“Answer” for the Moral Dilemma; Starting as an Investment Banker

First remote

 

In an economic system, if the goal of the authorities is to reduce some particular risks, then the sum of all these suppressed risks will reappear one day through a massive increase in the systemic risk and this will happen because the future is unknowable.” –Karl Popper

Moral Dilemma

…was mentioned in the last post here: http://wp.me/p2OaYY-1Lf

Most people might choose to divert the course of the train, and sacrifice only one child. You might think the same way to save most of the children at the expense of only one child. Many would think that would be the rational decision to make both emotionally and morally.  But, have you ever thought that the child choosing to play on the disused track had in fact made the right decision to play at a safe place?

Nevertheless, he had to be sacrificed because of his ignorant friends who chose to play where the danger was. This kind of dilemma happens around us every day. In the office, community, in politics and especially in a democratic society, the minority is often sacrificed for the interest of the majority, no matter how foolish or ignorant the majority are, and how farsighted and knowledgeable the minority are.  Just look at our recent financial crisis where savers are punished with suppressed interest rates in order to bail out imprudent  bankers or over-indebted governments–welcome to crony capitalism and the entitlement state.

The great critic Leo Velski Julian as well as Sorav who told the story said he would not try to change the course of the train because he believed that the kids playing on the operational track should have known very well that track was still in use, and that they should have run away if they heard the train’s sirens. If the train was diverted, that lone child would definitely die because he never thought the train could come over to that track!

Moreover, that track was not in use probably because it was not safe. If the train was diverted to the track, we could put the lives of all passengers on board at stake! and in your attempt to save a few kids by sacrificing one child, you might end up sacrificing hundreds of people to save these few kids. (Sounds like the U.S.’s centrally-controlled bail-out financial system)

See this recent example: http://www.huffingtonpost.com/2013/03/13/usda-big-sugar-bailout_n_2866535.html

‘Remember that what’s right isn’t always popular…and what’s popular isn’t always right.’

Reader’s Question

A reader asks what books to read to help him prepare for his summer internship as an investment banker.

First, don’t lose your humanity. Second, read the suggested books below. My best recommendations are at the top, then work down the list.

The First Junk Bond: A Story of Corporate Boom and Bust by Harlan D. Platt. The BEST book on a corporate finance through case studies.  This is a detailed case study. Platt integrates corporate history, industry fundamental, financial analysis and bankruptcy law on a scale that has rarely, if ever, been attempted–book jacket.

Sense & Nonsense in Corporate Finance: An Antidote to Conventional Thinking About LBOs, Capital Budgeting, Dividend Policy, and Creating Shareholder Value by Louis Lowenstein

The New Financial Capitalist: Kohlberg Kravis Roberts and the Creation of Corporate Value by George P. Baker and George David Smith. This is sort of a text book explanation for Barbarians at the Gate

Barbarians at the Gate by Burrough and Helyerthe hostile takeover of RJR Nabisco. Great drama and Corp. Fin. History.

It Didn’t Have to be This Way: Why Boom and Bust is Unnecessary—and How the Austrian School of Economics Breaks the Cycle by Harry C. Veryser.  Understand the big picture and the history of boom and busts.

The Money Wars: The Rise and Fall of the Great Buyout Boom of the 1980’s  by Roy C. Smith. He also has many other books on the history of finance through the eyes of an investment banker—check for his books.

The Takeover Game by John Brooks. Chronicles the buy-out boom of the 1980s.

Deals from Hell: M&A Lessons that Rise Above the Ashes by Robert F. Bruner.  Good and bad mergers.

The Funny Money Game by Andrew Tobias.  Conglomerate Boom

The Mind of Wall Street: A Legendary Financier on the Perils of Greed and the Mysteries of the Market by Leon Levy.  I thought the book could have been better, but you still get to learn from a legendary financier.

Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking On the World by Ronald D. Orol.  Investment bankers might take the other side of these battles.

F. I. A. S. C. O: by Frank Partnoy.  A classic on financial shenanigans.

A Devil of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation by Richard Bookstaber. The inside story of the derivatives fiasco.

Books by Lewis like Liar’s Poker.

 Making Investment Banker Presentations

Never forget to give the client what they expect or this might happen:

6 responses to ““Answer” for the Moral Dilemma; Starting as an Investment Banker

  1. This was a good question but honestly, if it were a real situation – one’s actions would just be based on a gut feeling based on the spur of the moment.

    It’s easy to talk the talk, but how many would actually be willing to stand by their principles to protect the minority especially when under immense pressure. Men of integrity and principle are often rare and even rarer when they are elevated into a position of leadership to effect change. At times, democracy is only as good as the people voting. And if the majority vote heedlessly and selfishly, I doubt any good outcomes will be effected in the long term.

  2. Yes, I agree. That is why being in America today is like standing on the deck of the Titantic. Pray for us.

  3. You have my prayers John. Unfortunately, from where I’m living – the situation’s not much different. Part of the problem, is that I feel that governments are somehow dumbing down their citizens, whether by commission or omission. From looser standards in education, to media propaganda and instant gratification, literacy and logical thinking seems to be on the decline. Sigh!

    Well, at least your blog is generous and invaluable attempt to improve financial literacy via value investing. So, thank you 🙂

  4. I just wanted to say this Blog is amazing. Keep up the good work!

  5. Thanks for the reply John! I picked up a couple of these books and look forward to your recommendations. Do you have any suggestions for a more technical read to understand valuation, corporate finance, and accounting? I was thinking about the McKinsey Valuation text, but please let me know if you have any other books in mind.

    Also, this prep is for a full-time job starting this summer but I’m considering moving onto private equity / hedge fund after my 2-year analyst stint. Do you have any resources / recommendations to read when private equity recruiting occurs? Thanks again for all of your help. The value vault and your website have been an amazing resource.

  6. Analysis for Financial Management by Robert C. Higgins is a good primer on corp. fin. Then Financial Statement Analysis and Valuation by Stephen Penman (Book and website with the book) is good. Corporate Restructuring by Gilson.

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