Liquidated: An Ethnography of Wall Street (review)

In a book that could be ripped from the headlines, and the musings of pundits, Karen Ho brilliantly analyzes the role of investment bankers in creating Wall Street fortunes and failures. Liquidated: An Ethnography of Wall Street provides a scholarly and historical account of the employment practices and cultural world view—their habitus—in which these bankers are enmeshed and which fundamentally shape their work. Ho, an anthropologist, worked for a prominent Wall Street firm in the late 1990s and went on to conduct over one hundred in-depth interviews with investment bankers and other industry actors. Bankers from firms such as Goldman Sachs, J.P. Morgan, Morgan Stanley, Merrill Lynch, Chase Manhattan, and Banker's Trust and their part in restructuring corporate America provide empirical grist for her analytical mill. To supplement interview data, Ho attended industry conferences, formal and informal networking events and panel discussions, and analyzed scores of newspaper reports and business publications. Building on these rich and diverse data sources (collected up through mid-2008), Ho provides a complex and fascinating analysis of the linkages between biography, institutions, and markets. In so doing, she makes an important contribution to the social study of finance and economic sociology.

Liquidated is a meticulous interrogation of how actors socially construct and legitimize markets. Like many sociologists, anthropologists, and some economists, Ho argues against an abstract, impersonal view of markets that ignores the role of social relationships, values, and culture. In a provocative argument, Ho asserts that in the mind-set of investment bankers, they (and their industry) veritably constitute the financial market. They embody it, they instantaneously react to it, they are at its cutting edge. The origins of this view, Ho argues, has multiple sources. One is industry recruitment practice. Leading investment banks pride themselves on skimming from the top of a very small number of elite universities (Harvard, Princeton, and a few other "hyperelite" institutions like the Wharton School). Students, both undergraduates and graduates, see themselves as the elect few, a kind of über class of young people—the very smart, clever, and quick. The rituals of recruitment, hiring, and practice in Wall Street firms only serve to reinforce such a self-impression which, in turn, forges a take-no-prisoners approach to closing deals. Once recruited, bankers subscribe to a culture of overwork (with one hundred hour work weeks the norm) and competitive social relations.

Elite, self-aggrandized, overworked identities are amplified in a context of literally fortune-making compensation schemes. In a fashion that defies belief, these bankers are not penalized for "failed" deals, and indeed, the notion of a failed deal seems not to enter into the lexicon of these financial market manipulators. A central irony for Ho is that while investment bankers and other market players are driven by an ideology of shareholder value—that is, they believe that their advice is guided by their commitment to maximize value for stockholders—in fact, the actions they recommend to corporate leaders, such as merging, acquiring, laying off workers, and selling off units, rarely increase shareholder value more than momentarily. This seeming contradiction makes Ho's investigation into the driving force of investment banking all the more critical.

Her answer to this puzzle? Investment bankers engage in high-risk economic activity, developing new financial but untested financial instruments and insisting that corporations pursue strategies to enhance shareholder value for several reasons. In addition to believing that the government will bail them out should their industry falter, they profit from every transaction, leading them to focus more on increasing the number and range of transactions than in understanding precisely whether their advice will benefit company integrity. Further, the bonus structure of compensation that became so prevalent in the 1980s and by now has become near scandalous constitutes an enormous carrot for them. It is the size of the bonus, not the size of the salary, that motivates them.

Finally, high...