Wall Street's great scapegoat hunt
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. (GS) 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 fab- ricated 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 (UBSN), 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 coworkers 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.