Intersecting Minds: Education, Business and Technology at the North Carolina State Jenkins Graduate School of Management

Liar’s Poker and Indefensible Men

April 12, 2010
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I started reading a new book last night, although I really don’t have time for it. But it came with a high recommendation from my roommate and assurances that it wouldn’t take too long to read, so I decided to give it a whirl. The book is Liar’s Poker, by Michael Lewis. Anyone very familiar with finance will probably have heard of this book. In it, Lewis chronicles the world of high stakes bond traders at the Salomon Brothers investment bank during the 1980’s.

These were critical years for Wall Street, as Lewis explains, because the Fed Chairman at the time, Paul Volcker, decided to loosen up monetary policy and let interest rates float. As a result of this decision, bond prices began to fluctuate much more than they had at any time in the recent past. At the same time, borrowing exploded on the American scene as the government, corporations and individuals began borrowing at record amounts (this is about when the groundwork began to be laid for the 2007-2008 financial crisis).

Even more interesting than the history though is the culture that Lewis describes. The bond traders and salesmen are made to be almost inhuman. They verbally, emotionally and at times even physically abuse the firm trainees as well as their fellow colleagues. The bluster and bravado described is almost unbelievable. And the sense of entitlement about why these people deserved to make so much money is also somewhat mind-bending. Of course, this was the mid-1980’s, a very different time in American culture, but from what I’ve read about the culture of modern day Wall Street, it doesn’t sound as if the industry had advanced very far.

Yves Smith over at Naked Capitalism had a great post about the very same culture that drove Wall Street over the brink during the last few years. Here’s a key graph from that essay, titled Indefensible Men:

Although the word “entitlement” fits, it’s been used so frequently as to have become inadequate to capture the preening self-regard, the obliviousness to the damage that high-flying finance has inflicted on the real economy, the learned blindness to vital considerations in the pay equation. Getting an education, or even hard work, does not guarantee outcomes. One of the basic precepts of finance is that of a risk-return tradeoff: high potential payoff investments come with greater downside.

The whole essay is much longer, but very much worth the time to read to get some insight on the corrosive culture of Wall Street and how it helped land us in this current mess. Liar’s Poker is also highly recommended. Check out the reviews on Amazon.


The Home Stretch: Oodles of Work

April 8, 2010
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We have three weeks of classes left.

Wow. It’s kind of hard to believe those words, but there they are all the same. Here’s a brief look at the projects I have to complete before school is out:

– New Firm Finance, Stonewall Case presentation: This project is the capstone for the class (along with an in-class final exam). In the case, Stonewall Kitchen is an up-and-coming specialty food provider who wants to expand its retail operations. Our job is to determine an overall growth strategy and an accompanying financing strategy that makes sense for the organization.

– Planning and Control Systems: There’s a lot left to take care of for this class. I’ve bulleted a few of the items below –

  • Midterm #2: Coming up on Tuesday, April 13th
  • ITEC: A manufacturing simulation that integrates operations strategy, master production scheduling, materials requirements planning and capacity requirements planning in one go
  • Take-Home Final

– Investments: We have two more assignments left and a take-home final that no one is looking forward to. The midterm in this class was amongst the hardest I’ve taken at NC State. Since the midterm we’ve covered options (Black-Scholes, hedging and valuation) and will turn to hybrid securities next (convertible/callable bonds).

– Practicum: Last but definitely not least, our Practicum group has to put together our final presentation and recommendations as well as writing our research paper and our executive summary of the project. The SCRC presentation will happen on April 29th.

In the meantime, I’ve also picked up some consulting work that will take up about 15-20 hours/week on Tuesdays, Wednesdays and Fridays. Indeed, it seems like the end of the semester is near, but when I peruse my to-do list, the light at the end of the tunnel seems even further away.

But this is what we signed up for when we decided to come to business school, and if we didn’t enjoy it, we wouldn’t be here. It’s precisely this amount and type of work that is meant to prepare us for management in a corporate environment, and that’s exactly what we’re getting.