It all starts with plunging necklines and super miniskirts. The evening begins promisingly for the clutch of young and old men at the Turtle Bay tavern on 2nd Avenue in New York’s Midtown East. Steaming hot girls linger coquettishly around them, serving shots of alcohol and naughty banter. Each man repeats his order just to keep the girls around him.
The girls know what they’re doing. It isn’t the cheap liquor that is selling. It is their flirtation. If all goes well, when the bar closes, each girl would go home richer by $300 or even $600. Where on earth can a 20-year-old make that kind of money for a few hours of fun? It is almost the kind of returns that Wall Streeters make.
Wait. Did the girls tell you they are, in fact, employed by two ex-Wall Street Bankers who quit their careers after the 2008 financial crisis and founded a shot-girl outsourcing business operating pretty much on similar principles?
The Wall Street Journal reports that JP Morgan analyst Bryan Auld and his buddy from Bear Stearns, Dominic D’Aleo, have built a profitable business renting out shot girls to NY bars that sell for $3 or $4 drinks that cost 25 cents to make. It is not just the mark-up that is so typical of investment banking; the ‘Shot-Girl Bible’ they have written detailing the best practices their employees must follow reads pretty much like a dealmaker’s canon. Take rule #7: Each interaction with a potential customer is an investment, and even an unpromising start usually yields dividends by night’s end. The next rule is more direct. #8: Dress sexy.
But unlike the mirth of some drunkards that ends in an evening, Wall Street is an eternal cycle of boom and bust, where greed and panic rule alternately.
And here is fresh news on this somewhat old subject. The worst financial crisis in eight decades has utterly failed to change this routine. Surely, the US government is determined to change forever the way Wall Street functions through a restriction on proprietary trading by banks, curbs on executive compensation, bringing over-the-counters derivatives onto exchanges and a strong attack on the “Too Big to Fail” mindset.
But all that has not stopped Wall Street from going back to the party. Despite the US economy being in a shambles, the great moneymaking machine on the Street has cranked up to life and is well on the way to creating the next bubble. Ironically, the same banks that were saved with taxpayer money just 18 months ago are now getting virtually free government money to play out their wagers.
In other words, the culture of greed has returned to Wall Street.
Street Never Sleeps
Not that greed ever went away, or so believes filmmaker Oliver Stone, the man who created Wall Street amid a massive insider trading scandal that led to the 1987 ‘Black Monday’ stock market crash. It was 23 years ago that Gordon Gekko, the scheming villain in that movie, patiently explained: “Greed, for want of a better word, is good.” He must have touched a raw nerve somewhere, for the phrase remains the most defining statement about Wall Street till today.
“When we made Wall Street in 1987... We didn’t expect the world to embrace Gekko,” Stone tells Forbes India in an interview. “He was a bad guy and people should have learnt what not to do and moved on. But Gekko stayed in the mindset of the Wall Street aspirants.”
Naturally, Stone had to revive Gekko to feed the appetite of a new generation. He does that in his just-released movie Wall Street: Money Never Sleeps.
The 1987 crash was the biggest calamity the world had seen before the 2008 crisis. Just like now, many expected the mandarins of the markets to learn their lessons. But as things turned out, the markets only spawned some of history’s most notorious punters in the following years. With every scam, the size of the hit multiplied. The short history of greed on Wall street in these years reads like a relay race that climaxed with a mega $65-billion Ponzi scheme by the now discredited Bernard L. Madoff.
By the time Wall Street released, junk bond king Michael Milken and arbitrageur Ivan Boesky had already come under investigation on charges of stock manipulation, insider trading, stock parking and countless ways of earning illicit profits. The character of Gordon Gekko derived a lot from these two extraordinary gentlemen; In fact, Gekko’s pontification on greed was based on an extempore remark by Boesky in a speech to students of UC Berkeley in 1986.
The arbitrage works only as long as inflation remains extremely low. If inflation were to rise, the gap will quickly close and the entire brotherhood of the financial world will come to the market at once to sell. That will crash the bond market.
(This story appears in the 08 October, 2010 issue of Forbes India. To visit our Archives, click here.)
Wall Streeters just know how to make money, No matter from where.
on Oct 5, 2010