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INSIDE II - Thundering Herd Mentality

As in victory, so in defeat. This appears to be the approach of many bumbling Wall Street titans, who are looking to get out of trouble in much the same.

As in victory, so in defeat. This appears to be the approach of many bumbling Wall Street titans, who are looking to get out of trouble in much the same way they got into it: by ruthlessly imitating one another. First, they plunged one by one into the subprime housing market and its mysterious consort, structured credit. When the bubble burst and blew a hole the size of a vacant McMansion in their balance sheets, they began their pell-mell rush around the globe to raise fresh capital from the mysterious arms of various state-controlled agencies.

There is much wisdom in shoring up capital bases at a time like this, to be sure. And from product innovation to corporate vision (the ubiquitous one-firm firm), Wall Street banks have long since shamelessly copied from each other. Mediocre writers borrow; great writers steal, as that erstwhile banker T.S. Eliot once noted. So perhaps this was Wall Street’s short-cut recipe for greatness: Goldman Sachs makes billions on risky bets, so should we! But betting the house — or on houses — turns out to be a much different thing, with far graver consequences than, say, merely ripping off a rival’s newest exchange traded fund or stock-trading engine. You risk not only your profits but your place in the world.

That loss of status, in various ways, is now happening. Change is inevitable, of course: It is hardly foreordained that American banks and financiers should be preeminent, though as tribunes of globalization they have been ascendant for most of the past two decades. Now that old order is giving way, as we note in this issue’s inaugural ranking of the 75 most powerful and influential people in the world of finance, beginning on page 50. Americans like Federal Reserve Board chairman Ben Bernanke (No. 1) and Goldman chairman and CEO Lloyd Blankfein (3) clearly deserve top spots. But among their peers we have chosen such outstanding figures as China’s Lou Jiwei (2), the head of China Investment Corp., which in December bought a $5 billion stake in Morgan Stanley; Jiang Jianqing (4), chairman of Industrial and Commercial Bank of China, the world’s biggest by market capitalization; and Zhou Xiaochuan (7), head of the People’s Bank of China. Also in the top ten are European Central Bank chief Jean-Claude Trichet (5) and Singapore’s Ho Ching (6), CEO of Temasek Holdings, the state investment vehicle that owns stakes in Merrill Lynch, Barclays and Standard Chartered.

It is hard to imagine, had this list been drawn up only a year ago, so many non–Wall Streeters rubbing up against one another in the highest reaches of the global house of finance.