*Too Big to Fail* by Andrew Ross Sorkin

Too Big to Fail gives a good view of how executives and managing directors live: on call 24 hours, breaking off family vacations to deal with company business, showing up hours late to meet your future son-in-law. 

True, rushing back to the office requires getting in a limo with your personal driver or, in one case, a helicopter.  True, the broken family vacation started at a 5-star exclusive island getaway, and they fly back on private jet.  True, you host your guests in your unbelievably large mansion, and when you arrive, you can regale them with unique stories about how you just got out of an all day meeting with the Secretary of the Treasury and the head of the Fed.


So, forget having a family life if you want to make it big in the financial industry, though you will have any comfort money can buy.  Most people would probably make that trade-off, but after reading this book, I realize I couldn't.

I developed even greater appreciation for the government workers heading the Treasury and the Fed.  These guys worked just as hard or harder, but without the perqs or big bonuses.  Of course, Paulson made hundreds of millions already, but why would he want the job?  At one point, he vomited in the trash can next to his desk, due to exhaustion and stress, then immediately got on a call to save AIG.  He and Geithner performed as incredibly tireless servants of the government; Geithner never worked on Wall Street, so he never made the huge bucks.  Meanwhile, the public scrutinized every move of theirs, and when they made mistakes, as surely they did, their critics ripped into them.  Again, I had to wonder about the benefits of the job, and who would want it?

Almost all of the execs and leaders impressed me with their stamina, quick minds (despite the pressure and the lack of sleep), and depth of knowledge.

There's no incentive in bonus

I've been blessed enough to see a big bonus and cursed enough to see the smallest.  The problem is, neither of them affected my motivation -- and not because I'm such a dedicated worker.

When I got a big bonus, I felt good of course.  The next day, the same problems confronted me, and I didn't work any less or more hard to solve them.  You can't make your brain pump out more than what it does, or come up with more innovative solutions suddenly.  The best I could have done was maybe type a little faster.

When I got a small (ahem, zero) bonus, I was very unhappy of course.  But a guy that I enjoyed working with expected me to deliver some code by the end of the week, and I spent the rest of the day dedicated to fulfilling my commitment.  That guy didn't affect my bonus one way or the other, so why should he suffer?  (Another demonstration that friends at work contribute significantly to your job enjoyment.)

The kicker is that my own productivity was one of the smallest factors.  Much bigger: profitability of the company, industry trends, macro-economic conditions.

In good years, a few people felt good, but most had mixed feelings.  After all, most people view themselves as above average, but most will receive an average bonus.

In bad years, everyone felt bad: people that had worked hard felt cheated, and those who didn't were upset just out of disappointment.

So, on net, bonus day as practiced on Wall Street is typically a mixed to negative experience.  It's supposed to reward and thereby encourage performance, but it's so weakly related to performance that it's more like a lottery.  This is the mechanism setting the culture at all these financial institutions that are too big to fail?

Did we learn anything from the financial meltdown?

These two headlines provide the answer.

Banks 'Too Big to Fail' Have Grown Even Bigger

Leverage Rising on Wall Street at Fastest Pace Since ‘07 Freeze

Why did we have to bail out the banks? They were too big to fail. How did they get so huge? Outrageous leverage was a primary cause.

This is not a financial blog, and I typically mention the financial industry only with regard to compensation. But the current direction of the industry is too disturbing.

Seeing these headlines, it's hard not to conclude that the only thing that will lead to reform is global financial disaster -- the very thing you hope to avoid by having reform. A few countries almost went bankrupt either trying to save their banks or trying to save their economy when everything tanked. The US and most of the world have bet almost everything that things will improve from here, that there won't be another global meltdown.

And, even if we could afford it, public is already justifiably outraged by the bailouts. We could be looking at serious, violent class warfare if another bailout became necessary.

It's hard to change. It's hard to leave money on the table -- stay out of risky businesses or impose regulations that force your banks to do so -- when others are raking it in.

But, at some point, we'll all have no choice.