Wall Street Pay

Like Justin Fox, I was struck by this passage in Gabriel Sherman's New York magazine piece about Wall Street pay (but for an entirely different reason):

A few weeks ago, I had drinks with a friend who used to work at Lehman Brothers. She had come to Wall Street in the mid-eighties, when the junk-bond boom spawned a new class of globe-trotting financiers. Over two decades, she had done stints at all the major banks—Chase, Goldman, Lehman—and had a thriving career directing giant streams of capital around the world and extracting a substantial percentage for herself. To her mind, extreme compensation is a fair trade for the compromises of such a career. “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.”

Now, a lot of people in New York have BlackBerrys, and few of them expect to be paid $2 million to check their e-mail in the middle of the night. But embedded in her comment is the belief shared on Wall Street but which few have dared to articulate until now: Those who select careers in finance play an exceptional role in our society. They distribute capital to where it’s most effective, and by some Ayn Rand–ian logic, the virtue of efficient markets distributing capital to where it is most needed justifies extreme salaries—these are the wages of the meritocracy. They see themselves as the fighter pilots of capitalism.

Sherman's takeaway from the former Lehmanite's story—that Wall Streeters "see themselves as the fighter pilots of capitalism"—isn't at all what I took away from the story. To me, the former Lehmanite was simply expressing a well-worn sentiment in the financial sector: yes, compensation is extremely high, but it's not like working on Wall Street is all champagne and caviar. The hours are insane, the lifestyle is brutal, the pressure is never-ending, etc., etc.

This, to most Wall Streeters, is justification enough for their exorbitant compensation. I don't buy this argument, but this is the way they think about it. Yves Smith—not one to sympathize with Wall Street, mind you—summed this mindset up well (in what was probably the last thing I agreed with her on):

You do not know how hard you can work, short of slavery, unless you have been an investment banking analyst or associate. It is not merely the hours, but the extreme time pressure. Priorities are revised every day, numerous times during the day, as markets move. You have numerous bosses, each with independent demands and deadlines, and none cares what the others want done when. You are not allowed to say no to unreasonable demands. The time pressure is so great that waiting for an elevator is typically agonizing. If you manage to get your bills paid and your laundry done, you are managing your personal life well. Exhaustion is normal. One buddy stepped into his shower fully clothed.

And exhaustion and loss of personal boundaries is an ideal setting for brainwashing, which is why people who have spent much of their career in finance have such difficulty understanding why their firm and their world view might not be the center of the universe, and why they might not be deserving of their outsized pay.

Lawyers generally get paid a fraction of what investment bankers take home, so I've had this argument with friends on Wall Street too many times to count. And their argument always seems to come back to some form of: "Well, working on Wall Street is a miserable, miserable life, so you don't get to criticize my compensation." I don't think that justifies their exorbitant compensation (especially when a lot of what makes Wall Street jobs miserable is needless hazing), but that's generally their argument.