Wall Street Smarts

After I posted my comment on “Do we Really Need to Break up the Banks?” yesterday (http://seekingalpha.com/article/168514-do-we-really-need-to-break-up-the-banks), I remembered an anecdote from my time in the Finance Department at the Wharton School, University of Pennsylvania. It relates to commercial banks moving from “utilities” to “casinos” in the words of Mervyn King, Governor of the Bank of England.

What brought this incident back to my mind was the recent op-ed piece by Calvin Trillin in the New York Times with the title “Wall Street Smarts.” (See http://www.nytimes.com/2009/10/14/opinion/14trillin.html?scp=2&sq=calvin%20trilin&st=cse.) In this piece Trillin runs into a person who reflects on something a speaker who had just been to a college reunion had shared with him.

“One of the speakers at my 25th reunion said that, according to a survey he had done of those attending, income was now precisely in inverse proportion to academic standing in the class, and that was partly because everyone in the lower third of the class had become a Wall Street millionaire.”

He goes on, “Don’t get me wrong: the guys from the lower third of the class who went to Wall Street had a lot of nice qualities. Most of them were pleasant enough. They made a good impression. And now we realize that by the standards that came later, they weren’t really greedy. They just wanted a nice house in Greenwich and maybe a sailboat. A lot of them were from families that had always been on Wall Street, so they were accustomed to nice houses in Greenwich. They didn’t feel the need to leverage the entire business so they could make the sort of money that easily supports the second oceangoing yacht.”

I joined the Finance Department at the Wharton School in the fall of 1972. At the time they had one course related to commercial banking, but the course was structured to discuss banking structure and regulation.

I was interested in running banks so I made the suggestion that we offer a course in bank management that was similar to the courses in the financial management of corporations, only make it specifically related to the issues and concerns of the banking industry.

The response I received from some of the administration was that they were unsure that a course like that would attract many students, particularly at the MBA level. The reason being, that except for hiring several people that were interested in running bond portfolios, the large money center banks did not recruit from the Finance Department at Wharton.

Well, I knew that there were a lot of people from the University of Pennsylvania that worked at the large money center banks so I asked a stupid question: “Where did these banks recruit Penn grads?”

The response: “Oh, they recruit from the History Department, or the English Department or areas like that. What the banks really want are people that get along with others, enjoy social drinking, playing golf or playing tennis, who belong to social clubs and things like that. They don’t want someone that is mathematically trained or otherwise quantitatively orientated. They want someone to help establish or build relationships.”

Well, not that there weren’t smart people that graduated from History, or English, or areas other than math, statistics, physics, and finance. It’s just that, at the time, banks didn’t consider that these were the people they wanted working with their customers. I guess there is a bit of truth to Trillin’s op-ed piece.

Anyway, we did create the course in the financial management of commercial banks. In my last semester at Wharton the graduate class was held in a large auditorium and was completely filled. The textbook written for the course, The Financial Management of Commercial Banks can still be found on Amazon.com. (See http://www.amazon.com/Financial-management-commercial-banks-Mason/dp/0882623095/ref=sr_1_1?ie=UTF8&s=books&qid=1256315167&sr=1-1.)