New addition to the non-traditional MBA Reading List

My non-traditional MBA reading list has one been of my more popular posts on this blog. It's even more popular than my post about how I was a sperm donor which surprises me but reassures me about the general state of my blog readership. Since I consider myself to be market driven and responsive to my readership, this post will be an addition to the book list. Readers, please remember my humble gesture the next time that you have to endure a post about animal husbandry or colonoscopies.

My non-traditional MBA booklist is for future MBA's who were like myself. These are folks who are still surprised that they enrolled in an MBA program, may have worked in very non-business fields like non-profits, education, or the arts, or think of animal husbandry when they hear about the stock market. These books are intended to be clear to the novice but yet informative enough to allow the reader to a hold a conversation with the most cynical banker. Additionally, they are entertaining enough so they don't feel like homework. Benjamin Graham's book on value investing is not on this list. Andrew Sorkin's Too Big to Fail does make this list.

Too Big to Fail tells the tail of the economic melt down from the viewpoint of all of the players on Wall Street. It gives a both a beautiful and frighteningly clear picture of what the players were thinking or not thinking. The fates of Bear Sterns, Lehman Brothers, Merrill Lynch, Goldman Sachs, Morgan Stanley, Bank of America, JP Morgan, AIG, Wachovia, and Henry Paulson and the Treasury Department are all woven together in a way that provides a systematic view of how companies with hundreds of years of history changed in a matter of weeks. Sorkin writes clearly enough that the novice can understand (avoiding the biggest problem with House of Cards which was written in some banker dialect) but drops enough f bombs to demonstrate that he really did know the industry.

The highlights or what I learned was:

The financial industry did have some idea that the financial crisis was coming: The fact that years of easy credit and leveraging would come to a catastrophic end was not a surprise to the Treasury Department or Wall Street firms. Well, it probably was a surprise to Bear Sterns who appeared to have made a strategic decision to never be strategic but rather be as opportunistic as possible. For everyone else, the crash itself was as surprising as another celebrity sex video tape. The severity, swiftness, and lack of ability to contain the spread was the surprise. I found this to be reassuring that the US financial experts at least did see the crash coming but I don't think anyone could have predicted its severity.

When the going gets tough, the tough make deals: Henry Paulson or at least some investment banker was probably the best person to be Treasury Secretary during this time period. A more policy oriented secretary would not have been able to unleash the flood of mergers and other deals that Paulson helped trigger. This probably mitigated the financial crash significantly. Paulson was careful enough so that there was no documentation of him orchestrating Bank of America's purchase of Merrill Lynch or any other mergers. However, the frenzy of the Treasury Department's brokering and deal making got so extensive that even technocrat Tim Geithner was screaming for deals as loudly as any seasoned banker. Investment bank CEO's starting calling Geithner "Eharmony" because of all his attempted matchmaking.

A whole new view of Wall Street CEO's: Despite my MBA, I've never thought that highly of Wall Street CEO's. Mainly because I think that they had to sell their soul and humanity to out elbow other contenders. However, I did start to view some CEO's in a more favorable light after reading this book. JP Morgan's Jamie Dimon was pushed to buy almost every single player in the list above and had both the business acumen and intestinal fortitude to repeatedly tell Paulson and company no. If Lehman Brother's Dick Fuld was in that position he probably would have bought every single firm just because it would make his penis feel wonderful.

A combination of Too Big To Fail, When Genius Failed (about a bank on bank Wall Street bail out involving the hedge fund, Long Term Capital Management), and Barbarians at the Gate (about investment banking in the 80's and corporate raiders) will give a reader a very complete chronology of Wall Street over the last 30 years. Add American Theocracy: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21st Century for a little populism and you'll be able to score some points in your argument with even the most cynical investment banker.

The Legacy of the Leveraged Sell Out or why Bankers are Funnier than Consultants

There were many legacies of the 2004-2007 bubble era that look anachronistic today, such as Alan Greenspan's reputation as a genius, the idea of flipping condos for a living as opposed to burgers, and more than 5 Real Estate majors graduating from business schools. Consulting and Investment Banking were still the largest source of job offers for business school graduates (even though they were losing the battle of prestige to hedge funds and Google). Two websites represented those 20th century modern day business professions (which replaced the typical 19th century business profession of being an industrial baron) who strove to maintain their prestigious trappings and culture as the top destinations for MBA graduates.

Gettingdrunkinfirstclass.com or GDIFC carried the torch for consulting and portrayed its consultants as lords of the airways whose magic tongues enabled them to convince clients that their advice was worth its weight in 2010 priced gold. According to GDIFC, consultants were so glib, sophisticated and compelling while they whispered into CEO's ears that they could spend most of their time in debaucherous celebration that would be expensed back to the spellbound client. Like the website, this image of consulting has been defunct for some time. In reality, consultants only rule the airports WiFi systems in Cedar Rapids, Iowa. At the client site, the days is spent with reams of data and dinners are inhaled at restaurants that are still open at 10:00. While presenting, consultants struggle not to use the word "value add" to describe their power pointed recommendations in order to justify their carefully scrutinized billed expenses.

On the other hand, the Leveraged Sell-Out or LSO describes the actual work of investment bankers with a frightening level of accuracy from the pitch books to the Excel models. The genius comes from the parodies of the banker culture, prestige and rankings of everything from colleges to credit cards, and most poetic dialogue this side of Quentin Tarantino. The comments section on the site which was mothballed in November 2008 (but still preserved in time) reinforce the parody and accuracy. LSO also won the ultimate blog prize by spawning a book, called Damn it Feels Good to be a Banker.

I had avoided ordering the book due to fear that it would be a recycling of the website or the best material had already been written. However, after finishing my Economist on Monday and faced with nothing left to read for a week, I made the plunge and bought it. Since it arrived, I've read it twice due to the sheer poetry of the writing. Excel spreadsheet terminology is used to explain the planning of a night out. Clothing is described with such detail that I can visualize the triple pleats of consultant's khakis that were purchased at a Piscataway New Jersey Mall Banana Republic with a gift card. I also learned more about banking and how to measure firms by prestige than I could ever possibly want to know. I almost started using the term so Piper Jaffray-ish to describe the Chicago Bears defense this year.

While I both learned and laughed a lot about banking from the book and website, I would only cautiously recommend it to non-traditional MBA students. If a reader doesn't realize that the most elitist statements are intended to be a complete parody, the humor will make someone really angry. The humor is also from the bygone bubble era of 2004-2007 and may not travel well in this day and age. For those who are ready to keep an open mind and want a good laugh, I highly recommend the book.

Full disclosure: I've read that Damn it Feels Good to be a Banker is actually written by a strategy consultant.

Summer Reading list for Non-traditional MBA's

I was a non-traditional MBA and I don't mean non-traditional in the sense of I just wasn't a consultant or banker. Nor a non-traditional MBA like someone who worked in an intense quantitative field like engineering or as an actuary. Six months before entering my MBA program, I decided to work in a commune for developmentally disabled adults. Prior to that I taught knitting to the homeless mentally ill. I was a non-traditional MBA in the sense that I thought Excel was a new anti-anxiety medication.

Despite the orientations for incoming MBA students around the corner, this is summer the reading list that I would recommend for the really non-traditional MBA. They are interesting enough to keep the attention of someone who would probably rather be reading a David Sedaris book and clear enough for someone who never read the Wall Street Journal. They are relevant enough for those whose careers will probably be non-traditional and have no desire to mimic the management style of Jack Welch or investing career of Warren Buffet (and think that both men are kind of strange. Welch due to his intensity and Buffet because you think anyone who lives in Nebraska is strange.)

Here are the 2 best books about Wall Street in the 80's for a good foundation of where good old fashioned greed all began.

Barbarians at the Gate: This described the frenzy around a corporate takeover of RJR Nabisco. It reads like a Grisham novel, introduces powerful firms like KKR, and shows how the movie Wall Street's Gordon Gecko is not an exaggeration. You'll learn about how exactly someone tries to take over and buys another company when that company is not the slighest bit interested in being bought. Kind of like the dynamics between men and women after last call at the club.

Den of Thieves: This will introduce the reader to Michael Milken and Ivan Boesky who were the Larry Bird and Magic Johnson of Wall Street in the 80's. I found that this book to be more informative of what investment banks do. This also describes the emergence of some of the financial products like junk bonds and mortgage backed securities that even the most non-traditional person has probably heard of.

Non-traditional MBA's may hear about hedge funds for the first time at business school and notice the quiver of excitement in classmate's voices when they talk about them. Hedge funds involve using a lot of math to make money. When Genius Failed tells the tale of Long-Term Capital Management, a hedge fund that almost caused the financial system to fail in 1998. The book explains how hedge funds work and later spectacularly don't work. It's also a good reference point for near financial system collapse of Fall 2008.

All non-traditional MBA's will think about a career in consulting since there is no specific background that anyone needs to be a consultant. Consulting firms also promote projects with non-profits or have their own non-profit consulting arms since they learned it's a great employee retention tool. As a result, they seem like the perfect place for anyone from a math teacher to a yak herder to work. I know that I went throgh the consulting company recruitment process, got rejected everywhere, and thus really liked: Dangerous Company: Management Consultants and the Businesses They Save and Ruin. It's a very detailed look at the history of consulting firms, how someone came up with the idea, and consulting projects gone badly. It's also intended as a guide for industry managers on how to properly work with a consulting firm so there is a balance of objectivity. It's a great book to take the sting off being rejected during an interview by the smug, glib, well-dressed consultant and much more productive than drinking a six pack. Some recommend House of Lies: How consultants steal your watch and tell you what time it is but I found that book to be more of a depressing tale of a really bad corporate job that just happened to be consulting.

For an understanding of today's economy and financial markets (or lack of financial markets), I recommend American Theocracy: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21st Century. The same author also wrote Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism which may seem like a more specific business book. Bad Money is really just a long drawn out version of last chapter of American Theocracy so you might as well read the Oil chapter for some Middle East and global history. I skipped the "Radical Religion" chapter because after a while it seemed like a repeat of "There are a lot of preachers in America. No, seriously, there are a lot. I mean really a lot. Take the number of preachers that you think there are in America and multiply it by 100."

Every MBA will eventually read a Michael Lewis book and usually that book is Liar's Poker about his transition from non-traditional London School of Economics grad to bond trader in the 80's. I really wanted to hate Michael Lewis since he seemed like the most stereotypical Princeton graduate. However, he's a really good writer. The content of Liar's Poker will be covered in Den of Thieves and When Genius Failed so I would recommend Blind Side: Evolution of a Game. It looks like a book about football and the reasons that players at one particular position that most have never heard of are now getting paid as much money as successful bond traders. However, it's really a book about society, low income African-Americans relationship with sports, transitions from black ghettos to white societies, and a main character Michael Oher, who you can't help but really like and want to meet. It talks about the "soft" side of business decisions like ethics, complex decisions, and what's really important in life rather than the "hard" quantitative side.

I just got Deep Economy out of the library based on a recommendation. It was another non-traditional MBA's favorite business book and it's about the importance of local economies. If I can put down my Henning Mankell Swedish detective novels, I'll find out if I want to add it to list.

Update: This post provides another addition to the blue ribbon standard of the non-traditional MBA reading list. This post was awarded the blue ribbon by competing in a category that includes no one else. How many non-traditional MBA reading lists have you seen and even if you do find one, I can always claim that mine is much less traditional.

Ethics Lessons in Unusual Places: the Bear Sterns Collapse

I just finished William Cohan's "House of Cards" about the implosion of Bear Sterns. It was a very enjoyable finance drama that reinforced my belief that my classmates who work in financial services on Wall Street were crazy. However, I also read the book with the frame of ethics and business after my post about the MBA Oath. Given the discussion about ethics in the MBA program and the role of an oath due to no harm, I thought there would be many lessons in this book. There were lessons but not the ones that I had thought I would learn. There was not a lot of outright flaunting of ethical guidelines. Instead it was a tale of very principled men with strong codes of conducts navigating a very grey world. The lesson that I learned were more about how that even characters in a "Tale of Hubris and Wretched Excess" made decisions with what they deemed to be the greater good in mind. I never thought that I would write this, but there is a strong sense of ethics on Wall Street.

The Good
Two CEO's, JP Morgan's Jame Dimon and Bear Stern's Jimmy Cayne showed clear Kohlbergian moral reasoning at a stage 5 by asking "What makes for a good society?". Some could put them at stage 6 the highest level depending on interpretation. When the government approached Dimon about purchasing Bear Sterns, his thought process showed weighing the good of the country, good of the financial systems, and good of the shareholders. There was even empathy and concern for Bear Sterns in the mix.

One could argue that Cayne was more expediant in his reasoning. His lowest level was in the decision to not participate in the rescue of Long-Term Capital Management. He did not look at the greater good of the community but the greater good of Bear Sterns. I would argue that Bear Sterns was his community and Cayne was aware of the implications of his refusal to participate and did try to warn the group. This was his low point but otherwise, Cayne was very clear about his principles of how Bear Sterns should be run and how it should be fair. When Bear Sterns was being sold for $2/share, Cayne did show how he thought of the impact of shareholders, bondholders, and employees. Ultimately, he did support the sale since it was the right thing to do even though others were suggesting more nuclear options.

While Cayne was not a shining example of morality, you do realize that he is not a burning example of lack of it. Additionally, a 5 year old on a sugar rush has greater attention to detail and he was Machiavellian in his quest for power. However, he had his own definition of who was part of the greater good and very principled about how to support it.

The Bad:
Ralph Cioffi and Matthew Tannin were the only ones that provided a clear, easy example of lapse of ethics. They mispresented the risk level and subprime exposure of the Bear Sterns hedge funds to investors. The mispresentation was so blatent that a Bear Sterns employee was able to note the contradiction in subprime exposure on 2 different investor communications. This clear demonstration of lack of ethics was not common in the book at all. Cioffi was known to have such poor attention to detail that he couldn't follow basic compliance guidelines for completing a trade. He was a classic Randy Moss type player or talented athlete who immense talent was only closely followed by their inablity to follow basic rules. However, both extremes are rare.

The Ugly:

The biggest surprise to me is the moral quandry that exists in the financial world. There were 2 specific examples that are Solomn-esque in terms of their complexity.

1. Goldman Sachs valued mortgage-backed securities that made up a large part of the Bear Sterns' hedge fund's porfolio at 50% the price that everyone else did. This caused the value of the assets to drop since everyone is required to use the average valuation price. The drop was one of the big drivers that led to the hedge funds melt down. Goldman knew the consequence of what their pricing and also had exposure just like everyone else. However, they felt that their prices were truly accurate and to not publish them would also be unethical. Pricing what someone believes to be accurate can torpedo the entire financial sector today. This is an issue of Talmudic proportions.

2. If a bank does not project an image of financial strength, they risk a run on the bank and their demise. This is what happened to Bear Sterns, Lehman, and others. One could argue that overstating one's position is necessary to prevent a bank from being positioned 6 feet under in the future. Therefore, there are equally compelling reasons to be truthful about a bank's financial status and to overstate.

After realizing how bankers face these challenging ethical issues everyday, I was no longer surprised about the strong sense of ethics and principles that some of the executives in the book exhibited. The Cioffi's and Tannin's don't last long enough in the business with these daily ethical challenges.

I had expected to read stories of strip club-fueled orgies on borrowed dollars or "Barbarians at the Gates" effort to squeeze out every last dollar from a deal as a measure of one's worth. Instead I sympathized with Bear Sterns as a company that thought that they were doing the right thing and was bewildered by their demise. Their greatest sins did not appear to be of the flesh or of ethics but of not planning well for the future. They ran their business one deal at a time. While this opportunitistic culture gave them the flexibility to be nimble with deals, their lack of a plan for the future left them vulnerable to the whims of the market.