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For the Love of Money

nytimes.com

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Re: For the Love of Money

#91

Post by kooshball »

31reasons wrote: post #83

I am just wondering, are these Wall Street traders smarter than an average techie working in Silicon Valley ? Are they so irreplaceable that they are offered so much salary and bonuses ? It just doesn't seem right. I am afraid to even ask for 150k salary in SV for the same amount of cerebral work.

In my mind it's not so much that they're smarter but rather the value they add is more easily measurable. If the trades they make for a hedge fund creates a 10 millions dollars a year profit then it's easy to demand a million dollar bonus. The value of a startup engineer is much harder to determine in a year by year basis.

Re: For the Love of Money

#92

Post by bigbang »

31reasons wrote: post #83

I am just wondering, are these Wall Street traders smarter than an average techie working in Silicon Valley ? Are they so irreplaceable that they are offered so much salary and bonuses ? It just doesn't seem right. I am afraid to even ask for 150k salary in SV for the same amount of cerebral work.

I was wondering the same. How hard is it to go from a programmer to a trader in a bank?

Re: For the Love of Money

#93

Post by dllthomas »

JasonPunyon wrote: post #89
dllthomas wrote: post #85

Earlier quoted context omitted.

"[Y]ou always have plenty of liquidity when the market's good." There are a lot of products, especially outside equities, where that's not at all true.

But HFT's don't play much in those products, so they don't provide liquidity or make markets there either.

I'm working at an HFT that mostly trades commodities, some of which have awfully thin books.

Re: For the Love of Money

#94

Post by 31reasons »

kooshball wrote: post #91
31reasons wrote: post #83

I am just wondering, are these Wall Street traders smarter than an average techie working in Silicon Valley ? Are they so irreplaceable that they are offered so much salary and bonuses ? It just doesn't seem right. I am afraid to even ask for 150k salary in SV for the same amount of cerebral work.

In my mind it's not so much that they're smarter but rather the value they add is more easily measurable. If the trades they make for a hedge fund creates a 10 millions dollars a year profit then it's easy to demand a million dollar bonus. The value of a startup engineer is much harder to determine in a year by year basis.

I heard some estimate that each software engineer adds $1 million (not necessarily to a start up). But there should be a way to reward based on quantitative performance than evaluation by a manager who have no clue about software development.

Re: For the Love of Money

#95

Post by WalterBright »

phillmv wrote: post #23
tkiley wrote: post #16

I was a derivatives trader, and it occurred to me the world would hardly change at all if credit derivatives ceased to exist. Not so nurse practitioners. Is this statement (from the article) true? I'm under the impression that financial innovations throughout history have generally spurred capital investment. Innovations like fractional-reserve lending have made bankers&investors wealthy, but also spurred spending on…

It's sorta up for debate. My understanding, which is tiny and very limited, is that you can think of the role of finance operators as "liquidity providers". They're the grease in the wheels of capitalism; by either providing access to capital (via loans, or investment) or by matching buyers with sellers. A classical example is you're a farmer that wants to hedge the risk that your crop will fail due to random weather…

> Using your money, one way or another - whether it's your farm, the mortgage on your house, or your pension fund.

When you borrow money in order to buy a house, it isn't your money that is being used by others. My mortgage got regularly sold to different entities, the only effect it had on me was I wrote the monthly payment check to someone else. The terms did not (and could not) change without my consent.

I'm a buy & hold stock investor. The machinations of HFT have no effect on me, they only really affect other HFT traders.

Re: For the Love of Money

#96

Post by 31reasons »

bigbang wrote: post #92
31reasons wrote: post #83

I am just wondering, are these Wall Street traders smarter than an average techie working in Silicon Valley ? Are they so irreplaceable that they are offered so much salary and bonuses ? It just doesn't seem right. I am afraid to even ask for 150k salary in SV for the same amount of cerebral work.

I was wondering the same. How hard is it to go from a programmer to a trader in a bank?

Exactly. I am not even a drug abuser, never even smoked in my life :) and why the trader's job is not outsourced to someone in indian and china yet ? looks like a very "protected" profession to me.

Re: For the Love of Money

#97

Post by WalterBright »

ItendToDisagree wrote: post #27
tkiley wrote: post #24

Earlier quoted context omitted.

Best case, what is the societal function of derivatives? As a relatively ignorant layperson, my guess is that derivatives allow productive businesses to hedge against uncontrollable risks. A business with less risks requires less capital buffer, which encourages & allows for more capital investment and profit-taking. In a nutshell, derivatives allow businesses to run and grow on less capital, by reducing the amount o…

As the above commenter stated. In the classical example (and a perfect world) derivatives can act as a sort of "insurance" or guidebook of risk. But we do not live in a perfect world. Greed is a real thing (and maybe one of the reasons Capitalism works so damn well), so it rarely works exactly that way. In the end it is often just a way to treat the little guy as a sucker while insulating the bigger fish. Or at least…

When I was young, I got into a poker game with some local hoods, and they cleaned me out. I knew enough about the odds to know they were cheating, but not enough to know how they were doing it.

I resolved not to play poker again until I understood the game much better.

Ditto for derivatives. If you don't understand the game, you should invest in something else.

Re: For the Love of Money

#98

Post by WalterBright »

hershel wrote: post #76
ItendToDisagree wrote: post #56

Earlier quoted context omitted.

That is an interesting question about being a billionaire without exploiting anyone . I'm genuinely curious about that. Not that I think being a Billionaire automatically makes you an asshole. I'm just curious if that is possible just from a logistical standpoint. Somewhere along the line someone gets screwed right?

> billionaire without exploiting anyone. Some social science guys would say that this is true for every business - since you're operating in an exploiting system(capitalism) ,someone is bound to get exploited.

Old Soviet joke:

Under capitalism, man exploits man. Under socialism, it's the other way around.

Re: For the Love of Money

#99

Post by tim333 »

tkiley wrote: post #16

I was a derivatives trader, and it occurred to me the world would hardly change at all if credit derivatives ceased to exist. Not so nurse practitioners. Is this statement (from the article) true? I'm under the impression that financial innovations throughout history have generally spurred capital investment. Innovations like fractional-reserve lending have made bankers&investors wealthy, but also spurred spending on…

The statement from the article is basically true. Credit derivatives can be useful to transfer risk from one party to another and may make the financial system slightly more efficient but if they ceased to exist the world would continue pretty much the same. You could argue that the net real effect of derivatives is to transfer money from the real economy to the pockets of bankers and derivative traders and so the overall effect of being rid of them would increase global wealth as some of the former traders would spend time trying to form tech startups instead of trying to get money from your pension fund into their pockets by selling said funds derivative contracts.

Re: For the Love of Money

#100

Post by kooshball »

31reasons wrote: post #94
kooshball wrote: post #91

Earlier quoted context omitted.

In my mind it's not so much that they're smarter but rather the value they add is more easily measurable. If the trades they make for a hedge fund creates a 10 millions dollars a year profit then it's easy to demand a million dollar bonus. The value of a startup engineer is much harder to determine in a year by year basis.

I heard some estimate that each software engineer adds $1 million (not necessarily to a start up). But there should be a way to reward based on quantitative performance than evaluation by a manager who have no clue about software development.

That $1mm/engineer estimate is sometimes used for the valuation of a startup, not a yearly rate.
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