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If You're Doing Better Than Me, You're a Crook—Right?

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When a survey reveals that one quarter of Wall Street executives say that dirty deeds are required for success, it's tempting to conclude that the other three-quarters were simply less honest.

But the truth is that actual law-breaking is far less frequent on Wall Street than is popularly imagined. Perhaps the stakes are too high or perhaps the laws are too loose. In any case, there are fortunes to be made without actually violating the securities laws or engaging in fraud. So why take the risk?

That's not to say that Wall Street is not rife with sharps and corner-cutters who press up against the edges of the rules of the financial game on a regular basis.

Take this tale from Vicky Ward's "The Devil's Casino." When Dick Fuld was a young man working in the commercial paper trading unit of Lehman, it was regular practice for traders to hide their positions from senior executives. Traders on the commercial paper desk would post their trades on five-by-seven inch cards so other traders could see what had been bought or sold. Different color inks were used for different types of securities.

At the time, Lehman Brothers Commercial Paper was located at 9 Mill Lane, a few doors down from the main Lehman headquarters at 1 William Street. When senior executives visited Mill Lane, the traders would take the cards off the board. The purpose was to hide the size of the positions and the volatility of the trading from management. No laws were broken but this, obviously, was not exactly playing it straight.

The truth underlying the survey results is that almost everyone on Wall Street suspects that anyone more successful than they are is engaged in some form of cheating. If you have your undergraduate degree from Wharton and an MBA from Harvard, how is it possible that the guy on the other side of your desk earned a bigger bonus? He must be cheating. How can Goldman's return on equity beat its rivals year after year? They must be front-running their clients. How did that short-seller position himself to make a fortune when the Senate passed laws against online gambling? Well, isn't he a donor to the senior senator from New York?

In other words, Wall Street's perception that it is rife with wrong-doers is rooted in envy.

This is not without serious consequences. Studies show that if you believe that success is rooted in fraud, you are more likely to engage in fraud yourself. And now we know that at least one-third of Wall Street sees wrongdoing as a requirement for success. Let's just hope the other two-thirds don't catch on.

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