Subject: Critical review of « Liquidated » by K. Ho

Assignment for the « Management & Motivation » course, realized by: Marie Bourdin, Tiffany Dewael, Fiona Crespin, Victor Benacceraf, Pierre Hebbinckuys, Alice Fournet, Hocine Ait Mammar, Monica Laurent

Grade: A+

Introduction

In her book entitled “Liquidated: an ethnography of Wall Street” published in 2009, Karen Ho describes the atmosphere, cultural values and practices within Investment banks. Thanks to her working experience at Wall Street and information gathered from her personal research and informants she explains how competition, success and power are omnipresent in these Investment banks. She also analyzes how Wall Street uses compensations such as bonuses, salaries and incentives.

 

I- Summary: Understanding Karen Ho’s research: results from her findings.

Prestige, status and smartness are key words that define people working at Wall Street. Employees are recruited from elite institutions such as Harvard and Princeton. Smartness is a driving force for profit accumulation and global prowess. People working at Wall Street are ambitious, talented, hard working and self-confident. In addition, they also are aggressive. This personality trait leads to another aspect of the Wall Street environment: Competition and power.

Everybody is competitive, mainly because Investment banks are money meritocracies. As Karen Ho explains, people get paid for their performance. According to her, this competitive environment and culture of smartness create inequalities. Coloured people will work harder and harder but will always end up behind. Women are said to have “limited capabilities” so their efforts are not valued and stay unrewarded. In addition, she explains the importance of segregation, which is perceived through race, gender, class, work schedule and style of dress. They are patterns of exclusion.

In the same way, compensations are not the same among the employees. According to her, “star performers”, senior bankers and traders receive higher bonuses than people working at the back office or officers working at the middle floor. At Wall Street, workers are measured by the amount of money they generate. Indeed, money is a motivation for both, individuals and institutions.

In her book, Karen Ho emphasizes the volatility of the job market in the financial world. As workers don’t know what will happen tomorrow, they cannot look to the future. Bankers win a lot of money due to the risk and uncertainty of their job. On the one hand, during boom times, banks hire without strategy and limitation. On the other hand, when conditions are bad they fire people. It is the Wall Street “yoyo” employment strategy. According to her, trauma and dislocation that result from the downsizing measures, are not the same among all the downsized. Banks provide these employees with severance packages and outplacement services. However, most of them don’t want to go and use these services as it is assimilated to a sign of defeat.

Throughout her book, Karen Ho describes the culture of hard work and high pressure. Being accurate, working long hours, being stressed, detailed oriented, speed are part of the job. High risk means high reward. Moreover, she describes and explains how the current business environment and corporate decisions are dictated by financial measures, stock prices and expectations of Wall Street Investment banks. The main goals of Investment banks are to be always at the top and to have a global “footprint”. As a consequence, creating shareholder value is essential.

 

II- The culture of smartness: recruitment and elitism

To increase profitability and shareholder value, Investment banks need to have a strict recruitment process. This enthusiasm for recruiting in elite institutions comes from the culture of America. Through her book, Karen Ho underlines the fact that working hard to enter prestigious schools will enable students to have a good position in the society and is essential to have a great and serene future. We can associate the way Wall Street recruits its employees with propaganda and as a seduction process. Wall Street presence dominates campus life. Indeed, Carney (2011) describes Wall Street has being addicted to prestige colleges. However, Karen Ho does not insist on headhunters and few research have been made on the disillusion of these students once they enter this financial world. Indeed, Binder (2014) explains that elite institutions promise power and money to students but it is not often the reality. The culture of Wall Street is so important at Harvard and Princeton that most of the students study finance for money purposes and later are not satisfied by their work at Wall Street (Binder 2014). In her book, Wall Street is presented as a dream. Korn (2012), a teacher in Harvard explains in an article that when students are hesitant about the field where they will do their internship, they always suggest finance “Oh finance will be perfect for you”. This example reflects how schools are linked to Wall Street.

Even during downturns Wall Street still continue to hire people from these elite universities. There is a real dependence on them. Since everybody is hire on the same criteria, they share common values and this common culture of smartness, power and competition. People are self-centred. Employees steal or hide information to not share. Karen Ho’s book perfectly illustrates this culture of losers and winners, powerful and powerless. I quote: “If you do not perform, you are out”.

 

III- Advantages: compensations

Of course, excitements of making deals, working with smart people are living in New York are advantages that motivates employees. However, money is the main motivation. Karen Ho, describes extremely well how compensations are core Wall Street values. The psychological aspect is also essential: »The feeling of displeasure that someone feels when he loses a certain amount of money is more important than the pleasure associated with a gain of the same magnitude, » Kahneman and Tversky. Bonuses are not seen as a supplement to their salary but their pay. They vary according to ranks and departments. Her book perfectly reflects the huge amount of money than bankers can win and the inequalities in compensations. Comparing bonuses with other firms give employees incentive to leave their own firm if they are not comparable. There is a culture of liquidity and compensation where Investment banks tend to reshape corporate America in their own image.

However, her book does not totally reflect the gap between very rich and ruined employees. Indeed, everyday in New York, there are new people who become rich and others that go bankrupt. This is a jungle where only the strongest win. Opportunities are endless (New York city guide, 2014).

To win a lot of money, some traders do not hesitate to lie. Former Jefferies MBS trader Jesse Litvak currently on trial claimed, « My lying is part” of making deals” (Durden 2014).

 

IV- The other side of the coin: competition, culture of hard work

Competition is something that motivates workers. This is why they are working so hard. An aspect that is not described in the book is the bad effect of this competition. Indeed, according to Linette Lopez (2014), competition at Wall Street is like a drug and is a real driving force. As a consequence, like many drugs it can lead to irrevocable mistakes like suicide. Moreover, as explained in the book, we judge people by the money they make. It leads to bad behaviours like selfishness, jealousy, rumours etc… Although they all work together, bankers are self-centred so you have to accept your responsibilities. This is complicated and rude when nobody comes to support.

In her book, Karen Ho emphasizes on segregation, an issue that we often do not hear about. Indeed, she explains how investment banks’ layoffs are quiet and away from media. It is the same thing regarding segregation at Wall Street. A coloured person will have more difficulties to move up or be integrated in the financial worlds even though she is skilful. Morgan (2013) said “Wall Street, like many other elite workplaces, was largely barred to blacks for decades because of long-standing discrimination». Moreover, according to Karen Ho a spatial segregation exist within Investment banks. The lower floor is dedicated to the less prestigious department: the back office. At the middle floor, we can find officers. At the upper floors are those who generate revenue for the company, the elite workers: the front office. The higher you are in the building, the higher is your position in the bank and the most you win money. Being at the top of the building gives a feeling of power and limitless while being at the bottom gives a feeling of defeat and ruined. Her book reflects this reality of the job market.

Employees make a lot of efforts to perform efficiently to contribute to the increase in wealth of these financial institutions. However, these efforts can be interrupted and an employee can be fired unexpectedly. As explained in the book, Wall Street does not have long term plan regarding recruitment and downsizings. They often decide in one go to hire or fire someone. Karen Ho underlines the drawbacks of this “strategy of no strategy”. She explains that sometimes they make important changes but realize few months later that these changes were not necessary and extremely costly. However, as John Carlton explains “how do you plan when you never know what the market is going to do?”

Banks, in the financial market and corporate America are inseparable from the structures and strategies of their workplaces.

 

Conclusion

Individuals are motivated by money and Investment banks are motivated by performance and increasing shareholder value. According to her, the main important factor that causes stock-exchange crisis is culture. This culture of high risk, high rewards. They took too many risks. The crisis happens because they are all recruited and trained in the same way. It may also be due to the way they are motivated. Being a banker is about being the best and the one with the bigger amount of money. Commission is a real motivation. The banking system encourages bankers to do unsafe investment, because bonuses are higher on this type of mortgage. They all decide to work on subprime because it was the fast way to rise up their goal, despite all the negative effects.

 

List of references

Binder, A., J. (2014) “Why are Harvard grads still flocking to Wall Street?” Washington monthly (online) available from < http://www.washingtonmonthly.com/magazine/septemberoctober_2014/features/why_are_harvard_grads_still_fl051758.php?page=all >

Carney, J. (2011) “Why is Wall Street so addicted to Prestige colleges?” CNBC (online) available from < http://www.cnbc.com/id/41354100 >

Mangan, D. (2013) “Blacks still find Wall Street foreign territory” CNBC US news (online) available from < http://www.cnbc.com/id/100993918 >

Durden, T (2014) Wall Street trader: “my lying is part of making deals although I generally consider myself a truthful person” (online) available from < http://www.zerohedge.com/news/2014-02-25/wall-street-trader-my-lying-part-making-deals-although-i-generally-consider-myself-t >

Karen Ho (2009) Liquidated: An ethnography of Wall Street, Duke University Press.

Korn, Y., L. (2012) “From Harvard to Wall Street: recruiting at the Ivies” The Nation (online) available from < http://www.thenation.com/blog/165724/harvard-wall-street-recruiting-ivies# >

Lopez, L. (2014) “Why high finance workers commit suicide” Business Insider (online) available from < http://business.financialpost.com/2014/02/21/why-high-finance-workers-commit-suicide/#__federated=1 >

New York city guide (2014) online available from < http://www.demenagement-new-york.com/city-guide/economie-affaires.html >