Masters of the Universe…?

wolfcollageThe term “Wall Street” is a bit of an anachronism at this point. The actual Wall St in New York’s financial district ceased to be the hub of financial firms decades ago. The action is now shared with midtown Manhattan, Connecticut, Chicago and oddly enough, the la-la land of Southern California. The New York Stock Exchange (NYSE) remains a Wall St fixture but it competes with the Nasdaq located at Times Square as well as other niche exchanges and the so-called dark pools. In any event, the NYSE does not trade bonds, commodities or foreign exchange each of which is by itself a larger market than stocks.

What the general public thinks of as Wall Street is mostly a mirage,  at most a concept. It took shape with Gordon Gekko, but over time it is Jordan Belfort’s “Wolf of Wall Street” that has come to represent America’s Wall Street fantasy.

Well, I won’t deny that Wall Street lives up to its reputation of bare knuckle greed and the occasional outrageous lifestyle. A wise man once told me (and it is true) that the Street is the only place where a trader could earn a million dollars a year and still feel a hole burn through his heart to learn that the guy sitting next to him is making a single dollar more.

But I still like the irony of DiCaprio’s portrayal of the wolf earning him a nice paycheck of $25 million in real life. Tales of the bad boys of Wall Street have benefited many writers, commentators and um, professors. A good case in point is Mr. Michael Lewis who left a brief stint at Salomon Brothers to become a financial journalist and author of several best-sellers such as Liar’s Poker and Flash Boys that take a rather dim view of the financial industry. His current net worth is estimated to be higher than $10 million – a figure not normally associated with the journalism profession. Some of the Street’s fiercest critics from the academic world, Nobel Laureates Paul Krugman and Joe Stiglitz, have seen their speaking fees rise to $50,000 per appearance.

There is a market for everything, even for those against the market!

America’s relationship with the Street is a romance of sorts and like every long-term romance it contains a good dose of disgust and hurt feelings. But there is also something very American about the fact that it rains money for the big shots on Wall Street as well as their chief detractors.

Speaking of raining money, who really earns the big bucks here? The answer is : very, very few people. The major Wall Street firms typically consist of a tiny island of money managers surrounded by a vast array of supporting staff engaged in a wide range of functions such as analysis, technology, sales, operations etc. The fraction of people who make bets on markets is rarely more than 2-3% of the permanent employees. Even among the decision-makers, the majority just follow directions from the senior traders and portfolio managers. These are the juniors, typically bright kids with MBAs or PhDs from one of the top 25 universities who made it through an arduous interview process to have the chance to someday become senior traders. Most of them will not make it.

It is only that small 1% or so of people at the very top of Wall Street firms that move markets. You could even say that the big shots are the 1% among the 1% because the 99% supporting staff in their firms are themselves former “A” students.

I wouldn’t say that everybody at the top deserves to be there. In fact, there are people heading whole businesses who in a fairer world would be unqualified for a job flipping burgers at McDonald’s. How they get there is a mystery wrapped in a dollar bill, but that is definitely not the rule. It is the 1% of 1% – and only that – which is the real “Wall Street”. If a very smart junior after a decade of a ultra-high pressure lifestyle is lucky he or she may have an entry into that club and start earning the real money.

Perhaps the most interesting thing about the success of the “Wolf” is how rare his life story would be in the Wall Street of the last twenty years. Above all, the prizes in this industry go to those who can execute a life of punishing discipline, starting all the way from A-pluses in high school and the Ivy League to the 60-80 hours a week that is demanded of professionals.

The Masters of the Universe are more like The Kids Who Studied Very Hard.