The future of capitalism and high finance jobs

quantgrunt's picture
Rank: King Kong | 1,814

In a stunning article https://www.cnbc.com/2019/07/05/democracies-are-on... makes the point through research that democracies and capitalism as a whole is losing out to the authoritarian governments. What do you think is the future of global capitalism and high finance? Will bankers become non existent as businesses are simply operated by some central planning authority? Or do you think that this trend will actually lead to capitalism and democratic ideals making a comeback?

Comments (25)

Funniest
Jul 6, 2019

As long as bankers are doing gods work there will be banker on this planet we call earth.

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Jul 6, 2019

Ok but if things become more state sponsored then where is the role for the banker who is working on mergers between companies or dealing with the financing of companies?

Array

Jul 6, 2019

Authoritarian led capitalism works great when your model is copying what has worked in the West and you have a clear road map made by the Western nations over the past few decades. Its not at all clear that it will be successful in fostering innovation (read: technological progress) that is necessary for more "developed" nations. I still think nations that have freedoms -- US, Western Europe, Canada, Japan (maybe) -- have the advantage in truly pushing the frontiers.

There was another article on the FT that said that Chinese private market entrepreneurs are feeling as 2nd-class citizens because of state favoritism. https://www.ft.com/content/fcb06530-680a-11e9-9adc...
You always have to be very sceptical of the news media, lots of sensational content. They always over/under-react to developments.

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Most Helpful
Jul 6, 2019

What @CAS_89 said.

Also said authoritarian governments and SOEs will still need to raise capital (typically from dumb foreigners that they can screw over if need be rather than their local constituents). That will require bankers. Said children/connected people of said governments/SOEs will need to have their money managed, get funding for their pet projects etc. That will also require bankers. When they are planning for a doomsday scenario with looted wealth/corrupt profits etc to hide/"diversify" their capital they will need bankers.

If capital markets continue to exist (and they typically do despite forms of government since capital flows are/can be global), you will need bankers. Since you will have capital markets you will also needs sales and trading. That will also require bankers.

In short yes there will be a need for bankers. Maybe not as many as today (or maybe more). Maybe not paid as much as now (or maybe more - though probably nothing like pre GFC times).

Re-reading my post, perhaps we should become trusted private bankers in an EM/FM... a little moral flexibility might go a long way...

Good Luck

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Jul 6, 2019

Ultimately access to capital, competition and markets for resources / solutions make the world go round. That's the genesis of innovation which leads to the next new thing. Hard for their to be a next new thing without it. Rule of law, property rights and a free people are other requirements. As long as a free people create and innovate, others will want in.

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Jul 6, 2019

All those countries have done is copy what works in the west and personally I don't believe many of the numbers published by places like China. Complete sham just like their ponzi scheme real stock market.

Jul 6, 2019

You can believe the earth is flat but that won't stop it from being round. In 2017, roughly 500,000 trademarks were filed in the US. In the same year, China filed 5.2 million. China has and will continue to copy and steal IP, but make no mistake - they are also innovating for themselves, and on a huge scale.

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Jul 8, 2019
Lloyd BIankfein:

You can believe the earth is flat but that won't stop it from being round. In 2017, roughly 500,000 trademarks were filed in the US. In the same year, China filed 5.2 million. China has and will continue to copy and steal IP, but make no mistake - they are also innovating for themselves, and on a huge scale.

So you believe trademarks filed is a good proxy for innovation? Kylie Jenner tried to trademark "Kylie"? Do you think this good data?

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Jul 8, 2019

As this sites local "anarchist," for a true lack of a better word, I agree 100% that modern democracies are moving towards authoritarianism however I don't think its necessarily about capitalism. Citizens in the US tend to believe that Democrats and Republicans are on opposite sides of the political spectrum and that's just not true. They're both ultimately pushing for bigger, and bigger government. Both parties are very, very authoritarian and so obviously with only authoritarian options that's the direction the US is moving.

Jul 8, 2019

Article is all about the rise of China and decline of Europe, essentially. Wouldn't read too much further into it than that. There are many reasons other than democratic capitalism vs. authoritarian capitalism as to why Europe is declining and China is rising. I'd be more worried about the rising political divide in the U.S. and the ironic effect of Trump being president meaning we are likely to go towards becoming more socialist, if not starting in 2020 then certainly after 8 years of Trump. I'd say we could use some more socialism in our society but if we go to the Bernie/AOC extreme we are fucked in the long-term.

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Jul 8, 2019

Even some kind of Orwellian post-capitalistic dystopia would require brokers and agents of sorts to manage governmental/sovereign "wealth", whatever that wealth would look like. I don't think this is in the cards and we have many, many more years of free-flowing capital markets before anything of the sorts could ever happen. Super interesting to think about though.

For anyone interested in monetary theory I recommend reading up on the regression theorem and in particular Von Mises' Theory on Money and Credit...super dry but has tons of principles and applications that are relevant even 100 years after he wrote it.

Jul 8, 2019

Entrepreneurship is the natural order of things. It's hardwired DNA and it doesn't want political power, not primarily. Capitalism is also self-destructive and needs to be regulated so there will always be a push/pull in the sine wave of economic history - but capitalism is as human as procreation and can never be killed off. ALWAYS bet on capitalism.

Aug 4, 2019

The communist countries are realizing (if not already) that free markets with reasonable regulations are the most effective way of doing things, and most other intervention is done by party officials to favor the pockets of themselves and their friends. I think that the trend will be for governments to allow market forces to work, and then increasingly take control of monitoring capabilities that technology allows. 1984 level monitoring is definitely a possibililty with tech. nowadays. The FTC negotiations with Facebook allowing for gov. monitoring is just one example of the government violating personal privacy, so now if you sign up for Facebook you're also agreeing to let the FTC to monitor your data as well. China is way worse, and it will be worse in authoritarian countries, but I think that the long term trend will lead in this direction.

I think that banking functions will always exist because of a need to move capital around to its most productive uses. The pursuit of higher returns makes things more efficient when returns are gotten from being the frontrunner or innovator, not rent extraction, but that's not my main point.

As technology has gotten better and allowed markets to work more efficiently in some respects (maybe smoothly is a better word here), certain S&T positions have fallen away. Equities voice trading has fallen off significantly, and now equities traders spend a lot of their time monitoring algorithms that run a good % of their trades for them. At least in S&T, the jobs that have stuck around or haven't been hit as hard are generally things that are in more specialized areas/using more specialized financial instruments. Credit instruments/bonds have gotten much more "personalized" and the breadth of types of instruments out their are infinitely customizable so that area hasn't been hit as hard. A large part of S&T though has to do with providing a secondary market.

I think that the same sort of thing is going to happen to banking, but at a slower rate. Since bankers make their money in the primary market (i'm going to include M&A in there), the question is how customizable can bankers get with regards to financial product offerings, and will computers be able to replace certain functions? There's always a need for capital movement and reallocation, so the money has to move somehow. I think that as long as the method of moving money around is complicated enough bankers will be able to stave off computers from taking their jobs.

That being said, I think that Banking may get more boring over time because bankers may wind up like equities traders in some ways in the long run; maybe the quants will figure out how to develop algorithms to take client requests and output the exact type of financial product that works for them and bankers will just monitor and adjust the algorithm outputs. The sales function will always be there because there will always be people making decisions at companies that will want to interface with another person, so that part of banking will stay there. Maybe it will look different though in a sales meeting;

Banker: "Sir CFO, our algorithm at GS is significantly better than that of Evercore because our it additionally uses our proprietary Nepalese Swaption database for pricing information and historical bid ask spreads in the secondary market"
CFO: "Send me the CIM in 10 minutes or I'll go to Evercore"

The future is dark people.

Aug 4, 2019

I'm wondering if it makes more sense to major in CS, minor in Finance in preparation for the future. Seriously , i actually agree with multiple points that you listed and wanted to get your opinion on what you view as the next possible high paying job that has a hierarchy like an investment bank for example fin tech?

Aug 4, 2019

I'm only out of school by like 2 months, so I'm probably not the best person to answer that.

That being said I think investment management type roles will still require manpower and thinking skills to evaluate prospective investments for a long time in the future. When I do my research I tend to blend fundamental research with quant insights. I think that when you get too complex or you data-mine you are bound to make mistakes and backtest into strategies that might not work in the future. If you stick to basic enough strategies where you can think through reasons why it would outperform then that's a pretty useful skill to have though.

Highl level view: I think that banking and any other sort of middleman type business model is at risk. Things that are less transaction-focused I think are more likely to stick around. Building any specific timeline for disruption I think is a useless waste of time.

Any type of finance job that involves putting your money where your ideas are (Investing is a perfect example) is more likely to stick around.

Getting back to the major question I'd recommend Economics+CS or Econ+Mathematics or Econ + Finance before CS+ Finance or Finance+Econ. I think that finance as a major isn't really intellectually rigorous, I think it's more technical than anything else.

The thing is that there is an endless amount of technical knowledge to consume, while the foundational way of thinking or searching for answers doesn't change. Economics provides a much better base upon which to learn finance skills because Econ helps you to separate out what matters from what doesn't whether regards to economic/political/finance effects. Ensure that you take a variety of economics classes that have implications for government policy/politics, company specific problems/industrial organization, game theory, and monetary policy, etc.. Anyone with some excel knowledge, accounting, and algebra knowledge can build a DCF model, but the best investments tend to be no brainers if you ask the right questions. Knowing which questions are best to ask comes with experience and learning how to process information and theorize how things work.

If you decide at some point to do IB, finance puts you ahead but they still hire History and English majors because people can pick up technical skills quickly. Maybe if they had hired more hardcore econ kids the banks wouldn't have longed the housing market, but you never know.

I did a ton of Econ, good amount of Finance and a few math classes. If I had to change anything, I would have done more Math and CS classes because I don't know any serious CS beyond basic econometric programs and most quant programs want kids who know python. If I had to frame it I would put it like this:

Foundationally Paramount Coursework: Economics, Mathematics, 1 to 2 classes in Python/SQL/R/C++ so that you can learn more on your own, Financial Accounting and Managerial Accounting

Technically Useful Coursework: Finance, Comp. Sci beyond what you need to learn on your own,

"Not as useful as the other stuff mentioned" Coursework: General Management coursework that isn't part of a larger coursetrack you decide to take. Example: Marketing 101 if you're not at all interested in marketing. That being said I think that the whole point of a well rounded managment curriculum is to make you understand that if any one area is missing from a corporation, it cannot function full stop. No marketing/sales department means no revenue, no operations means you're inefficient and your product/service is non competitive, and I can go on from there....

*Short Answer: Major in Econ, minor in CS, then Finance in that order based on your number of free classes and make sure to do through Linear Algebra and Multivariable Calculus. If you're dead set on quant track then do Math Major, then some sort of double minor/(minor-major) combo of CS and Finance. Maybe add an accounting class or 2 in there. If you want to be the best at what you do I think you need to be specialized and have a broad knowledge/ frame of reference base to pull from. *

Aug 4, 2019

I have a theory.

We will have a few superpowers. Russia, US, China, and maybe 1 or 2 more such as India or Saudi or part of Europe of something.

The US will turn pure conservative, as we run of out welfare payments,. Welfare queens with iphones disappear and leftists mostly die out to lack of food. Or they can no longer afford to go online and bitch about white people. That and they are too busy standing in food ration lines.

US turns full republican and capitalism wins in a war of attrition over 3 to 5 decades. Then after years and years of world turmoil and war capitalism once again rises as a new class of elites created the greatest new companies.

Array

Aug 4, 2019

Sounds like this:

https://www.reddit.com/r/gaming/comments/uxpil/ive...
This link is an update to the scenario:

https://www.reddit.com/r/theeternalwar/comments/1g...
EDIT: Really hope things don't get this far, obviously.

Aug 5, 2019

Man this is very dark and bleak.

"The three most harmful addictions are heroin, carbohydrates, and a monthly salary." - Nassim Taleb

Aug 5, 2019

Capitalism will become obsolete once AI eliminates >90% of jobs. Then we will have to find new ways to fill our time while the robots do all the work for us, thus giving birth to hunger games style entertainment.

Aug 6, 2019
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