The Zeroes: My Misadventures in
the Decade Wall Street Went Insane
By Randall Lane
Portfolio, 359 pp, $27.95
Nearly a decade ago, former Forbes bureau chief Randall Lane spotted the beginnings of a new culture devoted to the notion that 26-year-olds with a gift for swapping financial assets could be able to make as much in a few months of trading as an average person makes in a career. Lane launched a series of magazines devoted to glorifying this culture—publications with names like Trader Monthly and Dealmaker—that specialized in stroking the emerging plutocracy of hedge fund managers, traders, and private equity speculators.
Lane believed he would make his own fortune by giving luxury advertisers a forum to reach this small but growing mob of ultrarich arrivistes. Unfortunately he chose a medium that would prove to be a surefire prophylactic against profits. Despite zealously attempting to sell out, Lane couldn't make a buck. When stock markets collapsed in 2008, so did his publishing empire.
At least he got a great story out of it. His new book begins by sticking a snazzy label—the Zeroes—on the decade just past. It then proceeds to trash most of the people that Lane spent the Zeroes glamorizing. If you want to know what hedge fund managers consider "a proper night out" (translation: a $10,000 excursion to an upscale strip club), this is the book for you. Ditto if you're looking for the nasty on John Travolta or Lenny Dykstra, the baseball star-turned-financial-impresario.
As Lane tells the story, he was the guy in the frayed suit, with the dented '97 Subaru Outback, trying to make his way in the world of the superrich, all the while casting a skeptical eye on their rituals of conspicuous consumption. While the Wall Street crowd dined on $175 Kobe beef burgers, Lane chowed down on a tub of Costco (COST) peanut butter. While hedge fund managers dropped tens of millions on gated-and-walled family compounds in Greenwich, Conn., Lane and his wife and two daughters endured a cramped apartment in Manhattan, where the kitchen doubled as the office.
So endless are Lane's assertions of his relative poverty that it's easy to miss that he was just as hungry for money as anyone else. If things had turned out differently, and Lane's publishing endeavors had gushed profits instead of bled red ink, his ethical sensibilities might not have been so offended by the thought of the $1,000 lobster-and-caviar pizza at Nino's Bellissima. Heck, Lane probably would have enjoyed a slice himself.
Perhaps as a result, The Zeroes is marvelously readable, and also misleading. As Lane deplores "the kind of greedfest that comes along only once every thousand years," most readers will be led to conclude that the financial meltdown was the result of an unprecedented outbreak of heretofore unknown avarice on Wall Street.
There are a couple of problems with this simplistic moralizing. The first is that we've heard it too many times before. After every financial crisis, whether it be the junk-bond collapse of the late 1980s, the dot-com bubble of the '90s, or the 2008 financial crash, there are books (often by Michael Lewis) blaming the collapse on Wall Street's uncontrolled lust for money. The purported evidence for this chain of causation goes something like this: Before the economy cratered, financiers were demonstrating unmistakable signs of greed. Ergo, greed caused the crash.
What this glib explanation misses is that greed isn't a variable in the markets—it's a constant. The traders and hedge fund managers that Lane captures so well in his book are a grasping, materialistic lot, devoted to buying flashy watches and expensive rides—and so were their predecessors, going back to when the stock exchange was founded under a buttonwood tree. If you're going to indict this long line of greedy so-and-sos for causing financial crashes, you also have to credit them with all the intervening periods of prosperity. No historian of Wall Street has ever detected an Age of Altruism.
Lane attempts to draw a line between Wall Street's present and its past—"when it was a well-paying career providing the lifeblood of capitalism, rather than an absurd casino promoting perilous, systemic risk"—but the distinction doesn't hold for a number of reasons.
Probe Wall Street's history and you turn up various characters ranging from Jay Gould to Joe Kennedy, all of whom made fortunes with then-legal scams that would have landed them in jail today. By comparison, the traders and hedge fund speculators that Lane pursued so avidly in the Zeroes wind up looking, on some levels at least, like surprisingly decent folks.
Many of them—the "quants"—held advanced degrees in math or physics. They showed up in laughably large numbers for charity events. Steve Cohen of SAC Capital Advisors, the reigning king of the traders during much of the Zeroes, didn't squander the hundreds of millions he earned on chasing women or racing fast cars. He spent his money collecting Picassos and Pollocks. (Why, the effrontery of the man! That sounds nearly...tasteful.)
In attempting to make the case that the past decade constituted a bacchanalia of greed, Lane's strongest evidence is the spiraling salaries of the financial elite. Midway through the Zeroes, top traders and dealmakers were earning amounts that made a successful career in, say, cardiac surgery or corporate law look like a sucker's bet.
Lane could hardly believe the amounts reported in his company's annual list of the top 100 traders: By 2004, a trader needed to earn tens of millions of dollars a year to be considered in the upper tier. At the top of the list were people such as Cohen and James Simons, of Renaissance Technologies, who were taking home around half a billion each.
Lane suggests these salaries were sure signs that Wall Street had lost its sanity. He implies that such superabundance must be followed by an inevitable crisis. In discussing the compensation of most hedge fund managers, he fumes that "the most ridiculous pay scale ever devised came into widespread acceptance at the exact same time that electronic trading turned the entire world into a free-for-all global casino."
Really? Pro athletes also earn far more than they used to, but Eli Manning's $98 million contract doesn't mean that the NFL has lost its mind, or that it faces collapse, or that it has turned itself into a crap game. What seems more likely is that both athletes and traders have benefited from a cluster of lucky breaks that have put them—at least temporarily and probably undeservedly—at the sweet spot of the economy.
Thanks to television and the Internet, athletes can cater to larger audiences and capitalize on many more commercial tie-ins than previously. Thanks to electronic trading, 24-hour global markets, and larger and larger pools of mobile capital, traders can move more quickly and in larger volume than they ever could before.
None of this is to deny that there were problems with banks and with the financial system during the Zeroes. But suggesting that traders' unprecedented incomes were the result of some type of fundamental moral breakdown just seems too easy.
During the Zeroes, Lane thunders, "Wall Street's breathless pursuit of zeroes, that easy-money mentality, had permeated every aspect of our culture." Wall Street and the larger culture have always been money-mad. All that happened during the Zeroes was that we discovered ever more elaborate, high-tech ways to amplify our same basic avarice. Sure, billionaire traders felt the greed—but then so did peanut butter-eating magazine publishers.