02/20/2012 04:40 PM

Stop the Second Bailout Package!

EU Should Admit Greece is Bankrupt

A Commentary By Christian Rickens

Greece is bankrupt and will need a 100 percent debt cut to get back on its feet. The bailout package about to be agreed by the euro finance ministers will help Greece's creditors more than the country itself. EU leaders should channel the aid into rebuilding the economy rather than rewarding financial speculators for their high-risk deals.

First things first: this commentary isn't directed against Greece. It's got nothing to do with all the talk in Germany about Greek citizens not paying their taxes, Greek civil servants who don't work or Greek politicians who break their promises. This commentary has a clear and simple message: The second Greek bailout of €130 billion ($172 billion) that euro zone finance ministers are expected to agree on Monday afternoon should not be paid out.

Sure, Greece will need help from the other European Union member states for years, possibly even decades, and Germany shouldn't refuse that help. Europe will likely end up pumping far more money into Greece in the coming years than the fresh aid now being discussed in Brussels.

The mistake isn't the size, but the construction of the bailout package. It isn't geared to the requirements of the people of Greece but to the needs of the international financial markets, meaning the banks.

How else can one explain the fact that around a quarter of the package won't even arrive in Athens but will flow directly to the country's international creditors? The holders of Greek government bonds are to get some €30 billion as an incentive to convert their old paper into new bonds. The aim is to keep alive the illusion that Greece isn't bankrupt -- after all, the creditors are voluntarily forgiving part of the debt. The financial sector is cleverly manipulating the fear that a Greek bankruptcy would trigger a fatal chain reaction.

That leaves €100 billion. But that too isn't geared to what Greece needs in order to get back on its feet. It's linked to an estimate of how much debt the Greek economy can bear without collapsing.

International technocrats agree that with debts amounting to 120 percent of gross domestic product, the country can just about go on servicing its debt. That's the level at which the cow can go on supplying milk without dying of exhaustion. So 120 percent became the goal.

Surreal Forecasts

In the last few days there has been a surreal political debate about whether the €130 billion will get Greece down to the desired debt ratio of 120 percent of GDP or if it will be stuck at 129 percent -- in 2020, let's not forget. Predicting the debt level of an economy eight years down the road to within nine percentage points: that's usually not even possible in Germany. In Greece, with its collapsing economy and not especially reliable statistical system, such forecasts are deep in the realm of black magic.

Equally outlandish are the calls by Greece's creditor nations for a rise in Greek budget savings to €3.3 billion from €3 billion as a precondition for paying out aid. If only the solution to the Greek problem hinged on €300 million more or less! Given the many spurious pledges and creative accounting measures the Greek austerity program consists of, that sum can surely be dismissed as irrelevant.

In truth, Greece has of course been bankrupt for a long time. The country doesn't need debt forgiveness of 70 percent, it needs a 100 percent debt cut if it is ever to recover. This sick cow won't be producing any milk for years to come.

Most of the countless officials dealing with the Greek problem in the euro zone are well aware of this simple truth. Some of them, including people in the German government, privately admit that the €130 billion won't solve the problem. It's only about buying time, they say. Time until the financial markets have stabilized to such an extent that they can weather a Greek default without a disastrous chain reaction. Without bank insolvencies, without domino effects through credit default swaps and without an explosion of bond yields in the euro zone's other ailing economies.

Marshall Plan Needed

But when will that moment be reached if not now? Since last autumn, the European Central Bank has been showering banks with liquidity. Spain and Italy, the two wobbling giants of the euro zone, have new government leaders who have made credible pledges to reduce debt. Most of the other EU states are similarly committed to budget discipline through the EU's fiscal compact. And the problem with the credit default swaps isn't as serious as the banking lobby keeps claiming.

If the European politicians have a shred of faith in all the work they've done in the two years since the breakout of the euro crisis, they should now admit what everyone already knows: Greece is bankrupt and all the country's debts should be forgiven.

Greece should nevertheless get the €130 billion. But the money should be paid in another form. Instead of rewarding financial speculators for their high-risk deals, the money should flow into the reconstruction of the Greek economy. A new Marshall Plan is needed, rather than a manic insistence on debt repayments.

Good and Bad Deficits

Robert Skidelsky



LONDON – Deficits are always bad,” thunder fiscal hawks. Not so, replies strategic investment analyst H. Wood Brock in an interesting new book, The American Gridlock. A proper assessment, Brock argues, depends on the “composition and quality of total government spending.”

Government deficits incurred on current spending for services or transfers are bad, because they produce no revenue and add to the national debt. Deficits resulting from capital spending, by contrast, are – or can begood. If wisely administered, such spending produces a revenue stream that services and eventually extinguishes the debt; more importantly, it raises productivity, and thus improves a country’s long-run growth potential.

From this distinction follows an important fiscal rule:
governments’ current spending should normally be balanced by taxation. To this extent, efforts nowadays to reduce deficits on current spending are justified, but only if they are fully replaced by capital-spending programs. Indeed, reducing current spending and increasing capital spending should be carried out in lock step.

Brock’s argument is that, given the state of its economy, the United States cannot return to full employment on the basis of current policy. The recovery is too feeble, and the country needs to invest an additional $1 trillion annually for ten years on transport facilities and education. The government should establish a National Infrastructure Bank to provide the finance by borrowing directly, attracting private-sector funds, or a mixture of the two. (I have proposed a similar institution in the United Kingdom.)

The distinction between capital and current spending (and thus between “good” and “baddeficits) is old hat to any student of public finance. But we forget knowledge at such an alarming rate that it is worth re-stating it, particularly with deficit hawks in power in the UK and Europe, though fortunately not (yet) in the US.

According to proposals agreed at an informal European Council meeting on January 30, all EU members are to amend their constitutions to introduce a balanced-budget rule that caps annual structural deficits at 0.5% of GDP. This ceiling can be raised only in a deep depression or other exceptional circumstances, allowing for counter-cyclical policy so long as it is agreed that the additional deficit is cyclical, rather than structural. Otherwise, violations would automatically trigger fines of up to 0.1% of GDP.

The UK is one of two EU countries (alongside the Czech Republic) that refused to sign this “fiscal compact,” acceptance of which is required to gain access to European bailout funds. But Britain’s government has the identical aim of reducing its current deficit of 10% of GDP to near zero in five years.

An argument commonly heard in support of such policies is that the “bond vigilantes” will demand nothing less. And the finances of some European governments (and Latin American governments in the recent past) have been so parlous that this reaction is understandable.

But that is not true of the US or the UK, which both have large fiscal deficits. And most countries were adhering to reasonably tight fiscal discipline before the crisis of 2008 undermined their banks, cut their tax revenues, and forced up their sovereign debt.

At the same time, we should not attribute current enthusiasm for fiscal retrenchment to such contingencies. At its heart lies the belief that all government spending above a necessary minimum is wasteful. Europe has its own Tea Party crackpots who loathe the welfare state and want it abolished or radically pared, and who are convinced that all state-sponsored capital spending is a “boondoggle” – just so many roads, bridges, and railway lines to nowhere that soak up their money in corruption and inefficiency.

Those who believe this are unfazed by the corruption and waste that characterizes much private-sector spending. And they prefer the total waste of letting millions of people sit idle (Brock reckons that 16% of the American workforce is unemployed, underemployed, or too discouraged to seek work) to the possibly partial waste of programs that put them to work, nurture their skills, and equip the country with assets.

One can criticize details of Brock’s case: a deeper understanding of Keynes would have given him a more persuasive response to the objection that, if state-financed projects were worth doing, the private sector would be doing them. Before long, we will have to provide answers to these questions, because the pre-slump fiscal rules that the Europeans are vainly trying to strengthen were not up to the job.

We are far from having worked out a post-recession theory of macroeconomic policy, but certain elements are clear. In the future, fiscal and monetary policy will have to work together: neither on its own can stabilize inherently unstable market economies.

Monetary policy will have to do much more than it did before 2008 to restrain financial markets’irrational exuberance.” And we need a new, unambiguous system of fiscal accounting that distinguishes between tax-funded government spending and public spending that pays for itself.

Above all, we need to recognize that the state’s role goes beyond maintaining external security and domestic law and order. As Adam Smith wrote in The Wealth of Nations:

“The third and last duty of the sovereign....is that of erecting and maintaining those public institutions and those public works, which though they may be in the highest degree advantageous to a great society, are, however, of such a nature, that the profit could never repay the expense to any individual, or small number of individuals; and which it, therefore, cannot be expected that any individual, or small number of individuals, should erect or maintain.”

Chief among these public works, for Smith, are those that “facilitate the commerce of any country, such as good roads, bridges, navigable canals, harbors, etc.” Another piece of forgotten knowledge that Smith also mentions is the importance of education. He is right to do so, however much today’s deficit hawks seem, by their behavior, to prove the opposite.

Robert Skidelsky, a member of the British House of Lords, is Professor Emeritus of Political Economy at Warwick University.

02/20/2012 01:12 PM

Outfoxed by the Opposition

Defeat in Presidential Battle Leaves Merkel Isolated  

A Commentary by Christoph Schwennicke

In accepting the opposition's candidate for the next German president, Angela Merkel has suffered the bitterest defeat of her chancellorship. Her junior coalition partner, the FDP, teamed up with the two main opposition parties to push through their choice. The ignominious defeat could mark a turning point for the German chancellor.

German Chancellor Angela Merkel has a particular trait that is both very human and very likeable: She is unable to keep her facial expression under control. Her features always betray her mood and what she is thinking.

At the press conference on Sunday evening where Germany's five main political parties presented Joachim Gauck as their consensus candidate for the office of German president, Merkel tried to smile bravely. But she was unable to stop herself from sporting a sour expression as she forced herself to praise the man who, less than two years ago, she had tried to prevent from becoming president with all the means at her disposal. Back then, Merkel's hand-picked candidate, Christian Wulff, succeeded in becoming president -- only to resign under a cloud last Friday following a series of scandals.

There is a good reason for Merkel's feelings of bitterness. In the search for a new German president, she has suffered a complete and utter failure. She has been forced to accept the bitterest defeat of her time in office. Gauck's candidacy was forced upon her by an alliance of three parties: the opposition center-left Social Democrats (SPD) and Greens, together with her junior coalition partner, the business-friendly Free Democratic Party (FDP). It could mark a turning point in her chancellorship.

The Political Chess Board

The conservatives are now trying to put a positive spin on Merkel's concession and portray it as a clever move. But this is a deliberate misinterpretation. It is reminiscent of a similar attempt involving then-Chancellor Gerhard Schröder. In February 2004, when Schröder resigned as leader of the SPD, some people -- completely ignoring the facts -- praised it as a wise strategic decision. In reality, his decision was made out of weakness and adversity. As one observer, showing great foresight, put it at the time, it was "the beginning of the end." (Schröder would be voted out of office the following year.)

Schröder's failure was unmistakable, the observer said, describing it as a "total loss of authority." The person who delivered that damning verdict was none other than the leader of the opposition at the time, Angela Merkel.

Speaking before the start of the weekend, Merkel described the search for a successor to Christian Wulff using a very elegant expression, one that neatly captures her whole political approach. The search, she said, would be an "iterative process" -- in other words, it would proceed through a series of small, logical steps that would be repeated until a solution was found.

Such a logical approach is at the heart of Merkel's enormous passion for politics. The trained physicist always considers a situation as if it were a chess board. She asks herself how she can ultimately get a particular person into the desired position, and what moves are required to get them where she wants. She finds great pleasure in such deliberations. And the more talented her opponent, the more she enjoys the game.

Losing Control of the Game

One should therefore guard against making hasty judgments about her decisions. Often the moves which are ridiculed or criticized as weak at the time will later turn out to be masterful. For example, in 2002, she ceded the conservatives' candidacy for chancellor to Edmund Stoiber, at the time the leader of Bavaria's Christian Social Union, the sister party to Merkel's Christian Democratic Union. At the time, her concession was considered to be due to her weak position, but history would show that it was a pyrrhic victory for Stoiber. The Bavarian politician would never become chancellor, but Merkel would. In her thinking, Merkel always keeps her eye on the prize.

She waited until the chancellorship was ripe for the taking, after Schröder's political decline in 2004, before she threw her hat in the ring. She went on to win the 2005 election and become German chancellor.

This time, however, Merkel has miscalculated. She did not give ground because she is an intelligent strategist, but because she lacks power. She tried to outflank the SPD and Greens by putting forward her own candidate for president who, like the popular Gauck, was intended to be beyond reproach and therefore a tough choice for the opposition to reject: Andreas Vosskuhle, president of Germany's Federal Constitutional Court. Vosskuhle is associated more with the SPD than the CDU, which would have made it difficult for the SPD, Greens and FDP to oppose him as a presidential candidate.

But when Vosskuhle made it clear on Saturday that he did not want to be president, Merkel lost control of the game. The SPD and Greens quickly realized that the FDP's support for Gauck gave them an unprecedented opportunity to isolate Merkel and overturn the established power relations with one fell swoop. It was an end game that Merkel, the canny strategist, had not foreseen.

Joining Forces against Merkel

That's why this weekend marked a turning point in German politics. Not only did it produce a cross-party presidential candidate who is sure to be Germany's next president, it has also shaken up Germany's political structures. In the ad hoc alliance between the SPD, Greens and the FDP, three parties have come together to oppose the chancellor. Two of them have already had painful experiences as Merkel's coalition partners -- the SPD during the 2005-2009 grand coalition, and the FDP, which has seen its fortunes wane as Merkel's current, often ignored, junior coalition partner.

The third party, the Greens, wants to avoid this painful fate. Now the three parties, which could conceivably join forces to form a coalition government after the 2013 election, have gone their own way.

The trio has outfoxed the arch-strategist Merkel. The chancellor and CDU leader has become more isolated since the weekend -- and weaker.

February 17, 2012 8:45 pm

Life after Wall Street

People hanging out at the New York financial district©Magnum

When it comes to publicity, investment bankers are a notoriously fickle bunch. When it suits them – for instance, to boast about a game-changing M&A deal or to pump up a hot IPObankers are more than happy to be quoted by name, rank and serial number. But when it comes to addressing more difficult topics – the role bankers and traders played in the current financial crisis, why the world needed synthetic collateralised debt obligations in the first place or why they get paid so much – they scurry away faster than a cockroach when the light goes on in a darkened room.


Part of this behaviour is genetic. One of the supposed Wall Street truisms is that the great firms stay out of the limelight and shun press inquiries. They would prefer that their clients get the publicity, not them. This is, of course, a fabulous myth. The mass that has been written about Wall Street over the past decades confirms that the opposite is clearly the case.

Still, Wall Street banks do all they can to drum into their employees the importance of not talking to the pressat least if they want to keep their jobs.
The dictum of omertà is so powerfully reinforced that even after bankers and traders are no longer employed on Wall Street, many still stick to the party line (often sealed by contractual obligations not to discuss publicly their former employer).

For most of its 143 years, Goldman Sachs didn’t even have anyone on staff to handle its press relations. When the firm eventually hired Ed Novotny, in 1970, he worked from his apartment at Tudor Towers, on the east side of Manhattan. Novotny’s aggressively vacuous public-relations efforts became part of the Goldmans legend. Novotny, explained a former Goldmans executive, had “this incredible paranoia”, where “the firm would never go on the record”. If Novotny told a reporter something, it would always be on “deep, deep, deep, deep, deepfive deeps’ in a rowbackground”, the former Goldmans executive said. “Every time he would describe a reporter to me it would be he or she ‘is very, very, very dangerous. Even Bill Cunningham, the society photographer, was ‘very, very, very dangerous. So watch it.’”

My knee-jerk reaction is not to make this any more public than it needs to be
- Former managing director, Citigroup

On the rare occasions when an investment banker mistakes his or her own prowess for that of his or her firm and dares speak of it – as, in The Wall Street Journal, did both Erin Callan, the short-lived chief financial officer of Lehman Brothers, and Mark Maybell, the former head of media and telecoms banking at Merrill Lynch (who had the audacity to trumpet his $5m annual compensation package) – the fallout can be swift and thorough. Not for nothing did Voltaire write, in Candide, of how the British executed one of their own admirals who lost an important battlepour encourager les autres”. It is a powerful message, especially on Wall Street. Which is why it is difficult to write the very important story of how Wall Street bankers and traders cope with losing their highly paid jobs, after being summarily fired, often with surprisingly little in the way of severance or explanation, other than the perfunctoryreduction-in-forcestatement from the HR department. For these and other reasons, former Wall Streeters don’t like much to talk to reporters about how difficult it is for them to be sidelined.

There are no easy ways to extract from them how it feels to go from having a power office in a high-rise corporate tower in New York or London, working on tense but important billion-dollar M&A deals and expecting millions of dollars in a bonus, to being at home in a leafy New Jersey suburb with nothing to do but think about heading to the gym or driving their kids to school along with other dispossessed dads or worse, a bunch of “soccer moms”. What this kind of rejection – often for no reason other than business has turned sourdoes to one’s feeling of self-worth, ego and familial relations is not something they are eager to discuss publicly.

I can’t talk about anything on that matter right now
- Former third-year associate, Goldman Sachs

I know these feelings of dislocation, shame and inadequacy intimately. After a 17-year career on Wall Street – where I rose to be head of the highly regarded media and telecoms M&A business at JPMorgan Chase before being slowly stripped of my responsibilities after September 11 – the bank dismissed me in January 2004 as part of an ongoingreduction in force”. Despite two graduate degrees from an Ivy League university and years of exponentially increasing remuneration, I was left in the unenviable position of caring for a wife and two small children with no hope of finding anything like the work I had been doing at the pay I had been receiving. In the months after my firing, nasty nightmares often startled me awake. Out of desperation and a lingering desire to fulfil my original dream to be a journalist, I began writing my first bookThe Last Tycoons: The Secret History of Lazard Frères & Co.

I understand well why Mark Barber, a former managing director of the technology banking group at Citigroup, would not want to share with me his feelings after losing his job, just weeks before Christmas, after 14 years at the firm and at its predecessor, Salomon Brothers. Reached on his mobile phone, Barber didn’t feel like talking. “My knee-jerk reaction is not to make this any more public than it needs to be,” he said. “At this juncture, I don’t feel comfortable speaking about it.” Before he hung up the phone, he noted that he is “in the process of considering my options”.

I’m sort of more inclined to have a lower than a higher profile, to be honest
- Former partner, Goldman Sachs

Egan Antill, who was recently promoted to a managing director at Merrill Lynch (in metals and mining banking) after joining from Lazard in 2006, left Merrill (now part of Bank of America) in September. “I’d rather not get into it,” he said when I spoke to him by phone. Sean Murtagh had been a third-year associate at Goldman Sachs, in the firm’s consumer retail group, before leaving his job in October 2011. “I can’t talk about anything on that matter right now,” he explained, graciously. “But I appreciate the call.”

Other former Wall Streeters toyed with the idea of sharing their stories, before confessing that being mentioned in an article about life post-Wall Street was not the kind of publicity they were seeking either.

. . .

New York’s Stock Exchange in 2008
New York’s Stock Exchange in 2008 before thousands of finance workers lost their jobs

While former bankers and traders do not engender much sympathy, their exit from the scene is not a trivial matter. According to Bloomberg data, as many as 200,000 Wall Street employees lost their jobs in 2011. Most of those dismissed, according to Gary Goldstein, the co-founder and president of Whitney Partners, a financial services recruiting firm, were in clerical or back-office positions. But some 40,000 were high-level bankers or traders at the managing director or vice-president level – “transaction oriented”, he said – who “don’t have skill sets that are easily transferable”. They often still believe they are worth the vast sums they had been paid, he said, “and don’t take jobs that are offered because they think are worth more”. For many of them, the denouement can be devastating.

The sudden job loss is often the first break in the implied promise of great wealth and security that began years before during the whirlwind romance of on-campus interviews at their prestigious universities and business schools, the prime hunting ground of Wall Street’s recruiters. When the reality hits that there actually was no promise of wealth and security in return for hard work and long hours, only smoke and mirrors – and a meagre severance – the wallop can sting.

Part of what makes the problem so vexing is the way high-powered Wall Street firms are structured. Unlike other publicly traded companies, Wall Street firms pay employees mostly in the form of whopping year-end bonuses – between 50 and 60 cents of every dollar of revenue generated. Human beings are relatively simple: they do what they are rewarded to do.

On Wall Street, bankers and traders are rewarded to generate revenue, whether by selling M&A advice, collateralised debt obligations or derivatives. They have come to expect a meaningful percentage of the revenue they generate, whether in good times or bad.

It’s not a good feeling. But there is nothing against me personally. It’s just part of a business decision
- Former senior banker at Nomura

What campus recruiters fail to mention to young MBAs is that Wall Street is actually a very high-beta profession. You can get paid a lot, yes, in the good times but in a cyclical downturn the consequences for your career can be grave, especially for those near the top of the pyramid without sufficient political support. Reducing pay across the board would be an obvious solution to grappling with a lower-revenue environment. But that’s not the Wall Street way: Wall Street would rather fire a bunch of people – and keep the pay obscenely high for those who remain – than reduce the pay for everyone and minimise firing. Indeed, in 2011, while Wall Street layoffs were rife, the pay for the top executives remained robust. For instance, Jamie Dimon, the CEO of JPMorgan Chase, received compensation of $24m while James Gorman, the CEO of Morgan Stanley received $10.5m.

Dismissed bankers or traders are often forced to relinquish unvested options, and can be cut loose without any severance pay at all, unless they sign a “release” by which they agree not to pursue any claims through arbitration. If they do sign a release, according to Gary Goldstein, they will sometimes get unvested stock and options, plus maybe a month’s base pay for each year they were employed and some flexibility on the length of gardening leave. “The strategy now is to pay as little severance as possible,” says Goldstein. If they refuse to sign, they have no choice but to go through the arbitration process administered by the Financial Industry Regulatory Authority (Finra).

They may not have even realised it, but as a condition of their initial employment, they relinquished the right to pursue a monetary claim against their firm through the court system (collectively one of the largest abdications of legal rights ever). If you want to work on Wall Street, your employment agreement always stipulates deep in the boiler plate that you eschew your right to a trial in a court of law (except on matters relating to discrimination).

In 2011, only a small percentage of the 4,359 cases brought before Finra arbitrators involved former employees. (Most cases involve broker malfeasance.) According to Jeffrey Liddle, a lawyer who represents plaintiffs in their battles against Wall Street, the success rate for former Wall Street employees in arbitration against their firms has been declining in recent years, with arbitrators now awarding a recovery in only about 37 per cent of cases. Of those who win, says Liddle, arbitrators only award about 13 per cent of the damages sought. Most cases, he said, end in no recovery whatsoever for the plaintiff. And the system is not open to challenge.

Besides the intellectual satisfaction, the ego gratification was to the point of absurdity
- Tod Jacobs, a former telecoms and media analyst at JPMorgan Chase and Sanford Bernstein & Co

To make matters worse, the disgraced CEOs of the Wall Street firms that almost plunged world economies into the financial abyss not only escaped liability for their actions but also walked away with a bundle. Jimmy Cayne, the former CEO of Bear Stearns, left with about a $400m fortune. Dick Fuld, the former CEO of Lehman Brothers, pocketed about $500m, although he tried to convince Congress it was closer to merely $300m. Meanwhile, Stan O’Neal, the former CEO of Merrill Lynch who oversaw the firm’s huge buildup of toxic collateralised-debt-obligations, left Merrill at the end of 2007 with $140m.

Indeed, only in recent weeks have prosecutors won the first fraud conviction against Wall Street traders for their role in fomenting the financial crisis when two traders at Credit Suisse pleaded guilty to conspiracy and wire fraud for intentionally inflating the value of mortgage securities in order to get higher bonuses. (A third trader who lives in London has been indicted but has not pleaded guilty.)

In truth, for the first time in history, Wall Street has created a cohort of highly educated, relatively young ex-bankers and traders who can never hope to make again what they were once making – but are not considered wealthy – and who are now wondering what to do with their lives.

. . .

A person holding a New York Post newspaper headlined with news of the Dow Jones drop on 2008
Panic spread when the Dow Jones plummeted in 2008

For one former managing director at JPMorgan Chase, who lost his job during the financial crisis – and, like many of the people I contacted, would only share his story if his name was not used – the immediate challenge was dealing with the unexpected news of the firing. “It’s a bit shocking,” he said, “I had always been doing very well there and was highly well liked and producing. So first there’s just the shock of ‘Really, like, me?’”

There was an element of relief, though. “It was almost like resigned acceptance of ‘So what? I’m not going to miss anything. It hasn’t been that much fun. It’s been unpleasant being around people that are not happy and looking to who they should fire.’” Perhaps unsurprisingly, neither he nor any of the other bankers I talked with believed they had any substantive role in causing the financial crisis that cost them their jobs.

It’s not as sad as it sounds. This is not some forsaken village in the middle of nowhere ... This is New York
- Former senior banker at Nomura

At first, he relished his free time. He went skiing in Europe. He played a bunch of golf. His teenage son, though, was worried. Was his father OK? What about the family? “I told him we are OK.

That it’s something to learn from and move forward.” On one of his first days afterthe event”, as he dubbed his firing, he went with his wife to the gym. “Saw all the housewives there and decided I wouldn’t ever go back at 9am,” he said. During the first few months, he started to become increasingly enraged that he had been fired, especially after the Fed, the Treasury and Congress flooded the surviving Wall Street firms with capital, helping them to get back on their feet, and reaffirming the status quo. “Clients of mine were still transacting with the bank and those that were left behind took my clients – that became something that bothered me,” he said.

Anxious to get back to work, he took a job at a well-established regional boutique, but quickly found himself regretting the move. Soon, he was unemployed again, this time for a year. He played more golf. He coached his son’s soccer team. He did some carpooling. “It’s a thankless job,” he said. “I used to say to my wife, in a joking way, ‘I don’t know where the day went. I got up. I worked out. I took the kids to school. I had lunch, then the kids were back from school.

And all of the sudden the day is over.’” Throughout, his wife remained supportive and staying upbeat sustained him. In 2011, he joined a small advisory boutique as a partner and said he is happy to be back working, although nothing comes easily any more without the prestige to dangle before clients. “I used to carry a nuclear bomb when I went around seeing clients,” he said. “Now I carry a pistol that is strapped to my ankle. I’m more focused, more strategic.” Where he once counted his annual pre-tax compensation in the millions of dollars, now he gets by with hundreds of thousands of dollars in annual income.

. . .

A senior banker at Nomura in New York, who was fired from the firm in November, would also only tell his story anonymously. He says he had been looking around for a new job anyway, but was nonetheless dismayed to be let go before he could secure a new opportunity. He had been at Nomura for about 18 months, since joining from Bank of America Merrill Lynch. “It’s not a good feeling,” he said, “but there is nothing against me personally. It’s just part of a business decision. You’ve got to move on. ”

He thinks he will soon be back working on Wall Street. In the meantime, as a divorced father, he was looking forward to being with his children during the holidays. “We’re going skiing up in Colorado and then I’m going to go to New Zealand for a couple of weeks to have some fun,” he said.

Another ex-Nomura banker, who had joined in May 2010, told me he had left a year later as a result of an internal change of direction at the bank. He received minimal severance – he would not disclose the amount. “The promise that I joined Nomura with disappeared within the year, and it was bad timing from my perspective. But this is Wall Street. Anything can happen.” He is 35 years old and married but is now reluctant to start a family, given his uncertain job situation. His wife, who works, continues to be supportive and prefers to think of her husband’s layoff as a holiday break, rather than a permanent condition. He was of course “a little bit sad” to live throughone of the worst financial crises everwhen he was in the process of building his career. Still, he was sanguine about the future. “It’s not as sad as it sounds,” he said. “This is not some forsaken village in the middle of nowhere, where there’s only one plant that operates. This is New York. There are a lot of opportunities.”

. . .

Greg Zehner
Greg Zehner trained to be a pastor after leaving Goldman Sachs and now lives in Utah

For many former bankers and traders that “something” could very well be something completely different. Greg Zehner was a pre-IPO partner of Goldman Sachs. He had grown up in a small town on the eastern edge of Long Island, and was one of the only people in his high school to attend Massachusetts Institute of Technology. He worked in Goldmans’ mortgage-backed securities business. In 1987, he joined the two-year analyst programme and then, unusually for the time, was asked to stay full-time on the trading desk. Eventually, he ran the emerging-markets desk until he left Goldmans – with a very full bank account – in May 2000, a year after the firm went public.

His wife, Jackie, was also a Goldmans partner – the first woman to be named a partner on the trading desk – and when the Zehners’ second child was born, Greg resolved to stay at home in Connecticut. “I left in May and changed diapers,” he said. At first, he was nervous about life after Goldmans. “I mean you’re incredibly blessed when you’re a partner at Goldmans,” he said, “so there wasn’t a huge financial fearright? – which a lot of people face when they’re leaving their career.” The question for Zehner was “how much of my self-worth and my self-image was tied up in being a partner at Goldman Sachs?”

It took me six months before I could say ‘Oh, I just stay at home with my kids’
- Greg Zehner, former partner, Goldman Sachs

That took time to resolve, as he realised when he went with his three-year-old on play dates and was the only father. People would ask me what I did, and I would say, ‘Oh, I used to be a partner at Goldman Sachs but I left,’” he recalled. “And it took me six months before I could say, ‘Oh, I just stay at home with my kids.’ Why did I need to tell people what I had done at Goldmans? That made me realise that it was my own lack of self-confidence that I had to say that I had been a partner at Goldmans to justify my existence.” When his wife also left Goldmans at the end of 2002, Zehner decided to pursue his religious faith: he is an evangelical Christian. “I credit my faith with me being a successful trader,” he said. “It’s been important to me my whole life.” He also enjoyed coaching his son’s soccer team and teaching and he wanted to figure out a way to combine teaching with faith.

He has since graduated from Yale Divinity School, in New Haven, and become a pastor. In 2010, the family moved to Utah, and Greg is considering writing a book about new interpretations of the Bible. He has no second thoughts about leaving Wall Street. “No regrets whatsoever,” he said. “I feel blessed to be able to do what I’m doing, and there’s not a day that I go, ‘I wish I was back there.’”

Like Zehner, Tod Jacobs, a former top-ranked telecoms and media analyst at both JPMorgan Chase and Sanford Bernstein & Co who worked on Comcast’s $72bn takeover of AT&T Broadband in 2001, followed his religious calling after he left Wall Street around 2003, and moved to Israel with his family. Jacobs became a rabbi and started a yeshiva in Jerusalem, where he teaches Torah and the Talmud to aspiring young Jewish leaders. “The initial year or so of transition was very difficult for the kids and therefore for my wife and me,” he explained. “But once they all got into their grooves, it became a lot easier and less tense.” There are now 30 students enrolled in Machon Yaakov. He runs the school, teaches Torah and is chief fundraiser.

He, too, has no regrets. “In all that timemore than eight years – I’ve never looked back for a second,” he said. “I look back on my career with a lot of gratitude; it really enabled everything else that happened, not only financially, but also with respect to having the stature and managerial and presentation skills to pull off my new role. I very much miss many of the people that I worked with and, of course, besides the intellectual satisfaction, the ego gratification was to the point of absurdity. But I love what I’m doing and believe it has brought a lot of inspiration to me and my family, and that is priceless.”

Joe Nelson
Joe Nelson photographed near Canary Wharf, London. After leaving Goldman Sachs he started his own company

That Zehner and Jacobs have found great happiness in their religious faith after long careers on Wall Street makes one think about how best to get into the kingdom of heaven after an unabashed pursuit of riches. Of course, Zehner and Jacobs are far from the typical ex-Wall Street bankers and traders. More are probably like Joe Nelson, who found his entrepreneurial spirit kindled when he left Goldman Sachs, in London, after nine years as an algorithmic sales trader. In December last year, Nelson, now 30, started Theyfit, a company that sells 95 different custom-fitted condoms. He describes himself as a “condom revolutionary”. Nelson figured that men have different shirt and shoe sizes, so why not condom sizes? After one week, Nelson reported on his website that every one of Theyfit’s styles had been ordered online.

Being a banker used to be sexy ... It was cool. [But] it quickly changed from something you’d be proud to tell people to something you were reluctant to reveal
- Joe Nelson, former algorithmic sales trader, Goldman Sachs

He conceded that leaving Goldmans was “absolutely terrifying” because he could no longer depend on the paycheck and the safety net, but he, too, has no regrets. Being a banker used to be sexy, for want of a better word. It was cool, ” he said. Then came the financial crisis. “It quickly changed from something you’d be proud to tell people – ‘I work for Goldmans – to something you were reluctant to reveal. You’d be more vague, ‘Oh I work in finance.’ That’s fine with acquaintances. But when it’s with your family…” His family no longer seemed quite so proud of him.

He left the bank without his 2011 bonus. On his own now, he gets no salary and relies on the state for his healthcare, like millions of other British citizens. He explained: “One of my ex-clients described it thus: ‘Yours is the finest denouement I have witnessed in 30 years of being in the City,’ while another expressed it somewhat differently: ‘You’ve gone from working for a bunch of knobs to working with a bunch of dicks!’ Viva la revolution.”

. . .

For others, the transition away from Wall Street has been more dramatic, and in some cases even tragic. The story of Brad Jack is a fall from grace worthy of a modern morality tale. Jack was formerly co-chief operating officer of Lehman Brothers, who lost a power struggle with Joe Gregory in 2005 over who would become Lehmans’ president and the effective second-in-command to Dick Fuld, Lehmans’ imperious CEO. Jack had joined Lehmans in 1984 and ran the firm’s investment banking business from 1996 to 2002, when he was appointed co-COO with Gregory. In the process, he became wealthyonce owning the most expensive home in Fairfield, Connecticut. At the time of his departure from Lehmans, Fuld described Jack’s leave as a “retirement” to spend more time with his family and on his philanthropy. “His ability to pull our people together, to the benefit of our clients, highlights the spirit he brought to everything he’s done for the firm,” Fuld said cheerfully at the time.

But, according to Vicky Ward, the author of The Devil’s Casino, a 2010 book about the collapse of Lehmans, Jack’s departure was anything but voluntary. According to Ward, some people at Lehmans suspected he was abusing prescription drugs. Gregory apparently reported to Fuld that Jack was “not sufficiently focused on his work”, a jab that perhaps Jack’s health issues were more important to him than Lehmans. Jack told Ward that he had had a cancer scare and felt pressure from Gregory to return to work at Lehmans before he had fully recovered. Jackhad a scar right across his torso”, Ward wrote, adding that Jack felt Gregory was “unsympathetic” about his recovery.

After Lehman Brothers imploded in September 2008, Jack was much sought after by journalists who hoped he could shed some light on how Lehmans’ management team, led by Fuld and Gregory, could have led the firm so far astray. Sometimes, as he did with Ward, Jack went on-the-record with his thoughts about Lehmans’ demise and the roles played by Fuld, Gregory and others. Mostly, though, he was an off-the-record source about Lehmans’ mismanagement over the years.

Then, in June 2011, Jack himself became the story. On June 27, Jack, 53, was arrested and charged with second-degree forgery and forgery of a prescription drug. According to Fairfield police, Jack had gone into a pharmacy with a forged prescription for 12 Oxycontin pills, a painkiller, and nine Ritalin pills, for attention deficit disorder. The pharmacist was suspicious and called the police. Jack drove away but was tracked down. At the court hearing that followed, Jack asked the judge to allow him to enter a one-year rehabilitation programme. The judge acceded to the request. If he completes the programme successfully, commits no other crimes and sticks to only prescription drugs, Jack will not have to admit guilt or have a criminal record. “Mr Jack is relieved to have put this regrettable incident behind him and is looking forward to returning his energy toward the many charitable and non-profit organisations which he holds so dear,” his lawyer reportedly said after the hearing. Jack’s next scheduled court appearance is August 17, a year after starting his rehab programme. Neither Jack, nor his lawyer, returned my phone calls or emails seeking a comment about Jack’s life after Wall Street.

. . .
For the past generation, Wall Street has been a black hole that sucked in the world’s best and brightest minds, lured by the irresistible prospect of obscene wealth without the risk to any personal capital. But now the first flicker of serious prosecutions against the abominable behaviour that led up to the financial crisis combined with materially smaller bonuses has cast a pall over the attractiveness of a Wall Street career. A former Goldmans banker said that for the first time in decades, a number of recent college graduates have actually turned down offers from the bank, opting instead for the much more altruistic Teach for America.

If we could only break down the seemingly impenetrable wall of silence that surrounds former Masters of the Universe, we mightfinallybegin to understand better the system and culture which they created and perpetuated, and which has failed us so miserably.

William D. Cohan is the author of ‘Money & Power: How Goldman Sachs Came to Rule the World’ and two other books about Wall Street. His first book, ‘The Last Tycoons’, won the 2007 FT/Goldman Sachs Business Book of the Year award.

Copyright The Financial Times Limited 2012.