Wall Street has increasingly taken up its old habit of blaming junior bankers and traders for what goes wrong.
This is particularly troubling because Wall Street is similar to the military: There is no upside for anyone working in finance to do anything but to follow the orders given by the bosses. The idea of a “rogue trader” is really a myth. The goal at every firm is always to make more money in any way that is legally defensible -- by selling more mortgage-backed securities, by doing bigger and bigger mergers-and-acquisition deals or by making a larger and larger bet on the direction of an obscure debt index.
When things go well -- the firm lands a big underwriting or a high-profile merger or executes a profitable trade -- there is no shortage of people around to claim credit. Of course, when something goes terribly wrong -- see “Whale, London” or “Synthetic CDO, Abacus” -- the senior executives disappear from the scene faster than cockroaches when the light is turned on. In return, employees get paid more working on Wall Street -- without putting any personal capital at risk -- than they can at almost any other job on the planet. This is not a subject open to debate on Wall Street. This is the way it is. If you don’t like that bargain, you leave. (Sorry, Greg Smith.)
And yet, we are now supposed to believe that many things that went wrong leading up to the financial crisis were caused by a handful of junior bankers and traders supposedly acting on their own. Goldman Sachs Group Inc. and the Securities and Exchange Commission continue to blame Fabrice Tourre, a former Goldman Sachs vice president, for the botched manufacturing and selling of the Abacus 2007-AC1 synthetic collateralized debt obligation. The firm paid the $550 million -- one of the largest fines in Wall Street history -- to avoid an SEC civil suit. Tourre, meanwhile, faces a civil trial set for July. While Goldman Sachs pays his legal bills, he is studying for a doctorate at the University of Chicago and doing humanitarian work in Rwanda. (Anyone want a Free Fab! T-shirt?)
This month, the Commodity Futures Trading Commission zapped Matthew Marshall Taylor, another former Goldman Sachs vice president, for allegedly concealing an $8.3 billion trading position in 2007 that cost the company $119 million (the losses were hard to see in a year when Goldman Sachs made $17 billion in pretax profit). The CFTC alleged that Taylor fabricated trades and then obstructed Goldman Sachs’s “discovery of his scheme” by providing “false, misleading or deceptive information and reports.”
No so fast, says Taylor’s attorney, Ross Intelisano. His client “strenuously denies all of the allegations”; he never “intentionally entered ‘fabricated trades’”; and it was Taylor who brought the losses to Goldman Sachs’s attention, not the other way around, Intelisano said in a statement. Is what we have here a failure to supervise?
Then there is Kweku Adoboli, the former “rogue” trader at UBS AG, who is on trial in London for supposedly losing the bank $2.3 billion without any of his superiors knowing. If found guilty, he could spend 10 years in prison.
His lawyer, Charles Sherrard, used metaphor to make an insightful point about Wall Street culture. In closing remarks, Sherrard compared his client to Spartacus, the slave-turned-gladiator played by Kirk Douglas in the 1960 movie. Remember the scene in which Spartacus steps up to take the blame for the slave rebellion, but in his defense his fellow gladiators also claim to be Spartacus so that no one can be blamed individually. Well, things turn out differently on Wall Street: Three of Adoboli’s co-workers saw fit to testify against him.
“Mr. Adoboli stands up and says ‘I am Spartacus’ and the other three stand up and said ‘Yes, that’s him!’” Sherrard told the jury. “Mr. Adoboli believes more in community than the self.” He then quoted from Adoboli’s e-mails: “We are a team, we work together. One fails, we all fail. One succeeds, we all succeed.”
A similar script was written against Jerome Kerviel, the former trader at Societe Generale SA convicted in a 2008 trading scandal, and will probably be written for Javier Martin-Artajo, who supervised Bruno Iksil when he lost JPMorgan Chase & Co. more than $6 billion. Last month, without providing details of its claims, JPMorgan filed suit against Martin-Artajo in London. Does the bank really expect us to believe Martin-Artajo acted alone without the knowledge of the top brass in New York? Meanwhile, the Federal Bureau of Investigation and other agencies are also looking to snare small fish, investigating whether foot soldiers at JPMorgan’s chief investment office in London intentionally masked losses by mispricing the positions.
This isn’t to say all these bankers are necessarily innocent or shouldn’t be held accountable if they committed illegalities. Rather, it’s that to pretend they acted in a vacuum defies the way the industry works. The message being sent from the corner offices on Wall Street (and in Washington) is clear and chilling: As long as times are good and you do what you are told, you will get paid; but when there is trouble and we need a sacrificial lamb, it may well be you that we serve up.
(William D. Cohan, the author of “Money and Power: How Goldman Sachs Came to Rule the World,” is a Bloomberg View columnist. He was formerly an investment banker at Lazard Freres, Merrill Lynch and JPMorgan Chase, against which he lost an arbitration case over his dismissal. The opinions expressed are his own.)
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