K.,” I said. “Let’s hear it.”

“The financial system nearly collapsed,” he said, “because smart guys had started working on Wall Street.” He took a sip of his martini, and stared straight at the row of bottles behind the bar, as if the conversation was now over.

“But weren’t there smart guys on Wall Street in the first place?” I asked.

He looked at me the way a mathematics teacher might look at a child who, despite heroic efforts by the teacher, seemed incapable of learning the most rudimentary principles of long division. “You are either a lot younger than you look or you don’t have much of a memory,” he said.

(Excerpt) Read more at nytimes.com ...


TOPICS: Business/Economy; Culture/Society; Editorial; News/Current Events
KEYWORDS: financialcrisis; wallstreet
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To: SeekAndFind

Oh No! It was all those poor people and the CRA and poor widdle bankers being forced to make bad loans. (/s)

Here’s a link on how they did the math:

http://www.npr.org/templates/story/story.php?storyId=102325715

parsy, who says people never learn


21 posted on 10/14/2009 9:39:25 AM PDT by parsifal (Abatis: Rubbish in front of a fort, to prevent the rubbish outside from molesting the rubbish inside)
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To: SeekAndFind
Is this a NOVEL ( He was a well-preserved, gray-haired man of about retirement age, dressed in the same sort of clothes he must have worn on some Ivy League campus in the late ’50s or early ’60s — a tweed jacket, gray pants, a blue button-down shirt and a club tie that, seen from a distance, seemed adorned with tiny brussels sprouts. or a news story.?

The NY Times is irrelevant.

22 posted on 10/14/2009 9:41:45 AM PDT by VideoDoctor
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To: SeekAndFind
"* Most of the guys from the lower third of the class who went to Wall Street had a lot of nice qualities."

Right there it tells you that the measurement that put them into the lower third is flawed. It exists only in the head of the author.

In any class there are "smart" guys that don't get many dates but help others with math. That is only ONE kind of being "smart." Another is to be able to handle a great deal of "soft" data from multiple sources and communicate with diverse populations of people. That is what often makes a good manager. Math and physics geniuses are particularly bad at such tasks. So, what was the measurement that puts a manager of Brown Brothers Harriman into the lower third of the class?

[ The author has committed a logical fallacy known as argumentum ad stramineus homo (arguing against a straw man), wherein one falsely attributes something to a person or situatin and then claims that the result is flawed.]

"College was getting so expensive that people from reasonably prosperous families were graduating with huge debts."

This in itself is a joke. Prosperous families have trust funds coming from GRANDparents. (Since one is permitted to gift tax-free only %10,000 per year, for many people this is an advantageous way to distribute wealth before dying. Prosperous families that do not have education trust funds are self-made (first generation). But this is NOT whom the author is talking about; he explicitly mentions parents that were also on Wall Street and have houses in Greenwich.

Yet another falsehood is plugged in thus.

In addition, the author portrays getting on Wall Street as a decision of the supposedly debt-ridden graduates. This is utter nonsense: it's the Wall Street firms that pick them; their desire is very far from sufficient. Even in the best (easiest) years competition for finance jobs, especially Mergers and Acquisitions, was EXTREMELY fierce. Just wanting to make money to offset the debt is FARE from sufficient. A graduate should've also planned that move in advance: most have taken a few finance course and some additional economics. In sum, one has to be a star, and a reasonably prepared one at that.

The author's statement is simply stupid: it's like saying "Great many people now go to acting and NFL because their student and mortgage loans have increased lately." Just plain stupid.

"When the smart guys started this business of securitizing things that didn’t even exist in the first place, who was running the firms they worked for? Answer: The lower third of the class! Guys who didn’t have the foggiest notion of what a credit default swap was. "

Yet another moronic statement that reveals the author's lack of even basic understanding of management. Is the CEO of Alcoa a physicist or chemist? Probably not. How come Gerstner came to manage IBM from Pepsi? Because a manager is practically never a specialist. What (s)he does is pose right questions to specialist in his team. That is true for Alcoa, IBM, GE or any Wall Street firm. All those managers know ENOUGH to ask the math specialists right questions.

The author is simply ignorant of what the management function is and how it is performed.

And, incidentally, CSO is a form of insurance -- that simple. Math is needed only to calculate risk --- in the same way as insurance on a house or car. Do you really believe that Wall Street managers did not have a clue? The author is a moron (a person with arrested development).

As I said in an earlier post, it is difficult to find another article, even in the NYTImes, that would so utterly devoid of content.

23 posted on 10/14/2009 9:42:40 AM PDT by TopQuark
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To: khnyny

It is simply an investment that derives its value from some other thing. Not much different than an option, but rather than being an option for a direct investment (purchase or sale of gold, corn, pork bellies, etc.) it is perhaps a credit default swap - whose payoff is contingent on the default of a single obligor (say GM or Chyrsler).


24 posted on 10/14/2009 9:43:08 AM PDT by Wally_Kalbacken
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To: SeekAndFind

The article does have some valid points.

Consider this analogy. Wall Street, up until about the end of the last decade, was run by guys like GW Bush. He is personable, a jock, and popular but maybe lacking the soaring “intellect” of the nerds. Most importantly, since he is already well liked (and wealthy) he does not need to demonstrate to others, for his own ego, how successful or smart he is. GW (or an old school Wall Street executive)was comfortable being competent and did not need constant adoration from his peers to stroke his ego.

Beginning in the 90s though, Wall Street began to bring in more Obama types. Sure they might be smart, but they are socially maladjusted. They resented and resent the jocks popularity and pleasing personality. As a result, they put constant pressure on themselves to best the jocks by displaying their intellectual superiority. This display often is manifested in the implementation of academic theories when pursuing profits rather than Wall Street common sense. The theories are arcane, barely-tested under real world conditions, thus subjecting the firm to out-sized risks.


25 posted on 10/14/2009 9:43:51 AM PDT by junkbond (My time is not your commodity.)
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To: FastCoyote

Exactly!
The Government has been protecting the financial industry for decades.


26 posted on 10/14/2009 9:45:11 AM PDT by griswold3 (You think health care is expensive now? Just wait till it's FREE!)
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To: SeekAndFind

If they are from the lower third of their class how are they so smart to be called smart guys?


27 posted on 10/14/2009 9:57:36 AM PDT by Blind Eye Jones
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To: SeekAndFind
.
Oh! How I used to rant and rave about derivatives around here twelve years ago.
.
28 posted on 10/14/2009 9:59:13 AM PDT by Jackie
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To: GeronL

Sounds like this Climer is talking to Jim cramer....the ultimate WS prick.


29 posted on 10/14/2009 10:30:01 AM PDT by iopscusa (El Vaquero. (SC Lowcountry Cowboy))
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To: junkbond
.

intellectual superiority...

Consists of fraud, corruption and manipulation.

And as I have warned, the gold bubble has not yet burst.

.

30 posted on 10/14/2009 10:33:43 AM PDT by Jackie
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To: a fool in paradise
Actually, it burst on March 10, 2000. I remember it well.

Ten years ago was 1999 by the way.

31 posted on 10/14/2009 10:41:09 AM PDT by Defiant (The absence of bias appears to be bias to those who are biased.)
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To: Defiant

Damn. I need a new calendar.


32 posted on 10/14/2009 10:46:44 AM PDT by a fool in paradise (There is no truth in the Pravda Media.)
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To: junkbond
I agree, there is a kernel of truth to this article. The guys from my east coast prestigious school who went to Wall Street were not the smart guys. The smart guys went to law school, med school, or after Business School, went to IBM and other huge corporations. The jocks and salesman types went to Wall Street, where they prospered selling stocks and bonds to individual investors. Being good at sales they got to middle management, by the mid to late 90s, I was hearing stories about how much money these guys were making. I was kicking myself for not going to Wall Street. Around that time, the smart guys from B-school did start going to Wall Street. No one wanted to work at IBM anymore, they wanted to do spin-offs from IBM, or IPOs for companies that would take business from Dinosaur companies like IBM.

The flaw in the theory is that the people at the top on Wall Street were always brilliant. You don't get to be in senior management at the big Wall Street firms while failing to understand what derivatives are. They may have had a lot of middle management that were not very smart, but those in control should have known better. The problem was incorrect risk management assumptions and an addiction to excessive leverage in order to maximize profits and get those big bonuses. That's what did it, and the people who watched it happen were smart enough to know better.

33 posted on 10/14/2009 10:49:15 AM PDT by Defiant (The absence of bias appears to be bias to those who are biased.)
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To: a fool in paradise

Happens to me, too. Whenever anyone asks me my age, I first have to remember what year it is, then do the math.


34 posted on 10/14/2009 10:50:49 AM PDT by Defiant (The absence of bias appears to be bias to those who are biased.)
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To: Jackie
How I used to rant and rave about derivatives around here twelve years ago.

But you just joined 4 years ago?

35 posted on 10/14/2009 10:52:15 AM PDT by Defiant (The absence of bias appears to be bias to those who are biased.)
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To: Blind Eye Jones
If they are from the lower third of their class how are they so smart to be called smart guys?

You didn't read the article, did you?

36 posted on 10/14/2009 11:00:36 AM PDT by Bubba Ho-Tep ("More weight!"--Giles Corey)
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To: Defiant
.
But you just joined 4 years ago?

Check sgain, pal.
.

37 posted on 10/14/2009 11:18:40 AM PDT by Jackie
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To: Jackie

Sorry, pal. I misread the popup as “’05”. Far be it for me to not give you adequate credit as an old timer.


38 posted on 10/14/2009 12:19:59 PM PDT by Defiant (The absence of bias appears to be bias to those who are biased.)
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To: SeekAndFind
Calvin Trillin is the elitist Left's favorite humorist. He's been a fixture at the New Yorker and The Nation for years. For years he contributed an anti-conservative "poem" to The Nation every issue. Here's an example:

Dick Cheney

On the other hand, sometimes he gets it right:

Polanski

39 posted on 10/14/2009 12:24:59 PM PDT by Bernard Marx ("Civilizations die by suicide, not from murder" Toynbee)
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To: SeekAndFind

This is a BS story but it was fun.


40 posted on 10/14/2009 1:13:20 PM PDT by Anti-Bubba182
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