Crisis Managers: Reader Responses

In our September/October 2009 issue, we asked readers to submit questions for “Crisis Managers” writer William Cohan. Among the questions we received, we submitted five to Cohan for his response.
October 1, 2009
New York Stock Exchange, November 6, 2008

Since the recent financial crisis, how can recent Duke graduates and M.B.A. students tailor and update their “pre-financial crisis” knowledge to remain current with the marketplace and our new economic situation? What advice would you offer to a Duke student who is planning a career in investment banking or trading?

To remain current, I would read books that have been written on the crisis. I would recommend: David Wessel's In Fed We Trust: Ben Bernanke's War on the Great Panic  and Andrew Ross Sorkin's Too Big To Fail:  The Inside Story of How Wall Street and Washington Fought to Save the Financial System---and Themselves. If I had a career on Wall Street already in progress
and wanted to stay in that career, I would put my head down, work especially hard, and be as agreeable as possible. I would also think about moving to a boutique if my skill set permitted (for instance, if I were a mergers and acquisitions banker).

Your story in the magazine had no female voices. Is Wall Street still a tough place for women who aspire to leadership positions?

Unfortunately, yes it is. Wall Street has always been a difficult profession for women to rise to the top of for often inexplicable reasons, but it would be a better place if more women were in positions of senior leadership. The recent crisis has proved, among other things, that too many alpha males running around with too much testosterone may not be the best thing in the world.

How did the culture on Wall Street and individual personality traits (i.e., what Malcolm Gladwell referred to as the “psychology of overconfidence” in the July 27, 2009, issue of The New Yorker ) contribute to the financial crisis?

I think Mr. Gladwell makes a valuable point in his article. It is the rare Wall Street executive indeed who is secure enough to allow dissident viewpoints a seat at the table for very long. By the time you fight your way to the top of Wall Street–not an easy thing to do for sure–you probably have a fairly high opinion of yourself and your judgment. It's not an easy thing to be confident enough to allow those who disagree with you to be encouraged to speak up. But again, a lot more of that dissident behavior would have gone a long way to preventing this crisis, which was entirely of our own–i.e., America's–creation.

How have financial incentives and behaviors on Wall Street changed since the financial crisis? Do you believe these changes are here to stay, or will we eventually revert to the pre-crisis tendencies?

Not at all. Only on the margins are modest efforts being made to reform the compensation and incentive system on Wall Street. Firms such as Morgan Stanley have spoken about a “clawback arrangement” for compensation given out that should not have been based on what happened afterward. But that is a rare instance of Wall Street admitting that something went very wrong here. Alas, not a single Wall Street CEO has yet stepped forward and explained to the American people what happened here and why.

Are we out of hot water yet?

Boiling hot water, probably yes. Very warm water, not yet. There are still major problems left in the system–in commercial real–estate mortgages, in unemployment, in the inability of smaller businesses to access capital. When the Fed and the Treasury begin to take the morphine drip out of the arms of those people working in the capital markets, there could be some serious withdrawal symptoms.