11/18/2011 04:42 pm ET Updated Jan 18, 2012

The Salomon Brothers Training Class of 1985 and Lessons Learned

Didn't get in on the first try. There were a few rejections before I made it into the Salomon Brothers sales and trading training class. It happened to be the class of 1985, immortalized in Michael Lewis' book, Liar's Poker."

Recently came back from our 26-year reunion. And as reunions go, it felt like it was just yesterday. There were not too many women in a class of around 125 back then. I entered the multi-month program expecting my second child. Unheard of back then, but I wanted a family too.

Most of my colleagues naturally pursued financial careers. A few went in other directions.

The event got me thinking about my peers and Wall Street as a whole. We find all sorts of people in all sorts of industries, going into them for all sorts of reasons. Human foible gets magnified on Wall Street as big money's involved -- more temptation. The money factor and Darwinian-like culture attract a personality type.

Let's look at the money. The whole bonus compensation model is distorted, seemingly operating under the old private partnership model, paying out a large portion of revenues -- about half the revenues in recent times. When financial institutions went public (putting the capital of others at risk), accountability diminished, risk-taking increased. Take the dismantling of Glass-Steagall (which led to big financial institutions) and increased use of leverage, little wonder bonuses were so amplified. Bonuses based on "mirage-like" profits in the last decade should have been just that, a mirage. It's about how, through what means and at who's expense those bonuses were made.

The reality is people are people -- some push it, some don't. Not every Arthur Anderson accountant, for example, was involved in Enron, yet many at the time were "painted with the same brush," to the point where the whole firm went out of business. I might note too that many Arthur Anderson employees were sideswiped, as were many employees when managements and boards drove financial institutions into the ground -- destroying the livelihoods and assets of their own employees.

It begs the question -- where should culpability be directed?

For insight, take the recent MF Global collapse. A seemingly off-the radar firm got along until the arrival of its new chief (a former Goldman Sachs CEO/Senator/Governor) in March 2010. In under two years -- the 8th largest bankruptcy in US history -- the result of a leveraged and soured Euro Zone sovereign debt bet. Yet, it started with a vision to steer a brokerage firm towards a "Goldman Sachs-like" model (prop trading, betting, call it what you will). Now wasn't the Dodd Frank Act to help restrain this kind of risk-taking? What about the excessive leverage?

The fact that MF Global can happen means the problems have not been fixed, maybe just danced around. Yet, the stakes are high in a global interconnected world. The US and Europe are so interlinked in finance and trade. The two account for half the world's $62 trillion GDP.

Watch Europe.

The new Greek Prime Minister Papademos (who replaced Prime Minister Papandreou in the aftermath of his proposed peoples' referendum) is a banker too, a former ECB banker. He's to push through the "radical reforms" of the troika -- the International Monetary Fund (IMF), the European Central Bank (ECB) and the European Union (EU).

What about Italy?

"It is somewhat ironic that the prime minister in Italy is Monti. He was a member of the European Commission. He was one of the architects of the system that caused all the problems. Why on earth would you put him in place? It would be a semi-miracle if the solution works" Nightingale said.

Another perspective.

However, Alessandro Capuano, head of the Italian desk at IG Markets, disagreed with Nightingale, saying Italy had sound fundamentals underpinning its economy.

Italy is already struggling with high interest rates (north of 7%) demanded by it lenders. Little wiggle room for rates to rise any further before the line is crossed from solvency to potential bankruptcy.

Muse with me here for a bit.

Greedy financiers and power-hungry politicians are not new to history. Jesus of Nazareth had an issue with moneychangers. Roman Emperors taxed people heavily too -- to support their ways, their wars. During the Middle Ages, the "rule of law" did not much apply to those with wealth and power. Wealth and power ruled. The rest were serfs.

Fast forward to the 20th century. Note what took place in the aftermath of the S&L debacle -- from "an old report from the US Department of Justice."

According to some of its records, between 1990 and 1995 no less than 1,852 S&L officials were prosecuted, and 1,072 placed behind bars. Another 2,558 bankers were also jailed, often for offenses which were S&L-linked too.

Fast forward to the 21st century. On the table, a proposed $20 billion bank settlement to exonerate the banks (at the institutional level) of alleged wrongdoing in the foreclosure crisis.

Here's what one of the "rebel attorneys general" has to say:

"If you don't air out the policies that led to the implosion of the economy, it will happen again," says Mr. Schneiderman. "There's not one sentence in the proposed agreement, not one period or comma about the stuff that blew up the economy. We can't let the banks rewrite history."

Back to Salomon Brothers.

I had a tough, but constructive mentor, who took the time to teach me some valuable lessons. I first encountered him during the training class when he lectured us on How To Sell. He was one of those legendary Wall Street super star salesmen.

His words left an impression. A Buddhist proverb comes to mind -- "when the student is ready, the teacher will appear." I didn't expect to be impressed by a rather imposing and intimidating-looking man.

As life would have it, I got placed into his group after the training class. A petite south side Chicago Eastern European immigrant rookie, in the training clutches of this over-powering chain-smoking man. He taught me to keep my antennae up. Little did I know, that someday there'd be liar loans, securities based on them too.

Sometimes problems originate from not sticking to the most basic, and mushroom from there.

What are some of those basics?

Your word is your bond -- trust and integrity.

How about reputation?

Don't sell anything you don't understand, or understand what you sell. If it doesn't feel right, it probably isn't.

Know your customer to assess need, risk tolerance. Match the suitable product to the need. Develop a good relationship. Educate and bring the customer along/disclose all pertinent information before executing any trade.

Being a broker, a go-between is exactly that -- finding the right balance between customer needs and the firm.

The crisis didn't "come out of the blue." It was a default of outside regulation (Washington) and inside regulation (managements and boards of financial institutions) and individual self-regulation. Too many transactions, executed for misguided reasons, create a build up -- like a clogged up sink. To fix our problems we have to come at it from many different angles, top to bottom, inside out.

Can we afford not to?

Look at the damage.

Broken product sold to pensions, portfolios worldwide. Some of those investments no one wanted, so much so, that trillions may remain in a final resting place on the US government balance sheet. Think about the ongoing foreclosure disaster. Think about the breach of trust when it comes to the MF Global alleged missing $600 million in customer funds. Think about the Euro Zone banks who now don't trust each other enough to even lend to one another for fear of their exposure to their own government debts. For funding, the Euro Zone banks are now relying increasingly on the ECB, "which in turn is spooking investors concerned about the health of the countries funding the ECB." Talk about a roundabout.

I am reminded of Medieval towns scattered throughout Europe, with twists and turns, hard to find a way out. How are we going to move forward to find a way out?

The End, for now.