“Please Tase Me, Boss”
Recently Arianna Huffington and Rob Johnson proposed that individuals angered by bank bailouts move their money from “too-big-to-fail banks” to community banks. As Zephyr Teachout and Paul Volcker have noted, economic power can inexorably lead to outsized political influence. Huffington and Johnson worry that “The government policy of protecting the Too Big and Politically Connected to Fail is badly hurting the small banks, which are having a much harder time competing in the financial marketplace. As a result, a system which was already dangerously concentrated at the top has only become more so.” As I work my way through Karen Ho’s excellent ethnography Liquidated, I thought I might mention a few stories about a noted hedge funder that give a human face to Huffington/Johnson’s worries about Wall Street.*
Recently the feds charged “Raj Rajaratnam and 20 others with profiting off market-moving, inside information.” Rajaratnam was quite a character, as a recent Wall Street Journal story documented. As his Galleon Fund made him a billionaire, he was not afraid of spending his money in unconventional ways:
When executives from stun-gun maker Taser International Inc. came to make an investment pitch around 2005, Mr. Rajaratnam offered $5,000 to anyone who’d agree to be shocked. Employees gathered around as two people propped up [a trader] at the elbows and another person fired the weapon. [Her] legs buckled beneath her from the shock. . . .
That same year, employees arrived at Galleon’s morning meeting to a surprise: In the conference room was a dwarf whom Mr. Rajaratnam introduced as an analyst hired to cover “small-cap” stocks. He was, in fact, an actor hired for an April Fool’s Day gag.
Even Graham Greene could barely make up stuff like this.
But surely, one might think, these are merely the peccadilloes of a financial genius. One can’t become a billionaire just playing pranks and working inside angles, right? Well, here’s a bit of Rajaratnam’s contribution to society:
[W]hile other analysts would “try to dig deep,” Mr. Rajaratnam “was particularly clever, particularly good, and would get more information” [said one source]. . . . On March 21 of , Mr. Rajaratnam was working the phones in his corner office overlooking Park Avenue and across a hallway from Needham’s trading floor. It was two weeks before AMD would report earnings for its first fiscal quarter.
With a felt-tip pen, he wrote the date and two names in a spiral notebook. One was the first name of a manager at various tech companies in the 1990s, including AMD; the other was that of an engineer who worked at chip companies.
“Could do over $500 million,” Mr. Rajaratnam noted farther down the first page. On an adjacent page, he wrote that the “goal,” as of March 1, was “$484,” then “New $515.” Below that he wrote “486’s” and “1 million units.” In bold strokes across the two pages, he jotted other numbers, including prices for two versions of the 486 chip. . . . The pages were studded with the kind of information that analysts normally didn’t get, the fruit of all [his] attentive visits to Silicon Valley.
On April 4, AMD surprised Wall Street by announcing a record $513 million in revenue for its fiscal first quarter. The company said 486 chips sold more rapidly than expected early in the quarter, with sales surpassing 900,000 units.
It was the kind of work that enabled Mr. Rajaratnam to emerge from his office and be heard telling his top trader . . . that he had “the number” for earnings from Intel and AMD before they were announced.
Yes, hard work like that may well get you a net worth equal to the lifetime earnings of hundreds of median workers in the US. Certainly folks like Rajaratnam should be allocating capital in the US, instead of top-down government-driven industrial policies.
* For those fuming “hedge funds weren’t part of the problem in October 2008″. . . yes, I know that the hedge funds are not part of the TBTF system (unless they’re as important as LTCM), but I think this story does jibe with Ho’s general account of the problematic aspects of Wall Street culture.