Is Wall Street a role model for Al-Qaeda? - The Honest Truth By Ajit Dayal
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21 MAY 2010


I tossed this comment at friends of mine who work for Wall Street or know people who work at Wall Street firms.
And they kind of gave me a strange look.
One of those, "and which planet are you from" looks.

But hear me out.
Osama bin Laden is probably one of the most recognised names around.

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If he were classified as a "brand" it would be interesting to know whether management consultants would estimate the value of his brand or product ("terror") to be higher or lower than those of well known multinational companies.

Maybe the rating agencies like S&P and Moody's, so intent on making their clients happy - and now a subject of investigation by the US and European governments - would have another client to lap up to.
Maybe they would rate Al-Qaeda as "TNT" - the gold standard for terror.

But getting back to my comment, as the founder of Al-Qaeda, Osama must have made a choice on how he should build his warped empire. How could he institutionalise terror so that it lasts way after his meeting with God is arranged by the US military generals?

Not being a graduate of any of the well known business schools that seem to excel in churning out students whose sole aim seems to be to blow up the world (economically and financially, that is), Osama probably had to build his organisation based on what he saw in the real world.
However unreal his definition of the "real" world may be.

He ain't lovin' it
McDonald's offers a pretty good blueprint for setting up a successful empire globally. With over 32,000 restaurants in more than 100 countries, McDonald's is a management success that has lasted way beyond the death of its original founder, Ray Kroc.

But to build a McDonald's kind of fan following, you need to get kids to really like you. And you need to have an aura around your products that convinces parents to take their kids to a McDonald's.
While Al-Qaeda does get the odd child to do odd suicide bombing missions, it is not really perceived to be a popular group to hang around with.
Mothers don't seem excited about enrolling their kids to Al-Qaeda.

The other problem with a McDonald's type organisation structure is that you need to have a very strict rule book. And a no-room-for-error recipe book. A helping of French Fries bought in New York has to taste the same as the helping of French Fries bought in London. No room for any improvisations.

Now, much as Al Qaeda would like to have a cookie cutter approach to terrorism, they really cannot do that. An attack on innocents in New York need not be the same as an attack on innocents in London. The level of police control, the movement of the crowds, and the location of the soft targets all call for improvisation. No manuals used here.

Furthermore, McDonald's has a mascot: a very likeable colourful clown.
The Al-Qaeda rule book does not favour wild colours or a face that is always smiling. Terrorists look grim. They wear drab greys and black.

It is true that sometimes the terrorists evolve into respected political leaders and wear a Pizza Hut napkin on their heads - but that is usually much later in life. Probably closer to their IPO and to their listing on the UN as a respected Head of State. Just like the PSU companies suddenly have this aura about them when they do their IPO's. Anyone remember the "navratnas"? Last time I checked, many of them had been used as fodder to enrich the private sector barons.

No, though McDonald's is a growing success and can proudly claim that 80% of the 32,000 restaurants are owned by franchisees - a sure sign of lasting power beyond the lifetime of the founder - it probably did not make the cut to be the role model for Al-Qaeda.

And nor did the pharmaceutical industry.
Though their global reach and control over governments is legendary, they do get into trouble. Witness the rash of fines that the US and European governments are slapping on companies like Pfizer. While paying fines per se is not a problem - it can be classified as a cost of doing business and deducted from taxes payable - there is the issue of a formula and recipe again.

Every bottle and drug needs to have the same impact on the patient.
Al-Qaeda cannot guarantee that the impact on all intending victims will be identical. Not that Johnson & Johnson could guarantee the safety and efficacy of the children's version of Tylenol. J&J is now in trouble for allowing some junk into the children's version of Tylenol at some of its plants.

And though the pharmaceutical industry does get volunteers for its various medical research tests, those tend to be regulated.
No one regulates Al-Qaeda when it laces underwear with gunpowder for use by mature adults.

If you have to cause obesity and distort bodies or maim some internal organs, why go through such strict processes and production manuals?
Nope, Al-Qaeda is not in the slow-death business.
High impact and high velocity algorithms work better for disaster scenarios - as the plunge on Wall Street's computer-led trading mechanisms proved.

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Maybe the Wall Street model?
So having discarded the McDonald's and Pfizer models, they probably researched Wall Street.

There is something solid about the financial services industry. Not only has it positioned itself as a "pillar of society" but it is seen to be an alternative form of government.
Almost a religion.
That must have impressed Al-Qaeda.
Every morning, like clockwork, someone rings the bell of some stock exchange somewhere in the world.
And the flock come to pay homage.
More than 5 times a day. In fact, every millisecond.
One up on you, Osama!

There is also a personality fit. The people in the financial services business wear grey and drab coloured clothes most of the time. And they rarely smile. They also get photographed with their hands crossed or leaning on a window. Much as a member of Al-Qaeda would be photographed with a hapless victim, with sword in hand. There is that feeling of "Master of the Universe" that leaps right out at you.

And mothers want their children to be a part of the tribe.
Yes, you heard that right. Give the mother a chance to be on Oprah or a chance to see her son on Wall Street and Oprah will be out of business.
Of course, once her son makes it to Wall Street, he will issue a CDO to Oprah's company, get her into financial trouble and ensure that Mother makes it to Oprah to talk about how her son made it to Wall Street.

With a Compulsory Debut on Oprah (the other CDO) on their minds, it is rumoured that parents in America start training their children from birth to get into a private school, then to the fine campuses of Harvard or Yale, and finally to Wall Street.

Sure, the mothers will feed them French Fries from McDonald's along the way, but they want their children to grow up owning the damn company. Summer jobs at McDonald's are for the offspring of their nannies who help groom their knights in shining armour.

While barbarians and savages to the core when it comes to money, the typical Wall Street employee has learnt one instrument (drums, guitar, piano), can speak many languages (English, French, German, Latin, Spanish), and can work long hours in solitary conditions with cold pizza for comfort.

The financial services industry can attract the best and the brightest - even the governments know that. Just like the army knows that the terrorists employ gruesome tactics that would not stand in a court of law or be supported by public opinion. It is a war of unequal armies, each playing by a different set of rules.

The regulators of the financial service industry know that the tactics employed by the wily folks on Wall Street would sway most judges into believing in their innocence. The severest penalty will be a fine - normally equal to a few days of loot.

Yes, there are trials and there are public humiliations. But the allegiance to the cause is so strong, that these are seen as mere mortal acts of martyrdom in the race to the Great House on the Beach.

When the financial geniuses need something done, they transfer a few of their brethren to the government for some time till their work is done. Once policies are changed to ensure their fraudulent ways continue, the brethren are welcomed back to the fold to enjoy their riches. When a government employee - including Presidents and Prime Ministers - have done good work for the industry, they are invited to join the Boards of the powerful and the sacred.

A coalition of the willing
Poor George Bush - when he was enlisting support for the Great War, he thought he had coined a new phrase "the coalition of the willing". Osama beat him to it - thanks to the inspiration from Wall Street.

The organisation structure is ideal for Osama. The Wall Street firms are in every aspect of the financial services business. They are loose franchises within an overall organisation umbrella. For example, if they wish to be in the foreign exchange trading business, they will employ a team of people and ensure them a minimum salary, allow them to use the name of the master franchise company, generate business, and take a share of profit.

In addition to growth by business function, they can grow by geographical expansion. Just as Al Qaeda breathes awe in new countries that it enters, the arrival of a Wall Street firm in a new country is treated with awe and wonder. The blessed mothers of infants line up to sign on their every-borns to the tribe.

How the Wall Street firms generate the business is not an issue. This is also attractive to Osama and fits in well with his chaos and blood theory.

There is no McDonald's recipe for profit in a Wall Street firm. No, sir, just take it in any way that you can get it.
As a Vice Chairman of a large Wall Street firm confessed, "we have grown so big that we cannot know what is happening in another part of the organisation".
That is not a confession of a sinner - but the confession of a proud man showing off his swash-buckling enterprise.

And if someone is caught with his hand in the client's pocket, they cut him off - with a nice severance pay package, of course. The rest of the franchises remain intact.
There is no hierarchy at risk here.

McDonald's will be shut down if they sold dog meat disguised as beef because the folks at the top would have known. The pharmaceutical companies have a similar problem. But Wall Street firms are a collection of many independent cells, many independent franchises. Whatever the cell does at the franchise level only puts at risk some of those in that cell. The master franchise owner shrugs it off with a fine.

In 1999, during the height of the tech bubble equity research analysts with some of the most respected Wall Street firms told the public that internet stocks were great investments. Internal emails revealed that these same equity research analysts actually felt those stocks were a piece of junk. They lied so that they could get the investment banking fees. And admission for their children into good schools so that the children, too, could make it to Wall Street.
No senior heads rolled.
No shut down of the firm.

In 2002 and 2003, many Wall Street firms in the distribution business made their clients buy mutual funds not because it was good for the client, but because the mutual funds agreed to pay undisclosed distribution fees. Once caught, they paid a fine.
No senior heads rolled.
No shut down of the firm.

More recently, the Wall Street firms have been accused of selling junk mortgage loans as investment grade, safe investments. The debt cells got away with murder. The credit rating agencies helped them plan the murder and gave them the alibi. No senior heads rolled. No shut down of the firm. In fact, they made record bonuses.

The multi-cell structure is also convenient.
If the government shuts down one fraud operation, they discover a new way to do the same old thing.
If they shut down the branch in Indonesia, start one in Yemen.
If they get to Afghanistan, kick-start Sudan.

If you can't blow the plane anymore, send a truck to blow a bridge.
The cops and the regulators are still busy trying to catch the plane folks.

As Wall Street knows, "regulators are way behind the curve". Or, to put it another way, Wall Street is miles ahead of the cops.

I wish to clarify that I am not suggesting in any way that Wall Street firms harbour terrorists. They certainly don't. They are merely firms that have evolved into entities that wish to maximise profit - by fair means or foul. That is what the business schools and years of no-catch-me muggings have taught them.

But their organisation structure and the culture they have successfully mastered is so alarmingly attractive, that Al-Qaeda - in search of immortality and a life beyond Osama bin Laden - must be studying Wall Street very closely.

Maybe, they have already adopted their winning ways.

Here is an extract from www.Terrorism-Research.com

The organizational structure of a group determines its strengths and weaknesses. A general knowledge of the prevalent models of terrorist organizations leads to a better understanding of their capabilities…..

The smallest elements of terrorist organizations are the cells that serve as building blocks for the terrorist organization. One of the primary reasons for a cellular or compartmentalized structure is security. The compromise or loss of one cell should not compromise the identity, location, or actions of other cells. A cellular organizational structure makes it difficult for an adversary to penetrate the entire organization. Personnel within one cell are often unaware of the existence of other cells and, therefore, cannot divulge sensitive information to infiltrators.

Terrorists may organize cells based on family or employment relationships, on a geographic basis, or by specific functions such as direct action and intelligence. The terrorist group may also form multifunctional cells. The terrorist group uses the cells to control its members. Cell members remain in close contact with each other to provide emotional support and to prevent desertion or breach of security procedures. The cell leader is normally the only person who communicates and coordinates with higher levels and other cells.


Now think of Wall Street with its various divisions and its Too Big To Be Questioned attitude of godliness.

The CEO who does not know the details of any single business.
But knows that each cell he "controls" must contribute.
Their cause is money.
Their target is your wallet.
The terrorists may never get you, but you bet that Wall Street will.
Or already did.


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Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site. To write to Ajit, please click here.


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5 Responses to "Is Wall Street a role model for Al-Qaeda?"

pandit arjun

May 25, 2010

we know that you will be back, for you have the conviction and courage to speak and present the truth which is naturally bitter. three decades ago it was arun shourie who used to write such great articles in indian express and now i see similar style in your articles. keep writing one truth every month please.

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K A Prabhu Kumar

May 22, 2010

This is a brilliant description of the no holds barred greed of the big institutes’ claiming very transparent processes that turns out to be only skin deep.I can not but agree with you fully, after having burnt my fingers and then experienced their attitude when what they suggested went wrong which on hind sight seems invariable so. Please keep educating us and suggest prudent long term genuine investment options.

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Prejish

May 22, 2010

Thanks Mr.Ajit for coming back to the Honest Truth. I had asked your team to request you not to stop publishing the Honest truth which I really like very much but it seem that you were too busy to hear our request. Every time I look at the honest truth link, I could only see your last article of the 'Tiger' and that really disappointed me. However, I am really happy that you have made a comeback. Pls. do not disappoint your dedicated readers any further and request you to be consistent with your article. Thanks once again.....

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Adityaa

May 21, 2010

Welcome back Ajit

Your comments and articles have always been very insightful and knowledgeable

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s kumar

May 21, 2010

Welcome back,Ajit.Good to read you after a gap of 5 months.Do keep on writing more frequently.

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