Citi, Maria Bartiromo, and Roger Babson

There's a great story in today's Wall Street Journal (you have to pay to read it) about the brouhaha surrounding ousted Citi wealth-management boss Todd Thomson's expense accounts. He was taking Maria Bartiromo to dinner at Daniel (danger, cubicle-dwellers! site plays music!), flying her around Asia, and--most impressively, by my lights--getting a wood-burning fireplace installed in his 50th floor office (which became known as as the "Todd Mahal").

The justification for all of this was that Citi's wealth-management clients really liked schmoozing with Bartiromo and discussing their investments in front of a crackling fire. The cost of all this was coming straight out of their hides, of course, and it probably would have been much cheaper for them to take Bartiromo to dinner themselves and build their own danged fireplaces. But that's what the rich people wanted, Thomson told his bosses.

It all brought back to me something that investing legend Roger Babson wrote in his autobiography in 1935. (What!?! You haven't read it!?!?!) Decades before he became famous for his "Babsoncharts" and for predicting the 1929 crash, Babson was a kid just out of MIT working for a bond brokerage in Boston. He discovered before long that the bonds he was selling (to customers that included his family and friends back home in Gloucester) were marked up massively from the going price down in New York. He complained to his bosses, got fired, and set up his own discount bond-brokerage business. It was a flop. As he wrote 35 years later:

I did not realize that most investors had rather pay considerably more for the same bond if purchased from a fine office with expensive mahogany furniture, than to buy it from a little fellow like me who paid only fifteen dollars a month for desk room and slept in a hall bedroom. Such is the frailty of human nature! This, to a large extent, explains why investors have always got stuck and probably always will! Congressional legislation may provide investors with better information, but it will never provide them with self-control or eliminate their pride.

So true. Although that fireplace at Citi does sound really cool.