I read the book Conversations with Wall Street by Peter Ressler and Monika Mitchell.
It's an illuminating look at what happened to Wall Street leading up to, during, and after the financial crisis, centered on interviews with the bankers who were on the front lines.
Here are six things I learned.
1. It really is all about money.
The frustration on the part of society is the belief that the only thing people think about on Wall Street is making money. This is, in fact, true. Every day people rise on the Street, wondering how can I make money today? When they are successful, they think, how can I make more money today? In many ways, that is why the financial crisis happened. Thousands of extremely talented money managers competed at breakneck speed for the same dollar.
2. But it's so hard to be honest. The industry is cutthroat.
If you wanted to base your business on trust, you lost market share—plain and simple. You gained some opportunities and lost others; it did not necessarily balance out equitably either. Contrary to Main Street, the Wall Street business model is based on blowing itself up. The boom and bust cycle that is so painful for ordinary folks is built into the financial system. On the Street, Armageddon is an everyday phenomenon for those on the losing side of the trade. This view is antithetical to the average American who plans twenty-five to thirty years of honest work until retirement to enjoy the fruits of his labor.
3. Skill and experience aren't correlated with pay and responsibility.
In his first year on the desk with no prior expertise, Mark had been allowed to purchase $8 billion dollars worth of toxic loans and was paid $400,000 for his time. With no management experience, no advanced math skills, and one year of trading loans, Mark was promoted to managing director. Investors could not buy these products fast enough, and his firm had to fill seats in order to satisfy demand.
4. The incentives for misbehavior were massive.
As his bank suffered huge losses, upper management approached Doug, explaining the bank owned $50 billion of bad debt and needed to "move" it off the balance sheet as soon as possible. Doug's mission was to sell as many defaulting bonds to trusted pension, insurance and money management accounts as possible. The goal was to let these bonds detonate in someone else's hands. Management offered Doug a deal: sell the debt, and we will guarantee you a multi-million dollar payout.
5. It had serious, real-world implications.
A financially strapped 90-year-old Ohio woman, Addie Polk, was tricked by a mortgage broker into a 30-year-adjustable mortgage from Countrywide. When the eviction sheriffs arrived, she shot herself in the chest rather than leave her home alive. Not only would she not have survived the thirty years of the new mortgage, but the $45,000 loan was 50% more than her $30,000 home was worth—clearly a time bomb set to explode.Sadly enough, these predatory practices were perfectly legal. There were no laws protecting victims like Addie Polk. Yet there was a complex legal structure protecting lenders like Countrywide, its executives and unethical mortgage brokers.
6. Will it happen again?
"I have never been in an environment where almost every one misinterprets good fortune as genius."-Top Tier Investment Banker
Go buy the book here. It's great.
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Contact Morgan Housel at firstname.lastname@example.org. The Motley Fool has a disclosure policy.