New York’s Portrait of Wall Street in Denial

In the well-appointed fortress with a finance class under siege

New York’s fun story about Wall Streeters not Getting It is one of the best yet on the difficulty of some who most benefited from the second Gilded Age to realize that it’s come to a close.

Gabriel Sherman takes us into the siege mentality of the holdouts, jaunting around Castle Manhattan to come up with an impressive collection of, if not quite “Let them eat cake” quotes, ones in a similar vein—and some that come darn close:

“No offense to Middle America, but if someone went to Columbia or Wharton, [even if] their company is a fumbling, mismanaged bank, why should they all of a sudden be paid the same as the guy down the block who delivers restaurant supplies for Sysco out of a huge, shiny truck?” e-mails an irate Citigroup executive to a colleague.

None taken!

Here’s someone who’s really, really ticked off that their tax rate is going up 3.5 percentage points:

“The government wants me to be a slave!” says one hedge-fund analyst

Here’s a woman who worked at Lehman Brothers, and whom Sherman implies made $2 million a year:

“People just don’t get it,” she says. “I’m attached to my BlackBerry. I was at my doctor the other day, and my doctor said to me, ‘You know, I like that when I leave the office, I leave.’ I get calls at two in the morning, when the market moves. That costs money. If they keep compensation capped, I don’t know how the deals get done. They’re taking Wall Street and throwing it in the East River.”

Next time this woman has a pipe break in the middle of the night, I hope her plumber prorates her bill on a $2 million-a-year basis.

Sherman points out that even the people who get that their jobs aren’t that important in the grand scheme of things don’t really get it. This former Bear Stearns executive admits that doctors are ultimately more worthy, but still:

“We’re in a hypercapitalistic society. No one complains when Julia Roberts pulls down $25 million per movie or A-Rod has a $300 million guarantee. We have ex-presidents who cash in on their presidencies. Our whole moral compass has shifted about what’s acceptable or not acceptable. Honestly, you can pick on Wall Street all you want, I don’t think it’s fair. It’s fair to say you ran your companies into the ground, your risk management is flawed—that is perfectly legitimate. You can lay criticism on GM or others. But I don’t think it’s fair to say Wall Street is paid too much.”

If this guy has really never heard anyone complain about A-Rod getting $30 million a year, the bubble is more airtight than I’d thought.

Sherman neatly punctures the Bear Stearns guy’s “logic,” noting that Wall Street’s greed and myopia have put the entire nation in grave peril, unlike, say, Runaway Bride.

But the out-to-lunchness continues. Here’s somebody who’s still buying the debunked CRA/Fannie/Freddie-Did-It Grand Theory of the Crisis (as postulated by The Wall Street Journal editorial page):

“There’s this perception that the people on the Street were making money for nothing,” says a mortgage-investment banker. “You have a political and media class who make the mortgage originators and bankers out to be the villains. But are they? They were doing what Congress wanted them to do. Is the guy who lied on his mortgage application the victim here? This whole narrative that the downtrodden were the victims and the money guys were the perpetrators really doesn’t stand up to rational challenge.”

Felix Salmon, over at his new digs at Reuters, writes this on the disbelief by financiers that they’re not worth what they’ve come accustomed to believing they’re worth:

Of course Wall Street’s compensation structures were doubly responsible for its flawed risk management. Firstly, they created excess risks: they encouraged investment bankers to put on what I call the Rubin Trade, where you make massive bets that something with a 95% probability of happening will indeed happen. And secondly, they contributed to the marginalization of the risk-management function in investment banks: since risk managers were paid so much less than star traders and top management, they tended to get overruled a lot, and in any case be discouraged from spending too much time looking at the really important big-picture views of systemic risk.

Look, it’s easy to make lots of money when you pile 40-to-1 leverage on an investment in an up-market. Imagine buying $100,000 in stock with only $2,500 of your own money, borrowing the rest from the bank. You’ve got little to lose and a lot to gain, so your incentive is to press your luck. If your $100,000 doubles, you have a 3900 percent gain on your capital, whereas if you’d invested the whole $100,000 yourself, you’d only be up 100 percent. Leverage is a magic money-making machine!

The unfortunate problem is the obverse is true. Leverage wipes out your $2,500 capital position pretty quickly when the market turns on you. When you can’t sell any of that investment to meet collateral calls, you’re wiped out and your lenders take big hits on their loans because now everybody else wants to sell, too, but nobody wants to buy. You lose your meager investment, which stings, but your lenders go kaplooey and the house of cards that the markets have built up collapses.

Which is what’s happened in the current mess, and which is why leverage won’t be allowed to reach anywhere near the ridiculous heights it did two years ago.

So while the multimillion-dollar bonus days are numbered, this whiner probably won’t have to fall all the way down to the comfortably middle class:

“You can’t live in New York and have kids and send them to school on $75,000,” he continues. “And you have the Obama administration suggesting that. That was a very populist thing that Obama said. He’s being disingenuous. He knows that you can’t live in New York on $75,000.”

Could be a boon to have all these well-bred youngsters going to P.S. 101 or whatever. I’m guessing conditions in the public schools would improve forthwith. Sherman follows the previous paragraph with this one:

That was an argument I heard over and over: that the high cost of living like a wealthy person in New York necessitates high salaries. It was loopy logic, but expressed sincerely.

The kicker for me is Sherman’s reporting on the backlash against the once-fashionable Obama on Wall Street and in Greenwich.

Now, in the wake of the crisis, Wall Street’s politics are shifting rightward. “All the rich people I know took George Bush for granted,” says an analyst at a midtown hedge fund. “I’m a Democrat, but I agree with Rush Limbaugh on a lot of this stuff,” rails the wife of a former AIG executive.

To which Sherman suggests:

The argument that Obama has in fact done a great deal to help Wall Street—to the tune of trillions of dollars—doesn’t have much truck with these critics.

Right, that one guy would be loving that Sysco delivery job these days if not for those government trillions.

This New York piece is a document of a dying era: very rich people, very disconnected from the real world, passing the buck in the delusional hope that we’ll keep passing them ours.

UPDATE: Former New York writer Chris Lehmann at new site The Awl gets this story all wrong. This story was obviously calling the whining rich out, not sympathizing with them or justifying them. Swing and a big miss there.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.