John Gault Speaks Up - He must be stopped

[ERD50]

During the training sessions, Lewis was struck by the infantilism of most of his fellow trainees. ... Lewis attributed their behavior to the fact that the trading pit required neither finesse nor advanced financial knowledge, but rather, the ability and desire to exploit others' weaknesses, intimidate other people into listening to you, and generally the ability to spend hours a day screaming orders under high pressure situations. He referred to their worldview as "The Law of the Jungle."

I look forward to fully electronic trading replacing this unnecessary layer.

The descriptions maybe are not that surprising considering the job - it all comes down to trying to squeak out a penny here and there on a trade, and there really is nothing else. It's one-dimensional. So you get focused on that beyond all else. I can see where being good at it could bring out an unattractive side of most people.

It does not sound too different from many pro athletes to me. Focus on that slight advantage, and act boorishly, rude and stupid in most other areas of your life. So maybe pro sports needs to be replaced with computer simulations


-ERD50

 

[NW-Bound]

I read "Liar's Poker" nearly 20 years ago. I just pulled the book off the shelf, and will read it again.

Something never changes. Thumbing through the book just now, I ran across this passage on page 136. Keep in mind that Lewis worked in trading offices that handled institutional accounts with one single trade in the tens of millions to hundred of milllions, not the little retail trades like you and I do. A "good" single trade could net Salomon $100K or more. Hence, the successful traders were treated as princes.

... the collateralized mortgage obligation (CMO) was invented in June 1983, but not until 1986 did it dominate the mortgage market... The CMO burst the dam between several trillion investable dollars looking for a home and nearly two trillion dollars for home mortgages looking for an investor... CMO also opened the way for international investors who thought American homeowners were a good bet...
​

Ah! So, sometimes after the S&L fiasco, CMOs got renamed to CDOs, Salomon Brothers faded away to be replaced by Lehman Brothers and others, and the game continued.

But for any seller of a product, there must be a buyer. Yes? Here comes the keeper of our Norwegian widow's money.

... though there was still no theoretical basis for pricing the homeowner's option to repay his mortgage, the market was growing large enough to impose its own sense of fairness...

The biggest shoppers, the thrifts, often had a very particular need. They wanted to grow beyond the limits imposed by the Federal Loan Bank Board in Washington. It was a constant struggle to stay one step ahead of thrift regulators in Washington. Many "new products" invented by Salomon Brothers were outside the rules of the regulatory game; they were not required to be listed on thrift balance sheets and therefore offered a way for thrifts to grow.
​

Well, perhaps our Norwegian banker was still smarting from the CMOs of years past, so he demanded some form of protection this time. No problemo! AIG invented some "perfect" CDS's to sell them as insurance.

As I said, I am still waiting for an insider's account of the current financial debacle. I would like to know what was happening inside Lehman and AIG, to see if things were any different than when Lewis witnessed it first-hand at Salomon Brothers.

 

[HFWR]

I'm supportive of the idea of "enlightened self-interest", but I'm still waiting for the "enlightened" part...

 

[Hamlet]

I think this is a key point. I think the market for high-level executives at a lot of companies is completely broken.

Does anyone think that Home Depot is better off for paying Bob Nardelli several hundred million to do his best to run the company into the ground?

I think there is a basic problem with how the Board of Directors works at most companies. These people often do not have any meaningful stake in the companies that they are running, so they are often not very concerned with keeping executive salaries sane.

Nepotism and the good-old-boy network are often more important than the rational self-interest of the shareholders. Imagine a system where you and your best friend got to set each others' salaries. Many CEO types are living that dream.

The system currently makes it very difficult for shareholders to remove the Board of Directors.

I think we need to look seriously at how the BoD gets chosen, and make it easier for shareholders to remove the current board. I would like to see a system where the BoD gets chosen from large shareholders. I think that that would help align their interests with the rest of the shareholders.

All I'm suggesting is that the "market" for labor (or at least certain types of labor) may not be particularly efficient. And we as a nation are poorer for that. Nowhere did I suggest any remedy for this inefficiency. Indeed, the currently inefficient market may still be better than any available alternative. But maybe not. It's at least worth considering.

With respect to entertainers, they certainly do create. I don't think you'd argue that Mozart or Shakespeare have added immeasurably to the wealth of society. Britney Spears is not of that caliber, but she creates something unique that only she can provide. A bond salesman, not so much.

 

[unclemick]

I think this is a key point. I think the market for high-level executives at a lot of companies is completely broken.

Does anyone think that Home Depot is better off for paying Bob Nardelli several hundred million to do his best to run the company into the ground?

I think there is a basic problem with how the Board of Directors works at most companies. These people often do not have any meaningful stake in the companies that they are running, so they are often not very concerned with keeping executive salaries sane.

Nepotism and the good-old-boy network are often more important than the rational self-interest of the shareholders. Imagine a system where you and your best friend got to set each others' salaries. Many CEO types are living that dream.

The system currently makes it very difficult for shareholders to remove the Board of Directors.

I think we need to look seriously at how the BoD gets chosen, and make it easier for shareholders to remove the current board. I would like to see a system where the BoD gets chosen from large shareholders. I think that that would help align their interests with the rest of the shareholders.

You should see how the Norwegian widow has been voting her proxy's of late.

Did I mention she's a John C. Bogle fan?

heh heh heh -