Interesting blog post by James Kwak on The Baseline Scenario blog. Is he hitting the nail on the head with this or not? I always hear people talking about the great exit ops Wall Street has to offer, is this the most appealing draw to the street?
Thoughts?
| +169 | How to stop feeling like shit for not making it in IB? | 63 | 4h | |
| +121 | If Tik Tok is forced to sell, what banks do you think would be involved in the deal? | 59 | 9h | |
| +85 | Updated LA Banking Scene (2024) | 61 | 8h | |
| +40 | Ranking banks that went under | 24 | 8h | |
| +39 | Burnt Out M&A ASO | 22 | 1s | |
| +36 | Relevance of A-Levels for U.K. London recruiting | 25 | 6h | |
| +33 | A strategy for SA applicants late to the game like myself | 17 | 4h | |
| +27 | Series 79 Help / Tips to Pass The First Attempt | 11 | 3d | |
| +27 | Intern Ettiquette | 4 | 1d | |
| +23 | What are hours like at BBs in London? | 47 | 1d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
I'm not sure about the motivation of people who go to Wall Street, since I only know my own. What it does seem, however, is that this author is motivated by a way of explaining why so many bright young students enter a seemingly evil and malicious industry. Bullshit.
The belief that you aren't doing a good for society by working in a high-paying job is laughable. Prices are signals of society's needs and wants. Wages are a price. Bankers are paid so much because society is in demand of them; people think otherwise because the decisions to employ them aren't made broadly but in reality may be extremely important to a firm, and if that firm is large enough, then the society as a whole.
If anything, we should have more bankers (maybe more direct competition would fix some of the problems caused by so-called 'excesses of capitalism'), but since it's a somewhat an industry you have to "break into," the incentives of existing bankers prevent that from happening.
dude, the post point to this exact self-righteous delusion as the reason why so many of those Harvard grads stay in these professions.
Theoretically, but in reality I don't believe this is true. In a perfectly designed economy, this would hold, but no economy is. Bankers are paid so much because there's hardly price competition amongst banks, and 1% commission for example sounds small, even if it's $50 million on a $5 billion deal. Of course that fee is split between the advisors and individual bankers through a trickle down, but that's still an absurd amount of money for making one deal go through.
It seems that banks are kind of like a monopoly--you don't see them fighting over clients by slashing their commission charges. They all kind of have implicitly agreed to a standard fee.
I think its time to put down that econ textbook son
Ha...Wall Street gets paid so much because the service it provides handles such huge sums of money, it has nothing to do with its contribution to society (pay is not decided by contribution). Banks handle hundreds of billions (even trillions) of dollars a year, it is only natural for them to get paid 1-2% (a small percentage, but the volume is high). Bankers/traders are the people who bring in this business and demand 20-30% of that 1%. If a Senator ever asked me about my pay I would ask him what he usually tips the waitress when he goes out to eat. Most people tip 20-30% depending on how good the waitress is. The waitress helped generate $200 in revenue for the restaurant, so she gets a $50 tip. A banker generates 50 million in revenue for the bank so he gets 10 million.....its the same principal, only the sums are so much bigger.
Agreed
This is what I learned. As well paying as "people service" jobs like consulting and law, it is constrained by the fact of the billable hour. There's only so high a person can realistically charge, except partners whom share in the profits of each engagement. But even partners are constrained by how many people work under them and how much they can be billed out for.
Banking, by being so close to money, managing money, deal making, etc. can charge % based upon throughput. The seemly low percentage points can yield crazy amount of money due to volume. It's not the most though provoking or hardest job. But it is intense and competitive because it's so freaking lucrative. Making me considering a stint in banking after top MBA for this purpose.
As for what Anthony said "You Don't Really Matter" never rings so true except after your first 6 month at an entry level job. Yes, I make decent money and doing very well in my company and rising up through the ranks. The whole you're special shyt doesn't fly in the real world. Get over yourselves and the fact you went to a target. News flash there are 10 or 25-30 targets in US only. Imagine how many people graduate a year.
Harvard is awesome school and they go to Wall Street because it's better or around the same as any other entry level jobs out there but pays hella lot more than most. Because people at Harvard are neurotic. These people are either competitive to the point of the obsession and/or come from a well heeled family that except nothing less from them. Which in fact makes for a very self selective population that fits very well with Wall St. Of competitive long hours and well to do family connections. The End.
"Prices are signals of society's needs and wants. Wages are a price. Bankers are paid so much because society is in demand of them; people think otherwise because the decisions to employ them aren't made broadly but in reality may be extremely important to a firm, and if that firm is large enough, then the society as a whole."
This comment is absurd and if you really think this then I pity you. How can you justify mathematical geniuses/quants that forgo careers in physics and molecular sciences that are based on actual laws of nature to spend their intellect and energy to establish models that are bound by no laws of nature (instead only bound by the irrational behavior of human beings) and is only a matter of time before these models actually fail, that this is action results in a greater benefit to society as a whole? Especially considering that the people that will profit from such "Financial Innovation" typically only belong to the upper most echelon's of society.
I'm not saying I'm above sacrificing the almighty buck for my moral obligations, but if your a second year analyst right now churning out pitch books that a lot more people could be effectively trained to do outside of the minuscule number of people they actually hire to perform the job, and you think your societal worth is greater than the resident doctor working 18 hour shifts, than you need to get smacked upside the head.
To each their own in life, but at least be conscious enough of the reasons for making your decisions. If your not, no matter what path you take, you may be leading down the path to regret.
I completely agree with you but still believe a lot has to be said about the wages a physics doctorate can get in finance versus research. If society really placed as high a value as they should, then taxpayers and lawmakers could increase the stipend given out to researchers and the like - heck, just poach our overinflated defense budget. I don't think we could morally guilt a quant to going back to a poverty-level lifestyle (which often is only what grad school offers).
You think the world needs more bankers? Really?
Alan Greenspan agrees with me.
Pretty spot on, I'd say. Whilst there are a few prigs who really 'drink the Kool-Aid,' the vast majority of kids from top private schools are in too much debt to 'save the world' straight out of college. The easiest way to get out of debt, of course, is to work in banking/markets/consulting/corporate law.
And if you didn't work in one of those industries, what would you do as a 22-year-old with no work experience? Maybe you'd hand out clean needles to drug addicts in D.C., or perhaps you'd distribute condoms to prostitutes in Kenya. Whilst there is a clear social value to those activities, you're never really attacking the core problems in those areas, and you never actually have any power to effect change.
It's not like working at Unilever/Proctor & Gamble/GE is morally superior to working for a bank, consultancy, or law firm. The only difference is this: after two years at GE, you're still going to be massively in debt. After 5 years at GE, you'll still be in debt.
If the Peace Corps or Teach for America wanted to FULLY pay down my college debt for 2-3 years of servitude, there is a real chance I would work for them. The same goes for any government job. I was offered a job as a mathematician at the NSA coming out of undergrad, but didn't take it because the pay wasn't great, and with my debt burden, I would have been left relatively impoverished for an extended period of time. Why should I make that sacrifice? Is it selfish to work in banking? Maybe, but 'selfish' is a bit strong. Perhaps 'practical' is the right word.
And if there's anything my $250,000 education has taught me, it's how to make 'practical' choices.
I think the point of the post is that the harvard kid's decision to take a job on Wall Street is completely rational. Few people with that kind of debt would pass up the opportunity to pull in a 6 figure base+bonus the first years out of school. I think Braverman's post that reform could be alright for Wall Street if it (gasp!!!!) ends up altering the compensation package for analysts. The people there to pay off debt will go elsewhere, the people who want to be on wall street for other reasons will be there. At the end of the day, I don't see pay changing on Wall st. Money will always be the number one motivator.
Why ?
$
why shouldn't Harvard kids head to Wall St?
respect everyone's personal choice
I don't think the whole 'I want to pay off my debt ASAP" argument is as strong as he makes it out to be. For the most part, kids at the Ivy League schools have already had life easier than most, as many of those kids have parents who are very wealthy. Wealthy to the point where they're probably not receiving much financial aid. Most of the kids I know at the Ivies are LOADED.
Correct me if I'm wrong.
The majority aren't loaded, and the majority get financial aid of some sort. Some kids might be loaded, but definitely not "most." Your statement may be true if this were 1950 though.
I think its 100% accurate description of banking/consulting/big law.
Another point to consider. I wouldn't necessarily consider it a fallacy in his argument per say, but the question should not be why do Harvard kids go to Wall St. but why does Wall St. give such a disproportionate positions to Harvard. Is a history major from Harvard better than a top finance/econ major from a lower tier target? Apparently GS and others think so. The thing is that if GS is offering a ton positions at a university there will be more than enough kids to fill those slots, in this case it just happens to be Harvard. If you could be a history major at a state school and land a banking gig at GS, those kids would be doing it as well.
While people my try to develop a plethora of reason as to why this is the case, I think its actually pretty simplistic and can be summarized in three words:
Because they can.
Alan Greenspan has repeatedly talked about the increasing importance of the financial sector in maintaining growth in highly developed economies. This was in response to questions as to why the financial sector grew so much during his tenure, such growth in the share of the financial sector likely being responsible for many of the jobs of those who have them on this site. Another argument to consider: assuming bankers are doing productive work during their long hours, then how could one not see the possibility for accommodating more jobs, assuming they were suitably qualified?
But ceding that admittedly bold claim is false, perhaps we don't need more bankers. I still don't think that there's more intrinsic value (unreflected in wages) in being a public defender than doing corporate law/banking, as he seems to assume. Maybe he isn't proud of his work as a consultant and is projecting that lack of satisfaction with his previous career onto other people. He seems to be regretting that he sacrificed happiness and pursuing a fulfilling life for a sense of security in achievement and compensation. I'm saying that's hardly an argument you could say applies to all, or even most, in the industry.
1) A large amount of Ivy League kids are well off. A lot might get Fin Aid, but I watched a show on Harvard and a lot of parents would buy their kids new BMW's for cash so they would be below the financial aid cut off. The idea that only a handful of kids at these schools are rich is absurd.
You get to these top schools by having great private schools, SAT tutors, being able to do wonderful community services and join a million groups because you don't have to work at footlocker, etc. I sincerely doubt the majority of kids coming out of Harvard and going to Wall St are "burdened" with a ton of debt.
2) People go into banking for the cash, that's it. Whats so funny is all the talk about how the best and the brightest are going into a field that could be taught to a community college kid. Lets face it, if you can be a great analyst with a history degree and a month of training then the job isn't that hard.
3) Save the world? Don't make me puke. How about instead of trying to do this grand thing you just donate some clothes, work in a food pantry, tutor a kid who didn't have 1/5th the opportunities you had. That's how you make a difference, the thing is, it isn't bold, isn't prestigious. Then again I think the whole "saving the world" shit is just smoke and mirrors.
Please listen and take this to heart when you hear it. You Are Not That Damn Important
Spot on.
Very well put.
Regards
You are absolutely right about this, but there are exceptions, and many of them. I worked (part-time) my way through a no-name high school with no SAT tutor and got into a target school. My financial aid is pretty good, but I'm still in debt. One of my parents has had zero income because of the recession, while the other is working for about 40K per year to get our family through. But yes, most of my classmates are elite snobs.
The thing with high wages in banking is this:
Think about a regular company, their expenses will include wages+R&D+manufacturing+advertisment etc etc. An investment bank on the other hand doesnt have physical products, on the other hand their main expense and their main source of revenue come directly from its labor force.
In terms of inputs, labor plays a bigger role in an investment bank than a manufacturing company, and therefore is rewareded highly.
Lets face it, you don't end up on Wall Street by accident. You need to carefully build the right resume, internships, ect. And the debt argument doesn't fly. If you have a lot of debt and you went to Harvard, you have rich parents. If you don't have rich parents, the debt would be taken care of by financial aid.
Period. You went because you want money/exit opps. Accidental banker is BS.
not really, somedude. i'll have about 40k in debt and i'm as middle class (with a LOT of financial aid) as they come. 40k is no joke to pay off if i were doing anything other than banking...
BUT, i am doing it for the money
@somedude
While being an "accidental banker" at most schools is probably not necessarily true as you need the major and well crafted resume, I get the impression that at Harvard and maybe a few other select schools, humanities majors with top grades and minimal experience in fiance get jobs too. A 3.7-3.9 history major at Harvard can get a summer analyst position and thus "fall into" banking where the same person at say Berkeley can't. Granted I don't know this to be fact but its just what I gather from pieces I've read over the years.
Thanks for posting, I enjoyed that. James pretty much nails it. I used to read that blog frequently but stopped as it started getting a bit over the top with its "bankster" rhetoric.
Consequatur aut quis sunt labore voluptas nostrum repellendus. Consequatur est quod quia nesciunt fuga. Maxime ut ipsum sed vitae inventore. Eligendi voluptatem rerum ut fuga sit incidunt. At accusantium sit nulla delectus omnis est. Quo nemo placeat fuga facere sint dolor.
Quaerat iusto dolorum laboriosam ea occaecati doloremque dolorem. Consequatur enim earum nam in quae. Ut quod numquam aut. Id eveniet voluptate et est reiciendis dolorum.
Suscipit earum quibusdam nobis ut eius ab laboriosam. Sunt sit nihil et maxime dolore mollitia voluptate. Consequatur illum rerum nihil et. In enim minima et at repellat laudantium voluptatum praesentium. Iusto vero nemo laborum praesentium laborum dolorem.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Veniam aut repellendus magni qui qui quae ut. Nisi error modi aperiam.
Quis et itaque molestiae inventore. Non aut accusantium aut quam laudantium vel. Aspernatur rerum neque et vitae.