> "The point is, ladies and gentleman, that greed, for lack of a better word, is good." ... few people know that these words are based on an actual commencement speech delivered in 1986 at The speaker? Ivan Boesky, who would be convicted just eighteen months later in an insider trading scandal.

I did not know this! Thank you for posting!

I had two stints at a hedge fund, one a hedge fund supplier.

The fake self promotional bullshit is so tiring. I quit as a result of this. It's the same as big tech, not any different.

Jane Street SUPPOSEDLY follows a flat hierarchy which has less of these games. I'm not sure how true it is.

The way I think about it: you hire people who are literally self driven and then you constrain them for no reason just to make other people feel in control.

Or maybe I'm just not a good employee. My first job ever told me I'm a horrible employee.

"The same factors that allow leadership to manifest itself through performance and teamwork also allow it to promote goals that lack a moral, ethical, legal, profitable, or even rational basis."

Thank you for sharing, it is a really interesting read. It expands on the different approaches that try to explain individuals' behaviors in a group. It is always good when there is some variety on HN and we get a bit of social sciences !

The thesis is predicated on a framing that makes no sense.

Gordon Gekko did not influence Wall Street. Capitalism’s functional stages are a product of conventional strategies and the predictable capture of political power by financial power.

Wall Street’s current form was articulated in volumes I and III of “Capital” by Karl Marx. That profit diverges from value, competition leads to consolidation, speculation generates profits which are derived from unrealized market growth which has to continually borrow against itself and uses as its final bank the stability of a coercive state (which it eventually depletes)

(2016), from the New York Fed, back during the Obama administration. Reading this, my first thought was amazement that this came out under Trump. It didn't.

This paper is mostly about risk associated with debt. That's the Fed's job, after all. The current AI bubble is more on the equity side, although, when it pops, we'll see who's been leveraging their equity positions with debt. Historically, up until the 1980s. corporate debt was supposed to be low-risk. If a company went bust, that usually took down the top executives, who were unlikely to get good jobs ever again. As a result, the bond market was boring. Not much trading. Buy and hold.

Then came "high yield bonds" - debt instruments with high returns but a significant risk. The concept was that a broad portfolio of high yield bonds became, statistically, a low-risk loan. Risk management and the Black-Sholes model became a major part of Wall Street activity. That's the background of the paper. The audience to which that paper is addressed knows that, so they only hint at it.

This tends to break down when there's some across the board change. The 2008 US housing crisis is the big modern example. Housing prices went down nationally. The assumption of many Wall Street risk management models was that the risk of independent debt instruments was largely uncorrelated. Sometimes, it's not. The Big Short (2015) is the movie version of this, and it explains all this in an entertaining way. (That's quite an achievement for Hollywood - making an entertaining movie about mortgage risk correlation. It's not about bad people. It's about bad risk models.)

That's the underlying basis of the culture problem. Once investors start accepting that some debt instruments will routinely go bust, perverse incentives appear. Then you get Milken, Boesky, LTCM, and Enron. (Not Madoff; Madoff was a straight Ponzi scheme.) The paper tries to tie this to financial culture. That's not wrong. But it's not the basis of "postmodern capitalism".

All this is to some extent a result of tax policy. Interest received is taxed much more favorably than stock dividends. That encourages debt financing, equity to debt conversion, high-risk lending, and leveraged buyouts. ("Private equity" is mostly leveraged buyouts. Usually the private buyer doesn't have the funds for an all-cash deal.) The line between debt and equity has been blurred. Both are ways to pay for money, but with different tax treatment. There are instruments such as convertible bonds which combine aspects of debt and equity. This effect is so strong that the number of publicly traded companies in the US is down, while the number of tradable financial instruments is way up.

So, the paper is incomplete in that it fails to identify how tax policy increased Wall Street's appetite for risk.