The news was all over the papers this week that a supposed “rogue trader” had wiped nearly $2.3 billion off the balance sheet of Swiss banking giant UBS. But well-known Rolling Stone magazine columnist Mike Taibbi questioned why we are even surprised by the news.
He uses stronger language to describe the situation. The reality is, investment banking jobs are filled by people who, by their very nature, are not wired for ‘client-based’ thinking. “This is the reason why the Glass-Steagall Act, which kept investment banks and commercial banks separate, was originally passed back in 1933: it just defies common sense to have professional gamblers in charge of stewarding commercial bank accounts.”
Taibbi asserts that investment bankers just don’t get turned on by the “dreary” business of tending to commercial banking or client service. And that investment banks by their nature try to hire people with a big appetite for risk. They look for someone who, as he puts it, “can doze through a two-hour foot massage while your client (which might be your own bank) is losing ten thousand dollars a minute on some exotic trade you’ve cooked up.”
Nevertheless, the wall between commercial and investments banks was torn down in 1998, largely by democrats Larry Summers, Bill Clinton, Alan Greenspan, Phil Gramm and others. Since then, the marriages of investment and commercial banks that have sprung up have largely been a “disaster,” says Taibbi.
He even eschews using the term “rogue trader” for the simple reason that making big bets with other peoples’ money is exactly what a lot of investment bankers are hired to do. Indeed, you never hear the term “rogue trader” when one of these cowboys earns a cool $1 billion making the right bet at the right time. Only when they’re on the losing end of a trade.
Taibbi’s views are harsh, entertaining, and probably not in line with those of you who are looking to land an investment banking job. Or are they? Let us know by adding your comments below.