By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Jointly published with New Economic Perspectives
Andrew Ross Sorkin wrote two related columns only two weeks apart, but ignored his first column in writing his second. The May 15, 2015 report by the University of Notre Dame on the results of its survey of financial sector participants in the U.S. and the UK was the subject of Sorkin’s May 18, 2015 column entitled Many on Wall Street Say It Remains Untamed. “Untamed” is a word with a positive connotation that Sorkin chose as his euphemism in his self-appointed role as apologist-in-chief for the banksters. Here is the report’s summary.
Nearly seven years after the global financial crisis rocked investors’ confidence in the markets and financial services in general, our survey clearly shows that a culture of integrity has failed to take hold. Numerous individuals continue to believe that engaging in illegal or unethical activity is part and parcel of succeeding in this highly competitive field. With legal and regulatory sanctions coming out on almost a daily basis, the industry has a long way to go to regain the confidence of the public. 47% of respondents find it likely that their competitors have engaged in unethical or illegal activity in order to gain an edge in the market. This represents a spike from the 39% who reported as such when surveyed in 2012. This figure jumps to 51% for individuals earning $500,000 or more per year. More than one-third (34%) of those earning $500,000 or more annually have witnessed or have first-hand knowledge of wrongdoing in the workplace. 23% of respondents believe it is likely that fellow employees have engaged in illegal or unethical activity in order to gain an edge, nearly double the 12% that reported as such in 2012. 25% would likely use non-public information to make a guaranteed $10 million if there was no chance of getting arrested for insider trading. Employees with less than 10 years’ experience are more than two times as likely as those with over 20 years’ experience, reporting 32% and 14% respectively.
In the UK, 32% of individuals said they would likely engage in insider trading to earn $10 million if there was no chance of getting arrested, compared to 24% of respondents from the US. Nearly one in five respondents feel financial services professionals must at least sometimes engage in illegal or unethical activity to be successful. 27% of those surveyed disagree that the financial services industry puts the best interests of clients first. This figure rises to 38% for those earning $500,000 or more per year. Nearly one-third of respondents (32%) believe compensation structures or bonus plans in place at their company could incentivize employees to compromise ethics or violate the law. 33% of financial services professionals feel the industry hasn’t changed for the better since the financial crisis.
Sorkin’s column on the Notre Dame report was poor and will be the subject of a later column by me. For the purposes of my current column I simply want to establish that Sorkin was aware of the report’s finding and their obvious relevance to his second column. Sorkin’s second column is on a subject that people in finance have been whispering about for the last several years – the many apparent suicides among finance participants. In the trade, this subject often sparks discussions of dark conspiracies.
Sorkin entitles his June 1, 2015 column Reflections on Stress and Long Hours on Wall Street. He writes about the “numerous unexpected deaths or suicides” on Wall Street and the City of London:
Mr. Gupta’s death, one of numerous unexpected deaths or suicides of young bankers over the last year, has caused a new round of reflection and re-evaluation by Goldman and other Wall Street firms about their work policies just two weeks before a new class of college interns descend on the industry for the summer.
But Sorkin never examines the sources of “stress” or even why so many young bankers are “overwhelmed by the all-nighters and 100-hour workweeks.” I know well the rigors of this schedule. I am one of many people who have maintained that schedule for nearly 40 years. (Abandon your biases against American financial regulators and academics if this fact startles you. Our hours are obscene, the deadlines frequent, and the support that is so abundant on the Street and in the City is nearly non-existent in our professions. The advantage we have is flexibility – I can often decide when and where to work my 100 hours each week.) Sorkin reports that Gupta was one of the skilled good guys.
The firm held a small memorial service for Mr. Gupta, who was universally liked by his colleagues and whom several said was so good at his job that he had become one of the “go-to” analysts. Indeed, his proficiency and work ethic appear to have led to him to take on a large workload.
Here is Sorkin’s catalog of things that could explain Gupta’s death (if it were a suicide).
Of course, it is always difficult to directly link a death or possible suicide to work conditions. Other factors can be in play, like family problems, medical issues or a history of depression. And in Mr. Gupta’s case, the cause of his death remains undetermined.
Still, the string of deaths on Wall Street appears to rise above the level of simple coincidence. Last February, Fortune ran an article titled: “Is there a suicide contagion on Wall Street?”
There’s something obviously missing from this catalog – the thing Sorkin wrote about only two weeks earlier and which is synonymous with Goldman Sachs – the intense pressure on its people to act unethically and even criminally. As the Notre Dame report documented, this pressure is not unique to Goldman, but criticisms that the firm repeatedly follows an unethical approach to business are well known to Sorkin.
Sorkin’s column shows that Goldman treated Gupta’s death in an ethics-free manner, implicitly assuming that his only source of stress was “work-life balance.”
For more than a month, Mr. Gupta’s death has largely remained held in confidence among a small group of his colleagues and family. After Mr. Gupta’s death, David Solomon, Goldman’s co-head of investment banking, and John S. Weinberg, a vice chairman, flew to San Francisco to speak with a small group of the bank’s employees and discuss the firm’s approach to work-life balance.
Sorkin presents this paragraph as if we are supposed to take it seriously. He runs DealBook. He knows that Goldman’s “approach to work-life balance” is that “work” trumps “life” – full stop. That’s the same “approach” taken by every top investment bank on the Street and in the City.
Sorkin, being Sorkin, proceeds to claim that the Street and the City’s worst traits represent “success.”
Wall Street has always thrived, in part, on its eat-or-be-eaten culture. Would curbing its competitive nature cut into its success?
Earth to Sorkin: Wall Street and the City of London represent horrific failures, not “success.” You do recall that they blew up the global financial economy, right? You recall that they did so by leading the three most destructive epidemics of accounting control fraud in history? You recall that they engaged in at least three massive cartels, two of which were, by three orders of magnitude, the largest cartels in history? You recall that they committed over a million felonies collectively in money laundering/illegal sanction busting for the most violent drug cartels, regimes engaged in genocide, regimes believed by the U.S. and EU leaders to be developing nuclear weapons? You recall that even DealBook now admits that the banksters engage in rampant recidivism and commit massive new felonies even as they settle old felonies without any personal accountability? You recall that in the course of blowing up the global economy they systematically misallocated capital causing waste? You recall the Notre Dame study that shows that Wall Street and City of London finance participants are frequently – and increasingly – convinced that they need to cheat to counter their rival’s cheating in order to avoid being “eaten” in the corrupt “culture” of these two giant financial sectors? Sorkin could, of course, be right that the Wall Street banksters “thrive” in an inherently unethical “eat-or-be eaten culture,” but he has defined a moral and economic failure rather than a “success.”
Sorkin is willing, even with everything that has been made public, to openly call the pressure to cheat to avoid being “eaten” the source of Wall Street “success” – and to caution against changing that “culture.” Sorkin’s columns serve as unintentional admissions of his contempt for ethics and his ignoring and even serving as an apologist for the catastrophic harms that result from the corrupt culture of finance.
Consider the terrible choices that confront a skilled analyst at Goldman like Gupta who is known for being moral. He knows, as Sorkin quoted from the Notre Dame study, that many of his competitors within the firm, and competitive rivals outside the firm, will act unethically to win the client. Gupta had three choices. He could leave Goldman and the corrupt culture of finance. (Sorkin relates that Gupta made a serious effort to leave, but was dissuaded by his father.)
Gupta’s second choice was to cheat. To quote from Sorkin’s first article about the findings of the 2015 Notre Dame study.
In the study, to be released Tuesday, about a third of the people who said they made more than $500,000 annually contend that they “have witnessed or have firsthand knowledge of wrongdoing in the workplace.”
Just as bad: “Nearly one in five respondents feel financial service professionals must sometimes engage in unethical or illegal activity to be successful in the current financial environment.”
One in 10 said they had directly felt pressure “to compromise ethical standards or violate the law.”
What the study results are reporting is a “Gresham’s” dynamic in which bad ethics tends to drive good ethics out of the marketplace.
Gupta’s third choice was to try to be so far beyond outstanding – without cheating – that he could succeed at Goldman. This could have led him to take on a workload so hellish that it produced a breakdown. Note that this is not a “work-life balance” issue but an ethics issue. Goldman’s corrupt culture can cause those who are highly ethical and ambitious to take on hellish amounts of work. That will cause some people to break down.
But let us be frank – there was no fourth choice for Gupta at Goldman or its major rivals. Gupta could not choose being ethical and adopting a work schedule that actually favored “life” in the “work-life balance.” He would have been removed from the firm if he actually choose “life” no matter how good his analytical skills were.
Sorkin implicitly acknowledges the lack of a fourth path.
[A]s long as young analysts are expected to work 80 to 100 hours a week, invariably some run the risk of finding themselves in a situation they cannot handle. With new classes of such analysts arriving each year, it is incumbent on the industry to make sure it is doing everything possible to make sure that no one is too overwhelmed.
It would be even more “incumbent” to ensure that “no one” feels pressured to act unethically or to work obscene hours to try to overcome the advantage the cheats have within the firm because they are willing to act unethically or unlawfully.
None of us knows whether it was the Grehsam’s dynamic that Goldman’s controlling officers created in order to pressure employees to act unethically that led to Gupta’s death. But Sorkin deliberately omitted what he knows is the worst source of “stress” borne by financial sector personnel on Wall Street and in the City. Any solution to the plague of deaths needs to start with ending the corrupt culture of finance produced by the regulatory “race to the bottom” and the financial sectors’ perverse compensation systems designed by the CEOs to spread that corrupt culture throughout the bank. Financial CEO knows how to craft the non-perverse incentives that would lead to ethical behavior, a financial system that was a “success” for the world rather than the controlling officers of the corrupt banks, and a vastly more humane place to work. Financial CEOs craft the perverse incentives because fraud is the “sure thing” guaranteed to make them wealthy (often at the expense of the firm). That’s why they never react even to the deaths of their employees by ending the perverse compensation and promotion incentives that create the Gresham’s dynamic. No one expects Goldman to live up to its blasphemous lie of its leader that it was “doing God’s work,” but it should at least stop doing the Grim Reaper’s work.