[This article was published in the Spring 2014 issue of The Journal of Social, Political and Economic

Studies, pp. 52-59.]

BOOK REVI EW ARTI CLE

One Mans Fight for Stewardship and Professionalism: A Lesson in Business Ethics
Dwight D. Murphey
Wichita State University, retired


Exile on Wall Street: One Analysts Fight to Save the Big Banks from Themselves
Mike Mayo
John Wiley & Sons, Inc., 2012

Mike Mayos personal account of his career as a bank analyst during
which he matched a professionalism that he learned while first working at the
Washington, D.C. Federal Reserve against the desire of many among his
employers to receive analyses that were less than objective provides readers
with an object lesson in integrity that deserves to be assigned reading in any
MBA class on business ethics. In this article, we explore his reflections on the
contemporary condition of American capitalism, and see how he joins so
many others who have recently raised their voices against what they see as
crony capitalism. The story of the gauntlet he has run on behalf of
objectivity further allows us to examine in some detail the human mechanics
that are involved as principled individuals seek to cope with, and sometimes
confront, the practical realists who embrace an ethos of going along to get
along.

Key Words: Mike Mayo, Wall Street, bank analysts, professionalism, causes
of the financial crisis, crony capitalism, business ethics, mechanics of
ethical behavior.

This is a brief and engaging memoir by one of Wall Streets leading bank analysts who
was named by Fortune magazine as one of eight people who saw the crisis coming. It
essentially does four things: (1) it gives an insiders first-hand account of the factors that led to
the recent financial debacle in the United States, confirming once again the observations of the
many commentators whose books we have reviewed and who have described the vast web of
derelictions that made the catastrophe what it was; (2) it warns that little had changed by the time
the book was written in the late summer of 2011; (3) it adds its voice to the many who support a
market economy but who abhor crony capitalism; and (4) it provides an inspiring personal
account. Mayos story invites reflection about the challenges faced by people who would act
with integrity. Exile on Wall Street is perfect for assigned reading in an MBA course on business
ethics.
Who is Mike Mayo? He explains that Ive worked as a bank analyst for the past twenty years,
where my job is to study publicly traded financial firms and decide which ones would make the best
investments. My research goes out to institutional investors, mutual fund companies, university
endowments, public-employee retirement funds, hedge funds, [and] private pensions. He has worked
for such financial giants as UBS, Lehman, Credit Suisse, Prudential Securities, and Deutsche Bank. As
long ago as 1998, Institutional Investor magazine rated him its top regional bank analyst. A second-
generation American from a Russian and Romanian Jewish family, he explains that he has no pedigree.
No Ivy League degree, no prep schools, no internships. To be within the cozy inner circle of the
financial elite, it has not been enough to be armed with an MBA from George Washington University and
to have the chartered financial analyst certification that Mayo says is de rigueur for a serious Wall
Street contender. Thus, he has long been in the financial community but not of it. Although that has
been a delimiting professional factor, it has almost certainly been what has given him the mental
detachment thats so vital to an individuals acting with the integrity that Mayo (if his memoir is fully to
be credited) has shown. The image a reader receives of him is one of an individual who subjects himself
to Spartan self-discipline (including early-morning running and exercises far beyond anything most of us
could endure) and who developed an abiding ethos of public service and objectivity while becoming a
bank analyst by working at the Federal Reserve in Washington, D.C. His experience trained him in strict
professionalism. It was at the Fed that my thoughts on the banking industry took shape and where I
learned about the crucial role that objective analysis plays as a check and balance on the sector.
As a personal account of the gauntlet someone runs who wishes to act with professional
objectivity, Exile on Wall Street is not primarily a primer on the causes of the financial crisis. It does,
however, unavoidably mention many of them as part of its narrative. Mayo points to a flood of risky
mortgages, banks getting too aggressive about growth, and toothless regulators. Throw in a few other
factors, such as interest rates that were too low for too long and overt government support of the housing
sector, and youve got most of the root causes. Most, perhaps; but he also brings in the conflicts of
interest that warped the behavior of CEOs (seduced away from stewardship by the pursuit of astronomical
compensation); that made analysts paid cheerleaders; that induced regulators to leverage their
relationships into lucrative private-sector jobs; that led bankers to pursue bad deals for the fees they
would generate even though the client companies and their investors lose out; that caused accountants
to be consultants instead of examining the books; and [we will ourselves add] that prevented credit
rating agencies from making the objective assessments of risk that so many rely on. It is obvious that
such an oblivious pursuit of self-interest suggests issues of character and culture. Mayo makes it clear
that he by no means begrudges CEOs, say, (and others) from making a fortune, but he balances this with a
sensibility to which the generation that grew up in the 1960s and 70s has largely been blind: he says that
when money is put ahead of other considerations, including professional scruples, things can go wrong.
This is, of course, understated; but he speaks more emphatically when he says that the dereliction is so
deep that what is needed is a cultural, perhaps generational change.
He saw that little had changed to prevent the cataclysm from happening again. Bank CEO pay
has already climbed back near precrisis levels Banks still show aggressive accounting and opaque
disclosures. Few of the people who got us into the crisis were punished for their actions. In most
cases, they were rewarded. The massive bailouts have fed the expectation that excessive risk-taking will
at worst be cushioned by more bailouts in the future: More bailouts are on the way, for most banks on
Wall Street but for Citi in particular. Its just a question of when. The too big to fail problem hasnt
been corrected; instead, the five largest U.S. banks in 2011 control two-thirds of the industry based on
their size, which is a greater degree of consolidation than before the crisis. There is little transparency,
as shown by the remarkable fact that, according to Mayos estimates, in 2011 banks still sat on about
$300 billion in losses due to problem assets from the financial crisis that dont show up because of leeway
in accounting rules. And if increased regulation seems an answer, the reality is that regulators are
vastly out-numbered, outspent, and outgunned by Wall Street. We can see why: For the decade leading
up to the financial crisis, the finance industry spent $2.7 billion on lobbying efforts. Mayo adds that it
continues to spend at close to record levels today.
The American Left writes disdainfully about neoliberalism, which is the word it applies to
todays globalized, financialized, unbridled capitalism. Those who have long been (and continue to be)
supporters of a market economy, however, prefer to call it crony capitalism. Mayo complains that
were tainting an important global export of this country capitalism. To him, its not capitalism but
an amped-up, ravenous version of capitalism. Executives who preside over huge institutions upon which
millions of stockholders, investors, lenders, employees and customers depend should understand that they
occupy a fiduciary role. Mayo says they are in effect trustees, who need to operate as stewards. To use
Justice Cardozos famous phrase, they owe the punctilio of an honor the most sensitive. We recognize
little of this when Mayo points out that Chuck Prince, the CEO of Citi, took a $38 million severance
package with him when he departed, with the package including a $10 million bonus for 2007, a year in
which he was seemingly forced to leave due to mismanagement.
John Paulson, manager of the hedge fund Paulson & Co., personally made $3.7 billion in 2007
(our emphasis). This brings to light a fundamental difference in market ideology between attitudes that
are prevalent today and the cultural imperatives of a broader classical liberal philosophy. What is
involved is nothing less than the difference between an ethos of stewardship, which would see the profits
as very largely earned for the investors, and one based on the contractual rationale that someone is
entitled to whatever he can get others to agree to (often through cozy Ill scratch your back if you scratch
mine relationships with eager-to-please board members). Today, many if not most of those who see
themselves as devotees of a free market consider the latter a natural part of their ideology. A doctrinaire,
far-too-narrow conception of a market economy has taken hold that leads to the amped-up, ravenous
version of which Mayo speaks. This desiccation of classical liberalism has intellectual and cultural roots
going back many decades, and amounts to one of the more unfortunate facts about Western civilizations
intellectual cauldron.
The crony aspect is found in the control that big money exercises over government, both
major American political parties, banking and business, uniting them in a group marriage of self-
aggrandizement. Again, the concept of disinterested public service is lost sight of in the scramble for
whats in it for me? Mayo speaks of the revolving door between the private and public sectors,
where people sell out to cash in on their years of public service. When we wonder how it has been that
so many American businessmen and financiers have lost a patriotic sense of obligation to their own
country, we can find the answer in the character traits inherent in such a capitalism. Many prefer to see
their multinational corporations as no longer American, have profited with indifference from the
hollowing out of American manufacturing, have relished the hiring of lesser-paid (and often illegal)
immigrant labor, and have rationalized the withering of the broad middle class, without which the
legitimacy of a market economy loses much of its foundation. Mayo and a number of others have raised
their voices in protest, but it remains to be seen whether they will make any difference.
On the matter of integrity, Mayos account brings to mind this reviewers discussion in his 1978
article Ethics: For the Individual and the Firm, which examined the predicament individuals find
themselves in in most human contexts.
1
The article used a handful of commonplace words
detachment, absorption, squeeze, practical realist, ethical sub-groups and ethical common
denominator to describe the elements of that predicament. Absorption referred to the well-nigh
universal tendency of people to accept implicitly (i.e., be absorbed into) the ways of thinking and
behavioral norms of the group to which they belong. When Mayo was in effect schooled in professional
objectivity during his years of working at the Fed, he was imbued with a detached point of view. This
prevented his absorption into the attitudes and expectations of bank analysts and their employers if those
people, as they so often did, lived as practical realists according to the notion of going along to get

1
This article can be accessed without charge at www.dwightmurphey-collectedwritings.info as item Ms6 near the
end of the site.
along. The people (and there are millions of them) who accept that mentality without question live
within what we might call ethical sub-groups, since their going along often involves behavior that in
either a major or a minor way would be judged unprincipled by the society at large.
We cannot, of course, rule out the possibility that within a certain group the ethical common
denominator is indeed high enough to match societys expectations. An example came at Credit Suisse
when Mayo wrote a scathing critique of a bank, First Union. Instead of suppressing his analysis to
maintain good relations with the bank, men above Mayo took it to First Union. The bank agreed with the
analysis and fixed the problems. Thats how the system is supposed to work.
We see evidence of the more prevalent dont rock the boat mentality, however, in the
innumerable instances in which Mayo was squeezed by threats, non-preferment, and even discharge for
doing his work objectively. He says I was betting my career on a principle my right to say,
truthfully, what I really thought about the banks I covered. Not surprisingly, he paid a continuing price
for honest reporting. One of the companies he worked for, as we have seen, was Lehman, which
collapsed in late 2008 when the decision was made not to bail it out. My entire time at Lehman was the
same story: Produce solid research, and yet it didnt positively impact my performance reviews I
wasnt doing the one thing that would have led to a more successful career at Lehman (i.e., playing nice
with the investment bankers). The squeeze sometimes came from other analysts, such as when in
one meeting with a large institutional money management firm, I sat down with the firms own bank
analyst, who repeatedly tried to bully me, insulting me and shouting over me whenever I spoke. When
Mayo made a negative call about the U.S. banking system in general, a brave call of considerable
prescience that foretold the financial crash, I was fired anyway. We dont want to give the impression
that Exile on Wall Street is in any way shrill about these things or that it centers unduly on him. He tells
of another analyst who in 1990 predicted that the Taj Mahal casino in Atlantic City wouldnt make it
through the winter, but who was fired despite the casinos failure having proved him correct. Sometimes
the squeeze came in reverse form, as rewards rather than penalties: I was learning about the prizes that
awaited if the banks liked what you had to say.
The type of person and thats probably the average individual whom we have called a
practical realist because he goes along isnt necessarily passive or apologetic about it. Even though he
is most successful in conforming if he does so intuitively and without deliberation or the slightest
hesitation, he will ordinarily have it well rationalized, and will think that anyone who does not go along is
nave, just plain wrong, unproductive and perhaps disloyal. The norms people follow are often tribalistic,
with loyalty to the in-group and task at hand, as distinct from maintaining adherence to the principles the
broader society projects (sometimes merely with lip-service) through the legal system or otherwise. It is
not surprising that Mayo found himself getting poor performance reviews from the deal makers, who
considered him not a team player. It would be a mistake to imagine that they were conscious of being
perverse in their attitude.
Since the presence of an independent and self-assertive mind is rather rare and his position
tenuous, the question of how to raise the ethical common denominator to acceptable levels within a
certain organization or profession cannot be allowed to depend on his efforts. Structural changes are
needed for the task. One would be leadership from the top, setting an example and creating a genuine, not
a hypocritical, set of expectations. Others: precisely such leadership at all subordinate levels; systematic
training and education in what should be expected; ways of identifying behaviors and either rewarding or
punishing them; pressure from outside, such as through appropriate law or regulation; awareness that
various levels and parts of an organization often become sub-groups with an ethic of their own; and the
facilitation of integrity by providing people with special protections and ways to transcend the chain of
command when needed (such as by giving individuals access of someone like an inspector general). A
structural imperative that seems obvious from Exile on Wall Street would be the removal of the conflict of
interest that is inherent in a bank analysts working for an organization that feeds off of favorable
critiques. An analyst working for an investor, such as a pension or investment fund that has no reason to
want less than a fully objective analysis, enjoys a work environment that is free of the conflict of interest
that constantly bears down on one working for a seller. Mayo says there are both kinds of analysts,
although the critiques made by those working for investors are most often kept private. In the lead-up to
the financial crisis, the ideal of independent professional for people such as lawyers, accountants,
corporate board members, bank analysts, and sometimes even regulators was greatly vitiated. Anything
that can restore their independence and professionalism would go far toward elevating the ethical
common denominator in the countless parts of the financial and business communities.
It was almost two hundred years ago that Ralph Waldo Emerson wrote of abuses in which all
connive. Mayos account shows us two things: that human behavior has not changed all that much and
that the failure to do better can often have far-reaching consequences.