Why is there so much misunderstanding? Most of my high school friends think Finance is a fraud.
My high school friends went to quite different majors (Bio-Chem, Psychology, CS, forestry, etc.) and when I talk with them, they all think that I shouldn't study Finance and Economics, because "bankers are liars and swindlers.". After they knew that I hope to work for GS (I know it's hard and unlikely, but hey, which Finance student doesn't want to have a FT job offer from Goldman Sachs?), they suggested me to not be an "evil bastard". I was not even surprised, to be honest. I have seen many people talk and criticize Finance industry and Economic research, even though they know completely nothing about what we learn at schools and do at work.
I do think the first reason of misunderstanding is that Finance did screw things up in the past. 2008 crisis is a good example. (BTW, my mother used to work for it, and you can imagine that crisis did a lot a damage to my family's economic condition.)
Secondly, bankers did earn above-average wages. People sometimes hate richer people, even though they won't admit it.
Thirdly, our work is a bit intangible. You cannot see bankers build a car or bake some cookies. IBs do M&A and IPO that helps companies in many ways. Portfolio managers evaluate assets and help others to manage their capital. Our job is like lubricants. We smoothen the operation of Economies without producing commodities and goods. It is within service industry/tertiary industry.
Fourthly and most importantly, the media depicted us in a weird manner. Bankers in Wolf of Wall Street is not an accurate depiction of financial analysts in the real world, but people seem to accept the propaganda and bias. I have to admit that some financial industry workers are insufferable wankers and sometimes SEC and compliance departments are not enough to regulate all financial crimes. However, most of the people I meet in this industry are friendly, self-confident, sociable, intelligent (usually not as smart as natural science PHDs and mathematicians for sure) and hard-working. For God's sake, we are not Bobby Axelrod in TV series.
Do you think if there is any other reason that causes this misunderstanding?
3 major things:
1. Great Financial Crisis. 2. Movies. 3. Bernard Madoff.
The dudes in TWoWS were not bankers lmfao
Finance is one of the strange industries in that being unethical / swindling the poor of their wealth is rewarded and celebrated (better salary, promotion, etc.). A lot of people really care only about the end result (the return %), but don't care how you got there or who was harmed in the process.
Here's a few examples:
You own a clothing retailer company, but you've been using a third-party manufacutring company to produce your clothers. You are interested in acquiring the manufacturing company, so that you can save money on clothing costs, since you now won't have to pay the markup that the manufacturing company has been selling you the finished goods for. This is a vertical integration scenario, and you can see that depending on forecasts/purchase prices the deal can easily be naturally accretive to the clothing retailer.
You are one of the top major retailer companies in the country with an efficient production process, but have your eye on acquiring a major competitor. Their asking price is steep, and given that they too are already operationally efficient, you won't gain much in terms of supply chain advantages like in scenario 1. But you have a clever idea to make money. Aside from absorbing the profits from company 2, you decide to close down most of the shops from company 2 and sell their products in your existing shops. After all, most atheltic retailers are in the same malls, so the proximity is close isn't it? Furthemore you decide to merge the corporate offices, laying off 50% of the workforce from company 2, and adding more responsibility to your existing workers. Furthermore, due to the specialization in atheltic wear that many of your workers have, you decide to stagnate wages, since your employee's bargaining power on the market has decreased. Meanwhile, you decide that you can raise the prices on all your products by 20%, since that major competitor who you were worried would take business from your store no longer exists. With all these changes, all of a sudden the deal has become accretitive and you decide to make the purchase.
Now suppose you are a senior banker in the Consumer & Retail division at your bank. Both scenarios approach your bank. You know that your compensation is heavily tied to the deal flow you bring in, and on top of that scenario 2 is one of the biggest M&A deals in the industry for that year. Nobody gets hurt in scenario 1, but in scenario 2, hundreds if not thousands of low level retail workers are going to be laid off, and those that remain are going to get stagnant wages. Additionally, prices of the products in scenario 2 are going to rise, putting pressure from both ends of the spectrum (lower wages, higher prices).
Based on this, which ones are you going to accept? If you turn away deal 2, you will lose a significant chunk of your bonus and might even get fired. But on the other hand, if you accept a lot of working class and some middle class people are going to suffer. Pretty much every single banker is going to accept deal 1 and 2 hence the hate with Wall Street.
These are just a couple examples for M&A, but you can extend this argument to a lot of different industries in finance.
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