Leader who does not like “Mayor 1 percent” label joins Wall Street investment firm

Former Chicago Mayor Rahm Emanuel does not like one of the names applied to him during his mayoral tenure:

Dellimore also pressed Emanuel on the “Mayor 1 percent” tag that has dogged him for years, a nickname critics use to tie him to wealthy supporters and downtown development they say he favors at the expense of struggling outlying neighborhoods.

Emanuel first responded by taking a swipe at wealthy Blackhawks and United Center owner Rocky Wirtz, who has publicly ripped Emanuel for raising entertainment taxes at big venues such as the United Center: “Go ask Rocky Wirtz what he thinks about being part of the 1 percent.”

When Dellimore said the criticism comes from poor and working-class neighborhoods that feel like they’ve been left behind while the Loop and adjoining neighborhoods have boomed under Emanuel, the mayor changed tacks. He defended investments downtown.

“You name me one world-class city in the world with a decaying central business district,” Emanuel said. “Name one. They don’t exist. I’m proud that we have a thriving, successful central business district that gives us the revenue to also fund from 14 to 33,000 kids in summer jobs.”

Few local governments would argue that downtown development is a bad thing. After all, growth is good and stagnation or decline is terrible.

Yet, if a leader wanted to counter an image of working for the wealthy or the better-off neighborhoods in a city, would joining a Wall Street investment firm be a good next move?

Former Chicago Mayor Rahm Emanuel is joining the Wall Street investment firm Centerview Partners LLC, whose leaders include long-time friends and campaign donors…

“Rahm’s leadership and vast experience providing strategic advice, coupled with a track record of successful planning and execution, will bring tremendous value to our firm and our clients,” Effron said. “Establishing a presence in Chicago is a logical next step for Centerview as we continue to grow, and it positions us to better serve existing and new clients throughout the Midwest.”…

Emanuel on Wednesday rejected any notion that his work as mayor affected the hiring…

Emanuel previously spent more than two years as a Chicago investment banker at Wasserstein Perella & Co., from 1999 to 2002, a job he took after serving as a top aide to President Bill Clinton.

So perhaps this is little surprise given Emanuel’s track record as mayor and roles prior to becoming mayor. Or, maybe he thinks providing commentary for The Atlantic and ABC News will help balance out or help people forget about the Wall Street work.

Bringing sociology and understanding culture to Wall Street

A sociologist argues for the value of bringing a sociological perspective to Wall Street after noting how the president of the Federal Reserve Bank of New York recently used the term culture repeatedly and defined the term:

“Culture relates to the implicit norms that guide behavior in the absence of regulations or compliance rules—and sometimes despite those explicit restraints. … Culture reflects the prevailing attitudes and behaviors within a firm.  It is how people react not only to black and white, but to all of the shades of grey. Like a gentle breeze, culture may be hard to see, but you can feel it. Culture relates to what “should” I do, and not to what “can” I do.”

Dudley has a doctorate in economics, and spent a decade as chief economist at Goldman Sachs. But in his remarks he sounded more like a sociologist than an economist. His many mentions of “culture” could be significant. I’m hoping they mark the beginning of a change in how regulators think about reining in law-breaking and excessive risk-taking at banks. I’m also hoping that I had something to do with them…

So I studied sociology, and for my doctoral dissertation focused on the organizational culture of Goldman Sachs. The dissertation became a book, titled What Happened to Goldman Sachs: An Insider’s Story of Organizational Drift and Its Unintended Consequences (HBR Press, 2013). One of the changes I document in the book is how Goldman drifted from a focus on ethical standards of behavior to legal ones — from what one “should” do to what one “can” do.

After the book was published, Dudley got in touch. I met with him and his people, and discussed what I had learned in my study of sociology and, in particular, my in-depth study of Goldman. I made recommendations on how to improve regulation. Also, I sent him two pieces I wrote for HBR.org, one on the importance of focusing on organizational behavior and not just individuals, the other asserting that culture had more to do with the financial crisis than leverage ratios did.

One of the key conclusions I drew from my study was that to achieve sustained success and avoid firm-endangering risks, a firm like Goldman has to cultivate financial interdependence among its top employees.

Employees that can make big financial decisions on their own means that many will take big risks and a lot of money could be lost. This reminds me of some of the arguments of Nassim Taleb who suggests losses should not be shared, especially in unpredictable areas like the stock market or with innovative and cutting-edge financial instruments. Instead, there could be organizational cultures that promote more prudent financial decisions that may still be innovative and profitable but limit the possibility of major black swan losses.

Mapping NYC’s manufacturing facilities in 1919

A 1919 map of New York City’s manufacturing facilities provides insights into the city’s manufacturing prowess:

In 1919, this list shows, New York produced more than 50% of total national output in twelve lines of manufacture, and was competitive in many more.

Geographer Richard Harris, writing about industry in the city between 1900-1940 in the Journal of Historical Geography, points out that because of the particular products New York was known for (lapidary work, women’s clothing, millinery), many industrial workers were women. In 1939, they represented 36% of the total workforce. Workers in Lower Manhattan, where many garment factories were located, were particularly female.

Harris points out that although factories tended to move outward into the boroughs after 1919, before WWII the city did retain many factories in its central core, bucking the nationwide trend of suburbanization of industry. In 1940, 60% of New York workers had manufacturing jobs.

In the midcentury period, however, development trends turned toward offices and corporate headquarters. Zoning regulations made building more factories difficult.

In recent years, the city’s economy has rested on the service and financial industries. While manufacturers still do set up shop in the city, the scope of their activities is specialized. According to the New York City Economic Development Corporation, industry now provides just 16% of private-sector jobs. New York still produces garments, textiles, and printed material, and has increased production of packaged foods (see this October 2013 report from the NYCEDC for details [PDF]), but city factories tend to be smaller and to employ fewer workers.

This is an impressive range of industrial capabilities in 1919. As the above section notes, today New York City doesn’t have much of a manufacturing image due to the rise of Wall Street, the finance industry, the sector, and entertainment industries. Yet, 16% of manufacturing jobs in New York City still adds up to a big number of employees and firms, even if these facilities are not in highly visible areas in Manhattan. Additionally, some of the more hip areas in New York City today, such as Williamsburg and SoHo, are places that were ripe for gentrification and redevelopment in recent decades after large industry left in the mid 20th century.

Male British hedge fund employees worried about their appearance, link it to wealth

Even as women are presented with pressure in regard to their appearance, some men face similar pressure. Take this case of male employees at a British hedge fund:

We got our hands on an academic paper published last week by the British Sociological Association, which muscles into the attitudes of male traders towards their bodies, ageing and fitness, as observed at one (thus far unidentified) City-based hedge fund…

According to the study, titled, “Built to last: ageing, class and the masculine body in a UK hedge fund,” people at the mystery fund admit they get teased for not keeping fit, think affluence is linked to physical activity and exercise to offset the negative perceptions of ageing … oh and er, lie about getting work done.

“Conversations on the floor suggested that traders explicitly rejected or mocked the idea of Botox or other forms of cosmetic treatment,” goes the report.

“Yet, during interviews some mentioned dyeing their hair, having regular massages or going on an intense boot camp holiday in order to ‘fix’ parts of their body.”

The acceptable masculine appearance in this setting is interesting. But, it would then be worthwhile to hear more about how appearance gets linked to success and status within the firm. Do fellow employees perceive fit workers to be more successful? Do they get earlier promotions? Did male traders always have to be fit or get benefits from being fit or is this a relatively new phenomenon? This may be another piece of evidence that economic trading is not just about the numbers. As a number of sociological studies have found, other factors other than individual talent or intuition affect abilities in the finance industry including emotion and social networks.

Municipalities and Wall Street argue over using eminent domain to stop foreclosures

Some municipalities are considering using eminent domain to slow foreclosures – and Wall Street and those in real estate are not happy:

On Saturday, Mayor Wayne Smith of Irvington, N.J., will announce that his mostly working-class city is proceeding with a legal study of the plan. Irvington could try to head off legal action and repercussions through what are called “friendly condemnations,” in which incentives are used to persuade the owner to drop any objections, he said. “We figure if this program works it can help anywhere from 500 to 1,000 homes.”

This summer the similarly working-class city of Richmond, Calif., in a heavily industrial part of the San Francisco Bay Area, became the first to identify homes worth far less than their owners owe, and offer to buy not the houses themselves, but the mortgages. The city intends to reduce the debt on those mortgages, saying that will prevent foreclosure, blight and falling property values. If the owners of the mortgages — mostly banks and investors — balk, the letters said, the city could use eminent domain to condemn and buy them.

Since then, intense pressure from Wall Street and real estate interests, including warnings that mortgages will become difficult or impossible for Richmond residents to get, has whittled away support for the plan. The city has yet to actually use its power of eminent domain, but it is already fighting two lawsuits filed in federal courts…

Opponents of the strategy, including the institutional investors BlackRock and Pimco, Wells Fargo and the Mortgage Bankers Association, say that taking mortgages by eminent domain is a breach of individual rights and that investors will not receive fair market value for the mortgages. In Richmond, Mayor Gayle McLaughlin has asked investors to come to the table to work out a price, but they have so far declined to negotiate.

An interesting convergence of rights. Typically, eminent domain usage tends to raise the ire of citizens but this article makes it sound like this is something residents want. Is this the case? One argument often leveled against eminent domain is that allowing another case gives governments more opportunity to do what they want when they want. However, with this strategy, the municipalities are trying to work for the residents and against larger entities.

I wonder if the only thing that would convince banks and mortgage holders to consider this would be bad publicity, something along the lines: “Those Wall Street banks want to take advantage of distressed communities and are unwilling to work with them to improve their neighborhoods or help their residents.” This would involve less of a legal strategy and more of a public relations strategy.

 

Trader turned sociologist writes book about Goldman Sachs

A new book on Goldman Sachs is written from an interesting perspective: a trader for the firm turned sociology PhD student.

After writing a paper about organizational change, a professor encouraged him to write about Wall Street.

“He said, ‘No one in sociology understands banks, so you can make a contribution in that area,’ ” Mr. Mandis said…

The essence of his argument is that Goldman came under a variety of pressures that resulted in slow, incremental changes to the firm’s culture and business practices, resulting in the place being much different from what it was in 1979, when the bank’s former co-head, John Whitehead, wrote its much-vaunted business principles.

These changes included the shift to a public company structure, a move that limited Goldman executives’ personal exposure to risk and shifted it to shareholders. The I.P.O. also put pressure on the bank to grow, causing trading to become a more dominant focus. And Goldman’s rapid growth led to more potential for conflicts of interest and not putting clients’ interests first, Mr. Mandis says.

More sociological analysis of the financial industry, particularly from the inside of important firms, is needed. Considering their outsized importance on the global economy as well as global cities, it is a little surprising such books aren’t more common.

The review is fairly favorable, calling the book “accessible” and “clearly written.” However, the review doesn’t hint at criticism of Goldman Sachs. Given the opinions of many sociologists, is that would many sociologists would expect when reading such a book?

Cory Booker uses his social networks to funnel Wall Street money to Newark

Newark mayor Cory Booker has found a way to bring needed money to his city: work his wealthy social networks.

“The room is packed; you had every major hedge-fund, private-equity person,” recalls Joseph Shenker, chairman of law firm Sullivan & Cromwell LLP.

Booker holds guests spellbound using the Hebrew phrase “tikkun olam,” or fixing the world, to describe Ackman’s generosity. It’s a notion Booker has adapted to his city 12 miles (19 kilometers) west of Wall Street, and the moneyed elite are buying in…

“One of the things Cory Booker has done is turned Newark into a national cause,” says Shenker, 55, a New Yorker who remembers watching TV footage of the 1967 riots that left 26 dead. “He has made it a serious issue for the United States.”

Booker, midway through his second four-year term, has raised more than $250 million in donations and pledges for a city where the previous three mayors were convicted of or pleaded guilty to felonies after leaving office.

Mining a network stretching back to Stanford University and Yale Law School, Booker is promoting New Jersey’s largest city as a lower-cost alternative to New York and overseeing nonprofits to fund everything from security cameras to midnight basketball tournaments. Benefactors view Booker as somebody they can work with after decades of corruption, says Larry Sabato, director of the Center for Politics at the University of Virginia.

This reminds me of some of the public-private efforts also being undertaken by Chicago Mayor Rahm Emanuel. If major cities are facing budget issues, this is one way to get money: work with wealthy business people, offer them some results/benefits of investing, and then use the money as you wish.

I could imagine some potential issues with this:

1. Is this a sustainable long-term solution? What if another cause becomes more attractive? What if the city problems become too big to be dealt with using private money?

2. Do the donators have any sway or influence of how the money is used? If so, or, perhaps even more important, if there is even the perception of this, the public may not appreciate this.

3. Generally, does this suggest that it is primarily the powerful people in society, people like important elected officials and wealthy businesspeople, who really to get to decide what gets done? Who really controls a city: the people or those with money and clout?

4. What happens if this money doesn’t lead to much improvement? In business terms, what if there is not a high return on investment?