As plumes of smoke billow from the international banking system, it is wise to assess how we got here. The current economic crisis has been attributed to many things, from the deregulation of the financial-services industry to sheer greed and stupidity. Karen Ho *03 offers a different and more pungent diagnosis in her new book, Liquidated: An Ethnography of Wall Street (Duke University Press): The crash is the natural result of a Wall Street culture in which the self-proclaimed smartest people in the world came to believe that high share prices trumped all other corporate values and, in doing so, imposed their ethos of live-for-today risk-taking on the economy at large.

Among the slew of recent books assessing the crisis, it is Ho’s methodology as much as her analysis that stands out. Her book — which is based on her Princeton dissertation — is neither an economics primer nor a tell-all. Ho is an anthropologist; she calls her book an “ethnography” — a study of the culture of Wall Street. Think of Liquidated , then, as Margaret Mead meets Morgan Stanley. And much as Mead studied the cannibal tribes of New Guinea, Ho worked among the investment bankers of Lower Manhattan so she could observe them in their native habitat. Judging from her assessment, Wall Street bankers are a lot like cannibals — except with better suits and less impulse control.

Ho’s interest in studying Wall Street from an anthropological perspective was piqued, she recalls, by the 1995 restructuring of AT&T, which resulted in 40,000 layoffs about a year after she arrived at Princeton. The layoffs, she thought, were horrible news — and yet the company’s share price soared. Looking more closely, she saw a similar process at work in other corporate restructurings, and noticed that the investment banks not only prospered, but celebrated the restructurings they had brokered. How was it, she asked, that corporate America could do so well during a period of widespread downsizing?  

Like a good anthropologist, Ho set out to explore the connection between rising share prices and increasing worker insecurity, and its nexus on Wall Street — the ways in which Wall Street shaped not just the stock market, but the nature of employment and job security. Shortly after beginning her field interviews, however, she discovered that she did not know enough about finance to phrase the proper questions, much less understand the answers. To correct that deficiency, she interviewed with the banks recruiting on Princeton’s campus, landed a job as an internal management consultant at Bankers Trust (now a part of Deutsche Bank), and took a break from her studies in 1996 to work there.  

Ho’s department at Princeton had some qualms about her going to work on Wall Street. Her work — especially her methodology — was unprecedented, says her adviser, Emily Martin, who is now a professor of anthropology at New York University. “There really had been very little research done by anthropologists in the field of financial institutions,” Martin says. Ultimately, the department agreed that Ho could work on Wall Street but could not conduct interviews while she was employed there. She would be permitted to keep notes and make contacts that would prove invaluable later. Although Ho told potential employers that she intended to return to graduate school and write a book about Wall Street culture, it seemed that her more salient qualifications — a Princeton pedigree and a pulse — assured her of a job.

Therein, Ho discovered one of the most striking aspects of Wall Street culture. It values “smartness” above all other attributes — and while smartness may be hard to define, a fancy diploma provides a good substitute. Wall Street says it wants only the best — no, make that the best of the best — and that, dear reader, means you. Princeton and Harvard are the only two universities, Ho reports, from which the top investment banks recruit students regardless of major or area of concentration. If you went to a “lesser” school — and in the eyes of the big banks that includes Yale, Stanford, Chicago, and the rest of the Ivies — applications are accepted only from students who have demonstrated some interest in finance, such as economics majors. If you went to a second-tier state school, forget it. And so, Ho says in an interview, for a generation of Princeton students, “Wall Street positioned itself as the place [for undergraduates] to land.”

As Ho describes it, Wall Street needs Old Nassau as much as the other way around, a fact that keeps a steady flow of eager juniors and seniors flooding to Goldman Sachs recruiting parties even during an economic meltdown. Princeton and Harvard create a “halo effect” around all that Wall Street does: If investment bankers really are the best and the brightest, then what they say about the market must be believed, and those hefty bonuses are rationalized. “Investment banks’ sheer reliance on the ‘aura’ of Princeton itself,” she writes, “the name, the prestige, the evocation of ability and intelligence, the global cultural capital — is brought into starkest relief during socioeconomic recession. When faced with economic hard times, Wall Street downsizes immediately, relentlessly, and constantly. However, Wall Street’s dependence on elite universities means that even during downturns, when they unabashedly downsize to preserve the bonus pool of capital for their executives and to bolster shareholder value, they do not stop actively recruiting at the usual campuses.”

Photo Illustration: Steven Veach; photos, Jupiter Images

The product of a “solidly middle-class” family, Ho grew up outside Memphis and earned her undergraduate and master’s degrees at Stanford. Her parents were immigrants from Taiwan, her father a doctor. The aggressive world of Wall Street was alien to her family, Ho says — but so was the study of anthropology. Her parents viewed both of their daughter’s pursuits as adventures.

Beginning her job at Bankers Trust, Ho rented a two-bedroom apartment in the Cobble Hill section of Brooklyn (a neighborhood, she notes, where “almost no one from Wall Street lived”) for $425 a month and took the F train every morning to work in Lower Manhattan. Slowly she learned to navigate the curious investment-banking culture. Take lunch, for example. Brown-bagging at Bankers Trust was viewed as déclassé, Ho says. On the other hand, being seen too often eating in the lunchroom sent a signal that one wasn’t working hard enough. The socially acceptable solution was to go out, buy lunch, and bring it back to eat at one’s desk.

From a structural standpoint, investment banks are divided between the front office (the analysts and associates, who can bill clients and are seen as revenue generators), back office (clerical and support staff), middle office (such as internal management consultants — the job Ho accepted), and risk managers, who do not generate as much revenue as the front office but who still are considered officers of the bank and are recruited from the elite national universities. As Ho observed, front- and middle-office people do not socialize with those in the back office except at the annual Christmas party, and they work on different floors and take separate elevator banks.  

Analysts do the grunt work of crunching numbers and preparing spreadsheets to be used in pitching new business, advising clients whether they should or should not pursue a particular deal. An associate, who usually has an M.B.A., supervises the analysts, coordinates their work, and acts as a liaison to those higher up. At the top of the totem pole are the managing directors, Ho says, who — if they bring in a lot of business and the firm has a good year — can earn millions in bonuses, “with virtually no ceiling.”

As an internal management consultant, Ho was responsible for advising various departments within Bankers Trust on strategy and workplace efficiency. She earned a starting salary in 1996 of $50,000, plus a $5,000 signing bonus. Although she was technically an analyst and that sum was about three times what she says she would have made as a graduate student, she did not work in a position that generated revenue for the bank and so was ineligible for the year-end bonuses that boosted the incomes of some rookie analysts well into the six-figure range. From the Wall Street perspective, she learned, “smartness” also entails both aggressiveness and a willingness to work hellish hours in exchange for the chance of a huge financial reward: Analysts routinely put in 110-hour weeks — working from 9 a.m. to 1 a.m. every single day and sleeping under their desks. Ho earned less money, but her hours were not as bad, either.

Few can stand the crushing pace, and few are expected to. Most analysts stay for two years, when they either are promoted to associate or leave, often to attend business school. Or they get fired, which is what happened to Ho. In early 1997, barely six months into her job, she and her entire department were laid off. The reason given, Ho recalls, was that the department was “a fixed expense that detracted from shareholder value.” Translation: The firm decided it could make more money elsewhere.

Ho returned to graduate school for a year before donning her pith helmet and conducting her field interviews from February 1998 to June 1999, the height of the Clinton boom. She conducted more than 100 interviews, starting with former colleagues at Bankers Trust, many of whom had since left the firm and were working at other investment banks. Her Princeton and Stanford connections proved helpful in directing her to interview subjects. She also pored over the academic literature about Wall Street.

Although Ho tried to be a friend to her co-workers, she says she thought of herself as an outsider while working at Bankers Trust, straddling the line between participant and observer. She approached her colleagues, Ho says, “as people I wanted to understand,” but their motivations were different from hers. She was working on Wall Street to familiarize herself with a world she later would write about. What motivated most of her co-workers, she says, was the drive for money and prestige that validated one’s smartness. Ho is soft-spoken and, though obviously driven, she acknowledges that she is not very aggressive. That, she says, kept her from viewing most of her colleagues as kindred spirits.

Ho’s sources, however, later provided insights into what she calls some of the “origin myths” of Wall Street. One, which financial firms employ to justify the relentless pace of takeovers and divestitures, is that shareholder value (meaning a high stock price) must be the corporation’s pre-eminent — indeed, only — goal. As the anthropologist discovered, however, this myth holds up about as well as the one that the world rests on the back of a giant turtle. Ho explains, in a thorough history of corporate governance, that the shareholder-value mind-set has become predominant only over the last 30 years.

Historically, the stock market separated those who wanted to invest in the company’s financial success — stockholders — from those who actually ran the ­company and who were accountable to a number of different constituencies. Today, other interests — such as strategic planning, retention of earnings, or contributing to the local community — not only are secondary but contradictory to what Wall Street has proclaimed to be the pre-eminent corporate mission. Keeping share prices high at all times forces companies to think in the short term, under threat of takeover, and actually has hampered their performance and undermined shareholder value over the long term, Ho says. It has produced an “economy of appearances” that is built more on financial sleight of hand than, say, manufacturing prowess, and contributed to a series of financial crises over the last generation.  

Ho discovered to her surprise that academic and abstract reports of how the market works do not account for the boom-and-bust cycle. It is too easy, she says, to pass off the current economic crisis by saying that it is just an inevitable by-product of a free market. As she recently told Time, “The very kinds of practices that created the boom in the first place — wanting to book as many deals as possible for short-term bonuses, a workplace knowingly structured so [employees are] not there for very long — paved the way for the bust.”

Now an associate professor at the University of Minnesota, Ho says she does not miss the frenetic Wall Street pace, or even the chance for quick wealth. Associate anthropology professors earn a modest salary; had she gotten an M.B.A. and moved up the investment-banking ladder, she could be making hundreds of thousands of dollars, at least. Those are all big hypotheticals, she notes, but a worked-to-death, overpaid life “never tempted me. I wasn’t interested in the job.”  

Although Liquidated is a book of anthropology from a university press, Martin, Ho’s adviser, notes that it also “has a deep, almost literary, force as a commentary on American culture.” The book has begun to attract public notice in newspapers, blogs, and business publications, where several interviewers have asked for Ho’s assessment of the current situation on Wall Street and President Obama’s efforts to revise the Wall Street pay scale. (She is skeptical, given the influence that former bankers wield within the administration.) The culture of Wall Street has not changed — and until it does, Ho suggests, Wall Street’s practices will not change, either.  

When asked by PAW what she would like to see reformed, she mentions three things: changing the current bonus and compensation structure so that it is tied more closely to long-term productivity; reinstating the Glass-Steagall Act, which barred commercial banks from engaging in riskier investment-banking practices; and rebuilding a social safety net for senior citizens and those with lower incomes. Ho is critical of the bank bailouts engineered in the last months of the Bush administration, arguing that by deeming certain investment banks “too big to fail,” the government sent a message that those banks can make even bigger and riskier deals, knowing that they can keep the profits but look to the public to make good any large losses.

Whether the current crisis changed anything on Wall Street “remains to be seen,” but Ho says the evidence so far suggests that it has not. In the second quarter of this year, Goldman Sachs posted its largest profit ever, grabbing market share left when its former rivals, Lehman Brothers and Bear Stearns, went out of business, and boosted by a new round of deals that have, in this case, paid off. Goldman also has joined JP Morgan Chase and Morgan Stanley in repaying some of the federal bailout funds they received, in part, it is reported, to escape government curbs on how much firms receiving federal funds could pay in bonuses and executive compensation.  

Guys and Dolls

In this excerpt from Liquidated: An Ethnography of Wall Street, Karen Ho *03 takes readers to a Goldman Sachs recruiting session at the Nassau Inn.

“So why should you work here?” asked the recent white male alumnus from Harvard. “Because if you hang out with dumb people, you’ll learn dumb things. In investment banking, the people are very smart; that’s why they got the job. It’s very fast, very challenging, and they’ll teach as ­quickly as you can learn.” Some speakers emphasized the access to power offered by a Goldman Sachs position. “Our analysts can go anywhere in the world,” said one of the white male vice presidents who is an alumnus from Wharton. “We’ve got Hong Kong, we’ve got Sydney, we’ve got London.” He returned, inevitably, to the presentation’s central motif; with an admiring gaze at the audience, he exclaimed, “You are all so smart!” Finally, the Princetonian managing director got up and announced, “Let’s break up, go to the Nassau Inn Tap Room; drinks are on us!” The swarm of undergraduates then bee-lined toward the panelists, eager for face time with actual Goldman Sachs executives while I was still lingering in my seat. Determined to join the fray, I surveyed the scene and realized that every investment banker was already surrounded by two to three semicircle layers of undergraduates: As the first layer moved to impress and receive the business card of the banker holding court, the second layer would quickly move into “face-time” position. The only room in the crowd for me was actually behind the speaker’s back where there was no waiting line! In that position, I mainly observed throughout the night, and the only person who turned around to talk to me was the young South Asian American analyst from the University of Chicago, and I held on dearly to her business card as a sign of my initiation into this grueling process.

During subsequent recruitment presentations, I experienced much of the same: well-suited alumni declaring, “We only hire superstars,” “We are only hiring from five different schools,” “You are the cream of the crop.” In these sessions, I was struck by how proclamations of elitism (through “world-class” universities, the discourses of smartness and globalization) seemed foundational to the very core of how investment bankers see themselves, the world, and their place in it. Representing a world of “collective smartness” and exclusivity seemed fundamentally connected not only to the criteria for becoming an investment banker but also to the very nature of what they do. What precisely were the links between elitism and the enactments of their financial expertise and global dreams, between Wall Street’s claims to smartness and their promises of global prowess? Motivated in large part by these compelling presentations, I decided that to understand these grandiose, even mystifying, pronouncements, I had to get a job on Wall Street.