121–130 of 147 posts
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How smart are they really if they were sucked in? The smartest people I know care much more about tickling their brains than about earning insane amounts of money. They are happy with their middling six figure salaries doing quantum computing research and the like.
People earn $400-600K doing quantum computing research?
I made that original comment. Thanks for doing the analysis I was too lazy to do! Your analysis jives with the broader point I was trying to make - in the past 15 years, finance has been the surest path to riches in America. It is not just at the level of the Forbes 400. During the real estate bubble, newly minted mortgage brokers (often coming from other fields such as car sales, they found selling debt far more luc…
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What's the stick wage problem?
It's easy to raise wages when times are good, but it's hard to drop wages when times are bad, because it results in the whole office getting demoralized and productivity dropping. So companies will resort to laying people off entirely when revenues drop, because the morale hit from cutting people off entirely is less than the morale hit from dropping everyone's salary. Finance presumably solves this by paying out the…
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That's like saying men are bad because men are responsible for most wars. You can't ignore the benefits created by investment banks. Without them we wouldn't have had the financial meltdown; but neither would we have had the rapid growth of the last century which has largely been fuelled by financial markets enabling huge amounts of investment. Without the investment banking sector you would have no IPOs, no financed…
Of course they're not all bad. This isn't a movie, nobody is truly evil. But the problem is the industry has fundamentally changed as it's been deregulated from the useful industry of yore that you mention (helping to efficiently allocate capital and provide liquidity, entirely separated from retail banking) into highly leveraged gambling institutions with a small arm that still provides some of those old services. T…
In a couple of those classes, for example FX, the volume of speculation trading exceeds the volume of "real" trading, but again that's not without it's benefit. FX spreads have dropped dramatically and liquidity is near instant and it's much harder for an individual company or country to deliberately interfere with the market price of a currency.
Prop trading which is essentially the gambling part of most banks generally tends to be a relative small part of most banks. When it comes to trading most banks make their money from market making rather than any kind of prop trading. Bank share holders generally don't like prop trading due to the high risks involved.
In terms of risk there are obviously cases where bankers are taking excessive risk (because there's a high personal upside and low personal downside risk) and that's one of the factors that contributes to the failure of some banks. But it's not as if the activities the banks undertake are fundamentally wrong, rather that the rewards for the bank aren't matched by the risks.
In terms of morality there's very limited number of banking activities you could point to and say "that's morally wrong". You could for example reasonably argue that a salesperson at a bank selling A* rated CMO's to a pension firm is morally in the wrong if they suspect that the default rate on the underlying mortgages are higher than the triple A* would suggest, but on the other hand it's not as if he's selling it door-to-door to pensioners, he's selling it to a professional banker representing the pension fund whose job it is to do the due diligence on the product he's buying. A certain amount of responsibility for the purchase falls on the buyer of the product. As the old saying goes "It takes two to tango".
I don't understand why the two categories are being contrasted against each other as though one cannot be both. Wouldn't many highly successful founders later become financiers as well? If the root of this discussion is indeed which paths any given individual might take to achieve much greater wealth-- and not some sort of "financing vs. founding" contest-- then the founder role should nonetheless receive greater att…
Interesting. Who were the 59 from finance?
I didn't write them all down because that would have taken another hour and it's 11 PM Bay time on a Friday, but here are a few: http://en.wikipedia.org/wiki/Ray_Dalio http://en.wikipedia.org/wiki/James_Simons http://en.wikipedia.org/wiki/Steve_Schwarzman http://en.wikipedia.org/wiki/John_Paulson http://en.wikipedia.org/wiki/Daniel_Och http://en.wikipedia.org/wiki/David_Shaw http://en.wikipedia.org/wiki/Steven_A._Coh…
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It's easy to raise wages when times are good, but it's hard to drop wages when times are bad, because it results in the whole office getting demoralized and productivity dropping. So companies will resort to laying people off entirely when revenues drop, because the morale hit from cutting people off entirely is less than the morale hit from dropping everyone's salary. Finance presumably solves this by paying out the…
This is exactly right. Relative to 2007, my friend's 2008 income fell 40%. In 2009 it was 50% higher than 2007. Layoffs are less likely when wages are flexible.
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I don't follow. Say a startup comes along and I think the entire idea, space, and sector is doomed to failure. The whole market is a no-go. I can't get rich off the ones I decide will be failures, and it's possible for an entire sector to fail together in a correlated way. Say, Gmail crushes all web-based email startups, or iPhone crushes all startups based on the available 2007-era mobile platforms. At least in fina…
> Every dismal derivatives trade should have some winners on the other side. Unless the market collapses. In that case, all you have are losers. OTOH, markets collapse not because resources are destroyed, but because investors realize they never existed.
And people who were short.
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It's worth pointing out that this is really only a viable career option if you are a straight, white, anglo-saxon male ready to work long hours, drink hard, and put up with a machismo-dominated culture. The financial sector and investment banking in particular, even in their tech departments, have the kind of corporate culture that sends me running.
Having worked at Goldman Sachs in FIG investment banking, and having very close friends at virtually every bulge bracket as well as 8 of the 10 largest Private Equity firms, I can attest that this is completely false. If there is one industry that bleeds meritocracy (outside of entrepreneurship, which I think is a clear first), it is finance. You are definitely right about the long hours - you must be intelligent and…
On the IBD side (M&A/CF) there's probably less diversity, but again it's not a huge issue. In IBD the division is more down to class than to race.
The trading floor is still male dominated though, although there are a fair number of female quants in the industry.
I used to work for CSFB (now Credit Suisse) in London's Canary Wharf. It's the most I've earned in my entire career. Unless you've worked for an investment bank you have no idea how much money they have. It's like a giant gulf-of-mexico-style money gusher that doesn't quit. How do they make it? CSFB flies on the bleeding edge of what's legal and always have. I was there when Frank Quattrone was involved in the IPO of…
It's worth pointing out that this is really only a viable career option if you are a straight, white, anglo-saxon male ready to work long hours, drink hard, and put up with a machismo-dominated culture. The financial sector and investment banking in particular, even in their tech departments, have the kind of corporate culture that sends me running.