The road to serfdom
I joined Goldman Sachs in 2005, after five flailing years in a physics Ph.D. program at Berkeley.
The average salary at Goldman Sachs in 2005 was $521,000, and that’s counting each and every trader, salesperson, investment banker, secretary, mail boy, shoe shine, and window cleaner on the payroll. In 2006, it was more like $633,000.
In the summer of 2005, I took one look at my offer letter and the Goldman Sachs logo above it, another look at my sordid grad student pad, and I got on a plane to New York within the week. I packed my copy of Liar’s Poker for reference.
My job on arrival? I was a pricing quant on the Goldman Sachs corporate credit trading desk1. We traded credit-default swaps, both distressed and investment-grade credit, and in the bizarre trading experiment assigned to me, the equity part of the corporate capital structure as well.
There were other characters in this drama. The sales guys were complete tools, with a total IQ, summing over all of them, still safely in the double digits. The traders were crafty and quick-witted, but technically unsophisticated and with the attention span of an ADHD kid hopped up on meth and Jolly Ranchers. And the quants (strategists in Goldman speak)? Mostly failed scientists (like me) who had sold out to the man and suddenly found themselves, after making it through two years of graduate quantum mechanics, with a bat-wielding gorilla peering over their shoulder (that would be the trader) asking them where their risk report was.
Everything is quantifiable
Wall Street is inward-looking and all-consuming. There exists nothing beyond the money game, and nothing that can’t be quantified into dollars and cents.
To cite a particularly grotesque example, once a year, one of the partners would buy a pallet of White Castle burgers and first-year analysts and associates would have a burger-eating competition (with some nominal amount donated to charity). All trading on the Goldman Sachs trading floor would stop as every man on the floor would gather ’round to watch the plebes stuff themselves.
Trading turned from interest-rate swaps (minimal notional size: $50MM) to the over/under on the burger count for a particular analyst. Occasionally, one poor schmuck would puke, and the partner would rush to catch it with a plastic trash bin.
The odds-on favorite was a young analyst, who’d employ the Kobayashi technique to get the tiny greasepucks down. After sweeping the field with 26 burgers eaten, he’d leave the styrofoam cup containing a congealed scum of burger grease and bun and patty bits floating on top, as mute testimony of his victory. The trading floor smelled like the inside of a deep fryer for the whole day2.
Death, Wall Street-style
Wall Street, like Scientology, has an all-inclusive and claustrophobic value system all its own. Particularly at Goldman Sachs, which prided itself as a breed apart from other firms, this provincialism went even further. Former employees who had left Goldman were rarely mentioned. The unanimous phrase for it was ‘no longer with the firm,’ said in the same tone used to describe the passing of a family member.
This tendency reached the height of comedy inside the strategies division, where some of the quants published academic papers on the more theoretical aspects of their work. If an author quit Goldman though, his name would be removed from the official version of the publication. It got to the point that some papers had no authors, and had apparently written themselves. So it goes. No longer with the firm.
Line up and take a number
I envy the religious. Their inner lives are so blessed. If you’re Christian, do as the Gospel says, live a Christ-like life, and salvation is yours. If you’re Orthodox, wear all black and a Borsalino, check off your share of the 613 mitzvot, and you can await the Messiah with an untroubled heart. No gnawing sense of existential dread when staring at a Godless, star-filled night sky.
Wall Street is even simpler than religion. Your entire worth as a human is defined by one number: the compensation number your boss tells you at the end of the year. See, pay on Wall Street works as follows: your base salary is actually quite modest, but your ‘bonus’ is where the real money is. That bonus is completely discretionary, and can vary anywhere from zero to a manifold multiple of your base salary.
So, come mid-December, everyone on the desk lines up outside the partner’s office, like the communion line at Christmas Mass, and awaits their little crumb off the big Wall Street table. An entire year’s worth of blood, sweat, and tears comes down to that one moment. And the entire New York economy marches to the beat of that bonus drum.
Without that number though, your privileged place in the New York hierarchy goes away. Gone is the house in the East Hamptons. Gone is the $2mm duplex on the Upper West Side. Gone is your kid’s $25K/year pre-school.
And that’s why Wall Street has that roach motel property: people check in, but rarely check out. By the time you’ve been through a couple of bonus cycles and seen that wad of cash hit your bank account in mid-January, you can’t imagine a life without it. And that’s exactly how the senior management at the Wall Street banks like it.
If Wall Street investment bankers were dogs, they would flaunt their expensive collars and leashes as marks of status, not realizing their true purpose3.
Jose Cuervo, meet Smith and Wesson
Giving sophisticated models and fast computers to traders is like giving handguns and tequila to teenage boys. Only complete mayhem can result (and as we saw recently, complete mayhem did result) . The quants were there to make sure the guns were loaded, but also to make sure the traders didn’t shoot themselves in the foot.
Not that we were terribly appreciated. In fact, we were basically the trader’s little bitches, and any quant who’s honest with himself realizes that. In time, we quants developed knee callouses from genuflecting to service the traders, on whose profits our livelihoods depended.
The only time we shone as stars was when some particularly hairy deal came up, and a befuddled trader came by, dropping off some thick bond indenture document, and asking for help4.
Peering into these deals was kind of like the zoomed-in penetration shot in a cheesy porn video: you could barely tell which end was up, which part was which, or, more importantly, who exactly was screwing whom. The quant aspect didn’t really matter at the end, as one lacrosse-playing Penn graduate would agree on price via phone with another lacrosse-playing Cornell grad, and life would resume its speedy course to another deal.
The sad truth is: quants were the eunuchs at the orgy. We were the ever-present British guy in every Hollywood WWII film: there to add a touch of class and exotic sophistication, but not really matter much to the plot (and maybe even conveniently take some bad guy’s bullet).
But things weren’t all bad! At its best, when the markets presented an apocalyptic Boschian landscape of damned souls torn asunder by hellish tortures, every Goldman grunt, sargeant, or general would close ranks and form a Greek phalanx of greed. Unlike almost every other bank on the street, Goldman could actually calculate its risk across desks and asset classes, out to five decimals5. The partners, who had most of their net worth wrapped up in Goldman stock, had tense meetings and came up with a plan to save the foundering ship. Favors were called in. Clients squeezed. Risks very quickly hedged and positions unloaded. Despite the mayhem (and all the promises of drama in Liar’s Poker) I rarely saw anyone lose their cool for longer than two seconds. We bled, but others died, and you felt fortunate to have a front-row seat on the biggest financial show in a generation.
Better to be first in a village than second in Rome.
Once upon a time, I picked up my early edition of the Wall Street Journal from a liveried doorman and knew that whatever financial conflagration was on the front page would be the mess awaiting me at work. I would ignore sub-million-dollar errors to our end-of-day profit-and-loss reports as mere ‘noise,’ beneath my consideration. My colleagues and I would grow hoarse to thundering toasts of ‘To bankruptcy, gentlemen, to bankruptcy…” at our Friday post-work happy hours, all on the corporate AMEX6.
Now I log into our online bank account and nervously contemplate our balance which, like the heart monitor on a terminally-ill cardiac patient, just barely beeps above zero and is always decreasing. I sign up for trials of online services and make lengthy mental tradeoffs between the $30 and $50 per month plans. We work out of a cramped one-bedroom apartment, and have to time bathroom visits not to coincide7. Some days, it looks like we’re going bust within the week. Some days, it looks we’re going to be the next Google.
What’s work like now? Writing code. Worrying about everything from our credit card billing to the pile of dirty dishes in the sink that will give us all diptheria some day. Writing linkbait blog posts to get us free PR (like the one you’re reading now). Schmoozing with investors, and playing the junior high school popularity contest that is startup funding. Keeping jealous tabs on other startups to see how they’re doing compared to us. Trying to put myself in the mind of our users to make something they’d want. Oh, and launching…finally, good God…launching.
You see, starting a product from an empty text buffer is very different from keeping a well-oiled money-machine running8. I’ve had apocalyptic fights with the other founders that almost ended in fisticuffs. I’m watching my four-month-old daughter grow up via Skype. These jeans I’m wearing will likely fuse with my skin at some point if I don’t take them off. I haven’t seen a paycheck or a loving woman in much too long.
You know what I regret most though, going from Goldman to this?
Not having made the switch earlier.
The Goldman meat grinder doesn’t really need me. It doesn’t really need you either, gentle reader. That feel-good saying that made the rounds on Twitter a couple months ago is actually totally right: go out and write your own story, or you’ll just be a character in someone else’s.
- For those truly unfamiliar with this bizarre chimera of the modern age, the Wall Street quant, please see here. [↩]
- To fans of irony, Wall Street provides endless delectation. Once, after a particularly competitive round of Friday afternoon push-ups and id bingo, a memo went out to the entire floor about office decorum. It basically boiled down to a reminder about how betting was prohibited on the trading floor. It reminded me of that classic scene in Dr. Strangelove when George C. Scott gets into a wrestling match with the Russian ambassador inside the control room at the Pentagon, and is sternly told, “Gentlemen, you can’t fight in here. This is the war room!” [↩]
- Ok, with the canine reference, the jig is up, and it’s clear that this entire blog post is just a wordy version of Aesop’s fable about the Wolf and the Mastiff. For the hurried, please just skip the rest and read that instead. [↩]
- It’s a somewhat different story on structured credit desks, where numerical modeling is perceived to be more important. Also, on algorithmic trading desks, where the quant writes the code that does the trading, and the sometimes blurry line between quant and trader basically disappears [↩]
- At the risk of getting sued, let me throw you geeks a bone and part the Goldman veil a bit. The Goldman Sachs risk system is called SecDB (securities database), and everything at Goldman that matters is run out of it. The GUI itself looks like a settings screen from DOS 3.0, but no one cares about UI cosmetics on the Street. The language itself was called SLANG (securities language) and was a Python/Perl like thing, with OOP and the ORM layer baked in. Database replication was near-instant, and pushing to production was two keystrokes. You pushed, and London and Tokyo saw the change as fast as your neighbor on the desk did (and yes, if you fucked things up, you got 4AM phone calls from some British dude telling you to fix it). Regtests ran nightly, and no one could trade a model without thorough testing (that might sound like standard practice, but you have no idea how primitive the development culture is on the Street). The whole thing was so good, I didn’t even know what an ORM really was until I started using Rails and had to wrestle with ActiveRecord. The codebase was roughly 15MM lines when I left, and growing. I suspect my retinas are still scarred by the weird color blue SecDB was by default. [↩]
- If the thought of a group of credit quants drinking toasts to bankruptcy evokes the image of a group of surgeons toasting death, or policemen toasting thieves and murderers, you’d be quite apt in your mental metaphor. One, sadly, can’t exist without the other, so why not celebrate the raison d’être? [↩]
- Compared to Goldman though, this is sweet luxury. After a particularly stressful trading day, the bathrooms (all of two for a 300-400 person trading floor) looked as if busloads of diarrheal American tourists fresh from Tijuana had taken turns unleashing squatting monsoons in the stalls [↩]
- If doing a startup is like rolling a boulder up a hill, then working at Goldman Sachs is like rolling it down the hill: you just have to stay out of the way of the boulder. [↩]