Young Money: Inside the Hidden World of Wall Street's Post-Crash Recruits (16 page)

After the panel’s pep talk, some students left right away. (Credit Suisse was having an event down the street.) But others stayed behind to talk to the recruiters about the specifics of the jobs. A worried-looking junior named James, who was milling around the drink table while working up the nerve to approach a recruiter, told me that he had spent several weeks attending information sessions for various banks and financial firms, trying to figure out what to do after graduation. An economics and applied math concentrator, James told me that the recruiting backlash, and the larger Occupy movement, had raised some questions for him, but not steered him clear of the financial sector altogether.

“I dunno,” he said. “I mean, I think bankers should get some flak for the crap that happened. But a lot of it is misguided. It should be pointed toward Washington.”

He said that recently, one of his friends had asked him if he felt like he was giving up his chance to “make a difference” by going to work at Goldman or another big bank.

“I guess I feel like I am making a difference,” he said. “It might not be, you know, the best difference, but it’s a difference.”

Out in the hallway, I met Nicholas, a Yale student who was wearing a skinny plaid tie and a slim-fit suit. He told me that much of the appeal of finance among his friends was attributable to fear.

“A lot of kids don’t know what they want to do, and they don’t want to get left behind,” he said.

Nicholas acknowledged, without my bringing it up, that the protests of the last few weeks had made him think about whether he wanted to go through with his plans to work on Wall Street after graduation or do something more altruistic.

“In an ideal world, everyone would go save the world,” he said. “But I realized that you can’t just graduate, be the head of an NGO, go to China, and solve the AIDS problem. You need to learn those skills somewhere.”

I had doubts about this familiar justification for entry-level Wall Street work. (Do Excel skills really help solve global health crises?) But Nicholas didn’t. And so, here he was, unbowed in his attempt to land a spot at Goldman Sachs.

“My friends and I joke about, ‘Oh, it’s the dark side,’” he said. “But it still seems like the smart thing to do.”

As I was talking with Nicholas (before a Goldman recruiter spotted me and asked me to leave the hotel), I realized that although many college students were still interested in Wall Street, something major had changed. Now, in 2011, students like Nicholas were conceiving of a career on Wall Street as something they needed to actively choose, rather than something that just happened to them naturally, by virtue of living on an Ivy League campus. The unbridled enthusiasm I’d seen at Penn a year earlier was now tempered by caution and inquiry. To borrow the language of direct marketing, the Occupy protests, and the popular uprising against the recruiting complex, had turned investment banking from an opt-out campaign to an opt-in campaign.

And while it remained to be seen what larger effects the Occupy protests would have on the financial sector, that subtle shift alone meant that young Wall Street was becoming a far different place.

“GOOD EVENING,
Exalted High Council, former Grand Swipes, Grand Swipes-in-waiting, fellow Wall Street Kappas, Kappas from the Spring Street and Montgomery Street chapters, and worthless neophytes!”

The speaker, private equity billionaire Wilbur Ross, was standing at the dais of the St. Regis Hotel ballroom, welcoming a crowd of two hundred wealthy and famous Wall Street figures to the annual black-tie induction dinner of Kappa Beta Phi, Wall Street’s most secretive fraternity. Ross, the leader (or “Grand Swipe”) of the fraternity, was preparing to invite twenty-one new members—“neophytes,” as the group called them—to join its exclusive ranks.

“This is our eightieth dinner,” Ross continued, “but a time capsule unearthed in 1929 by the first Wall Street Grand Swipe, W. S. Gregory, shows that we actually date from December 5, 1776, when four C+ William and Mary students designated themselves an honorary society. They wanted to name it Kappa Beta Phi, but their severe dyslexia muddled it into Phi Beta Kappa. When the first set of keys came, they then recognized the problem, but being college students, the gold keys were too expensive to replace. So they stuck with the wrong sequence of letters. This is the most astonishing discovery since Joseph Smith found the Book of Mormon in an abandoned mine in Elmira, New York.”

Looking up at Ross from an elegant dinner of rack of lamb and fois gras were many of the most famous investors in the world, including executives from nearly every too-big-to-fail bank, private equity megafirm, and major hedge fund. AIG CEO Bob Benmosche was there, as were Wall Street superlawyer Marty Lipton and Alan “Ace” Greenberg, the former chairman of Bear Stearns. And those were just the returning members. Among the neophytes were hedge fund billionaire and major Obama donor Marc Lasry and Joe Reece, a high-ranking dealmaker at Credit Suisse. All told, enough wealth and power was concentrated in the St. Regis that night that if you had dropped a bomb on the roof, global finance as we know it might have ceased to exist.

Ross continued:

“But Grand Swipe Gregory did not notify the press, because he feared that would cause left-wing students to Occupy Wall Street. Instead, he created a fraternity with the corrected name, but whose members were not pseudointellectuals. In fact, they were not intellectuals at all. He put in place a prohibition, which we have totally honored, prohibiting any Phi Beta Kappa from ever joining Kappa Beta Phi…

“The Wall Street chapter also redesigned the key itself. Instead of a linked left hand in a ruffled sleeve—Phi Beta Kappa’s tacit confession of homosexuality—ours depicted a macho right hand in a proper Savile Row suit and a Turnbull and Asser shirtsleeve. In addition, the Phi Beta Kappa key had only three stars, as that was apparently as high as their members could count. Our five stars reflect our greater facility with numbers and our affection for Hennessy five-star cognac. More importantly, our key added a champagne tumbler and a beer mug to symbolize the importance of continuous drinking, both in bull markets and bear markets. After all, our motto is ‘
Dum vivamus edimus et biberimus.
’ For the illiterate neophytes, I will translate it: ‘While we live, we eat and drink.’ This contrasts with Phi Beta Kappa’s wimpy motto, ‘Love of learning is the guide of life.’”

More laughter from the audience, and a smattering of applause.

“The capsule also revealed the etymology of the letters
Kappa
,
Beta
, and
Phi
.
Kappa
comes from the early Etruscan word
Kapitalas
, meaning regulatory capital. But during one of Greece’s many defaults, the word shrank to Kappa, because the banks ran out of capital, a process then known as ‘decapitation.’
Beta
is derived from
Beta Bauhaus
, first used by the Greeks to describe temple replicas, which they booby-trapped to kill barbarians trying to destroy the original ones.…
Phi
was the anguished cry of Greeks about to be slain by Roman gladiators. To this day, Athenian protesters scream
Phi
at the riot police. Combining these three letters constitutes a warning that regulatory capital is a booby trap, which can cause sudden death, just like MF Global, Lehman Brothers, and Bear Stearns, all of whose leaders were Kappas. In fact, we have members from every firm that has failed, and we also have members from those that will fail in the future.”

Now the crowd was roaring.

“Our chapter has always been egalitarian. We took in women some years ago, even have had women as Grand Swipes, and we no longer call them ‘Swipettes.’…”

Ross invited all the former Grand Swipes in the room to the podium to receive their copies of a special Grand Swipe key. He then asked the rest of the Kappas to put on their Kappa Beta Phi hats and recite the group’s motto over and over: “
Dum vivamus edimus et biberimus.
”

The financiers shouted out in a thundering bellow: “
DUM VIVAMUS EDIMUS ET BIBERIMUS.
”

The only person not saying the chant along with Ross was me—an undercover journalist who had snuck into the event, and who was hiding out at a table in the back corner in a rented tuxedo.

I’d heard lots about the existence of Kappa Beta Phi, whose members included both incredibly successful financiers (New York City mayor Michael Bloomberg, former Goldman Sachs chairman John Whitehead, hedge fund billionaire Paul Tudor Jones) and incredibly unsuccessful ones (Lehman Brothers CEO Dick Fuld, Bear Stearns CEO Jimmy Cayne, former New Jersey governor and MF Global flameout Jon Corzine). It was a secret fraternity, founded at the beginning of the Great Depression in 1929, that functioned as a sort of 1 percenter’s Friars Club. Each year, the group came together for a black-tie dinner to induct a new class of inductees, who were forced to perform comedy skits and musical acts in drag, and suffer mockery at the hands of existing members. The group’s induction dinners are filled with X-rated humor and off-color jokes, and its group’s privacy mantra is “What happens at the St. Regis stays at the St. Regis.” For eight decades, it worked. No outsider, in living memory, had witnessed the entire proceedings firsthand.

I decided to try to break that streak for two reasons. The first was obvious—sneaking in would get me a one-of-a-kind story and shed light on one of the best-kept secrets of Wall Street. The second and arguably more important motive was related to my young finance investigation.

For months, I had tried to get a sense of what happened to young Wall Streeters as they worked their way up the ladder—how the experience of a C-suite executive differed from the experience of a first-year analyst, and what personality changes happened along the climb. To do that, I had to be able to peer into the world of Wall Street’s most senior and accomplished executives—the people many of my subjects aspired to be like. What did being the CEO of a big bank do to your psychological outlook? How did running a $30 billion hedge fund change the way you viewed the world?

Unfortunately, whenever I asked these kinds of questions of the CEOs and industry barons I interviewed, I never felt like I was getting real answers. They were serious, emotionally austere people, and they wanted to discuss deals, earnings, and geopolitics, always with their PR people or lawyers in tow. Whenever I asked them about the effects their work had on raising kids, being married, or living in a country that had turned deeply hostile to the financial sector, they often looked at me like I’d asked about their porn preferences.

I knew I needed to see the titans of finance in their natural social environment, with their guards down. So when I learned when and where Kappa Beta Phi’s annual dinner was being held, I knew I needed to try to go. It would be the closest thing possible to seeing these people in a filter-free setting, and maybe it would give me some insight into their real personalities.

Getting in was shockingly easy—a brisk walk past the sign-in desk, and I was inside cocktail hour. Immediately, I saw men whose faces I recognized from the papers, and a handful of women, too, including star Wall Street analyst Meredith Whitney, who several years before had made a name for herself predicting that Citigroup would cut its dividend before the financial crisis. I picked up an event program and saw that there were other boldface names on the Kappa Beta Phi membership roll—among them Citigroup CEO Vikram Pandit, BlackRock CEO Larry Fink, Home Depot billionaire Ken Langone, Morgan Stanley bigwig Greg Fleming, and JPMorgan Chase vice chairman Jimmy Lee. Any way you count, this was one of the most powerful groups of business executives in the world.

I hadn’t counted on getting in to the Kappa Beta Phi dinner, and now that I had gotten past security, I wasn’t sure quite what to do. I wanted to avoid rousing suspicion, and I knew that talking to people would get me outed in short order. So I did the next best thing—slouched against a far wall of the room, and pretended to tap out e-mails on my phone.

After an hour, the neophytes emerged to line up for their class photo. I, and most others in the room, began to chuckle. They were dressed in women’s wigs, form-fitting leotards, gold sequined skirts, and piles of stage makeup, their hairy, pale legs sticking out from underneath their skirts. Some were already falling-down drunk, and the ones who weren’t were identifiable by their looks of sheer horror. These were people accustomed to humiliating and emasculating others, not having it done to them.

After the class photo, the entire group moved into the ballroom for dinner. I waited until the program had begun, then moved to an empty seat at a table near the back.

All twenty-one of the new Kappa inductees were expected to sing a musical number, do a comedy skit, or present a prepackaged video as part of their induction rite. While they performed, other members booed, hissed, and threw wine-soaked napkins at them onstage. From my perch, I watched the neophytes give performances that, if exposed to public view, may have jeopardized some very public and lucrative careers. Among the night’s lowlights:

• Rich Tavoso, an executive at RBC Capital Markets, sang an off-key parody song called “Mama, Don’t Let Your Babies Grow Up to be Traders,” with finance-inflected lyrics, and got booed off the stage. 
  
• Paul Queally, a private equity executive, told off-color jokes about fellow financiers and well-known politicians to Ted Virtue, another private equity bigwig. The jokes ranged from unfunny and sexist (Q: “What’s the biggest difference between Hillary Clinton and a catfish?” A: “One has whiskers and stinks, and the other is a fish”) to unfunny and homophobic (Q: “What’s the biggest difference between Barney Frank and a Fenway Frank?” A: “Barney Frank comes in different size buns”).
  
• David Moore, Marc Lasry, and Keith Meister—respectively, a holding company CEO, a billionaire hedge fund manager, and an activist investor—sang a few seconds of a finance-themed parody of “YMCA” before getting the hook. 
  
• Bill Mulrow, a top executive at the Blackstone Group, and Emil Henry, a hedge fund manager with Tiger Infrastructure Partners, performed a bizarre two-man comedy skit. Mulrow was dressed in raggedy, tie-dye clothes to play the part of a liberal radical, and Henry was playing the part of a wealthy baron. (Presumably, not a huge stretch.) They exchanged lines as if staging a debate between the 99 percent and the 1 percent. (“Bill, look at you! You’re pathetic, you liberal! You need a bath!” Henry shouted. “My God, you callow, insensitive Republican! Don’t you know what we need to do? We need to create jobs,” Mulrow shot back.) 
  
• Warren Stephens, an investment banking CEO, took the stage in a Confederate flag hat and sang a song about the financial crisis, set to the tune of “Dixie.” (“
  In Wall Street land we’ll take our stand, said Morgan and Goldman. But first we better get some loans, so quick, get to the Fed, man.
  ”) 
  

A few more acts followed, during which the veteran Kappas continued to gorge themselves on racks of lamb and laugh uproariously. Michael Novogratz, a former Army helicopter pilot with a shaved head and a stocky build whose firm, Fortress Investment Group, had made him a billionaire, was sitting next to me, drinking liberally and annotating each performance with jokes and insults.

“Can you fuckin’ believe Lasry up there?” Novogratz asked me. I nodded. He added, “He just gave me a ride in his jet a month ago.”

Several minutes later, we turned again to face the stage, as the neophytes were taking their places for the grand finale—an ensemble performance of “I Believe,” the hit ballad from the Broadway show
The Book of Mormon
, with lyrics rewritten for the occasion:

As the financiers—now clad in Mormon missionary outfits—broke into a kick line, I pulled out my smartphone, and began recording the proceedings on video. Wrong move. Novogratz looked at me, as did several others at my table.

“Who are you?” he said.

“I, um, I’m really sorry,” I stammered.

“No,” he said. “Tell me. Who the hell are you?”

I felt my pulse spike. I knew that Novogratz, who wrestled at Princeton before going into the military, could probably do considerable bodily harm to me with his bare hands. And I knew that, if I identified myself as a reporter when asked—as I was required to do by the ethics code of the
Times
—I would be putting myself at his mercy. But I had no choice.

“I’m with the
New York Times
,” I said. “I’m a reporter.”

Novogratz stood up from the table. I, too, stood, and tried to excuse myself, but he grabbed my arm and wouldn’t let go.

“Oh no you don’t. Give me that,” he said, pointing to my phone, which I was trying to put in the inside pocket of my tux jacket. “There are no pictures allowed in here. You’re not allowed to
be
here.”

A small crowd was now forming around us. I heard the words “
New York Times
” being whispered, and looks of deep concern spreading over faces.