Going back to basics

Used-car salesmen, lawyers and journalists can relax; they’ve been replaced as America’s favourite villains by corporate executives, or at least investment bankers.

Hailed only a short while ago as masters of the universe and princes of perpetual profits, they now are reviled.

Consider:

• Americans overwhelmingly oppose the huge bonuses that are paid to employees by Wall Street companies, according to polls.

• There’s a new online game called “Trillion Dollar Bailout,” in which the player can “slap” corporate executives, sending them “to a dark hole in which, you hope, a hungry Hannibal Lecter awaits with the dining table already laid.”

• The private chatter in Washington is about how much White House economic adviser Lawrence Summers has been hurt by revelations that he raked in more than $5m last year as an adviser to a hedge fund, DE Shaw & Co.

Much of the damage to the financial industry’s reputation is self-inflicted. Characterised by greed, risk-free rewards with abject failures being obscenely enriched, the culture of Wall Street is believed to be neither capitalistic nor admirable. To laid-off auto workers or struggling nurses it seems criminal.

That is much too broad a brushstroke. Yet this image is compounded when the perpetrators act as if they were only playing the piano and didn’t know what was going on upstairs.

It was refreshing last month when Goldman Sachs’s chairman, Lloyd Blankfein, acknowledged some complicity in this debacle, and called for limits on compensation.

More typical, however, is Maurice Greenberg, the former longtime chairman of American International Group. He told a congressional hearing last month that everything was great until he left the firm in 2005; all the blame for the rogue insurance company’s meltdown lies with his successors.

Contrast that with Walter Shorenstein, creator of Shorenstein Co, one of America’s most successful privately owned real estate firms. In an essay prepared for an oral history for the University of California at Berkeley, he offers sage advice that Greenberg and others should have followed.

“Just because a new investment fad sweeps through certain crowds, that doesn’t necessarily mean it’s a smart place to put your money,” writes Shorenstein, whose firm avoided most of the cyclical downturns that have plagued other real estate companies. “If terms like counter-party risk, mark-to-market accounting, and capital-structure arbitrage aren’t part of your everyday conversation, then don’t risk your future on something you don’t understand.”

He’s practiced what he preaches. “As my company grew steadily larger and more successful, so-called experts told me to diversify. I wouldn’t. I stuck to what I knew, what I had experience doing…Invest in things you understand.”

The man is no philistine when it comes to education. He has funded institutes at Stanford and the University of California and founded, in honour of his late daughter, the Joan Shorenstein Centre on the Press, Politics and Public Policy at Harvard University.

This longtime Democratic Party contributor is skeptical that better government regulations are a panacea. “Even if our regulatory agencies rediscover their spines, government overseers will never supplant individual responsibility and common sense,” he writes.

Financial common sense, he adds, “is certainly not that different from old-fashioned, back-to-basics, everyday common sense.”

Shorenstein’s essay should be mandatory reading.

Albert R Hunt is a Bloomberg News columnist. The opinions expressed are his own.

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