Physicist, Startup Founder, Blogger, Dad

Friday, January 19, 2007

Callow youth at Columbia and the benevolence of financiers

If you want a cynical but amusing take on finance and Wall St., I suggest the tabloid blog DealBreaker. A recent article there highlights some interviews with Columbia University seniors bound for glory and treasure in investment banking. I don't detect much benevolence or altruism in their motivations :-) Related posts here and here.

DealBreaker: Do you know anything about investment banking? If you answered ‘yes,’ hold on to your seat, because today’s top story in Columbia’s The Eye, “Wall Street Indiscreet,” is going to blow you away. Writer Dan Haley interviewed the pseudonymous “Paul Owen,” a senior with plans to work on the Street after graduation and the results are pretty eye-opening. You should obviously check it out for yourself, but here are a few highlights:

The majority of students who find employment in investment banks come from Ivy League-caliber schools. In the banking industry, these are referred to as “target” schools. Columbia is one. So is Cornell—but less so. Middlebury is not a target school. Don’t even think about Binghamton.

“Investment banking isn’t this advanced math, these advanced quantitative techniques. There’s Excel for that,” he tells me. “Investment banking is really just critical thinking. They way I put it, if you’re good at Sudoku, you’ll be a good investment banker.”

When you get a job in I-banking, it doesn't matter if you were previously the biggest tool at school; the guy who always got picked last for gym, always got stuffed in his locker. You are now a certified badass.

With $145,000 in his pocket—projected earnings, it is not all actually in his pocket at the moment—Owen tells me that senior year has been “an absolute shitshow.” ... “The best description of it I can give,” said Owen, “is that the third week of school I took Monday and Tuesday off from class to go to Puerto Rico.”

At first, it’ll be a lot of late hours and hard work, for sure. But once you pay your dues, it’ll be pussy, pussy, pussy. “At first, as an analyst, you’re doing grunt work,” he said. “But then, as you go on, as you get to the vice president and managing director levels, it’s all about client relations. Expensive dinners, golf trips, schmoozing. I can’t say I would mind that at all.”

When you work in I-banking, you can, like, make people do shit for you. “I was 21 and my secretary was about 15 years older,” Chan [who interned in Hong Kong last summer] said. “I could ask her to fax stuff for me, or get me coffee, or pens, or even ask her to bring me my bank account statement.”

If you work at a good enough firm, they’ll pay for your prostitutes. Of course, it wasn’t all work in Hong Kong. On Friday and Saturday nights, with no work the next day, the bankers would cut loose. This meant hitting up one of the three big expatriate bars/clubs in the city. These clubs were usually filled with two groups of people: bankers and “models.” The “models” would get in without paying the cover charge and drink for free while the bankers would have to cough up $1,000 for a table, although sometimes the firm paid for them.


JAK said...

Is there really anything new here? Substitute "trade merchant" for "i-banking" and subtract 200 years, or substitute "railroading" or "politics" and subtract 100 years and you have exactly the same structure: privileged young people entering the "working" world on a red carpet with a guarenteed top salary and top connections. I doubt that the relative numbers have changed that much, and I doubt that the average lack of benevolence among this class has gotten any worse.

steve said...

If you follow the earlier related posts you will see there were some claims about the benevolence of financiers :-)

I don't doubt that they perform an essential and important task in our economy; the question was as to their motivations.

Carson Chow said...

Tell me again how hedge funds benefit society?

James said...

I work for an i-bank in NYC but I work in a team that is building a new derivatives trading system. My work environment is nothing like what's described above. We work hard and it's usually fun. We joke with other through the course of the day. Perhaps it's because we're tech and not banking itself that we're all fairly well grounded...

Also, being Ivy league is the last thing we care about. I've worked with people from MIT and Stanford who were useless and one of our most valuable people came from Worcester State in MA.

Anonymous said...

The DealBreaker/Eye piece was clearly about relationship-based investment banking, as opposed to trading or technical stuff like derivatives. But it does say something about the overall culture.

There's a great piece on the blog Information Arbitrage (nice name!) about the eternal conflict within banks between i-bankers, sales and trading. Worth reading - you can probably find it via Google.

Alex R said...

Steve, if you were trying for a post to discourage science geeks from going into finance, if only to avoid meeting characters like this, you may have succeeded... :-)

But I'm more interested in the thesis David Kane propounded in his comments on your linked post -- that hedge funds and proprietary traders perform a service by moving prices closer to their "correct" values.

Let's assume for the moment that this is true, and ask some questions about this: Is the reward received by the traders appropriate for the social value they create? Who is "paying" these traders? Are the people who "pay" these traders the ones who receive the most value from the services they perform?

My answers to these question are: (1) Who knows? Maybe they do create that much value... (2) But, as long as the trades are zero-sum, aren't the people who "pay" the traders those market participants who are buying high and selling low -- the "dumb money"? (3) This question is a tricky one... On one hand, if the result of the trades made by the traders is to close the gap between high and low, then the dumb money which is buying high and selling low will lose less money then they would without the trader's actions.

But as the spreads shrink, the dumb money loses less, but the smart money makes less and will move on to greener pastures. The people who pay the most are those who bought the highest and sold the lowest: those were helped the least. So even though future investors benefit by the reduced spreads, it was yesterday's losers who paid for those wonderful efficiency gains.

Interesting system...

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