Henry Blodget caused a bit of a stir last week when he penned a diatribe against the bathroom attendants at the New York restaurant, Balthazar. Here’s a sample of it:
I always forget that Balthazar makes a guy stand in the tiny bathroom all day, so whenever I open the Balthazar bathroom door after breakfast, I am hit by the same series of unpleasant emotions: Annoyance, guilt, pity, uncomfortable invasion of personal space, and then… extortion.
I go through this internal dialogue and series of emotions every time I enter the Balthazar bathroom. And it makes me hate Balthazar and never want to come back. And then, over time, I forget the Balthazar bathroom experience, and remember only the dining room and meal. And then, eventually, I go back.
But this is a terrible practice — this “bathroom attendant” thing.
It is never helpful.
It is never anything other than uncomfortable and degrading.
It is never a “service” that I look forward to or enjoy.
So I am hereby appealing not just to the bosses at Balthazar, but to restaurateurs and hoteliers all over the world, to eliminate it.
Lo and behold, Balthazar took his advice. Owner Keith McNally announced today that he will be relieving the bathroom attendants of their duties over the next few weeks. In the end, he said, he agreed with Blodget so the bathroom attendants will be no more.
In finding this out, Blodget reacted on Twitter with remorse and wished that McNally had hired them as waiters instead. But this doesn’t make any sense. If McNally agrees with Blodget and does not see a purpose for the attendants, then he should get rid of them. If he has an opening on his wait staff, then he should fill it. But hiring extra waiters for the sake of hiring isn’t a good business strategy.
It’s certainly sad that those workers have lost their jobs, but our economy works best when companies take advice from their customers and make changes to their businesses accordingly. Capitalism dictates that companies have the ability to fire workers it deems expendable and workers can leave jobs for better ones. McNally made that decision. He should not feel compelled to continue employing them just because he eliminated their positions.
There is a larger point here as well. We’re into President Obama’s second term and the economy is still barely recovering. These firings wouldn’t be as painful if the workers knew they had a high chance of finding a new job in the near future. Unfortunately, our government (read: Republicans) has done everything in its power to lower those odds. Sequestration is a moronic policy that is significantly reducing growth. The government shutdown harmed the economy and fiscal brinksmanship does so well. Bipartisan agreement to let the payroll tax cut expire is holding back the economy too. These are just the ways Congress is actively harming the economy. It should be actively helping it by passing infrastructure bills and immigration reform. The Balthazar bathroom attendants would have a much greater chance of finding a new job if Congress wasn’t actively trying to stop them from doing so.
It’s a sad state of affairs that eliminating pointless jobs will cause such an uproar. These positions simply unnerved customers and guilt-tripped them into tipping. They should be eliminated, but the workers should also be able to find new employment in positions that use their skills better (anyone can turn on a faucet and hand out paper towels) and provide a greater benefit to society. The abomination here isn’t McNally eliminating those jobs or Blodget’s post that led him to do so. It’s the government’s inability to help Americans get back on their feet and recover from the Great Recession. Direct your anger there.
Salon’s Alex Pareene went on CNBC on Friday to debate whether JPMorgan CEO Jamie Dimon should keep his job after the megabank has found itself facing numerous investigations for alleged crimes it committed over the past couple of years. Wonkblog’s Neil Irwin summed up the entire situation well:
This is Mars vs. Venus stuff, in the sense that Pareene is coming from a different planet than Bartiromo and others who are creatures of the Wall Street world. The latter group sees Dimon as the most successful of the masters of the universe, as evidenced by the fact that he steered his bank around the calamities of 2008 and has kept it roaring ahead since. In this telling, some of the unpleasantness the bank has faced, like the $6 billion “London Whale” trading loss and potential $11 billion settlement being negotiated with the Justice Department as a fine for its involvement in shady deals for mortgage securities before the crisis, are just a cost of doing business.
On the planet inhabited Pareene (and some of his supporters among the commentariat, like Felix Salmon and Kevin Roose), the fact that JPMorgan has made gobs of money under Dimon, even after accounting for those losses, is almost irrelevant. JPMorgan had been one of the (allegedly) culpable parties in all sorts of chicanery (Tim Fernholz lists the investigations here), and the CEO must take responsibility for such broad problems.
The basic divide here isn’t about the merits of these individual cases, or any personal culpability that Dimon might have in bad behavior by the bank (some of which even took place in Bear Stearns and Washington Mutual, companies that JPMorgan acquired as they were on the brink of collapse during the crisis).
The question is what obligation a mega-bank like JPMorgan, and its CEO, have to society as a whole as opposed to just the shareholders who own it.
Irwin continues on to note the systemic value of JPMorgan and the benefits such megabanks receive due to their size. That means these banks have an obligation to the whole economy, not just to maximizing shareholder value that CNBC analysts singularly focus on. Irwin concludes:
In that sense, Jamie Dimon’s role at the helm of JPMorgan is not just one of satisfying the company’s shareholders, but one with broad responsibility to steward one of the important institutions that supports economic growth. The CNBC video is evidence of how little, five years after the crisis, that sense of broad responsibility has permeated the world of Wall Street.
This is the perfect summation of the entire exchange. The problem is that Wall Street is never going to learn and understand this. They still don’t understand that banks have a societal duty to operate prudently and legally. They haven’t learned and they aren’t going to learn.
The question, then, is how to align incentives so that operating prudently and legally is in the best interest of Jamie Dimon and JPMorgan. Pareene suggests breaking up the banks so that their failure wouldn’t cause a financial crisis and require a government bailout. But in the absence of Congressional support for such a policy, there is another way to align these incentives: make CEOs and other executives have skin in the game.
This isn’t easy to do and federal agencies don’t have enough resources as it is, but there has to at least be an effort to hold individuals responsible for their bank’s actions. It’s too easy for bank executives to commit crimes, attempt to cover them up and then avoid a trial. The bank may face an investigation and have to pay a huge fine, but bank executives are never at risk of going to jail. That’s inexcusable.
If those executives suddenly faced criminal charges, their conduct would change quickly. The industry would change quickly. Executives would still try to maximize shareholder value, but they would also be concerned that the bank was doing so legally. If not, they could soon find themselves locked away. That’s a good incentive to make sure your bank isn’t breaking the law.
Best of all, this doesn’t require prosecuting every small thing that banks do wrong. It just requires prosecuting enough executives so that all of them are aware that if their bank commits a major crime, they will likely face charges.
You know where would be a good place to start? Prosecuting the leader of the bank that is about to pay the largest financial settlement in history.
That man? Jamie Dimon.
Matt Levine wrote a terrific piece at Bloomberg yesterday on New York Attorney General Eric Schneiderman’s attempts to crack down on high frequency traders getting information milliseconds before the rest of the market. This happened a couple of times over the past couple of months and Schneiderman is concerned about the “dumb money” on the other sides of those trades who are being ripped off. Levine doesn’t argue against that notion, but comments that it isn’t small investors who are the ones being ripped off. It’s the other high-frequency traders who aren’t receiving the market moving data milliseconds ahead of time. Levine’s main point is that ordinary investors should never try to compete with high-frequency traders, whether or not they get the data milliseconds in advance. Instead, they should look to compete on a longer time horizon.
That’s entirely good advice and Levine is right that it’s other high-frequency traders who are hurt by the ones getting the market moving data in advance. But I want to push back on one thing he said earlier in his post:
One way you can tell it’s bunk is umm there are markets and they are not essentially equal. This is a true story: Many banks employ analysts who write detailed research reports that include recommendations on whether you should Buy or Sell a stock, and they give those research reports to their paying clients and not to anyone else. Those clients are paying for an unfair advantage!** But it’s not just banks. The Wall Street Journal employs journalists who find news and then make that news available only to paying subscribers. Bloomberg employs journalists who find news and then make that news available to anyone on the Internet, shortly after making it available only to paying Bloomberg terminal users.
The “essential equity of the markets” is bunk because the essence of the markets is inequity. You trade because you have, or think you have, better information than someone else. If everyone had the same information, and believed that they had the same information, there would be no markets.
That’s true as well. But the difference is that small-time investors know that they don’t have the same information as banks and the clients of those banks. They are aware of the information asymmetry and believe they can beat the market anyways.
But when traders gain market moving data ahead of time, investors don’t know that they are playing on a tilted playing field. They believe they all are receiving the same information as everyone else at exactly the same time. They know they are competing against high-speed supercomputers and are at a disadvantage there. They don’t know that those supercomputers have a head start on them. As Levin notes, this doesn’t really make a difference for those investors because they can’t compete with the supercomputers anyways. It’s other supercomputer that aren’t privy to advance copies of the data who are the “dumb money.”
But just because there information asymmetries, that doesn’t mean that markets are unfair, in an equitable sense of the word (not a market failure sense). As long as you know that you face an uphill battle against investors with lots more resources and lots more information than you, you’re welcome to try to beat the market anyways. It’s when you don’t know that you’re facing an uphill battle that things really become problematic.