Is this instrument just a piece of paper? Or is it actually something?

ImageIn 2003, I began research on a project entitled Proximity to Power. On the book cover above is the project’s “recipe.” I interviewed five men, one of them an investment banker. A large part of his interview struck me as gibberish, confusingly abstract. The gulf between an artist fairly well educated in the machinations of capitalism and someone in its inner circle proved too wide. With an exhibition deadline looming, I threw the tape into a file and didn’t think about it again until 2008. By then, subsequent to the bailout of maniacally leveraged corporations and banks, some outside the market world were learning a new vocabulary. I had acquired the vocabulary little by little between 2003 and 2008, and it occurred to me that if I were to listen to the interview again the “gibberish” would sound crystal clear. Since then I’ve thought that I should have incorporated the interview without fully understanding it, acting as a kind of artist “medium” for it. 

Below is the unpublished interview, with my questions included. In the audio and printed versions of the project I edited out my questions in order to play with spectatorial projections. 

[Proximity to Power will be re-installed in 2014 at the Hammer Museum in Take it or Leave it: Institution, Image, Ideology, curated by Johanna Burton and Anne Ellegood. The show’s incisive premise is that the art historical categories of appropriationism and institutional critique often overlapped.]

Unpublished 2003 interview from Proximity to Power project. [It’s long-ish, but the gibberish builds up.]

Silvia Kolbowski: I want to reiterate that you will have complete anonymity. Not even the person transcribing this interview will know your name.

Investment Banker:  It sounds like you’re going to be asking me some very very sensitive questions!

SK: Yes, actually, I will.

IB: I can start by saying that I work for a bank, which is one of the oldest banks around.  It was and remains a private bank. It’s owned by 40 partners, who have unlimited personal liability for what I get up to. There are about 3000 of us worldwide.

SK: Unlimited liability means they are liable for anything?

IB: You could sue them for their houses and the clothes they wear on their backs. I mention that because it’s unusual. Most companies have gone to limited liability or limited liability partnerships. 

SK: Does it make the people who work at that bank more conservative in their investments, or just more nervous?

IB: We’re more measured about taking risk. We’re risk averse. What I do is work in a little area that’s called a middle market advisory group. We specialize in mergers and acquisitions. – generally the sale of privately-owned companies, or if they’re publicly held, very closely held. We define the middle market as any transaction where the aggregate consideration of what you would pay for the business ranges from 20 million dollars to 200 million dollars. So what I spend 80% of my time doing is selling businesses.

I was originally trained as a lawyer, but I haven’t practiced for a long time.

SK: So the first question I want to ask you is, how do you define power?

IB: Good question. I would define it as having the ability to direct and implement something.

SK: Do you think about power?

IB: I sort of have to because you’re negotiating and a lot of it is entirely about power – who has what power to do what. Since I spend my time selling companies, how you position them – what you say, what you don’t say, what you imply, what you don’t imply – is effectively shifting the balance of power.

SK: Do you assess the power of other men?

IB: Yes, I will try and assess what I see about the other side’s power. Their ability to effect change, their ability to actually push through their agenda. And they’re doing the same thing to me. There’s a great deal of logic involved, but it’s also a little bit like a chess game. You have to think ahead a number of moves – if I do this, it’s likely to elicit the following, does that move me towards the end goal? 

SK: To elaborate on that, what sort of power does “he” have?

IB: Well the ultimate power would be to decide whether to sell the company or not, because at the end of the day I’m effectively a broker. In fairness, since most of my compensation comes on the back end, on a contingency basis, I try and only take assignments where I think there’s a high likelihood of selling. But the power that he has, which is something that happened to me recently, is to say, well listen, you may think this is a drop-dead gorgeous price for this company, but I’m not as comfortable with it as you are, so I’m not going to sell this company.

SK: And in a general sense, what gives him power?

IB: Well, in some cases by dint of birth, they’re the son of the owner. In other cases it’s because they’ve proven themselves. They’ve started the company, effectively built it up underneath them. They form the pinnacle of the pyramid, the arrow that points in whichever direction. That’s the type of person that I deal with. I work mostly with privately owned companies, so they tend to be family-owned businesses that have been passed on or, alternatively, with entrepreneurs.

SK: So in the case of the entrepreneur, why that man and not other men?

IB: They seem to have an ability to discern the forest from the trees. They are generally not concerned with detail; they leave implementation to others, but they scent the right direction; they pick the right trend, they figure out exactly what’s going to happen in ten years time and they position themselves to best reap the benefit from that. Why them as opposed to someone else?  They’re risk-takers, frankly.  The reason I work as their lackey is because I don’t have the gumption to take the risk. We have clients I deal with who hocked everything they had  – household, wife, car, the lot. I’m just not that kind of risk-taker. But they are and they hit it and they do very well.

SK: Some people fail…

IB: Certainly. I just don’t see them. (Laughter.)

SK: I think you’ve answered my next question, which was “how do they get there?”

IB: These people generally seem to have a superior vision than the general schlub in the street, to be honest with you. There’s the inventor, then there are those who are serial entrepreneurs. They seem to be looking at the world from ten thousand feet, whereas we’re down here like little ants. They see the pattern…

SK: So what does he require of you?

IB: He can be very demanding ; they don’t tolerate fools. You have to have a certain ability to deal with them on their level, which is by definition hard because at the end of the day I’m a service provider and I’m not running a business, so you have to gain their trust. 

SK: Do you work with an atypical number of really nice, wealthy powerful men?

IB: No, no, no…I have some real dicks in my portfolio, as do most people. They come in all shapes and sizes. Some are very, very difficult. I have one person I’m currently dealing with who always seems to come up with a question out of left field.

SK: Is that a power play?

IB: No, I think it’s ignorance on his part, to be honest with you. But it’s very unnerving. It has an impact on me because all of a sudden I’m being asked a question that I think is so basic he would have figured it out, or I think there must be some other agenda. Why is he bringing me in this particular direction? Where am I going to put my foot in it next? And he doesn’t listen. And then he comes back to me, and says, this isn’t working out, aren’t you supposed to be helping us out with this? So the tough decision is to whether to say, well, I said you should have done it this way, but you went and did it that way, no wonder…but you can’t really say that.

SK: So he requires  —

IB: A servileness. It’s a master/servant relationship at the end of the day. They’re paying your retainer…but you can’t just be a complete flunky or you don’t get hired. You have to have ideas, thoughts, and express them.

SK: But sometimes you have to not express them.

IB: Yes, well you express them in different ways. With this client I had to say, “Well, here’s where I think the problem arose, because we moved in thisdirection. Where perhaps it might be best to move in this direction. Because then this would have happened.” Without actually telling him that he took the wrong path.

SK: So are you saying that he requires that you take responsibility for his mistakes?

IB: [Laughs] Well, I don’t so much take responsibility as pull him out of them, or fix them.

SK: But you say something. He doesn’t listen. He gets into trouble.  And you have to share in the blame.

IB: True. You have to. Some clients never admit they’re wrong. In which case you do have to share the blame. It’s easier.

SK: Does he have anything that you want?

IB: Yes, of course. From a purely selfish standpoint, frequently I end up selling businesses for people who I think have one tenth of the smarts that I do. I think to myself, why him, why them? Why not me? It’s ridiculous. It’s like falling off a log. So I have to rationalize it. Yes, some of them certainly do have things that I want.  They’ve been very successful; they’ve founded their own company; they’ve made a lot of money. They have an ability to direct things as they want, which I don’t. At the end of the day, I’m an employee. There’s a degree of envy, I suppose, in dealing with these people.

I would like to have the things that his greater power brings, to be honest with you. I mean sure, the money would be nice. We can all think of what we could do if we had a lot of money. But at the end of the day is it the money itself?  It’s not. It’s the power and what it brings.

That’s a pretty pointed question, Silvia. You know more about me now than even my wife, possibly.

SK: [Laughter.] Here’s another question. What does he accomplish with his power?

IB: It’s going to sound a little corny coming from an investment banker, but to a certain extent, let’s say this difficult client that we discussed, something very specific. He’s actually added liquidity to a market that didn’t have liquidity before. It’s actually a pretty big achievement.  He is acting like the lubricant on a wheel.  If you imagine commerce as being the wheel and people wanting to trade these very esoteric instruments that aren’t like stocks, aren’t quite bonds, they’re sort of complicated derivatives on this, that and the other. Previously these people didn’t have a marketplace in which to do that, there was no price discovery, etc. etc. By founding the company, it’s added a great deal of liquidity to that market. It’s enabled a lot more of these things to happen. Here’s the corny part, by doing that it actually kind of makes the world a better place. This may not sit very well with you, I know…To take it to the base level, the farmer is now able to hedge his crop, for example. Therefore, if there’s a massive price decline he doesn’t have to sell his farm and go out of business.

SK: So the farmer becomes an investment?

IB: Well, you know as a farmer you can rely on your crops, and the weather, and everything. But all of that is not very predictable. So now you can take out options on the weather, you can take out options on commodities, you can bid all these complicated hybrid instruments…not that I’m saying every farmer out in Nebraska is doing this, but it’s a general example. It means that the farmer is no longer at the mercy of the weather. If he has a crappy crop because of the weather, which he can’t control, it doesn’t mean he has to sell the farm.

SK: You can bet against yourself.

IB: Well, yes, you lay off the risk.

SK: What does that mean?

IB: For example, if an insurance company insures one person’s life it’s a certain bet; if you insure a hundred people’s lives, it’s a completely different kind of bet. So they lay off the risk. They’ll take your insurance policy and they’re going to sell a little piece of it to them, a little piece of it to the other, so the risk is parceled out in very small amounts. So the corny part is that I believe it makes the world a better place because in the long run—

SK:  You were saying before that the insurance risk gets parceled out…

IB: Laying off the risk?

SK: There was one word I’m not sure I understood…parceled?

IB: Yes. The insurance brokers do it the same way. You as the insurer take the risk and then you turn around and then you lay it off.

SK: Laying it off means selling?

IB: Yes, right. Selling part of it to someone else.

SK: What is that called?

IB: In insurance-speak, you’re laying off the risk.

SK: Is that something like what a hedge fund does?

IB: No, a hedge fund is different.  A hedge fund….well, it’s very difficult actually to define a hedge fund, that’s why the Fed’s had such tremendous problems regulating them. What is a hedge fund? Well, mmm, that’s tough to say. It’s basically unregulated; it’s generally large pools of money coming from very sophisticated, very wealthy investors that are being used to make a variety of sophisticated bets, let’s say, rather than just investing in one stock. Well, take the classic example – Long-Term Capital Management, that’s the one that everybody knows, the one that almost broke the whole financial system at one point. What they were doing was they were betting on convergence strategies, meaning that you take two bonds, for instance, and you historically see that this bond in Germany trades in relation to this bond in the UK in a certain way, and there’s generally a spread, meaning the difference between the two rates, let’s say, 20 basis points, .20 percent, and over time that’s been pretty constant. You track these bonds and you see that all of a sudden one of them is at a 40 basis point spread. The bet they were making was this isn’t going to endure, it makes no sense because historically it’s always been 20 basis points. Quick, buy the bond that is off-price because it will eventually come back. But of course you can’t buy the bond, so what they would do is they’d go and they’d short it. They’d sell a bond they didn’t have so that when it came back they could buy it back cheaper to cover the short—

SK: And make a profit.

IB: And make a profit. But these movements were very very small, so people who would do it, say, with a million or two million dollars, you’d make fifty bucks or something. So you had to be betting with billions of dollars. You needed big money in order to make those bets, which is what they had and what they did, and eventually the bets became so big that they almost bankrupted the system. Long-Term Capital Management was mostly misunderstood because what they said I think was actually correct, which is they didn’t give it enough time. The model was that you have to be absolutely convinced that this relationship will hold true. Therefore every time you see a move away from that relationship, you double up the bet. They saw a way of making more money so they doubled it up, doubled it up, doubled it up…the point is, how long does it take to come back again? If someone cuts you off at the middle—

SK: Believe it or not, it’s a gambling strategy that the artist Marcel Duchamp used to make money sometimes. It’s called a martingale, I think. If you can stay in the system long enough you will actually win back your lost bets.

IB: Right! Yes, it’s exactly the same sort of idea.

SK: As long as you’re able to keep doubling your bets.

IB: Keep doubling down, that’s correct.

SK: You can make a lot of money gambling like that, but you can lose a lot of money also, the minute your bet is too big to double.

IB: Well, look, it greases the wheels of commerce. That’s what my client has succeeded in doing, which in general I find to be a good thing.

SK: When you say he’s invented something, you mean it’s some kind of thing that you now trade that wasn’t traded before?

IB: Well what he’s done is actually founded a market for this particular instrument.

SK: Is this instrument just a piece of paper? Or is it actually something?

IB: Paper, yes, I guess it’s…honestly, I don’t know how these things are physically…

SK: What’s it based on?

IB: Well, it can be based on many different things. Some of them are done on the weather, some of them are done on commodities…

SK: So basically it’s an instrument for betting.

IB: Well, yes…I mean, right, it’s a financial instrument for betting. In the same way that the stock market is basically a gamble.

SK: Except that the stock market used to be based on actual relationships to company growth, and I know it hasn’t been for a long time, but—

IB: Was it ever, Silvia, was it ever? I don’t know. It’s really the perception of the public as to what a particular company is going to do. So I would say that it gives the impression of being…I’ve long held the belief that the stock market is just legalized gambling. Just like the gambler in Las Vegas remembers that in the shuffle X cards are going to come up; every time one goes out he can recalculate the odds of what the likelihood is that…it’s the same thing in the stock market.

SK: So this man who invented this new instrument—

IB: He actually set up a marketplace in which it could be traded. Before, someone else invented the instrument. You see A didn’t know B, necessarily, and A would have to go and talk to fifteen different people, in order to find someone who might be interested in buying it…

SK: So how do people have access to that market now?

IB: It’s done basically through the telephone. I mean he said “I know where this particular thing is that you want, Mr. Smith.” And he went to Mr. Jones, and said “Yes, I think I know someone who wants to buy.” The classic middleman. Because Mr. Smith didn’t want to disclose to Mr. Jones what his trading strategy was, he was happy to have someone stand in the middle who could act as a cutout. Now, substitute Goldman and Salomon. Goldman doesn’t want Salomon to know that they’re selling off all the X,Y,Zs, and likewise Salomon may not want Goldman to know, so they’re very happy to go through a middleman. Now, effectively, he knows who’s got what and what the price is, and now there is an active market in that, whereas before Goldman would have to call twenty banks, say, listen we’re trying to do this, we’re trying to do that, would you be interested? No? Right, next one. Now they go to this central person who says, look, I’m in touch with, I know all the brokers at, I know what they’re looking for. I’ll match you up. And it’ll be done so that you won’t know who it is and they won’t know who it is. You preserve anonymity.

SK: This is just a whole other world for me. Another question. Have you ever not carried out his wishes, and if so, were there consequences?

IB: Yes, and the reason is that I strongly believed it was not the right thing to do and we would not have achieved the right goal. Were there consequences? I can’t say yet, because it hasn’t panned out. [Laughter.] If we get the deal done, there won’t be consequences. If we don’t, I will have to explain why it is that I chose to ignore a particular set of instructions.

SK: And what could happen?

IB: He’ll get pissed off, and I’ll have to explain why his set of instructions was bogus, silly.  Would not have achieved what he wanted to achieve, and that what I was doing had a much greater likelihood of achieving something. That I felt confident enough that I was willing to take the bet.

SK: You were willing to take the bet?

[Tape runs out.]

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