Vilification of bankers?
Anyone else who just doesn't understand some of the criticisms laid against bankers? Like even now, when I was at university not too long ago I would have "friends" (obviously cut off now) who would say the most vile things about an industry they had no grasp of...
One of the most common criticisms is that bankers "produce no value". Okay? These are the same people who say that waiters/waitresses and other service folk are more valuable to the economy than bankers. But they actually produce no value. What is it with certain people's obsession with creating physical goods, that's not how the economy works anymore...
Edit: Helpful to bear in mind that banking goes beyond just M&A, e.g., financing solutions/DCM/ECM, corporate banking, etc.
You can’t let this bother you. Consultants are going to get ribbed for the same thing. Defense contractors get the jokes too. Lobbyists deservedly get shit too. You need to accept that the average pleb is not going to understand finance beyond “fucked us over in 2008, golden parachutes, financial engineering, Wolf of Wall Street”... We get paid so well there’s no point complaining. If I tell anyone I work in finance and they have a negative response, that’s okay. It doesn’t change anything about my life or career. Don’t take advice from poor people.
Well let's be real. Consultants actually produce negative value......
Not a consulting bro but have a tangential interest in their value - anyone tried backtesting consultant recs across the whole sample? Any interesting business school research on this, perhaps? I'd imagine consultant recs to mirror active asset management in some regard - that it's better to fail conventionally than succeed unconventionally, so everyone just hugs the benchmark and rides conventional, safe recs/ strategies down to a zero-sum mediocrity. Business model of the industry seems to suggest profit maximization is achieved thru providing more-or-less cookie cutter advice to as many companies as possible, similar to how asset managers and PE firms try to rack up as much AUM as possible to leech the fuck out of management fees
No.
Based
Let’s try to play Devil’s Advocate here:
1. People have a raw taste in their mouth from 2008 MBS, CDS, and CDO products, and the idea that investment bankers were manufacturing synthetic risk by packaging up additional risk in products such that people could buy insurance and bets on products far in excess of hedging purposes. It would be like buying a house for $300K and buying $30MM worth of fire insurance on it for when you think it is likely to burn. This packaging of synthetic risk for no hedging purpose was a key source of fees to mortgage industry investment bankers, but created systemic risk which destabilized AIG and other financial counterparties and turned the mortgage markets into a casino which multiplied notional risk in excess of hedging purposes. Yes, I understand that the loans were underwritten by different people. Yes, I understand that people were borrowing stupid subprimes and jumbos, but the fact remains that mortgage industry investment bankers are seen as adding fuel to the flames because they were packaging destabilizing MBS in high quantities so that people could make winner-take-all bets on housing which destabilized major financial institutions and necessitated government intervention and bailouts to contain financial fallout and another Great Depression.
2. McKinsey studies have shown that public market M&A is often if not usually value destructive on average, which can make it more difficult to justify the value produced. “You’re getting a commission on transactions which typically destroy shareholder value? Why do you matter?” McKinsey recommends bite-size programmatic M&A as a better alternative than big-time deals, but the fact remains that public markets M&A can often be value-destructive (Damodaran hates M&A, for better or worse).
3. In instances where M&A does make money, it’s often because investment bankers are creating monopolists by consolidating corporate power into a few players’ hands. Monopolies create various kinds of deadweight losses in economics because they contribute to less competition and are not forced to innovate or do things more efficiently. This stifles innovation and hurts consumers at the benefit of the monopolist and the investment banker who made the commission.
These are a few very basic arguments, but promoting systemic risk, destroying public shareholder value in many instances, and promoting monopolist interests at the expense of the aggregate economy are some sorts of damages that a reasonable person could conclude investment bankers are culpable in producing.
Some fair points but it cracks me up that McKinsey consultants are shitting on bankers... seems like a clear case of the pot calling the kettle black.
For better or worse, they’re paid to think about things. Good thinking is good, and bad thinking is downright disastrous.
They happened to think about how valuable M&A is.
they're just conducting a study. don't blame them for results. there are many more research papers on the topic that show the same btw.
+1 to this.
Waiters / waitresses do produce value for the restaurants they work at. Maybe not any single individual waiter but the team as a whole will literally make or break a restaurant. Restaurants add value to society in many forms including:
- place for getting together with friends over meal,
- networking,
- all the seamless orders bankers eat at their desk enhancing productivity,
- tourist revenues for regional areas where people travel from out of town to go to say a Michelin star restaurant.
I fail to see your argument that waiters and waitresses don’t add value to society. A single waiter may not have as much of an effect as a single investment banker, but both add value nonetheless.
What I was trying to say is that people who provide a service still provide something of value. The common criticism against bankers is that because we're not producing anything tangible it means that we're not useful, so I just brought up waiters as an example of another group of people who provide a service, but not a physical product, but they're seen in a much higher regard. I was just trying to show that the idea of not producing a product meaning that you're not useful to society is a really backwards way of thinking, not that waiters don't produce value.
there are lots of restaurants nowadays with no waiters. you just pick up your order when it's ready. waiters are completely unnecessary.
Yeah, you know you just described pick-up orders or drive-thru? Or even delivery? Kind of been around for a while actually believe it or not. Any other genius observations? /smartass common sense man, away!
We spend a meaningful amount of time trying to quantify how many normal people are going to get fired in order to justify market consolidation that 9 time out of 10 is bad for the average American. And that's just M&A. You need to be realistic about what this job and what it isn't.
I do not work in M&A.
All right, well you should have enough common sense to understand that those not in our field have no appreciation for the difference between M&A, Lev Fin, etc etc. Point I am making is our field is generally not a net positive for normal people.
Well uh.. you know what happens after the “M&A” part, yeah? Let’s not pretend we’re curing cancer here.
One huge factor is obviously 2008. As far as the average person sees it, the economy was fine until ruined it with greed.
Another reason (this is just me spitballing) is the fact that they view them as all rich and can't name a specific way they benefit themselves. Average people aren't generally huge fans of rich people (might be from envy or the perception that the rich screwed someone over to get where they are now idk) but those who add obvious value kind of getaway with it. Jeff Bezos? Yeah I don't like him but amazon is pretty convenient and a lot of people have jobs there. Mark Zuckerberg? He's questionable and a weirdo, but I do use facebook/instagram everyday. But when it comes to bankers who add value, it's not as glaringly obvious as an amazon package on your doorstep.
And also ditto what everyone else has said.
I'd say it's definitely the envy factor of not just having more in the bank, thinking they have more upstairs in their head but at the same time less in their heart than they do. Then we see these stories about certain fractions of the industry pull unscrupulous acts that do in fact damage others' lives that only give credence to the idea about heartlessness. Kind of like those few bad cops that tend to give the whole a bad reputation while at the same time giving rise to groups with names like NWA and one of their most famous songs (I'll keep it PG. If you know, you know). People just getting antsy to give them a reason to get pissed off.
I agree with everything said. I will only add another reason to the list: Wall Street cares more about itself than about its clients (or at least, that's how outsiders view it).
You don't have to morally justify your career. Why are you in banking? To produce value for society? Nah, you're in it for money. Just admit it, there's nothing wrong with that. You definitely don't have to cut off your friends for suggesting that banking might not be the most socially impactful industry.
I would actually agree with the friend here. It's very difficult to quantify the "value" that an investment bank provides to the real economy. It takes hours just to explain exactly what an investment bank does, and even after that, it's not clear to the average person. Clients provide them with their own data in order to receive advice about their own business? They underwrite new IPOs (whatever "underwriting" actually means)? They execute large orders off of the exchanges, messing up price discovery and screwing over retail investors? They facilitate lucrative deals between extremely wealthy people, furthering wealth inequality?
The standard economic answer ("someone is willing to pay for it, therefore it creates value") is kind of a cop-out here. It's true that in the near term, someone is benefiting more than they are paying, so they must be receiving a valuable service. But what about the long term? Is value actually generated? Does any of that value trickle down to farmer Joe from Indiana, or does it just circulate within the top 0.1%? I don't know, I'm not taking either side. But I think this is a legitimate question that ought to be asked.
Investment banks match up investors with businesses that need capital. That's the same thing--in function--that a commercial bank does as it matches up investors (depositors) with persons that need capital (for home loans, home construction, credit cards, small businesses, etc.). This value is inarguable. Without these banking services, capital could not find those that need capital. "Well, why do we need banks to act as middlemen?" Because investors would inevitably seek out middlemen to match them up with good investments. Banking is inevitable in an advanced economy.
That’s not what M&A is…
I agree that banking is inevitable because businesses want capital and savings want yield. From that perspective, it totally makes sense. However, a counterargument is that after a certain point, too much lending starts just inflating the money supply instead of producing value. Surely there is still some value created through efficient capital allocation, but perhaps that value is lost in the inefficiencies of the banking industry itself (e.g. excessive fees, moral hazard, monopoly forming, bank runs, etc).
I think the more convincing counterargument concedes that banking does create value, but that value is unequally distributed. The economy is a very efficient utilitarian machine. Ignoring externalities and taxes for the moment, free trade facilitates the production and distribution of goods and services in order to maximize utility. Now, if you look at the basic premise of banking (businesses want capital, savings want yield), it's pretty clear that people with more savings will earn more yield, on average. Compound that effect on itself for a few thousand years, and you're left with a dysfunctional economy where a few people with excessive amounts of wealth are effectively "utility monsters" - the economy works to increase their utility at the expense of everyone else, even though this may not be optimal. Essentially, if I have $100M and you have $100, $20 is worth a lot less to me than it is to you. So even if you need certain goods and services more than I do, you may not be able to afford them and they may go to me instead. This is an inefficient system with suboptimal resource distribution. Since the banking sector tends to increase these inequalities via wealth compounding, it may produce negative value for the overall economy.
Of course, perhaps it is actually efficient since the reason I would hypothetically have $100M is that I filled a large amount of unmet demand in the economy, making people better off as a whole. But it gets complicated if I just inherited that money from my great great grandfather - I produced nothing of value, yet I am given preferential treatment by the market simply because I already own something that it really wants (i.e. money).
I don't know where the balance lies between wealth as an incentive for filling unmet demand, and wealth as a confounding factor in setting utilitarian market prices. Surely the answer lies somewhere between corporatocracy and socialism.
Bankers broke the world. Governments claimed they fixed it, in reality nothing was ever fixed and the global economy has essentially limped forward for 15 years.
I don't have anything against banking, but to act like bankers do not have any responsibility for this is just as idiotic as the freshman who knows 100% that socialism is the way forward.
people are just jealous cause they wanna have a lot of money too but aren't willing to work hard and sacrifice.
I remember I matched a girl on Tinder when traveling in Spain. and she asked me why I work in finance. I said it's cause I wanna retire early and travel the world as much as I want. she said it's not possible. I said it's possible for me based on my comp. and she unmatched hah.
You my friend have zero RIZZ. Lol
Why isn’t it possible? It’s just not. Why not, you stupid bastard?
To me, a valid way to approach this issue would be to examine the literature. Exclude the public opinion who don't even know what bankers do, at least for now. When you're trying to, let's say, examine a disease, you wouldn't interview people on the streets, would you? Especially some random crackhead in a coffee shop. You'd only seek expert opinion from doctors.
Well then, it seems clear that it's not just anti-Wall Street folks and normies who hate bankers! Plenty of well-conducted studies done by finance and business professors who clearly show that M&A is value-destructive. Way too many CEOs are overconfident in their abilities to enact positive strategic change in an acquisition, blatantly ignoring the countless failed acquisitions out there and the clear fee-leeching bankers who instigate deals for that purpose. Extending beyond banking, yep, plenty of research which conclude that PE, active management, consulting, hedge funds etc are value destructive.
And wait, we can't just take single studies which bash M&A and just wave it over our heads. That's just bad science. What we have to do is examine the NET effect of ALL the studies done on M&A, active management etc (whatever controversial area of finance you're into). These sort of comprehensive literature reviews are what I think is kinda missing from the literature and singular arguments both pro and anti M&A out there
TL;DR it's not just stupid people who think banking is bad. Plenty of finance academics say banking is bad as well, backed with studies (but also plenty of academics who like banking)
Once we've established a professional NET critique of M&A, then it'd be fine to loosen our filter to incorporate some public, popular opinion into the picture and compare our viewpoints. But I wouldn't start by incorporating normie viewpoints straightaway, I'd start by incorporating professional-but-not-academic viewpoints first, e.g., Buffett's famous critiques of M&A based off his experience but not literature reviews
Not trying to be an ass or anything but can you list any prominent ones who fall into this group "plenty of academics who like banking."
Yea sure and idk why you would think it would come across as being an ass since you're not challenging my stance, but to sort of answer your question, idk of the literature on M&A, but to quote an anecdotal example, the authors of King of Capital (on Blackstone) were immense lickasses towards PE and its post-deal value creation and they cited a bunch of studies supporting that view.
So yea, sorry i don't know of the literature on M&A, but I'd just look into the research done by business school profs
Robert Shiller has an entire debate where he argues with tech guys over the value of a career in finance. He's basically the only person on the panel arguing that finance careers are value-additive and encourages Ivy kids to enter the field. And mind you, Shiller is typically seen as a "liberal" economist whose entire schtick was pointing out market failures and arguing against the EMH (for which he won the nobel prize alongside Fama).
The whole of banking is not summed up in M&A. Also, this misses the point. The vast majority of businesses fail. Even if the vast majority of M&A transactions fail, M&A is a service available to those instances where M&A does or will succeed. Saying M&A is value destructive is like saying that investing in a business is value destructive. Well, which transaction are we talking about?
There's been a lot of studies on public M&A and the conclusion I've gotten from the ones I've read that on average - the buyer ends up being slightly worse than before the deal but of course there's extremes on both sides of failures and successes.
This is due to lack of clarity and knowledge. A CEO of a company is going answer the value addition question differently than an average guy. They think waiting tables is valuable because they themselves are getting the value, they are never going ask a bank to issue CDS.
Secondly the risk creation etc. Bankers do what they're asked to do. Average people who got into speculation in 2008 are equally responsible for the mess not just the bankers. Yes there were some really awful executives at that time and should've been punished.
Media, populist politicians, socialist professors work overtime to throw dirt on big banks and financial institutions.
There is a level of ignorance, class antagonism, and bankers not actually adding much value at play here.
Most people just don’t know what bankers do. They basically think that bankers are all just schmucks who make money at the expense of others.
If one is a leftist there will be inherent antagonism with bankers because virtually everything bankers do requires one of the things leftism is supposed to find a better way for.
Most bankers don’t add value. Most bankers are excel jockeys who move pictures around in powerpoint. Even when you get to the higher levels, most bankers aren’t adding much. One would hope they know something about the market but most bankers have minimal knowledge of basically everything else. It is a rare thing for a banker to actually have valuable industry knowledge and provide genuinely good advice (outside of the market).
I would say there is valid criticism that people who work in "high finance" are compensated far more than their unit of input--they're small cogs in a larger machine that is moving forward on the inertia of centuries behind it. If any individual got hit by a bus, the business and the economy would march on--he is very much replaceable yet is paid an extraordinary sum of money. This is certainly a valid critique.
That said, banking (commercial banking and then the larger superstructure of "Wall Street" finance around it) is inarguably the most important industry today, yesterday, tomorrow, and always. Every other industry rises and falls on the backs of the financial services industry. Every. Single. One. The idea that it produces no value is born not just out of simple ignorance, but out of ignorance so extreme that it's negligent.
Very simple answer:
That's the agenda.
Meaning, bankers pop up on TV and news only when its a spicy story, and that's what people feed into. It's like car crashes, the news doesn't days when no crashes happen on busy roads, or they don't report planes landing safely. If they did, it would be somewhat boring because it would be the same thing everyday, with a very rare day of a crash or malfunction. Take the SVB saga, there wasn't years before of that banks taking correct risk that was reported.
Most people who claim bad things about bankers probably don't know any bankers or know what they do, but have watched Wall Street or Wolf of Street. It's like lawyers or cops. Every show about cops has to have them draw their firearms, when they happens a very small number of times on the job.
People will say the same vile things about the oil and gas industry while sitting on a private jet while browsing on their iPhones...
truth
That's different. There will always be bankers, investors, etc., but either we use fossil fuels less or we face significant environmental harm. Oil and Gas companies knew what they were doing was going to fuck up the environment and accurately predicted the consequences before the environmentalists way back in the 50's. In fact they even design their offshore rigs to deal with the consequences of climate change. They know it's real, but they keep pushing this science denial crap.
I'm pretty sure all of the founders I've raised capital for so they could build their business, most of the time through massive hiring or helped find exits so they could go on to start other businesses or retire and enjoy their lives would very much disagree with that criticism.
In laymen terms, they always gonna hate u when u have more bread than them
And if bankers got paid minimum wage plus tips, no one would be complaining about them either.
Bankers take enormous risks, and justify their high pay when their bets do well. But they socialize the losses when things don't turn out well. Even if your average American cannot clearly enunciate that, people sense the inherent unfairness that there is a class of people who risk other people's money and take all the upside. Especially when those increasingly unhinged bets end up impacting other people's livelihoods.
It's not all upsides though, is it? If a bank does badly enough and loses a lot of money, it's the bankers/employees who suffer too - they're out of a job.
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