Monday, October 4, 2010

The Masters of ... No Strategy

Part II - “Liquidated – An Ethnography of Wall Street,” by Karen Ho. 2009

Ho continues her analysis of 1990’s Wall Street by finally getting to THE brass tack – compensation. People do not go into Wall Street for intellectual stimulation. Or the privilege of sucking up to rich or powerful people. The main preoccupation is money. So while the ideology of ‘shareholder value’ is what is transmitted to clients, or even the shareholders of their own firms, individual cash is the point of each and ever deal, trade or sale. Compensation on Wall Street has soared since the 80s. Average bonuses (the bulk of compensation) in 1986 were $13,950. In 2006, it was $190,000. In the 1990s, a first-year associate would make in the $100,000 range. In the second year, with an MBA, you could make $200,000-$300,000. The recent bull market, which ended in 2007, saw investment banking associates out of business school making $220,000-$330,000 in their first year. First year vice-presidents salaries were around $200,000, which is LESS than their bonus. In 2000, most investment banking and senior vice presidents were making $1M a year. Managing directors received multi-million dollar bonuses. In 2000, the average salary for a director was $240,000, with a $4M bonus – a 33% increase from 1999 (2000 was the final year of the tech boom and crash…) At the top, Goldman Sachs’ CEO Lloyd Blankfein made a record bonus of $53.4M in cash, stocks and stock options in 2006. Ho points out that the bigger the bonuses, the closer Wall Street is to crashing.

Ho’s interviewees claim that the insecurity of Wall Street is the price for the high compensation. Being a ‘liquid’ employee is the human commodity equivalent of the booms and busts on Wall Street. Although not as liquid, of course, as the day laborer who vies for jobs on the street, and is paid in daily cash if he is lucky enough to get one. She also notes that because most compensation is done through bonuses, which are more difficult to track by law, discrimination in compensation is far easier. In one academic survey, women in investment banking were compensated at 60.5% the rate of men. The average gender difference was around $223,368. (!!) And it is not insignificant to point out that Wall Street does deals for corporations – not for the benefit of the corporation’s shareholders, but their own. And sometimes, only for the individuals WITHIN the investment bank. 50% of all money earned in investment banking is doled out in compensation to bankers, NOT to shareholders. A massive wealth transfer away from the public, the taxpayer, the corporations and smaller businesses into the coffers of finance capital’s employees is really what is going on.

Capital on Wall Street moves from one ‘product’ to another at lightening speed. If a financial ‘product’ is invented, and becomes successful, every bank tries to move in on this new market immediately. If a product fails, the desks are shut down, and everyone is out of a job. Because Wall Street is only after the ‘new’ buck, the new boom, they, in essence, never plan anything – unlike even an ordinary corporation or retail company. This is why Ho claims that Wall Street’s temporal strategy is ‘no strategy’ at all. Sort of the ‘short attention span theatre’ of finance. The corollary of this is that built into every boom is a bust. Even though this is common knowledge in that business, the point is to’ ride the wave’ until it breaks on the beach, and make as much money as possible while doing so. Since these are mostly speculative products unconnected to the real world or real world production, they have little to no actual use value. Which would give them some permanence. Like making shoes, for instance. They only have exchange value – a value which can easily fall because of a glut, a change in tax policy or government policy, over-leveraging, etc.

Her last anthropological point is that the emphasis on the rhetoric of ‘globalism’ within every investment bank is sometimes a necessary sham, and sometimes a capitalist reality. In reality it reflects each banks attempt to have a ‘global reach,’ necessary to doing business, not in Kinshasa, Zaire of course, but in bringing banking deals from Sydney, Australia to customers in the rich parts of the world. The bank that can sell privatized shares of Australia Telecom, for instance, to some rich client in Russia, is the bank that will be able to garner more business. Because the local market for shares in Australia might be insufficient for the size of the deal, which are getting much bigger. The sham part Ho discovered was that many banks maintain virtually empty offices in some locations because they do not really have any business in a certain country or city, but might at some point. She points out that not one investment bank truly has a fine or global network of offices, even in countries like Japan. Merrill Lynch attempted to bring their broker, M&A and sales and trading businesses to Japan in the late 1990s– and eventually pulled out in the early 2000s. While McDonalds still sells hamburgers there in many cities.

Ho’s main thesis, as is common in anthropology, seems to be that the cultural habits of the Wall Street ‘tribe’ – the ‘corporate culture’ - determine how business is done on Wall Street. ‘Smartness,’ hard work, high compensation, temporality, job insecurity and globalism on Wall Street create the booms and the busts – not anything in the underlying economy. This essentially idealist view of Wall Street masks the actual financial roles of labor exploitation, surplus value, use value, exchange value, overproduction, the falling rate of profit and debt in the growth of financialization. Wall Street's cultural habits play an important ideological role in promoting finance capital, of course. Defending and hiding an exploitative financial relationship cannot be done simply. A Marxist would say that the cultural habits of Wall Street reflect how money is made there – i.e. they are perfectly adapted to finance capital at this time in late capitalism. That is not to say that these cultural habits do not sometimes heavily influence and refine the financial basis of life on the Street. But they do not determine it.

They key here is that corporations go to Wall Street to 'raise capital.' Evidently, raising capital the old-fashioned way, by exploiting labor through surplus value, is not sufficient any longer. They must dip into the pool of OTHER people's capital - both the working classes through pensions and 401Ks/Roths, or other capitalists and petit-capitalists, who have stolen that money from the working class too. Some of this borrowed capital is used for M&A activity. I.E. the firm itself cannot grow normally without borrowing to ... buy other firms. I think this fits quite nicely with the thesis of capitalist stagnation and the falling rate of profit ... which is partly what the triumph of finance capital represents.

And I bought it at Mayday Books!

Red Frog, 10/4/10

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