Is investment banking a fraud?

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Prologue of ''The Big Short''

''The willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grown-ups remains a mystery to me to this day. I was twenty-four years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. Wall Street's essential function was to allocate capital: to decide who should get it and who should not. Believe me when I tell you that I hadn't the first clue. I'd never taken an accounting course, never run a business, never even had savings of my own to manage. I'd stumbled into a job at Salomon Brothers in 1985, and stumbled out, richer, in 1988, and even though I wrote a book about the experience, the whole thing still strikes me as totally preposterous--which is one reason the money was so easy to walk away from. I figured the situation was unsustainable. Sooner rather than later, someone was going to identify me, along with a lot of people more or less like me, as a fraud. Sooner rather than later would come a Great Reckoning, when Wall Street would wake up and hundreds, if not thousands, of young people like me, who had no business making huge bets with other people's money or persuading other people to make those bets, would be expelled from finance. ''

Is he right? Are investment bankers just expensive and useless advisers on gambling?

Comments (27)

May 1, 2017

Bro, are you ok? All of your posts sound very angry.

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May 1, 2017
<span itemprop=name>Sil</span>:

Bro, are you ok? All of your posts sound very angry.

All his posts sound like a low effort troll, if i'm being honest.

May 1, 2017

Ibankers don't make huge bets with other people's money - those are traders, some salespeople and product teams designing the products.

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May 1, 2017

that's not what those groups of people do either..

May 1, 2017

Yeah it sounds like you don't know what investment banking is...

May 1, 2017

that is not investment banking.

May 1, 2017

Nope. You're basically a middleman. Which means that YMMV as far a the actual value added goes, but it isn't a "fraud" as a whole.

Of course that does not preclude any individual investment banking individuals/teams/shops being engaged in fraud.

May 1, 2017

Michael Lewis vilifying the financial industry in order to tell a story should really be taken with a very large grain of salt

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Best Response
May 1, 2017

*Sell a story. And agreed :)

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May 1, 2017

That excerpt needs a little more context. He was saying that he, personally, did not have a clue. But if you learn a little more history, you will see that bankers started putting much greater emphasis on understanding the fundamentals, no less important is the fact that a text book like Rosenbaum's didn't even exist until 2008. I think at the time, Lewis had finished business school and developed relationships after forming a pragmatic look. I don't think Lewis belonged but I'm sure others still slip through the cracks even today.

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May 1, 2017

Michael Lewis is much better at writing than hiding his resentment for the people who could last longer than two years in the financial industry. His more recent books and columns on Bloomberg have declined in quality due to it.

It's been too long since I read Liar's Poker, but the way he got his job at Solomon Bros is the ritziest example of connections over quality you'll ever see.

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May 1, 2017

Isn't that "networking" to be fair?

That's more or less how the industry works at the higher levels. Connections and relationships determine far more deals than does the quality of a pitchbook or model.

May 1, 2017

Networking, yes, but not it the most deliberate manner. If you haven't read the book he goes to some charity dinner while in grad school at LSE, chats up a Solomon MD's wife and she tells her husband to give him a job. He had no clue what he wanted to do and wasn't pursing S&T at all. In my mind that's a far cry from the kind of networking most of us do when trying to open doors in this field.

May 1, 2017

"getting laid is overrated"
- @Attack_Chihuaha"

Never forget 04/29/17

How serous you wanna take this guy from this point on is your discretion

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May 1, 2017
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