Of Ina and Ahab

October 10, 2012

In her New York Times Magazine cover story on the fall of the well-regarded Ina Drew titled “Swallowed by the London Whale,” Susan Dominus ends the article quoting Drew’s former colleague who recently lamented with Drew: “You know, Ina, sometimes I think I’d give my right arm to return to those (good ol’) days at Chemical (Bank), you know?

“Yeah,” Drew said to him quietly, according to Dominus, “I do.”

That really resonated. I suspect it resonated with many now fifty-something-year-olds still working on Wall Street, the new, old guard in an increasingly young, hyper competitive, and still mostly man’s game in search of its moral compass. I sense a yearning for a simpler time, when relationships and integrity were genuine, not declared, a time when firms competed to serve clients but competition did not extend to the degree that war became the appropriate metaphor for business, with a need for “fortress balance sheets.”

When I left a very different JPMorgan in 2001, months after the merger with Chase Manhattan Bank (that had previously merged with Chemical Bank), and fortunately not as a result of a spectacular failure (mine were more pedestrian), but more out of a gut instinct that it was time to go, I received similar nostalgic phone calls and emails. Interestingly, they were largely from the good ol’ days as well, in my case from former colleagues in the Petroleum Department where I cut my teeth as a banker, and from the early derivatives days in the late eighties and early nineties when derivatives where the creative nerve center of the bank, enabling the globalization of capital markets, long before they became synonymous with reckless speculation, fraud, and yes, financial warfare that inflicted violence, in some instances with life-shattering consequences.

Wall Street insiders no doubt will say that Ina Drew’s team “blew up,” so she (and they) needed to go. Some will say Ina Drew was in over her head, as a decidedly non-quant “old school” trading manager who understood interest rate risk, not complex credit derivatives. While these statements no doubt hold some truth, they don’t explain the nostalgia. Why would one of the most successful female traders ever to work on Wall Street, earning herself annual bonuses reportedly exceeding $10 million, respected by colleagues, and current and former bank CEOs, everyone except perhaps the hot-shot quant traders who wanted her job but blew up trying to get it, yearn for the simple days in the unglamorous treasury department at Chemical Bank? Why was my experience ten years ago similarly to yearn for a prior time in banking, when the business was competitive but less extreme, when the personal stakes were not so large, but the values were clear and more in alignment with our true humanity?

My participation this weekend in the International Conference on Cooperative Economics in Quebec offered a clue. It should be noted that the UN designated 2012 the International Year of Cooperatives, and that cooperatives represent three to five percent of global GDP according to new research produced by McKinsey. Cooperatives are distinctly free market enterprises, not socialist enterprises, as some incorrectly perceive them to be. They are distinguished from corporations by their cooperative values, their membership-directed purpose, and their democratic governance and ownership structures. Cooperatives employ 100 million people around the world, a third more than the Global 1000 largest multinational corporations.

What grabbed my attention at the conference were the findings from some preliminary research done by David Erdal, author of Beyond the Corporation: Humanity Working, who was the speaker prior to me. David had sold his family business to the employees over a decade ago, and became so intrigued with cooperative models that he did his PhD studying the psychology of cooperative enterprises. What his thesis suggests (more research needed to affirm these findings) is that people who work in sharing communities, with less hierarchy (i.e., cooperatives), tend to experience greater well-being, including measurably better health.

It occurred to me that the Ahab-like maniacal pursuit of ever greater financial returns on exponentially expanding capital bases – JPMorgan’s balance sheet has increased seven fold since the merger with Chase – places unrealistic demands on the more prudent and conscientious “Starbucks” in the business, I suspect like Ina Drew. In Moby Dick, the cautious mate Starbuck proclaims:

“I will have no man in my boat who is not afraid of a whale.”

But in the end, Starbuck’s loyalty to Ahab overrides his better judgment. Perhaps Ina Drew’s loyalty to the unsustainable and destabilizing “never enough” ethos of modern Wall Street (perhaps also visions of grandeur, or simply human greed few could resist) overcame her better judgment. Her fatal error was in agreeing to turn the “Chief Investment Office,” a novel and pretentious name, into a major profit center for the bank (probably not her idea), accounting for half the aggregate market risk across the firm, rather than allowing it to play the more convential role of investment portfolio management and treasury funding operations as it does in virtually all other banking institutions. In the process, she let some men in her boat who clearly lacked appropriate fear of, and respect for, the great white whale.

The pursuit of the great white whale in modern financial firms, as we have seen, is very far from the values-centered sharing communities grounded in reciprocity found in the world’s leading cooperative enterprises, from the multi-billion Euro diversified Mondragon network of cooperatives in Spain to the $200 billion Desjardins Group (finance) in Canada. There were no Ahabs at the Conference on Cooperative Enterprise as far as I could tell. But I suspect when people retire from these organizations after twenty or thirty years of service, they do not feel pangs of nostalgia for the good ol’ days.

And I suspect they are healthier as well.