September 19, 2008 / 4:39 PM / in 11 years

Masters of the Universe get lesson in humility

NEW YORK, Sept 19 (Reuters) - Have the Masters of the Universe lost their super powers?

When novelist Tom Wolfe used the term to describe Wall Streeters with too much money and not enough humility, he was borrowing the name of a line of action figures and a comic book series popular with kids in the 1980s.

If the current saga on Wall Street follows the typical superhero plot line, their loss of power will be only temporary. Any humility experienced by once high-flying investment bankers is likely to pass once the market recovers.

“The culture itself? The pain? This is Wall Street, pal. When the dust settles, it will be the same old game,” said John Fitzgibbon, a financial professional since the 1960s who now runs IPO Scoop, an independent IPO rating service.

This week, investment banks like Lehman Brothers and Merrill Lynch have virtually disappeared, along with the fortunes of many of the people who worked there, and the government is stepping in to rescue the financial system.

“The market goes through cycles: hope, greed and fear. Right now it’s in the fear mode,” Fitzgibbon said.

Or, as financial titan Gordon Gekko says in “Wall Street,” a 1987 movie: “Greed is good.”

That has led to such New York creations as the $175 hamburger, the $13,000 mobile phone and the $25,000 chocolate sundae, as well as the excesses of the annual bonus.

The bravado and hubris has been well chronicled, as in the 1989 book “Liar’s Poker,” a semi-autobiographical account by Michael Lewis of his time as a bond trader at Salomon Brothers.

In Wolfe’s “The Bonfire of the Vanities,” published in 1987, the term “Master of the Universe” is popularized as a term for a Wall Street giant. The central character, Sherman McCoy, leads the excessive lifestyle of a 1980s bond trader until it comes crashing down over a car accident in the Bronx.

PLUS CA CHANGE

Wall Street will recover, and new Masters of the Universe will return, according to people who have been watching the street for decades.

“Is this going to be a permanent change? Wall Street is notorious for having short memories,” said Ray Soifer, a former investment banker and analyst who began his career in the 1970s and now runs his own consulting firm in Arizona.

He said risk-taking investment banks may begin to resemble risk-averse commercial banks and be subject to greater regulation.

“Wall Street’s always rewarded success. One problem is that it tends to measure success in short-term ways, like one year,” Soifer said.

“Years ago when Warren Buffett took over Salomon Brothers he tried fix that and was singularly unsuccessful. Some of his best performers left or threatened to leave and he had to retreat.”

Buffett recovered and, as of February, was ranked as the richest man in the world by Forbes.

Some say investment bankers may be unfairly blamed for the collapse.

“I’m wondering if the culture of greed is the problem or if people are inherently optimistic and failed to really consider the downside of the risk they were taking,” said Steve Thel, a former enforcement lawyer for the U.S. Securities and Exchange Commission who is now a Fordham Law School professor.

“The standard answer is that management had every incentive to keep them under control. The senior executives at Merrill Lynch for example have lost a lot of their personal fortunes out of this, so they had the right incentives to keep their people under check,” Thel said.

Thel believes improved regulation would change behavior and prevent the excessive risks that led to current crisis, noting that the blowup occurred in unregulated sectors such as credit default swaps and not in traditional stock and bond trading.

“While I think there is a Master of the Universe attitude among a lot of people in the investment banking community and certainly compensation is high, I don’t think it’s a lawless place,” Thel said. “It’s not like everybody’s learned a lesson and they’re not going to do this again unless you take steps.”

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