Kevin Horrigan: A Wall Street Christmas story

By Kevin Horrigan
St. Louis Post-Dispatch
Sunday, Dec. 17 2006

http://www.stltoday.com/stltoday/news/columnists.nsf/kevinhorrigan/story...

The child snuggled on my lap, the lights of the tree twinkling in her bright eyes. "Grandpa," she said, "tell me a Christmas story."

The one about the baby in the manger, the angels, and the shepherds?

"Not that one."

The one about the reindeer with the red nose?

"Borr-ring."

Then what story, child?

"The one about the investment bankers in New York who get their annual bonuses every year at Christmas time and buy yachts and BMWs and real estate."

It is her favorite story. It never grows old.

Once upon a time, in a place called Wall Street, in a city called New York, there lived several thousand men and women called investment bankers. They worked in tall buildings in fancy offices and spent their days yelling into the phone and staring into computers. Think of them as elves in expensive suits.

"What do they make?" she said. "Toys?"

No, they don't actually make anything. Making things is old economy. Some people make cars. Some people make beer. Some people make hamburgers. I make
paragraphs, as a wise man once said. But investment bankers don't make anything you can touch. They make deals.

"And money!" she laughed, bouncing on my lap. She knows the story by heart.

Yes. Lots and lots of money. And every year at this time, the investment banks count up all the deals they've made, and how much money they earned on each one, and they divide it among the elves who work there.

"Do all the elves get the same amount of money?"

Silly girl. You know how they divide the money.

"You eat what you kill!" she squealed.

Yes! That's just right! You eat what you kill. The bigshot elves who make the biggest deals get the mostest money. The medium shots get middle money. And the elves who do the typing and filing, they might get only 20 grand or so.

The elves spend all year long calling people up and trading money back and forth. They lay off risk with hedge funds. They help finance mergers and acquisitions. They buy Abu Dhabi bank notes with Brazilian reals. They buy seven-year LukOil non-convertibles in Euros and Ford Motor six-years.

They trade them to other people for credit derivatives and catch the float on Russian Aluminum construction debt on a plant in Kazakhstan. They buy T-bills and zero coupons for foreign banks and investment trusts.

"Is it hard work?" she asked. "Do their mommies and daddies help?"

No, they're all alone, except for their lawyers.

They work 70 hours a week, buying, buying, buying, selling, selling, selling. They get lots of stress.

They get ulcers, which are like sores inside their tummies. They take lots and lots of risk, because if a deal flops, they won't get so much money and might have to take a different job that doesn't pay so much money.

"But when it works," she teased, eager with anticipation. ...

When it works, it's a beautiful thing. And what's the best part?

"They do this with other people's money, and they don't make anything but deals!" she said, squirming with delight.

That's right. People who work for companies that actually make things might lose their jobs. Many other jobs might be sent overseas. Lots of little boys and girls whose mommies and daddies work for companies that get nuked in the deals won't get so many toys at Christmas. But what do we call that?

"The wisdom of the marketplace!" she giggled.

That's right. But (she loves this part) what happens to the boys and girls whose mommies and daddies work for investment banks? What happens to the boys and girls whose mommies and daddies sell yachts and Jaguars and $10 million condos to the investment bankers?

"They make out like bandits!" she chortled.

And what do we call that?

"Trickle-down economics!"

What a smart girl you are. What's your favorite investment bank?

"Goldman Sachs!"

Did you know Goldman Sachs set all kinds of records this year?

"Really?" Her eyes grew wide.

Quarterly profits were up 93 percent. Earnings per share were nearly double what they were last year.

"And last year was a record year!" she pointed out.

That's right, Honey. This year Goldman had revenue of $37.7 billion and profits of $9.5 billion, which is nearly $20 a share. And of that $37.7 billion in revenue, $16.5 billion goes for compensation, most of it in bonuses. That's $623,418 for each employee, if they shared it equally.

"Which they don't!" she said. "You eat what you kill, and the elves that kill the most, eat the most.

They don't make much in salary, maybe a lousy 300 K. But with bonuses. ...

"Maybe $50 million for a trader who hustles and books big profits," she said, counting on her chubby little fingers.

You are such a tricky kid, I said proudly. What do you want for Christmas?

"Forget Christmas," she said. "Just give me my bonus."

* * *

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