Another Inside Story

Two films apart from the recently celebrated “Inside Job” show some glimpses how money is made in the Wall Street and these carry the same name Wall Street (1987) and Wall Street:Money Never Sleeps (2010).

Mario Puzo has rightly quoted at the start of his famous novel “The Godfather” that Behind every great fortune there is a crime. Great fortunes or huge wealth can not be achieved without usurpation.

Here is an excerpt from another such story

The vast investigation into insider trading on Wall Street that culminated this week in Raj Rajaratnam going on trial in New York accused of securities fraud was always likely to ensnare a large institution – perhaps a big hedge fund or a Wall Street bank. No one, however, expected the institution in question to be McKinsey & Co.

It was bad enough for the blue-chip management consultancy when Anil Kumar, one of its partners, admitted to supplying Mr Rajaratnam with inside information in return for bribes (Mr Rajaratnam denies all charges). But the Securities and Exchange Commission’s claim last week that Rajat Gupta, who was the head of McKinsey between 1994 and 2003, passed on tips as a board member of Goldman Sachs and Procter & Gamble, is a heavy blow.

It is hard to believe that trading on price-sensitive inside information from clients is rife inside the puritan, strait-laced firm – if evidence of that emerged, it would soon collapse, as Arthur Andersen did after Enron. But the accumulation and sharing of privileged knowledge is integral to how it works and it cannot afford its corporate and government clients to pull the shutters down.

Thomas Watson Jr, the former president of IBM, wrote in his autobiography Father, Son & Co of being asked by a company executive in 1956 whether he should share sensitive internal pricing information with a Booz Allen Hamilton consultant. “‘Sure,’ I said, ‘It’s like your doctor. You have to tell them everything.’”

The calculation every client makes is, in the words of Christopher McKenna, a professor at the Oxford university’s Saïd Business School who studies professional services firms, that “consultants will carry information in and information out. The client has to decide which of those flows is worth more.”

Indeed, one of the main reasons companies hire consultants is to make sure they do not fall behind what their competitors are doing – in return for parting with their own secrets, they gain access to their rivals’ suitably disguised “best practices”. The consultant is a broker who attempts to amass so much knowledge that each company has to hire him, no matter how uncomfortable that feels.