I think the meaning of life is to find something you’re good at, something you love, and work to make that situation just a little bit better than it would have been without you. There’s a phrase in Judaism, tikkun olam, which means “repairing the world.” The concept is that people shouldn’t do something simply because the religion requires it but rather because it makes things — something, anything — a little bit better.
– Mike Mayo, Exile on Wall Street: One Analyst’s Fight to Save the Big Banks from Themselves, Chapter 10: The Meaning of Life (couldn’t figure out how to show the page number on my Kindle, shows it for some books and not others)
I read Mayo’s book a few months ago, but recently went back through the various places I’d highlighted and bookmarked on my Kindle. I’d forgotten how much depth he went into.
Mayo truly believes in the purpose that banks should serve, which is to hold a depositor’s assets in trust while lending out a portion of what the bank holds to endeavors the bank thinks are good things to invest in.
In other industries, loans are typically liabilities because as a borrower you’re on the hook to pay that money back. But banks are lenders, meaning that loans are assets. The more loans a bank makes — assuming it has done it homework and reasonably believes that the loans went to reliable, upstanding people who are going to pay them back — the better off that bank is.
As complicated as high-level finance has become in the past decade, at its core, banking is a simple business. Bankers borrow money at a certain interest rate, mostly as customer deposits, then lend it out at a higher rate, and they get to keep the difference. For a long time banks operated on the 3-6-3 rule: Borrow at 3 percent, lend at 6 percent, and be on the golf course by 3 P.M. From the 1940s through the late 1960s, this was the guiding principle. Banks were closer to utilities — very reliable and without big boom and bust scenarios.
(Chapter 1: “God’s Work” at the Fed)
Exile on Wall Street isn’t just a discussion of recent upheavals, although Mayo does cover a lot of those events. But he also talks about changes in the financial industry for a few decades before that.
As an analyst Mayo made a huge call in 1999 against the entire banking sector. He took a lot of heat for it, since it would have been much easier for him and his bosses if he’d gone along with everyone else and said that he thought bank stocks were a great buy. Instead, he looked at the data his team put together and honestly reported what he was seeing.
Although he doesn’t dwell excessively on the risks of doing that, he is quite honest in how much it cost him over the years — passed over for promotions multiple times and even being fired from one company.
But he was honest about what he saw because he was more concerned about doing what he thought his job should be — telling investors in general and his clients in particular which stocks were and weren’t good investments — than trying to be popular with company officers (who in many cases may have been doing a great job schmoozing and looking good in meetings, but were being very short-sighted and unwise in how they ran their companies).
It’s a good book.