The Pleasure of Their Company


Executives from banks including Goldman Sachs, JP Morgan Chase, and Bank of America (who bought Merrill Lynch) have been called to Capitol Hill to explain what they did with their shares of the $750 billion bailout. (You can watch it live or read transcripts here.)

Here’s a good question to put to those executives: how much did you spend on whores?

According to a story by 20/20 aired on ABC on February 6, 2009, Wall Street executives and bankers used company credit cards to pay for prostitutes. When the head of the prostitution ring was arrested, her list of clients included bank executives who used company credit cards and disguised the charges as “computer consulting, construction expenses” and “roof repair on a warehouse”.

This raises their behavior to the level of a felony: committing fraud to hide a crime. Soliciting prostitutes is still a crime – even if it is rarely enforced. Disguising whoring as a tax-deductible business expense certainly qualifies as fraud. Making it even worse, if the ABC story is true, several of the bankers paid for their pleasure with our money. Included in the roster are:

  • an investment banker at Goldman Sachs who spent $27,000
  • an investment banker at JP Morgan Securities who spent $41,600
  • a managing director from Merrill Lynch

Anyone who has spent time on Wall Street, as I did during the 1980s and 1990s, knows that paying prostitutes as entertainment goes on all the time. They fool themselves into thinking that they deserve it, or that everyone does it so it must be ok, or that no one is getting hurt.

Yet this is a pattern that goes well beyond buying women. I taught business ethics at New York University and the Stern School of Business for many years; ethics and economics is one of the field specializations in my Ph.D. Many people who paid for prostitutes with what amounts to the public’s money already rationalized other unethical decisions, like, for example, misleading a client on a stock because it will inflate your bonus. Or giving a AAA rating to a mortgage-backed security that looks dodgy but will earn a big fee.

So, if you have already taken the plunge in other areas, when you have a choice to spend $41,000 of the company’s money on a prostitute, you don’t consider the ethics. You already have made that decision before; you may have done it a thousand times before.

This is the kind of lapse that allows someone like John Thain to spend $1 million to redecorate his office while taking public funds. Or for a supposed public icon like Robert Rubin to defend his role in the Citicorp destruction by saying he could have made even more money working somewhere else.

And believe or not, it’s still going on. Another bailout baby, J.P. Morgan Chase is still completing a renovation of its New York headquarters at a reported cost of $250 million. They started their project in June 2007. Citigroup started their renovation of the executive offices in New York in September 2008, just as Congress was approving the first bailout package.

The good news is not everyone gives into the temptation. I know guys who walked away; guys who refused to take part in it even when their Wall Street boss offered to pass along the prostitute who was giving everyone in the office oral sex that afternoon. These guys wanted to wake up the next morning and look into their daughter's eyes without remorse. Guys who decided to create a business environment in which they would want those daughters to live and work.

These are the guys who would take responsibility for their misjudgments in business and say no to a bonus in a year when their clients have been devastated. Sadly, many of those guys left Wall Street a long time ago. They probably are not the guys who are lined up for bailout money. This is not the kind of problem you stick around to fight to change. The problem with winning a gutter fight is that you are still in the gutter. Sometimes it’s better to just walk away.

According to the Associated Press, nine out of ten senior executives still at the banks that took federal bailout money were there to play a role in creating the crisis. Far too few have been thrown out for incompetence. So far none has been thrown in prison for fraud or theft. Most probably will take their nice vacations, count their sick days accumulated, and keep that vital company credit card for entertaining. This is not the case, of course, for the 100,000 bank employees who lost their jobs between 2006 and 2008.

As the newest shareholders in these banks, the US taxpayers should have some say in all this. Shareholders should be able to oust the Board and the executives who led their firms, and the country, into this morass. We have bailed these miscreants out but without taking any control. So we end up paying for the pleasure of their company while they go out and use our money to pay for someone else’s. On Wall Street, or here in Omaha, that’s called getting screwed.

Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. Her training in finance and economics began with editing briefing documents for the Economic Research Department of the Federal Reserve Bank of San Francisco. She worked in operations at depository trust and clearing corporations in San Francisco and New York, including Depository Trust Company, a subsidiary of DTCC; formerly, she was a Senior Research Economist studying capital markets at the Milken Institute. Her PhD in economics is from New York University. In addition to teaching economics and finance at New York University and University of Southern California (Marshall School of Business), Trimbath is co-author of Beyond Junk Bonds: Expanding High Yield Markets.

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Reminds me...

This reminds me of when I took a series of business classes in 1987 or 88. When it came to the ethics portion of the instruction, the majority of people blew off the class or didn't participate in the discussion. They didn't see the subject as particularly germane. Now we see some of the results of that kind of thinking.

For normal business people, of course, ethics are extremely important. If you screw people over in your business dealings, word gets around, and eventually you have no business. But on Wall Street, it seems like the bigwigs were scheming for big personal payoffs, and to hell with the long-term sustainability of the enterprise.

my memory of b-school ethis classes


Count me as someone who regards business schools teaching ethics as a waste of time. If you made it to age 25 without your mommy and daddy teaching you the diff between right and wrong, you're in such bad shape that no one-term course in ethics will help.

Plus, those courses make it appear as though American business continually presents young MBAs with ethical dilemmas similar to officers ordering their troops to machine-gun unarmed civilians into a ditch.

Good grief. Obey the law. And the law is generally consistent with everyday notions of right and wrong. What's so damn complicated?

I started on Wall Street during the mid-1980s when insider trading was rampant. (It's always been rampant. So let me say, I started on Wall Street when people worried about insider trading.) Instead of telling entering MBAs not to take advantage of inside info, they brought in a federal prosecutor for a scared-straight talk. What would happen to you if you got busted for insider trading. Or other security law violations.

It was shortly before Tom Wolfe's Bonfire of the Vanities. Wolfe seems to have heard the same talk and used it as a basis for what happens to his Sherman McCoy character. The criminal justice system, we learned, loves chewing up upper middle class white collar males stupid enough to get charged with felonies.

We were going to get busted out on the trading floor where everyone could see. There'd be TV crews so mom could watch on the evening news as her son got lead away in cuffs. The bust would take place late on Friday afternoon so we'd have to spend the weekend in the pokey. No belts, suspenders, shoelaces, ties. We'd be locked up with violent street thugs, the implication being we'd get beat up and (perhaps) raped.

And no matter the final verdict, we'd never again work on Wall Street or in financial services anywhere. So why risk everything to steal sums that were likely a fraction of what we'd soon be earning legally?

As far as effectiveness, this was one hell of a talk. It really beat having some HR type or b-school prof lecture us about ethics.

Business schools have a lot to answer for

Top financial executives have one thing in common with top sports stars and top movie stars: income in the multimillions per year. The difference is that top financial executives have gone to business school, while sports stars and movie stars are not expected to have degrees from Wharton or Harvard.

Sports and entertainment stars are not known for their high morality or fine-tuned ethics, and apparently neither are business school grads. While bad sports and entertainment stars are damaging to companies and their shareholders, we can all see the damage that bad business school graduates can cause. They are supposed to know better and hold themselves to a standard commensurate with their responsibility.

The business schools that turned out these people have much to answer for, and if a Wharton degree means nothing when it comes to ethics and morality, it means nothing when it comes to business, either.

Richard Reep
Poolside Studios
Winter Park, FL

That's not the point

Should be, would be, could be. The point remains that prostitution and solicitation are illegal. A Council Bluffs, IA councilman was caught soliciting sex for money this week. He was arrested and dismissed from the council.

You can't look the other way when one law is broken and expect anyone to believe you when you say you will enforce another law. It doesn't happen that way. Once you cross that line, it is very difficult to come back.

Thank you for discussing prostitution

Thanks for discussing prostitution.

It should be legal for people who are at least 18 years old to be prostitutes. It should be legal for people who are at least 18 years old to be with prostitutes. Prostitution should be regulated. I think most prostitutes are more ethical and have more honor than most members of Congress.

The United States of America and many other countries should legalize, regulate, and tax the sale of marijuana, heroin, and cocaine for people who are at least 18 years old.

The federal government and many state governments should be going after many current executives of financial companies and many former executives of financial companies for fraud.

I agree with you that "Shareholders should be able to oust the Board and the executives who led their firms, and the country, into this morass."

Congress is mainly responsible for the "morass". Members of Congress should have learned from the Savings and Loans Crisis. Members of Congress should have cared more about our Republic than about campaign contributions and the possibility of lucrative jobs with financial companies after leaving office. Congress should have required down payments on homes and fixed rate mortgages. Allowing mortgage backed securities to be sold based on no money down mortgages was nuts.

Congress should significantly increase the power of shareholders. Shareholders should be better able to increase their dividends. Shareholders should be better able to reduce employee pay and eliminate bonuses. Shareholders should be better able to fire executives and Boards of Directors. Shareholders should be be better able to get back executive pay and bonuses already paid out when they were based on numbers that were not accurate and/or fraud.

I added 3 sales taxes to my profile on February 11, 2009.

My website is


Ken Stremsky