In a recent speech at the University Of Pennsylvania's Wharton School of Business, former Merrill Lynch CEO John Thain -- he, of the $35,000 commode -- said he thought it was unfortunate that the American dream has been "demonized" after the financial crisis.
Regardless of how you feel about him, or about his $1.2 million office renovation, Thain may truly be an example of up-by-the-bootstraps success. But Thain spent precious little time discussing how Walll Street's actions leading up to the financial crisis actually made it more difficult for ordinary citizens to achieve the American dream.
To his credit, in his speech Thain derided regulators and criticized the risks taken by Wall Street, including the risks taken by Merrill. He also made an impassioned, if a bit tone-deaf, case for the social value of banking.
"I don't want to personalize this, but I grew up in a small town in the Midwest. I had never been to the East coast. My friends in high school pump gas, sell insurance or are in jail. I went to school. I went to a good undergraduate school ...went to an okay business school. I went to Wall Street. I knew nobody. I had no contacts. I knew not one person. I had no
money. Purely based on the fact that Wall Street is a pretty good meritocracy -- you have to
have the right skill set -- basically you can start from zero there. You can become the president of Goldman Sachs. You can become the CEO of the New York Stock Exchange. You can become the CEO of Merrill Lynch. You can make a lot of money.
That's the American dream. That's a good thing. And the fact that this has been kind of
demonized now, I think, is very unfortunate. But it will change. It will come back. I think
Wall Street still is a great place for people to be successful. It's just not true that it has no
socially redeeming value. It funds business and companies and economies, and you can see
what happens when it doesn't work. It causes huge problems with the economy. That
doesn't mean that it's not a great thing to be a doctor or -- I don't know -- lawyers are in a
During the Q&A section, a Wharton student asked Thain an excellent question:
"...if you heard President Obama's speech on Monday, he said that apart from the sort of individual personal mistakes that people like you corrected, this country has lost $5 trillion in wealth. And I wonder in the privacy of your own thoughts if you have ever felt responsibility, regret or remorse at anything?"
Thain's response is rather telling. While expressing remorse, he chalks the financial crisis up to a series of failed assumptions, rather than a systemic failure of the regulatory apparatus and unchecked greed of Wall Street:
"It is -- besides being a difficult question -- it's a very good question. Yes, there have been trillions of dollars of wealth destroyed. And that is a very bad thing. Millions of people have lost their jobs. Millions of people have lost their houses. Millions of people's lives have been disrupted by all this.
So do I -- does Wall Street -- collectively bear some responsibility for that? Yes, absolutely.
Is it just Wall Street's fault? No, it's not. Has there been a failure here that we should try to
make sure doesn't happen again? Yes, there has been a failure here. There was way too
much risk. There was way too much leverage. People didn't think about the consequences of
just assuming house prices were going to go up forever.
By the way, I was going to say this at the end, but I'll say this now. One thing that you
really always have to think about: Relying on the world continuing to look like it used to
look is a really bad idea. There's something called HPA -- Home Price Appreciation. All these
mortgages -- all these securities -- all this was always based on the premise -- the belief --
that housing prices would only go up. Well, now that looks like a pretty stupid assumption.
But if you said three years ago that you thought housing prices in the United States were
going to fall 25% over the next couple of years, people would have thought you were crazy.
So not relying on these assumptions that everybody takes for granted is a really important
thing in terms of thinking out of the box.
But going back to your point. Yes, I think that we collectively -- I as a representative of Wall
Street -- bear a cost and a responsibility for the financial destruction that has been caused.
I don't think -- like some senator or Congressman suggested -- that we should kill ourselves
over that. I think what we should do is say, how do we fix it? What can we do to get the
economy started again so people have jobs? What can we do to minimize the damage of the
housing price declines and people getting kicked out of their houses? How can we make it
better? And what can we do to at least reduce the chances that it happens again to such an
extent? Because okay, yes, it's very bad. But piling up investment bankers and burning
them is not going to do any good.
Here's Thain on regulators:
"At least at the moment, it doesn't seem to me we're going to make what are the
fundamental changes in the regulatory structure in the U.S. financial system. Why do we
have the SEC and the CFTC [Commodity Futures Trading Commission]? Why do we have the
FDIC [Federal Deposit Insurance Corporation], the Fed, and the OCC [Office of the
Comptroller of the Currency]? There is no real attempt to consolidate and to eliminate the
duplication in that regulatory structure."
And, finally, here's Thain on his infamous office renovations:
"And the last thing, since you brought it up, I'll talk about my office. So you all learn lessons
from people who make mistakes. I joined Merrill Lynch in December 2007. That was before
Bear Stearns, before the world imploded, before there was any government money, and I
used my office to receive clients, to receive guests.
I used it as a meeting space. The way the office was set up, it had a big desk right in the
middle. So it didn't have seating space. You couldn't really receive clients. And also one of
the conference rooms had been converted into a private gym. If I want to work out, I don't
need to work out at the office. I can work out at my home or in a real gym. So we tore out
the private gym. We reconfigured the office so that it was like a normal office where you
could have guests and have meetings. And we decorated it in kind of the style that Merrill
Lynch offices, which were very, very nice.
Now, in hindsight that was a mistake. All right? I admit that was a mistake. I didn't know
the world was going to explode, but it did. And that was a mistake and I'm sorry that I did
that. If I had that to do over again, I'd furnish it in IKEA. "
Read the entire speech -- or catch a video of it -- at Wharton's website.