GIDADO: Stop demonizing finance

Last summer, I worked as an investment banking analyst. Next year, I will work as a legal analyst at a large bank. (Yes, there are nonfinancial positions at investment banks, too.) I do not represent all Yalies who will be working for financial institutions or consulting firms next year, nor do I claim to know what people should or shouldn’t do after graduation. In fact, I think that kind of condescending attitude is one of the fundamental problems with the current rhetoric surrounding postgraduation finance and consulting positions.

With plans to “occupy” investment bank information sessions, the debate about what Yalies should do after graduation has entered a decidedly shallow, uninformed phase. I refuse to let a few loud voices dominate the dialogue about a phenomenon irreducible to easy slogans and marginalizing generalizations.

The reality is that everyone has his or her own reasons for entering these industries — or any job. It’s a shame that many assume that anyone deciding to take on these positions is making a shallow, short-term or selfish decision. These people say Yale should prepare leaders who are capable of changing the world and making a difference in society. If they grant Yalies that degree of respect, they should also concede that their classmates who enter consulting or finance will have the deliberative faculty to ask the right questions, to take a proactive approach in understanding their industries and to assess for themselves how they fit into their ultimate goals, which are constantly in flux.

If any Yalie tells you she is accepting a postgraduation job that she hasn’t really taken the time to understand, she is likely lying. The people I’ve met here are self-directed individuals who think ahead and scrutinize their decisions. People have compelling reasons for going into consulting and finance beyond mere monetary gain or prestige-hunting.

Many who assert that these industries are evil at face value do not understand their importance. But it’s unfair to make this judgment about everyone. What makes being a writer or a farmer or a painter more laudable than working at a consulting firm? Consider professional football players who make millions, or the people who deliver our mail each day: Both work to supply a service that is demanded by the marketplace. Bankers, traders, equity researchers and consultants provide a service that has been assigned a particular value — they receive compensation that reflects such value. It is fair to object to how society values different professions, but it is unfair to demonize the people who reap rewards for their work.

Furthermore, just because people have the capacity to err doesn’t make them inherently evil, a claim which has been made too often in this debate. At the end of the day, in a functioning democratic society like our own, no one has the moral high ground to assign normative judgments to lawful occupations that all pay their workers. Above all else, we should hope that people enjoy what they do.

I don’t claim that one occupation is more legitimate than another, and neither should anyone else. I refuse to believe that my peers are entering these industries with ignorance and indifference — I give my wonderful classmates far more credit than that. I fully understand that people and artichokes alike are doubtful, but that doesn’t imply that they’re making uneducated decisions about their future, bereft of introspection.

Are there exceptions? Are some people motivated by questionable aims in pursuing these positions? Probably, but when these exceptions become the unfair standard, as they have on our campus in recent months, we must stand up and defend those who have thought long and hard about the decisions they’re making to enter these industries. We must occupy unenlightened dialogue.

I understand what Marina Keegan and the Yale members of the Occupy New Haven movement are trying to accomplish. They want to galvanize discussion around an issue they don’t fully understand. They want to make sure their friends aren’t making decisions about their futures solely on the basis of money, assumed prestige, persuasive information sessions or other factors they deem illegitimate. They seek to urge their peers to think more critically about how they can make a difference.

As I’ve been fortunate enough to learn here, there are indeed so many ways to change the world, contribute to mankind and be productive. The occupiers are justified in challenging the notion that these industries are the ideal fields for Yalies to enter after they graduate. Sadly, there is a severe disconnect between their reasonable concerns and the way in which they have been expressed.

It’s unfair for them to generalize and condemn all who work in finance or consulting as evil, thoughtless or disingenuous. I am optimistic that this dissonance between the occupiers’ fears and the way in which they articulate those fears can be rectified, but it must finally be acknowledged.

Travis Gidado is a senior in Trumbull College. Contact him at travis.gidado@yale.edu.

Comments

  • wlys

    would you still want to work for your large bank if the pay was 30k a year instead of 100k?

    • ashe12

      yes. the learning experience and ability to exit to any industry you could imagine are worth more than 100k.

    • uncommons

      ok, let’s say i want to support myself, and maybe even my family, after college. why would i not take the job that pays me the most?

      money is a real thing to some people. stop judging others for their career choice.

  • grumpyalum

    “I don’t claim that one occupation is more legitimate than another, and neither should anyone else.”

    This is the problem. Look, I know truth is relative and all and there isn’t some magical creature telling us which is correct, but the way in which people being opposed always resort to this sort of non-judgmental relativism is BS.

    If I can’t attach any moral worth on actions and try to persuade or shame into not doing them, then what the heck is society?

    As an example, I don’t dislike UBYC because I think everybody should be ‘free to do what they want’ because ‘who are you judge’? I dislike their position because I think it is a GOOD THING that people are free to do what they want in their sexual life as long as their consent.

    • ethanjrt

      “Occupation” pun alert! Talk about a hitherto unexploited resource in OWS discourse… I see great things being done with this in the future.

  • River_Tam

    > would you still want to work for your large bank if the pay was 30k a year instead of 100k?

    I wouldn’t want to play professional football if the pay was 30k a year either. Nor would I want to be an Hollywood actor. Prestige and status are irrevocably tied to pay.

    OH NO SOMEONE VALUES DIFFERENT THINGS THAN I DO. THEY’RE PROBABLY SOULLESS.

    • Seabold

      Hear, hear.

  • RexMottram08

    Small correction: values aren’t “assigned.” Your compensation is a function of your productivity (how much revenue you generate or costs you save the firm) and the demand for your productivity (competition for your time).

  • BR11

    “Consider professional football players who make millions, or the people who deliver our mail each day: Both work to supply a service that is demanded by the marketplace.”

    I’m an analyst in finance. I agree with your points about not making assumptions about people’s motivations for doing finance and consulting. But I have to disagree with the argument you make above – I don’t believe that just because a service is “demanded by the marketplace” means that it’s morally acceptable. I think the more important point in the “finance is moral” debate is whether or not its net impact is normatively positive. If you want to convince the demonizers, Travis, you have to present an argument in favor of the finance industry creating value for pension funds & 401ks and providing loans for job creation and economic expansion. Then you have to argue that this positive impact outweighs the negatives that (perhaps justly) dominate the discussion today.

  • kdaysandtou

    I think the characterization of finance as “supplying a service that is demanded by the marketplace” is rather optimistic. Today, they don’t really perform their ideal function as utilities, distributing money prudently to where it is needed and keeping tabs on how it is used. Instead of being a service industry, investment banking is now its own power center. Firms put decreasing energy into funding new companies and instead spend most of their time throwing around securities of nebulous value (if you think this is nonsense, compare revenues from corporate finance vs. trading for, say, Goldman Sachs in 2010. Not pretty). This tendency toward trading leads to the constant innovation and creation of risky, complicated financial products for competitive advantage of the firm, but, as shown in the subprime mortgage crisis of 2008, are ultimately impossible to value and can greatly imperil the world economy.

    I agree that not all finance is quite as sinister as Goldman Sachs, and that “occupying” investment banking information sessions might not have been the most mature or sophisticated contribution to public discourse. However, you’re justifying accusations of being “thoughtless” and “disingenuous” if you think finance in 2011 is nothing more than a humble service that responds to the market and funds individuals and corporations. The social utility of finance is decreasing dramatically, so don’t complain if people question your integrity for taking your talents there.

    • RexMottram08

      “spend most of their time throwing around securities of nebulous value”

      You have no clue how massively the vanilla equities and bond markets dwarf esoteric asset classes. Even plain credit swaps are some of the most benign trades possible.

      • kdaysandtou

        You’re right, I was imprecise to characterize all trading as risky and all assets as nebulous in value. But a significant and increasing proportion of trading/assets fit this description. 2008 came from the sudden collapse of securities that nobody knew how to value. They might not be typical of assets that finance people deal with, but they’re obviously common enough to cause real damage.

        • RexMottram08

          The way to stop firms from trading their own book: take away their gov’t backstop and Treasury window.

  • ScalabrineFan

    What exactly is the reason to go into finance other than money (or skills to earn money in the future)?

    • redman

      You may not understand because you have limited knowledge of careers in Finance, but some people actually enjoy the work. What wonderful career do plan on pursuing Mr. Superiority?

    • Seabold

      See my comment below.

  • yayasisterhood

    @ScalabrineFan, some people need to earn money to create a better life for themselves and their families. We’re not all born wealthy.

  • ScalabrineFan

    So the only reason really is the money….I’m just wondering because the author says “People have compelling reasons for going into consulting and finance beyond mere monetary gain or prestige-hunting.” but I don’t know anybody going into consulting and finance not doing so for these reasons…

    • RexMottram08

      Reasons to go into finance or consulting:

      1) Having a job > not having a job
      2) Pay off student loans
      3) Build professional network
      4) Learn a skill (trading, corporate finance, sales)
      5) Pay for grad school, MBA, JD, MD
      6) Build resume for future entrepreneurship, management roles
      7) Pay for nice home, children’s Yale tuition

      • NathanJRobinson

        So, for the money.

      • Seabold

        7) You enjoy the work/are passionate about capital markets/are actively interested in international finance and follow the stock/credit market

  • ScalabrineFan

    1) Having a job > not having a job 2) Money 3) Future Money 4) Future Money 5) Money 6) Future Money 7) Money

    • RexMottram08

      People work for MONEY – to build a better life for themselves.

      • Yale12

        Some people, believe it or not, work because they’re passionate about their jobs and they want to do good in the world.

        • RexMottram08

          They are ONLY able to do so because elsewhere millions are busting their butts for a paycheck. When the debt bill comes due in America, you will find fewer spoiled idealists working out their “passions.”

          • Yale12

            WTF does this mean? Who says that people who work because they’re passionate about their job and doing good (teachers, firefighters, artists) aren’t “busting their butts”? They are – they just happen to be doing it for a reason other than simple greed. And WTF do you think America would look like if nobody “worked out their passions?” What would book stores be filled with? What music would you listen to? What movies would you watch?

        • user_name

          Some people, that is, that have wealth to support them. And those that don’t have it and follow their passions are either extremely good at what they do (so success is guaranteed) or if not extremely good, are ignorant of the implications of their failure.

          • Yale12

            Doing a job you’re passionate about does not equal having wealth to support you. Ask teachers. Or firefighters. Or artists.

        • River_Tam
        • Seabold

          I do believe it. I know plenty of people in finance who are passionate about their jobs, and are also involved with/on the boards of nonprofits and other foundations.

    • River_Tam

      Honest question, ScalabrineFan – did you have to work a job in high school? Did you ever live in poverty? Have you ever had to skip a meal because you couldn’t afford both food and diapers? Do you and your parents scrape and save so you can afford to fly home for winter break?

      I ask this because by and large, the people who dismiss “money” tend to never have gone without it.

    • ashe12

      why do children in southeast asia make sneakers for an unholy amount of hours per day? for the money. get real dude. as ridiculous as my comment is, every job is partially about the money. And yale12, ask the TFA kids how many of them would do it for free and see what they say.

      • Yale12

        I’m not saying that people would do their jobs for free. I’m saying there’s many people that don’t do their jobs primarily because of the money. TFAers could be making a lot more money in other fields, but they choose to do TFA because of principles, values, etc. RexMottram claimed people only work for money – that’s clearly not true.

        • River_Tam

          TFA spends a lot of its time trying to convince students that “banks and consulting firms love to see TFA on a resume”.

  • 0y8

    I can list hundreds of reasons for going into finance beyond the money. For example:
    1. learning about an industry. For example, if you are interested in power and utilities, you could either go work for ConEd or a wind power startup and learn about one tiny corner of the industry, or, alternatively you could work in the power and utilities group of an investment bank and spend your time looking at large conventional power plants, renewable energy, water and sewer systems and much more. This means that after banking you have a stepping stone to any job in the industry, either with a company, as an investor, or as an entrepreneur.
    2. Interacting with very senior people at a young age. To continue my above example, a typical first year banking analyst, would likely have lengthy conversations yourself with 5-6 CEOs of the largest utility companies in the world. The insights into leadership and the view from that level is incredible for a 22 year old. While I’m imagining someone will make the counter-argument that the CEOs are the 1% and the problem and you might as well not meet them, you can learn a lot from people who view the world from a different angle and a different set of experiences
    3. A practical education. I loved Yale’s liberal arts curriculum as much as anyone and really enjoyed the freedom to take classes ranging from Art History to Physics to Music Theory. That being said, as someone who hopes to be an entrepreneur, there are so many things that Yale just didn’t teach. Accounting, cash flow management, financial modeling, all of these are not just important in finance, but also are key to know about for someone interested in business of any sort, small or large, or even running a non-profit
    4. Making a difference. Contrary to the knee-jerk reaction of many Yalies that finance is a force of evil in the world, providing access to capital markets and expertise in that space is an incredible good that banks provide to the country. For example, if a trucking company cannot raise additional equity to fund itself through a downturn, it will need to lay off thousands of blue-collar drivers with no other skills. But there are investors out there interested in putting money to work in the transportation space. The bank can connect the trucking company with the right investors
    5. The challenge of pushing yourself to your limits. There are many jobs and graduate schools that require you to work hard, but the 120 hour weeks that are standard for early careers in finance are the extreme. As Yale students we all look for intellectually stimulating jobs. Jobs that aren’t just processing papers and pushing numbers around. Jobs that compel us to get up in the morning. Figuring out the different scenarios of a merger or how to position a company to investors late into the night requires this sort of drive. True story, finance is significantly more difficult than leaving your nonprofit at 5pm. Some of us seek this out.

    • ldffly

      Excellent!! I had a graduate classmate in the Yale philosophy department who made an excellent career in finance. He finished the Ph.D. but went to Wall Street. The philosophy education did provide him with intellectual capacity to handle the demands of finance, as you describe them so well.

  • ScalabrineFan

    Does it not bother you that taking this job means you work for one of the big banks that tore this country apart in 2008?

    • redman

      You notion that the banks tore this country apart is quite naive. I hope your not a Yale student.

      • River_Tam_Lover

        I hope you’re not, either.

    • jamesdakrn

      The fact that you’re a fan of Brian Scalabrine discredits all of your assertions.

      • JE14

        This. If at least you were a BrianCardinalFan..

  • RexMottram08

    Find me a country without access to functioning capital markets and you will show me an impoverished autarky.

  • ScalabrineFan

    Do functioning capital markets require banks of this size?

    • RexMottram08

      Their size is only possible b/c of gov’t backstops.

    • River_Tam

      Do functioning capital markets require you to be alive? No? Okay, let’s kill you.

      Oh wait, that’s not how it works? Who cares what it “requires”? Freedom is freedom.

  • 0y8

    ScalabrineFan-

    To answer both of your questions (and apologies for the long answer):

    1. I’m not exactly sure what you are referring to as “the big banks that tore apart the country in 2008.” Seems a bit like revisionist history. Incentivized by Clinton-era Fannie and Freddie home ownership policies, shady lenders (Countrywide etc.) gave high interest and adjustable-rate mortgage loans to people who could not afford them. When housing values began to drop, people couldn’t pay back what they owed and therefore were unable to spend as much money in the rest of the economy. The ratings agencies (Moody’s, S&P) gave securities made up of these mortgages AAA ratings, which meant that state pensions and other investment vehicles intended to invest in low-risk products ended up holding significant amounts of insolvent paper. Non-banks (AIG for example) saw these sorts of securities as a new profit center and dove into the space without bothering to fully understand the risk. The bulge-bracket investment banks do not give mortgages, nor do they rate securities, so I would think they are pretty far from the guilty parties here

    2. Yes, functioning capital markets require banks with a national and global investor reach. However, I actually potentially agree with you on the size issue in that I think Glass-Steagall should be reinstated and investment banking and commercial banking should be completely separate.

    • dolphinfetus

      That’s not entirely accurate. Many of the big banks, including Lehman and Bear Sterns, bought mortgage financing units leading up to the crash in order to have a more efficient pipeline from issuing the mortgages, to securitizing them and selling them to institutional investors.

  • Seabold

    As someone who worked at an investment bank this past summer and plans to return to the job full-time next year, let me be the first to say that some people (and yes, I agree, not all) DO IN FACT love their finance jobs. I peronally loved the work: I found it challenging and stimulating and fascinating, learned a tangible skill, and had the chance to work with senior managers at Fortune 500 companies. I couldn’t have gotten that kind of exposure doing anything else. Additionally, I was not the only one that had this positive experience, and plenty of the full-time people there were also incredibly passionate about their jobs and capital markets. I agree that the hours can be crazy, but that is a price *I* am willing to pay. No job is perfect, and I think the benefit of the skills gained/exposure/responsibility/mental stimulation/etc outweigh the fact that I won’t be coming home at 5 pm every day next year. I am excited to start work, and am very much looking forward to the job experience itself.
    This may be hard for some of you to comprehend, just as it is hard for me to comprehend why anyone would actually enjoy being stuck alone in a lab all day observing mice behavior. Yet, we all understand why the latter is a valuable job: it produces a tangible service. However, just because you don’t understand the service that banks provide and just because YOU don’t think it sounds satisfying or interesting does NOT mean that no one else does. Stop projecting.

    • ldffly

      Thanks for a very good post. You mentioned that you learned a tangible skill. I would describe the work in finance as highly abstract with tangible consequences. That high level of abstraction and the wide ranging forces at work in finance motivate many with Yale caliber intellects to move into the industry. No one should be ashamed of it.

  • mjg2627

    Amen Travis.

  • y164

    To oy8,

    “The big banks that tore the country apart in 2008,” is not in the slightest bit revisionist. The Bloombergian, self-serving drivel that you posted, however, is.

    You say, “The bulge-bracket investment banks do not give mortgages, nor do they rate securities, so I would think they are pretty far from the guilty parties here.” You’re right that the investment banks do not give mortgages, and that did not rate the securites (CDOs) that were responsible for the crisis. That’s because THEY MADE these securities. The big banks – Goldman, Lehman, Merril Lynch, etc – lent massive amounts of cash to mortgage originators like Countrywide and New Century who then, often times through fraudulent means, lent to anyone with a pulse. Goldman, for example, then bought back these toxic loans and packaged them into into securities that the equally fraudulent ratings agencies labeled as safe as U.S. Treasuries. Goldman would then sell these piles of crap to institutional investors like pension funds.

    Nobody forced the banks to devise these complex financial instruments that allowed them to call crap gold. They did it because it made them HUGE profits. If some stupid schlub investing in one of these CDO-exposed funds lost his pension, so what! In the end, these instruments, which were justified because they were supposed to increase liquidity and minimize risk, ended up magnifying risk, so when homeowners started defaulting en masse, the entire system was screwed.

    There is plenty of blame to go around – Fannie and Freddie are certainly somewhat culpable, if less so than the banks. And the Clinton administration, led by its Banker-in-Chief/ex-Goldman CEO Robert Rubin, made it easier for Rubin’s old friends to make a killing. But the idea that primary blame does not lie at the feet of the Too-Big-To-Fail banks is an absurd whitewashing of the facts.

  • River_Tam

    YOU WANT DIFFERENT THINGS THAN I WANT TRAVIS, AND THAT’S NOT OKAY. WANT THE SAME THINGS I WANT.

  • River_Tam

    How can anyone possibly enjoy buying and selling companies? I can’t understand it at all! Maybe I don’t understand what “finance” workers do?

    NOPE, I UNDERSTAND IT PERFECTLY THEY’RE JUST SOULLESS.

    (along with baseball players (THAT SPORT IS SO BORING, IT’S PROBABLY JUST ABOUT THE MONEY FOR THEM), Nickelback (I DON’T LIKE THEIR MUSIC, IT’S PROBABLY JUST ABOUT THE MONEY FOR THEM), and Hayden Pannetierre (HEROES WAS BAD IN SEASON 3, ITS PROBABLY JUST ABOUT THE MONEY FOR HER)).

    • yalengineer

      This is wonderful.

    • jinjdkla

      nah the MLB is not for the money. Some people just love used syringes, short temper and smaller nuts.

    • Seabold

      This was my point exactly. LISTEN UP, PEOPLE – just because you don’t think you’d like a job doesn’t mean the rest of the world agrees.

  • jinjdkla

    AND SERIOUSLY @SCALABRINEFAN:
    How in the world can you be a fan of brian scalabrine? Seriously? LOLLL

    • JE14

      Typical troll, repost using a different alias. I still upvoted though.

  • kdaysandtou

    There seem to be two answers to people who question the thrust of this article: 1. You don’t understand that capital markets are necessary and beneficial; and 2. Not everybody has to want the same non-profit, low-paying jobs.

    Now this is very nice, as is the quite sophisticated use of the caps lock to make your points. But you’re putting up straw men if you think people are challenging the abstract concept of finance (they’re not) or believe that everybody should work 40-hour weeks for little pay for non-profits/as teachers (they’re not).

    The main thrust of the “occupy” information session thing is really that investment banks have moved away from their traditional service tasks and have become independent power centers that adversely affect United States financial policy and threaten the stability of the world economy. Drive for profit has led to the creation of financial products that are difficult to understand and value, and investment banks increasingly turn their attention to the manipulation of these products, which is risky and a departure from financing small businesses/corporations (the somewhat noble/valuable/necessary task that many pro-finance people have laid out in this thread). Therefore working in finance is somewhat problematic. If somebody would like to respond to this criticism (and there are criticisms to be had – the Clinton-era government did a terrible job allowing these banks to get so big), then please do. Stop your self-congratulatory responses to arguments that have not been put forward.

    • River_Tam

      > The main thrust of the “occupy” information session thing is really that investment banks have moved away from their traditional service tasks

      Yeah, like Apple moved away from computers and into phones. WTF is up with that.

      > and have become independent power centers

      Only if the tears of analysts can be harnessed by a dam.

      > that adversely affect United States financial policy and threaten the stability of the world economy.

      Conversely: governments borrowing money they don’t have has threatened the stability of the world economy. See: Europe.

      > Drive for profit has led to the creation of financial products that are difficult to understand and value

      Again, it all comes back to “I don’t understand this, so it must be bad!”. (hint: someone properly valued it, and someone else was stupid enough to value it incorrectly. We should also outlaw defense in Major League Baseball, because that’s pretty hard to value too)

      > and investment banks increasingly turn their attention to the manipulation of these products,

      What does this even mean? Are you imagining Goldman Sachs employees twiddling the knobs on some giant MBS machine?

      > which is risky and a departure from financing small businesses/corporations (the somewhat noble/valuable/necessary task that many pro-finance people have laid out in this thread).

      And we all know if it’s not noble, you shouldn’t be allowed to do it. Like, for instance, gay sex. Or gases without full valence electron shells.

      > Therefore working in finance is somewhat morally dubious given that you are compensated very well to investment somebody else’s money at somebody else’s risk.

      Yes, because I held a gun to my client’s head to force them to invest their money with me.

      > Stop your self-congratulatory responses to arguments that have not been put forward.

      I am pretty sure your argument boils down to:

      .1. “I don’t understand anything about finance, it’s probably black magic”.

      .2. “People should only do things I like and that I deem noble”.

      .3. “It is morally dubious to manage someone else’s money.”

      I already mocked the first two (IN CAPS LOCK LOL), and the third is just asinine.

      • kdaysandtou

        The third point I edited out because it was stupid and didn’t say what I meant it to say. I will concede that.

        My point about investment banks changing is to suggest that there has been a paradigm shift that prevents finance from being described simply as “giving money to individuals and corporations who need it.” Your snark does not address this.

        I conceded in my previous post that there are other factors in play that affect the world economy, and that governments are doing/have done a lot wrong as well. Don’t know why you’re trying to score points here.

        When I speak about “hard-to-value” financial products, I’m not just speaking from the layman’s perspective – even if bankers can explain what these securities are, they obviously have a very difficult time valuing them objectively. Again, see 2008 – this is not a matter of my lack of understanding, but of widespread cluelessness about the value of mortgage-backed securities, etc.

        By “manipulation” I mean buying, selling, etc. I’m sorry if that was difficult for you.

        My use of “noble” to describe “traditional investment banking,” for lack of a better term is not my judgment but the judgment of the pro-finance people in this thread. That was a paraphrase, not a value judgment on my part.

        So basically, I’m arguing that even financiers do not understand the system they have constructed, which is difficult to contest given that many were on the brink of collapse three years ago despite being loaded with the brightest minds in the universe. I never say that everybody should do what I think is noble; I just think that rebuttals to arguments about finance’s moral dubiousness should not be predicated on abstract concepts of finance (which attempt to invoke some kind of morality/value, or at least necessity) that ignore the vastly different behavior of current financial institutions.

        • River_Tam

          > By “manipulation” I mean buying, selling, etc. I’m sorry if that was difficult for you.

          So would you say that hot dog vendors manipulate hot dogs?

          > When I speak about “hard-to-value” financial products, I’m not just speaking from the layman’s perspective – even if bankers can explain what these securities are, they obviously have a very difficult time valuing them objectively.

          Mainly because they are history majors who have “learned how to think” instead instead of econ and math majors who have “learned how to add”

          (I concede it’s possible for the mathematically-oriented to make mistakes as well – see LTCM – but that’s mainly an issue of hubris rather than a failure of mechanics).

          > So basically, I’m arguing that even financiers do not understand the system they have constructed

          As I said, your point boils down to “I don’t understand finance!!”. Trust me, just because something has an unpronounceable acronym does not mean it’s impossible to understand. You should take a few finance classes in undergrad so you can intelligently critique the system instead of throwing your hands up in the air and declaring that everyone’s clueless simply because you are.

          > which is difficult to contest given that many were on the brink of collapse three years ago despite being loaded with the brightest minds in the universe.

          Except they’re *not* loaded with the brightest minds in the universe. You’ve fallen prey to one of the classic blunders!

          > My use of “noble” to describe “traditional investment banking,” for lack of a better term is not my judgment but the judgment of the pro-finance people in this thread.

          I don’t think the “pro-finance” people (LOL! They’re pro-companies existing!) consider finance more or less “noble” than any other profession, which is to say – it’s irrelevant.

    • RexMottram08

      Clinton era distortions were not “allowing these banks to get too big.” It was pressuring mortgage lenders to hand out loans to “underserved” groups who would have been routinely denied loans without such pressure (owing to horrible credit history, no assets, no jobs, etc)

      • kdaysandtou

        Fair enough.

  • River_Tam

    Let’s be honest.

    “Finance is soulless” is an easy way for recent grads earning less money (or no money, in the case of Anthro and WGSS majors) to convince themselves that they are taking some principled stand in their relative poverty.

    Sincerely,

    Someone not in finance.

    • etoohey1

      While I dont agree entirely with this post — as I think many people who offer this opinion (finance is soulless) genuinely believe it, I do share river tam’s cynicism.

      And i would add, that demonizing finance without bothering to make an effort to learn what you are talking about (beyond reading a dozen nytimes articles and watching too big too fail) is a convenient way for soon-to-be grads to get their naive and overly simplistic rants reprinted in the nytimes. While it may be a legitimate concern that too many Yale students enter finance because of aggressive recruiting and do not consider more ‘productive’ careers, when this opinion comes from privileged rich northeast liberal yale students hoping to land gigs at the New Yorker and The Nation (companies which are somehow exempt from the stain of capitalism in their eyes), the critique lacks sincerity and maturity. Protesting outside the Study when hard working juniors lucky enough to have a shot at a job (while 25% of recent college grads are unemployed) might be a nice ‘follow-on’ for a cutsy ydn article, but it isnt a real protest and it isnt a thoughtful critique of the financial industry.

      The bourgeoisie critique of the financial industry by leftist leaning by often shockingly poorly read yale undergrads may work while here at school, but it will fall flat once you realize that ideology and subject position cannot be so easily compartmentalized.

      Go down to OWS, actually protest (for more than a 2 hour block on your iCal), read the actual financial literature (klein, stiglitz, krugman, johnson/kwak, reinhart/rogoff, and a dozen others), learn what a derivative actually is and what ibanks did and didn’t do (btw whoever is posting that finance professionals dont understand their own products bc they lost money on them has definitely not had any real world experience in any business) so that you can be both intellectual informed and legitimately committed. Because if not you just sound whinny and naive, your arguments end up superficial and unimpactful, and your efforts transparently self-serving and laughably self-righteous.

      The only thing I am MORE critical of than the financial industry today, is the pathetic efforts of yale students to articulate a criticism of it….

  • Inigo_Montoya

    >We should also outlaw defense in Major League Baseball, because that’s pretty hard to value too

    I don’t know about that, River; a three year UZR sample is pretty darn good, and teams’ HITfx-based proprietary metrics are most likely even better.

    (/CompletelyMissingThePointOnPurpose)

    In all seriousness, though, applied sabermetrics is actually a lot easier than quantitative finance for a number of reasons (e.g. fat tails and all that jazz; even ‘roids Barry Bonds was not exponentially more valuable in wins than run-of-the-mill All Stars).

  • River_Tam

    > I don’t know about that, River; a three year UZR sample is pretty darn good, and teams’ HITfx-based proprietary metrics are most likely even better.

    No love for John Dewan?

    > In all seriousness, though, applied sabermetrics is actually a lot easier than quantitative finance for a number of reasons

    There are ways to insulate yourself from the fat tail. Just because people didn’t heed Taleb before the crash doesn’t mean he didn’t see it coming.

    • Inigo_Montoya

      Eh, DRS is good too. Also, you and I both know that there’s more to finance being tricky than all the Taleb-y (or at least pop-Taleb-y, as opposed to technical Taleb-y) stuff. And one thing Taleb himself admits is that redundancy/insulation is costly. More optimized, less stable firms can (in certain industries) drive out less optimized, more stable firms before their instability comes back to haunt them. This, of course, is all rather off topic. I’m just (as usual) amused by how much our interests seem to overlap.

      • River_Tam

        > More optimized, less stable firms can (in certain industries) drive out less optimized, more stable firms before their instability comes back to haunt them.

        I agree this is a problem (as it is in every industry – products that are cheaper and last N years before they blow up will always outsell products that are more expensive but never blow up, unless consumers value nonblowingupness), but it doesn’t mean it’s not possible to properly value/hedge positions.

        • Inigo_Montoya

          Of course it’s still possible. All I was saying is that valuing certain kinds of financial assets properly is more difficult than valuing baseball players properly (and, of course, misvaluation can have more catastrophic effects across the economy).

    • jinjdkla

      UZR and WAR are great stats in evaluating a player’s defense in baseball. In evaluating a team’s defense we can also look at its pitchers’ average BABIP too

  • stefano

    There is barely a sentence I agree with. And regarding: “What makes being a writer or a farmer or a painter more laudable than working at a consulting firm? Consider professional football players who make millions, or the people who deliver our mail each day: Both work to supply a service that is demanded by the marketplace. Bankers, traders, equity researchers and consultants provide a service that has been assigned a particular value — they receive compensation that reflects such value. It is fair to object to how society values different professions, but it is unfair to demonize the people who reap rewards for their work.” I don’t think Gidado could disagree with the fact that there is alo a certain market demand for pedophilia pornography, drugs, prostitution and so on: Are these legitimated because they respond to an external market demand? Is it “unfair to demonize the people who reap rewards for their work”, namely drugdealers and pimps? Perhaps finance jobs are not as harmful as drug dealing and prostitution, but this it legitimation cannot come from what you claim, it cannot come from its market demand.

    • River_Tam

      To the contrary, market demand does legitimate a profession. There are other, *overriding* considerations that can *delegitimate* a profession. That consideration is societal harm – and as you yourself said, “finance jobs are not as harmful as drug dealing and prostitution” (hence why prostitution and cocaine are illegal while puts and calls are not).

  • ScalabrineFan

    Has drug dealing and prostitution ever caused a recession? The finance industry has blind sided us with a decade of creating increasingly complex derivatives to make borrowing money easier, derivatives that they sold off to unsuspecting institutional investors (but of course, not before they had them rated AAA by ratings agencies who also didn’t understand them). Drug dealing and prostitution are bad things. Nobody disagrees with that. But I would argue that finance has the ability to do more harm. Puts and calls shouldn’t be illegal. But how about synthetic CDOs?

    • River_Tam

      > Has drug dealing and prostitution ever caused a recession?

      Finance didn’t cause the decline of my neighborhood (or the Holocaust, for that matter).

      > But how about synthetic CDOs?

      Gag. Which author did you drag this one up from? Krugman or Soros? At least they know something about the topic they’re discussing. What is your particular objection to synthetic CDOs as opposed to cash CDOs? Do you also want to outlaw credit default swaps? Or are you just parroting what you saw on a Netflix documentary?

      Like I said – it all boils down to “Finance is hard, let’s go shopping”

      > derivatives that they sold off to unsuspecting institutional investors

      “Unsuspecting” is a little rich. Did they lie about what they were selling? Of course not. Did they hype it up? Of course they did. Hell, Apple hypes up the iPhone and Verizon hypes up the Droid. It’s not like the “unsuspecting institutional investors” (aka: lazy, overpaid money managers) couldn’t have done their research.

      One summer, I worked in a shop that did business with OMG LARGE BANKS, and it was always made very clear to everyone that we were not the bank’s friends – we were their lunchmeat.

      Where the law is broken, we should certainly prosecute it (unless the perpetrator is black, in which case THE JUSTICE SYSTEM IS BROKEN), but banks weren’t ripping off little old ladies in the grocery store – they were selling goods to financial professionals who were willing to buy.

  • ScalabrineFan

    1) I can’t speak to what caused the decline of your neighborhood, so I’ll take your word for it.
    2) Cash CDOs seem reasonably justifiable. I think that functioning credit markets are important, and that Cash CDOs can facilitate these by letting lenders offload risk from loans and mortgages. But what is the justification behind Synthetic CDOs? So that people are offloading risk from their Credit Default Swaps? The justification behind this is much more tenuous. In addition, Cash CDOs are constrained by the number of loans and mortgages in existence (not a trivial point), while Synthetic CDOs can be created as long as there are people on both sides of the bet. It is not clear to me that the risk of allowing people to create hundreds of billions in synthetic CDOs (I think even you will agree that there are systemic risks to creating such a large amount) justifies the reward (which really boils down to two sets of financial engineers betting against one another, when you see things like the Magnetar trade, you have to question whether the product is really doing what it is meant to do). It is actually pretty hard for me to see any great good that comes from allowing Synthetic CDOs.
    3) “Unsuspecting” I think is a fair characterization. Am I trying to say that institutional investors and ratings agencies were not at fault? Absolutely not. But I like your grocery store analogy. Suppose I am at the grocery store. I buy some produce, check it over, and find nothing wrong with it. Then I go home and find it was rotten on the inside. Fine, that’s not great, but I don’t blame the grocery store. But what if I then find out that the grocery store knew that it was rotten all along? Then I’m mad. This is why people are mad, because banks were selling CDOs that they knew were no good.

    • RexMottram08

      Risk transfer facilitates the movement of risk components from those less able to those more able to bear them. Of course, a gov’t backstop reverses that flow…

    • River_Tam

      You don’t buy securities as a black box (like you do with fruit – you’re not allowed to open it up in the store). But it WOULD be pretty stupid to buy, say, Eggs without checking that they’re not cracked.

  • PS_QR

    The comments on this piece make my soul hurt. On both ends.

  • domlawton

    “At the end of the day, in a functioning democratic society like our own, no one has the moral high ground to assign normative judgments to lawful occupations that all pay their workers.”

    This is dangerous nonsense. Of course we do. Plenty of people get lawfully paid for lawful jobs that are nonetheless despicable. If you don’t like the fact that pursuing one of those means your peers might judge you, tough.

  • dms

    Where is this “demand” for financial services? I don’t see it. What I see is an easy way to make money fiddling with math. Since when is allocating capital more important than producing it? Financial types like to forget that they in fact produce no wealth whatsoever except through gambling and fiction. Use whatever synonyms you want, but that’s what it is. In a capitalist economy this functions fills a certain niche but even many mainstream economists now recognize that the sector has become bloated and disproportionately powerful. It’s workers who produce wealth, not the creeps pushing credit default swaps. Bankers are paid what they’re paid because they can get away with it. This does not reflect their worth to society.

    We used to have something called Fordism, roughly in the middle of the 20th century. The idea was that you’d pay your workers enough so that they’d be able to buy your products, i.e., you get off the Ford assembly line, drive your Ford to your house (which you own outright without having to go into massive debt), and put food on the table for your wife and kids, all of whom are able to get by on your single income. That way of life wasn’t perfect (see: sexism, racism, homophobia), but the fact that it has been utterly destroyed is a national tragedy. Now that capitalism has destroyed the consumer base, it has realized that the only way to make big bucks is to take increasingly ridiculous risks. Crisis inevitably results. Does anybody really believe this system is sustainable?

    I feel 100% comfortable taking the moral high ground. Some jobs make you rich, and some are morally admirable. If we were making Venn diagrams the overlap here would be miniscule. I think that’s all the reason we need to stand up and think about changing direction.

    Finally, the grammar cop in me wants to point out that the word “bourgeoisie” is a noun, while “bourgeois” is an adjective. Etoohey1, I simply have no idea what you mean by “the bourgeoisie critique of the financial industry.” I feel like we’re coming from the same place but please try to express yourself better.

    • ScalabrineFan

      Awesome post.

  • theterminator

    This article, unlike most of the ones posted on the columns about finance, actually makes sense. If someone wants to go into finance, let them go there. I don’t understand why students are protesting finance info sessions now. Contrary to what the protestors’ small minds can comprehend, some people actually enjoy finance and the art of picking stocks. It gives them a “high” similar to a runner’s high or a football player’s high. So why are they automatically condemned for going into that field if that’s something they enjoy?

    Also, I don’t get why students who are protesting are doing so anyway. Are you going to go to a prestigous university only to learn to protest? Quite frankly, if you are spending your time protesting, you probably have no clue what you want to do in life and probably will be jobless upon graduation. I don’t sympathize with you guys. Learn to do something productive and let the losers protest.

  • ScalabrineFan

    The freedom to protest is one of the cornerstones of our great nation. Yale trains leaders and that includes those who lead protests.

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