Liquidated. An Ethnography of Wall Street - Karen Ho PDF

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Liquidated A JOHN HOPE FRANKLIN CENTER BOOK KAREN HO Liquidated AN ETHNOGRAPHY OF WALL STREET Duke University Press Durham and London 2009 ∫ 2009 Duke University Press All rights reserved. Printed in the United States of America on acid-free paper $ Designed by C. H. Westmoreland Typeset in Chaparr...

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Liquidated A JOHN HOPE FRANKLIN CENTER BOOK

KAREN HO

Liquidated AN ETHNOGRAPHY OF WALL STREET

Duke University Press

Durham and London

2009

∫ 2009 Duke University Press All rights reserved. Printed in the United States of America on acid-free paper $ Designed by C. H. Westmoreland Typeset in Chaparral by Keystone Typesetting, Inc. Library of Congress Catalogingin-Publication Data appear on the last printed page of this book.

For my daughter and son, Mira and August, in the hope that their generation will see greater socioeconomic equality.

Contents

acknowledgments

ix

Introduction: Anthropology Goes to Wall Street 1

∞

Biographies of Hegemony: The Culture of Smartness and the Recruitment and Construction of Investment Bankers 39

≤

Wall Street’s Orientation: Exploitation, Empowerment, and the Politics of Hard Work

≥

Wall Street Historiographies and the Shareholder Value Revolution 122

∂

The Neoclassical Roots and Origin Narratives of Shareholder Value 169

∑

Downsizers Downsized: Job Insecurity and Investment Banking Corporate Culture 213

∏

Liquid Lives, Compensation Schemes, and the Making of (Unsustainable) Financial Markets 249

π

Leveraging Dominance and Crises through the Global 295 notes 325 references 353 index 369

73

Acknowledgments

An intellectual commitment to social and economic justice first galvanized this book’s journey. My search to understand the massive sea changes occurring in American business practices during the past three decades took me to the doorstep of Wall Street investment banks, an unconventional site for anthropological research. This project found a champion in my graduate advisor, Emily Martin, during a time when studying centers of power within the United States was still uncharted territory for most anthropologists. I still remember how, after I was offered a job at an investment bank, I called Emily in a panic as Wall Street demanded my immediate response, leaving me little time to think through how to negotiate a job with potential fieldwork. Her voice registered excitement and concern simultaneously, and she knew instinctively what I should do. ‘‘Take it,’’ she answered, sensing the opportunity and trusting my ethnographic and ethical sensibilities. Upon accepting the job, I took a leave of absence from graduate school and informed my coworkers of my future research intentions. Despite the tendency for disciplines to reproduce caution, Emily believed that ethnography was about challenging the status quo, literally putting one foot in front of the other. She taught me that passion and desire for social change are not irrational noise to the scholarly temper, but rather constitutive of pathbreaking research. The job on Wall Street led me directly into the belly of the financial markets; taking this path made the book possible. I am thus also deeply indebted to the Management Consulting Group at Bankers Trust, where I worked as a business analyst before I began my fieldwork. I want to thank in particular Tony Brown, Richard Gibb, and Kimberly Thomas. Not only were they instrumental in hiring me, but they graciously introduced me to a number of influential contacts from which I built a strong web of informants. Of course, I owe an incredible thanks to all my Wall Street interviewees and informants who shared with me their experiences, introduced me to their networks and coworkers, and allowed me to understand aspects of their worldviews, values, and practices. I am grateful to a few Wall Street organizations, such as the Securities Industry Association and Jesse Jackson’s Wall Street Project, who waived their hefty conference

x acknowledgments fees for a graduate student. I also want to thank especially Angel Lau, a Wall Street veteran, a dear friend, and a fountain of knowledge, who answered and clarified thousands of my clueless questions about finance. Living in Brooklyn to conduct field research was an adventure of a lifetime. It was made possible in part by the good fortune of answering an advertisement for an apartment share in the Cobble Hill neighborhood, and my future roommate Regina Weber’s deciding that I, a complete stranger, was sane and potentially interesting. Little did she know that she would have to put up with endless boxes of books, fieldwork documents, and phone calls from informants for almost three years. For her patience and generosity, I am deeply grateful. I also want to thank old college friends living in New York City at the time, Beatrice Hastings-Spaine, Eunice Lee, and Irene Jeng, who brought endless laughter and muchneeded respite from fieldwork. Fieldwork turns into a successful dissertation only with the help of a supportive department and community. With a generous graduate fellowship, the Department of Anthropology at Princeton initiated me into the discipline. I offer my gratitude to Rena Lederman, Carol Greenhouse, Vincanne Adams, Jim Boon, Gananath and Ranjini Obeyesekere, Larry Rosen, Kay Warren, and especially Carolyn Rouse, for their counsel and academic stimulation. I am indebted to Carol Zanca, the department administrator, whose support and organizational expertise saw me to graduation. I also want to thank a broader Princeton intellectual and friendship community that sustained me throughout graduate school: Sylvie Bertrand, Miguel Centeno, Frances Chen, Jane Chen, Rebecca Clay, Heddye Ducree, Cheryl Hicks, Alison Lake, Lauren Leve, Jose Antonio Lucero, Wende Elizabeth Marshall, Tony Monsanto, Nell Painter, Samuel Roberts, and Ellen Thorington. The Center of Domestic and Comparative Policy Studies and the Fellows program at the Woodrow Wilson School at Princeton University as well as a National Science Foundation Cultural Anthropology Dissertation Improvement Grant provided the research funds necessary to complete fieldwork. It was at the University of Minnesota that the dissertation was transformed into a book. I thank the faculty in the Department of Anthropology as a whole for their collegiality and support of my research; I am also deeply indebted to the administrative support and skill of Terri Valois, Amy Nordlander, and Susan Laska. My research assistants, Ava Rostampour and Jennifer Walker, were invaluable in helping me prepare this manuscript for production. They painstakingly organized files and searched for references; their dedication was exemplary. I have been very

acknowledgments xi

fortunate at Minnesota to have received a variety of grants that allowed this book’s completion: the President’s Faculty Multicultural Research Award, the Faculty Summer Research Fellowship and McKnight Summer Fellowship, the Institute for Global Studies Intellectual Collective Grant, the College of Liberal Arts semester leave, and research grants from the Humanities Institute and the Asian American Studies Program. I especially want to thank the faculty residential fellowship program at the Institute for Advanced Study and the McKnight Land-Grant Professorship at the University of Minnesota for providing funding and crucial leave time for making revisions and compiling the final draft of this manuscript. My senior colleagues in the Department of Anthropology were instrumental in supporting my candidacy for the McKnight Professorship: I especially owe thanks to Gloria Raheja, William Beeman, John Ingham, Sally Gregory Kohlstedt, and Martha Tappen. At Minnesota, I have been blessed to find a community of scholars and kindred spirits both within the Anthropology Department and beyond that have sustained this project. I first want to thank members of my writing group, which has changed in composition over the years, but has never lost its intellectual verve or collegial warmth: Bianet Castellanos, David Chang, Tracey Deutsch, Kale Fajardo, Malinda Lindquist, Scott Morgenson, Keith Mayes, Hiromi Mizuno, Kevin Murphy, Rachel Schurman, Hoon Song, Dara Strolovitch, Shaden Tageldin, Karen-Sue Taussig, and David Valentine. I am indebted to Tracey Deutsch and George Henderson, who endured for almost five years co-organizing with me the ‘‘Markets in Time: Capitalism and Power’’ research collaborative, which provided a stimulating environment to think through interdisciplinary approaches to financial markets. Presentations and generous audience feedback from the departments of American Studies, Sociology, and Gender, Women, and Sexuality Studies at Minnesota allowed me to think through sections of the manuscript. I am also grateful for the mentorship of many throughout the university, especially Josephine Lee, Jigna Desai, Roderick Ferguson, Jean Langford, and Karen-Sue Taussig. I began this project with the grand hope that I would be able to unpack markets ethnographically from the ground up, and in so doing, counter social-scientific tendencies to approach markets as undecipherable, abstract, totalizing, and all-powerful. In the process, I sometimes found myself caught up in the very black-box assumptions I sought to critique, and it was the scholarship, wisdom, and invaluable advice of Bill Maurer, Anna Tsing, and Sylvia Yanagisako that helped me grasp the slipperiest aspects of finance capital. They have collectively left an indelible mark

xii acknowledgments on this book, and I owe them a special debt which cannot be repaid. I can only hope to pass on their intellectual generosity to my students and colleagues. Parts of this manuscript have also benefited from the feedback and conversations with many scholars during the course of panel discussions and the process of article revisions, among them Ann Anagnost, Tom Boellstorff, Jessica Cattelino, Julie Chu, Paulla Ebron, Julia Elyachar, Ilana Gershon, Jane Guyer, Michael Fischer, Melissa Fisher, Alan Klima, Mae Lee, Lorna Rhodes, and David Valentine. I would like to thank the departments of Anthropology at the University of California at Berkeley, the University of Chicago, and Cornell University for their generous and insightful comments on sections of this book. I owe my family an enormous debt of gratitude. It is impossible to thank them sufficiently. My parents Jiunn H. and Jene Y. Ho have been pillars of strength, nurturing and encouraging me every step of the way. Even in moments when I did not trust in this project’s completion, they had enough faith to make the difference. I would also like to acknowledge my parents-in-law T. N. and Joan Chen for their generosity and support throughout the years. I am very grateful for my sister Chanda Ho and my brother Ralph Ho, who have been my best friends and have always shown me unconditional love; I am a better person because of it and strive to be worthy. My husband, Jeff Chen, who often shows his excitement and interest in this research by surprising his colleagues in the business world that his partner is studying ‘‘us,’’ has long been my biggest champion. He has been there for me throughout every stage of this journey, and I thank him with a grateful heart. Our daughter Mira Ho-Chen, who is four years old, has witnessed two sets of revisions of the book. Her intense joy, curiosity, and engagement with the world have inspired the necessary creativity and energy to complete the final version. My son, August HoChen, born just in time to see this book go into production, motivated me to finish as much as possible before his birth. My friends have supported and cheered me on throughout this process. Hearing their voices never fails to hearten me, and I am especially grateful for the laughter, advice, and encouragement of Christina Chia, Jason Glenn, Irene Jeng, Nicole Johnson, Angel Lau, Mae Lee, George McKinney, Cliff Wong, and many more. Last but not least, I am deeply indebted to the intellectual and emotional labors of Gary Ashwill and David Valentine. Gary, my freelance editor, has generously read and endured multiple versions of this manuscript. His keen editorial eye, exceptional wit, and pervasive calm have

acknowledgments xiii

propelled this manuscript forward and encouraged the author to persist. David, an extraordinary anthropologist, has also engaged deeply with this manuscript, helping me through many an impasse. An abundant spirit and listener, he has been a dream colleague, and even lent me his kitchen timer and lucky pencil. And, to Ken Wissoker and the editorial team at Duke University Press (Tim Elfenbein, Cherie Westmoreland, and many others), thank you for your confidence in, and patience with, this book. Ken’s bold enthusiasm and support have helped to make this book a reality.

Introduction: Anthropology Goes to Wall Street

I first became interested in studying Wall Street on 21 September 1995.∞ at&t had just announced that it would split into three different companies, engendering one of the largest dismantlings of a corporation in U.S. history: 77,800 managers received ‘‘buy-out offers’’ and 48,500 workers were downsized. Living in New Jersey at the time, I was dismayed by the extent of downsizing-induced worker trauma and even more troubled to hear that, on the first day of the announcement, at&t stock leaped 6.125 points to 63.75, or 10.6 percent of its total value, ‘‘growing’’ another $9.7 billion. But what shocked me the most, upon further investigation, was that the stock prices of Wall Street investment banks also rose. What was the connection? This seemingly counterintuitive relationship between at&t’s massive downsizing and its soaring stock price was not an isolated case. According to the New York Times on the day of the at&t restructuring, during this period of increased merger and reorganization activity and in anticipation of future telecommunications industry restructurings, the stocks of the Wall Street investment banks that initiated, organized, and gave advice on these deals also rose. ‘‘Brokerage stocks were one of the session’s stronger groups, with analysts citing their belief that volume growth is sustainable and merger activity will continue’’ (Sloane 1995). The stocks of Morgan Stanley, Merrill Lynch, and Lehman Brothers all rallied with the assumption that if at&t, a bellwether for the telecommunications industry, restructured and downsized, then other companies would follow that ‘‘economic fashion,’’ thereby bringing in more business for Wall Street investment banks (Klein 2000, 199).≤ For the past three decades it is precisely these kinds of inversions that have dominantly characterized the corporate landscape and the relationships among layoffs, corporate profits, and stock prices. In this period, which includes what has been proclaimed as the greatest economic boom in U.S. history (early 1990s–2000), the economy experienced not only record corporate profits and the longest rising stock market ever, but also

2 introduction record downsizings (O’Sullivan 2000). Research reports by Challenger, Gray, and Christmas, a Chicago outplacement firm, found that in 1994, 516,000 workers were downsized ‘‘when American corporations recorded their best profits in years; for 1995 it was 440,000 when profits were even better; and for 1996 and 1997 the totals were 447,000 and 434,000, respectively, when profits were better still’’ (O’Boyle 1999, 219). While the U.S. stock market, as measured by the Dow Jones Industrial Average, boomed from just above 4,000 points in February 1995 to over 7,000 in February 1997, then to 11,000 in 1999, job insecurity also spiked as corporations, on average, downsized over 3 million people per year (Oldham 1999; New York Times 1996). To give another example of this new cultural code of conducting business, in 1995, Mobil Corporation announced unprecedented earnings of $626 million for the first quarter, a reversal from a $145 million loss a year earlier, then a week later announced plans to eliminate 4,700 jobs. Wall Street analysts, reacting ‘‘enthusiastically to the news,’’ praised Mobil’s aggressiveness: they were pleasantly ‘‘surprised’’ when layoffs were not only higher than expected but also included refining and marketing personnel in the United States, who were paid more. Wall Street institutional investors demonstrated their confidence in Mobil by bidding up shares to a fifty-two-week high (Ritter 1995; Fiorini 1995). What was so arresting about Wall Street’s approach to corporate downsizing was its celebratory tone, its rejoicing in the very fact of corporate restructuring.≥ Throughout the mid-1990s, countless financial news articles demonstrated what seemed to be a new ‘‘structure of feeling.’’ To continue with the case study of at&t, a few months after it announced that it would fundamentally restructure and divide itself into three different companies, a move Wall Street analysts generally applauded, at&t announced in January 1996 that it planned to eliminate forty thousand jobs over the next four years. According to the Wall Street Journal, The magnitude of the cuts stunned even some veteran at&t-watchers. It broadly signaled that, for many major U.S. corporations, the eagerness and urgency for wholesale restructuring continues unabated. For at&t, in particular, it also underscored that—even after trimming some 85,000 people in the decade since the breakup of the old Bell System empire—at&t still employs far too many workers. . . . ‘‘This is a big number—a very, very big number,’’ said Blake Bath, an analyst at Sanford Bernstein & Co. ‘‘It’s a lot bigger than Wall Street had been anticipating.’’ Wall Street responded well, sending at&t shares up $2.625 yesterday to close at $67.375. (Keller 1996)

Anthropology Goes to Wall Street 3

In fact, Wall Street was so excited about the magnitude of these layoffs that Salomon Brothers’ infamous superstar telecommunications research analyst Jack B. Grubman thought it necessary to temper investor enthusiasm, cautioning that ‘‘investors shouldn’t expect a huge jump in earnings from the cost cuts, as at&t reinvests much of the savings to accelerate forays into wireless and local service.’’ He did state, however, that ‘‘it’s a good aggressive move, but the earnings impact going forward will be much, much less’’ (Keller 1996). In other words, at&t, in the near future, would need to find even more ways of boosting its share price. Then, in March 1996, the company retracted its initial claim of forty thousand jobs cut, announcing it planned ‘‘only’’ eighteen thousand layoffs. An article in USA Today noted that ‘‘observers say at&t deliberately inflated its initial layoff estimates to impress Wall Street, which sees job cuts as increasing profit. at&t’s stock price jumped almost 6% in the two days following the January announcement’’ (D. Lynch 1996, my emphasis). While the desire for profit accumulation is certainly not new, what is clearly unique in the recent history of capitalism in the United States is the complete divorce of what is perceived as the best interests of the corporation from the interests of most employees.∂ Only twenty-five years ago, the public corporation in the United States was mainly viewed as a stable social institution involved in the steady provision of goods and services, responsible for negotiating multiple constituencies from employees to shareholders, and judged according to a longer-term time frame that went beyond Wall Street’s short-term financial expectations to unlock immediate investment income (O’Sullivan 2000).∑ Today, in contrast, the primary mission of corporations is understood to be the increase of their stock prices for the benefit of their ‘‘true owners,’’ the shareholders (that is, to create shareholder value). Employees, located outside the corporation’s central purpose, are readily liquidated in the pursuit of stock price appreciation. Whereas, under the assumptions of post–Second World War welfare capitalism, workers struggled for and (sometimes) received their (unfair) share of corporate earnings, today even this traditional capitalist hierarchy has been largely eliminated such that employees often no longer benefit at all (or even suffer) when the corporation makes a profit. It is this new logic which I encounte...