Barbarians at the Gate: High School on Wall Street!

I apologize in advance for lack of fun picture. I am on a tenuous internet connection. I will try to add one later.

Barbarians at the Gate is the story of the leveraged buyout of RJR Nabisco in the late 80's: a time when the roaring 80s were cooling to that nice simmering recession that engulfed my middle school years. It is a fascinating book -probably one of my favorite non-fiction reads of all time.

I picked it up, thinking I would learn a little bit about business and how investment banking and corporate finance works. Because, you know, my sweet $91.76 in savings might allow me to buy a share of something. In the end, I learned a little bit about the quantitative aspects of a transaction such as this one, and multitudes more about the human behavior that drives financial transaction in the rarefied world of Wall Street.

I like nice things. I enjoy things like wine and vacations and traveling. I like nice clothes. Someday I'd really like to own a piece of furniture that isn't from college or was handed down to me by a former roommate. But, fundamentally, I think I'm pretty naive, because, yo, these "barbarians" love money. They sure love money. They love money so much they invent kinds of money that seem to have no tangible relation to econcomic production. It's like the invisible hand suddenly popped up and said, "I also possess an invisible wallet!"

Leveraged buyouts, I gleaned, are a financial tool that management uses when it wants to buy a company back from the public domain. They are so expensive, however, that the purchase of said company inevitably results in massive debt, that the new owners pay off by selling off company assets, leaving the company smaller and "leaner" (argue proponents.) In the case of a company like RJR Nabisco, incredible profits can be realized in this sale/purchase. The process drives up the share price, and the sale of company assets can create more profit. In addition to whatever profits the new owner accrues, the whole process of an LBO can be so complicated that it generates millions of dollars in fees for the consultants, banks, advisers, lawyers, and the literal reams of people that appear on the margins of these sorts of deals.

That sounds dry, but the story of how that process unfolded at RJR Nabisco is wildly compelling. Multiple groups attempted to accquire the maker or Camel Lights, assured by the tobacco profits that it was a stable purchase. The negotiations and bids were complicated by a number of interpersonal relationships, grudges, status issues, hubris, and posturing. My favorite financial love-triangle relation in the book was how the chairman of RJR was buddies with the chairman of American Express, who controlled a financial bank, Shearson Lehman Hutton, that was attempting to help the chairman purchase the company. Meanwhile, the Amex chairman's wife is friendly with their main rival and they call and talk on the phone all the time. Also, they own a horse together.

It made me wonder what it really means to be an adult, because most of this behavior in the book, and many of the actions people took were driven by conversations that I heard on the bus coming back from sporting events in high school.

Typical Barbarians Line: Cohen was shocked at the news. How could Kravis betray him like this? He resolved to increase the bid.

Typical High School after a Field Hockey Game Line: Marissa was super upset at the news. How could Claire so coldly snub her? She resolved not to bring any Zima to the party.

The difference is that these adult males are fighting over money - which is just a token in their larger board game of who appears to be a mover and shaker on "the Street" - and the high school girls are at least totally fighting about a party, which is their status symbol to be a mover and shaker in the junior locker area.

(I am very sleepy right now. I will continue later.)