In defense of Fabrice Tourre
by David
From the NY Daily News
Look, I’m not a big fan of Wall Street either. I think the money they make—and the bonuses they dole out—are way out of line with their true value to our nation’s economy. To turn a Street-speak expression on its head: Where’s the “value-added”? Here is what I wrote in December in my post “Solely to shuffle money around“:
When I briefly worked in investment banking, the same idea frequently popped in my head: What exactly is being produced here that is so valuable? I doubt it was our spreadsheets, however attractive in appearance they might have been (no gridlines!).
Nevertheless, I am dismayed at the SEC’s and media’s treatment of Goldman Sachs employee Fabrice Tourre. Did he commit fraud? I don’t know. Did he screw over a client? Yeah. But based on what we know, is he an “asshole“? No, I don’t think so; that’s just piling on.
Here’s Tourre’s famous email as referenced in the SEC civil lawsuit against Goldman Sachs:
The famous 'Fabulous Fab' email
Make sure to read the part highlighted in gray. Tourre looks really bad there. Who would call himself “Fabulous”?
Well, it turns out Tourre didn’t either. He was paraphrasing what some guy named Mitch called him. Here’s the real context of the email:
Darling you should take a lock at this article … Very insightful … More and more leverage in the system … only potential survivor … the fabulous Fab (as Mitch would kindly call me, even though there is nothing fabulous abt me, just kindness, altruism and deep love for some gorgeous and super-smart French girl in London, standing in the middle of all these complex, highly levered, exotic trades he created without necessarily understanding all the implications of those monstruosities !!! Anyway, not feeling too guilty about this, the real purpose of my job is to make capital markets more efficient and ultimately provide the US consumer with more efficient ways to leverage and finance himself, so there is a humble, noble and ethical reason for my job ;) amazing how good I am in convincing myself” !!!
Sweetheart, I am now going to try to get away from ABX and other ethical questions, and immediately plunge into Freakonomics … I feel blessed to be with you, to be able to learn and share special things with you, I love when you advise me on books I should be reading, I feel like we share a lot of things in common, a lot of values, topics we are interested in and intrigued by … I just love you !!!
Your chtit Fab
Let me emphasize this line again: Tourre writes to his girlfriend: “…[t]he fabulous Fab, (as Mitch would kindly call me, though there is nothing fabulous abt me, just kindness, altruisim and deep love for some gorgeous and super-smart French girl in London!)…
The SEC selectively quoted Tourre to make him emerge in the worst light possible. Actually, it was worse than just “selectively quoting”: the SEC snipped parts of Tourre’s sentences in order to damage his character and make their case stronger. “Selectively quoting” is too kind for the SEC’s actions; a better phrase would be “deceitfully quoting.” This kind of referencing would never fly in an academic paper, for example. Why should it in court? Furthermore, there’s some irony in the SEC being deceptive in a fraud case. Fraud is a synonym of deceit, according to thesaurus.com
It seems to me that Tourre was just a French guy in love with a French girl in London when he sent these emails. Not that he didn’t commit fraud—again, I don’t know—but I don’t see what this email has to do with a fraud case. He comes across as especially likeable at the end of the second paragraph, when you see he’s having doubts about the broader purpose of his contributions as a banker to society “… amazing how good I am in convincing myself [of my job's utility],” Tourre writes.
In fact, he seems like a decent guy to me. Maybe we’d be friends. From a personal perspective, although I’m not particularly fond of the industry of investment banking, I am very fond of my investment-banking friends. In general, they are nice, interesting, and thoughtful people. I would vouch for their character. In this context, and based on the above email, I will give Fabrice Tourre’s ch~aracter the benefit of the doubt. Let’s see what happens in court before we assess him and his behavior.
The more important issue here for me is a structural and systemic one. Thousands and thousands of bright, driven, and kind students every year eschew careers in development, medicine, science, engineering, teaching, etc. to work on Wall Street. This is a bigger outrage than any email Fabrice Tourre has written. Why does our society create incentives for our best young men and women to enter a field that has little discernible impact on furthering society’s broader goals? First-year investment bankers may earn $150,000 in salary and bonuses. First year PhD students live on the poverty line. Medical doctors graduate from school with an average debt of $156,456, and that doesn’t even include the opportunity cost of foregoing four years of income potential. What’s wrong with this picture?
Fabrice Tourre is one of the best and brighest as well. He graduated with a degree in mathematics from École Centrale, a famous French university, and later earned an M.S. from Stanford. Think of the potential of this guy to make valued contributions in, say, energy research or environmental policy or development work! Instead, he made millions creating exotic financial products that are “pure intellectual masterbation.” Now that seems like the real crime to me.
Comments
“Thousands and thousands of bright, driven, and kind students every year eschew careers in development, medicine, science, engineering, teaching, etc. to work on Wall Street. This is a bigger outrage than any email Fabrice Tourre has written.”
Totally agree with this. When I graduated in 2008, Harvard President Drew Faust gave a great speech probing the reasons why a huge percentage of Harvard graduates go on to consulting/banking. It is a really interesting point: Why do swaths of the “best and the brightest,” who enter the university system with radically different interests, goals and motivations, continually enter the SAME profession four years later? Is it just the pursuit of money? Of prestige? Of a sort of comfort in knowing your colleagues will (likely) be very intelligent?
I think our very definition of prestige and success has changed to the point of encompassing, primarily, “economic worth.” The same careers considered prestigious say, a generation ago — medicine, teaching, engineering, etc. — are more and more considered to be difficult, not worth the education/money/time, etc. That is not to say they are still not lauded as valuable and good professions, but post-graduate education is increasingly more expensive, and people also have a hard time getting in! More than 50% of applicants to medical school are not successful — and we’re not even talking about people applying to esoteric Phd programs in the humanities or social sciences.
I could go on forever. I’m going to stop my novel now. Good post! (And that’s coming from a super hippie liberal vegan bordering on socialist).
Hey Aidan, here’s an article about that:
http://www.thecrimson.com/article/2008/6/22/harvard-graduates-head-to-investment-banking/
“Two out of five Harvard seniors entering the workforce will flock to lucrative jobs in business, consulting, and finance after graduation.”
I think this phenomenon is about two things: (1) risk aversion (a banking job is very low risk and guaranteed to pay well consistently, even in downturns) and (2) money (and lots of it).
I don’t think our banker and consultant friends are greedy by any stretch; rather, the array of incentives are just so loaded to business that you have to be willing to sacrifice a lot and take risks to give up such an opportunity.
My own case is illustrative: I will give up seven years of earning potential and pay approximately $300,000 for the privilege to be a physician rather than a banker. If I went straight through after college working for J.P. Morgan, I would have earned an aggregate income of perhaps a couple of million dollars over those seven years. Without the financial support of my family, my own path would probably not be possible.
Maybe I’m way off, but I think of this as a modern day Wild West. With few rules, the industry does most of what it wants and is able to because ‘money is what makes the world go round’ right? I really don’t fault Wall Street or the people involved, for the most part they operated within the set of rules laid out, albeit very few. Isn’t the goal of any business to make as much money as possible while obeying the rules in order to continue to operate?
I do fault the people in the industry because they leeched tremendous value from our economy (much more than they contributed), hid the true costs of their actions, and then paid themselves handsomely. Are banks inherently evil? Of course not; investment banks play a very important role in helping firms raise capital and reduce risk.
You write: “Isn’t the goal of any business to make as much money as possible while obeying the rules in order to continue to operate.”
No, I don’t think so. The goal of a business is to serve the interests of its shareholders. This is the crux of the problem. The constellation of incentives was so poorly conceived that bankers could be rewarded for short-sighted behavior that was detrimental to the shareholders’ long term interests. That is, bankers get to keep bonuses from bad deals even if the firm goes down. Look how much value these banks lost in this downturn!
http://www.google.com/finance?chdnp=0&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1272735313645&chddm=491878&chls=IntervalBasedLine&cmpto=NYSE:GS;NYSE:JPM;NYSE:CS;NYSE:DB;NYSE:BAC;NYSE:C;NYSE:UBS&cmptdms=0;0;0;0;0;0;0&q=NYSE:MS&ntsp=0
Moreover, shareholders will likely have added societal incentives in addition to earning higher returns. My Dad is a shareholder of several large financial institutions, and he would be opposed to actions that–while still legal–cratered the broader economy (e.g., slicing up mortgages, so they appeared less risky than there were.)
There were many more e-mails that showed his character:
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7634658/Goldman-fraud-charges-emails-and-internal-reports-revealed.html
Even if the SEC was wrong in cherry-picking that singular e-mail, I still don’t think he comes off very well:
1. Not sure how “in love” he was with his girlfriend as he sent this to another woman:
“I believe that a soft and sensual feminine intervention is necessary for Fab’s survival.”
yikes.
2. This reads as pretty cynical towards the whole thing to me:
“Just made it to the country of your favorite clients [Belgians]!!! I’m managed to sell a few abacus bonds to widows and orphan that I ran into at the airport, apparently these Belgians adore synthetic abs cdo2
http://curiouscapitalist.blogs.time.com/2010/04/26/what-the-confidential-goldman-e-mails-tell-us/#ixzz0mhXUWvMl
3. Okay, so in some of the e-mails he did question his job and its greater purpose, but doesn’t that make it worse? Basically like, “I sort of have these thoughts that what I’m doing is wrong; but hey, let me just forge ahead anyway!”
4. Finally, the excessive use of exclamation points (and his somewhat frequent use of the 3rd person) should be a punishable offense.
On your other point, there’s been a good discussion between bloggers about the Ivy League and Wall Street. I don’t think you’re reading The Atlantic enough :)
http://www.theatlanticwire.com/opinions/view/opinion/The-Ivy-League-on-Wall-Street-or-on-the-Supreme-Court-3387
Oh and I might have accidentally hit submit earlier when I wasn’t finished writing, so if you get a comment with a bunch of random strands of thought, please delete.
Thanks.
Hi Anna, a few comments:
1. Yeah, after reading some of those other emails, he does seem more like a dick. The third-person thing is the worst.
2. Still, if you sifted through all of my emails since 2007, I’m sure you could find some pretty incriminating stuff.
3. Being an asshole is different from committing fraud. I know lots of people who are assholes who haven’t committed fraud. (Yet!)
4. I still think the SEC misrepresented his email. It was primarily referring to an article in the Financial Times.
5. I would read The Atlantic more, but I’m too busy watching crappy Peruvian soaps! :)