MBA, CFA, BFD

"MBA, CFA, BFD."

I once had a boss that used that phrase anytime some greenhorn equity salesman would try to impress him with their spit-shined education credentials. I always got a kick out of that, especially since he was a CFA chartholder himself, and several of my colleagues had either an MBA, a CFA or both. He was a cynical man with a chip on his shoulder who was also fond of referring to this elite crowd as "the lucky sperm club." His roots were quite different than what he assumed were the roots of those he denigrated. He worked his way through a state school while supporting a young wife and special needs daughter as a tire salesman before launching a career in investment bank equity research which lead to his eventual early retirement as a rich, successful portfolio manager. I think it was his snide way of saying what Mark Twain once said: "I never let my schooling get in the way of my education." He had an excellent nose for bovine excrement, and was particularly suspicious of the brand that Ivy league MBA-types were fond of peddling.

There's an opinion column on Bloomberg today titled, "Harvard Narcissists With MBAs Killed Wall Street."

Twenty or 30 years ago, it was common for the best and the brightest to be doctors or engineers. By the 2000s, they wanted to be investment bankers.

When Wall Street was run by people randomly selected from the population, it was able to survive everything. After the best and brightest took over, it died the first time real-estate prices dropped 20 percent.

If you walked into any major Wall Street firm a year ago and randomly selected an employee, chances are that person would either be from an Ivy League school like Harvard University, or have an MBA, or both.

While there may be a handful of multi-talented people working on Wall St. for reasons other than the money they earn, the vast majority are attracted to Wall St. for one reason: the pay scale. The rationale being that if one is going to be a working stiff, one may as well be a working stiff at the top of the pay scale. The problem from the employer's point of view is that the pay scale becomes a self-reinforcing juggernaut rather quickly. The best and brightest are attracted to Wall St. for the money, so Wall St. firms get into a bidding war to attract the best and brightest. Elite universities then use that salary data to persuade the next crop of the best and brightest to attend their program, which further concentrates the size of the pool in which the best and brightest swim. Pretty soon all you have to choose from is the most elite pool that exists--the Ivy league and a handful of other institutions of the same caliber. The dangers of the resulting groupthink are rarely discussed, though today they are as apparent as a Skid Row hooker in a nunnery, and need no further elaboration.

What do you get from an MBA? One recent study found that MBAs acquire an enormous amount of self-confidence during their graduate education. They learn to believe that they are the best and the brightest.

This narcissism has a real career impact. Psychologists at Ohio State University studied the behavior of 153 MBA students, who were put in groups of four and asked to orchestrate a large financial transaction on behalf of an imaginary company. The psychologists observed that the students who had the strongest narcissistic traits were most likely to emerge as leaders.

According to Amy Brunell, the lead author, the results of the study had large implications for real-world settings, because “narcissistic leaders tend to have volatile and risky decision- making performance and can be ineffective and potentially destructive leaders.”

There is no shortage of narcissism on display in the upper echelons of Wall St. firms. Less overt but even more destructive is the narcissism displayed in the upper echelons of government officialdom. I say more destructive because government seldom makes any pretensions of fiscal constraint. Why should they? Afterall, it is not their own money they are borrowing and spending. Though it must be noted that TARP 1.0 has done a pretty thorough job of making private sector banking just as unaccountable as the public sector.

All of this may sound familiar to anybody who has read Herman Hesse's 1946 Nobel prize winning novel, The Glass Bead Game. In it, a member of the futuristic ivory tower elite--long having been insulated from the realities of life--decides to cast his privileged status aside for a life of rubbing elbows with the commoners. Tragedy befalls the protagonist when he drowns during what would be considered a routine swim across a lake by anybody who had not grown up insulated in the ivory tower. The moral of the story is that no matter how smart you think you are, nobody is above the laws of nature.

Another word that comes to mind when trying to describe the predicament Wall St. finds itself in is incest. When you choose the bulk of your work force from a single gene pool--no matter how gifted that gene pool may seem to be--the weakest traits inevitably surface and manifest themselves in such a way that makes the destruction of the host a real possibility. Ask the Ptolemaic Dynasty how incest worked out for them.