The WaPo’s Steven Pearlstein, reviewing Lloyd Blankfein’s big speech in D.C. yesterday, nails the two big blind spots that even an enlightened Wall Streeter like Blankfein can’t seem to rid himself of:
The most important is culture — in the case of Wall Street, a culture that not only tolerates but almost celebrates taking advantage of customers. Here is an industry in which brokers traditionally get their start making cold calls to strangers, offering bogus stock tips, and investment bankers cut their teeth peddling bad merger and acquisition ideas to corporate clients. It is an industry in which the majority of money managers consistently underperform the broad market averages, analysts and strategists are almost always bullish, and firms rarely run into a security that can’t be brought to market. These days, Wall Street is a place where the trading culture has supplanted the investment culture and score is kept on the basis of how many securities a banker or a firm underwrites rather than whether those securities actually turn out as good investments. …
Blankfein also makes the common mistake to think that the problem with compensation has only to do with how the pay is structured and not with the overall level of pay, which on Wall Street got to be ridiculously out of line with that of similarly skilled and equally successful people in other industries. No matter how it is structured, pay at such astronomical levels has a tendency to swell heads, inflate egos and tempt people to take undue risks of all sorts, ethical as well as financial.
For a nice illustration of the former, see—if you haven’t already—Don Van Natta Jr.’s NYT saga of Morgan Keegan & Co.’s dodgy deeds in Tennessee. I’m a little stumped on how exactly to deal with these problems, although a prolonged, painful financial-market slump certainly helps.