‘No economically redeeming aspects whatsoever’
In a blog post titled “Streetwalkers,” the New Yorker‘s George Packer laments that, after a brief hiatus, the brain drain to Wall Street seems to be back underway:
Why shouldn’t the graduates of America’s élite universities flock to Wall Street again, now that the market is clearing up? The acceptable answer is that there’s no reason they shouldn’t. Nothing wrong with making money. …
Why do we need a financial sector whose share of gross domestic product has doubled over the past several decades? Is it healthy for financial services and investment to dominate our economy as they do, and to consume the talents and advantages of astounding percentages of our élite graduates? Are long-term growth and shared prosperity ever to be found in an economy that depends so heavily on electronic transactions rather than production? Is social cohesion in a democracy possible when the gap in incomes between investment bankers and doctors, let alone teachers, let alone fast-food workers, is as enormously wide as it is today?
Investment bankers like to say that what they do makes the rest of the economy work. But the synthetic products that helped create Goldman’s record-breaking profits, drove the financial system close to collapse, cost millions of Americans their jobs and houses, and led to a civil suit against the firm have no economically redeeming aspects whatsoever. They have as little to do with productive activity as high-stakes blackjack. A Wall Street career is becoming indefensible, and yet large fractions of the graduates of America’s best universities can think of no better use for their intelligence and degrees than a job that has become less socially useful than prostitution, and a lot more harmful.
Quite right; they should find honest work. But alas…what would that be?
Here’s the story about teacher lay-offs in Sunday’s NYT: “With New York City schools planning for up to 8,500 layoffs, new teachers like Mr. Borock, and half a dozen others at his school, could be some of the ones most likely to be let go. That has led the schools chancellor, Joel I. Klein, into a high-stakes battle with the teachers’ union to overturn seniority rules that have been in place for decades.”
http://www.nytimes.com/2010/04/25/education/25seniority.html?hpw
I prefer real products to synthetic ones. But maybe that’s just me. Graduate degrees in math and science from Ivy League schools, and their western counterparts, should be offered free of charge. I’m sure the freakonomics would agree.
Michael, maybe you should investigate where math and physics graduates go after graduation and what they are doing with their degrees. Many are on Wall Street. Indeed, they are the most desirable of candidates. This is particularly vexing for the U.S., because the disproportionate sucking up of technical and science majors by the financial sector is virtually unique to the U.S. In my opinion, the Wall Street centeredness of the Ivy League is one reason NOT to send your children there for college.
“A Wall Street career is becoming indefensible”
That’s sloppy writing. It’s either indefensible or it’s not. And if you’re going to make such a strong statement, you better have the goods. All Mr. Packer brought to the table was his envy and frustration.
“Quite right; they should find honest work. But alas…what would that be?”
——-
Writing for The New Yorker, like Packer.
Barbara, I was not aware that math and physics grads were highly desirable to Wall Street. But I’m not surprised. Perhaps those who choose engineering professions should be given a lifelong exemption to taxes on their income. My point is that money talks, bs walks. Unless incentivized to behave otherwise, our best brains will always migrate to lucrative professions. Mark. A Wall Street career is more than defensible. Just ask Bernie Madoff.
Mark. Thanks for not taking the bait. I have always believed our capitalist system is the best the world can offer, Still, in light of recent events, it’s not surprising to me that some have come to conclude that wall st jobs are indefensible. As a resident of a rust belt state, i admit to a bias in favor of industries that make real things…e.g. durable goods.
When Arthur Ryan was president of Chase a few years ago he was told by a mutual fund manager he had to bring the value of his stock up. What Ryan did was to lay off a considerable amount of Chase employees which raised its earnings curve by such gains. Solely for the satisfaction of stockholders rather than the common good. It really does not take a creative mind to do such stuff. Same with the merger and acquisition phenomenon that swept Wall Stree two decades ago. What the mergers did was make companies stock higher while unemploying many of the merged companies. By such moves we created a wider gap between the super rich and the rest of the middle class. Real injustices. A few people gained while most were hurt and without employment.
The latest debacle underscored Wall St greed. This is not capitalism. It is manipulation. There is no product but an imagined value which can collapse at any time almost like a ponzi scheme.
Packer is quite right. And don’t call it anti-captitalism.
To understand why Wall Street borders on worthlessness, consider the difference between the current “bust” and the “dot com bust.” Certainly, there were mind blowing excesses during the latter — often fomented by Wall Street — but there is no doubt that most of those crazy tech companies were actually based on an idea or an innovation. Some have actually stuck. Others were always pie in the sky. Some were bought by others, or lost their market edge, and others were simply leap frogged by yet newer technologies. What CDOs did, even if they worked out well for someone, was to simply magnify the potential exposure associated with an underlying asset. It never increased the value of any asset or created any innovation within the underlying economy. In my view, states ought simply to prohibit public investment vehicle from playing in this swimming pool. Without a huge market of potential suckers, they aren’t worth nearly as much. People who could be studying, for instance, the next wave of communications or health care or environmental applications associated with math or physics, but who spend their days figuring out innovative financial instruments, are wasting their time. I have a friend who is a brilliant mathematician who worked for a time for a hedge fund but who has, thankfully, moved on.
As I understood the term “Wall Street” it used to refer only to, or at least primarily to the stock market. But isn’t “Wall Street” being used here for a whole complex of businesses which provide financial services, including the stock market but also investment bankers plus our neighborhood bankers and mortgage companies?
If this is correct, then to blame all our troubles on the stock market by the use of the term “Wall Street” is a huge over-simplification, and it might contribute to the general public not supporting the different sorts of regulations needed in the different sorts of businesses. In other words, I think we need a new word for the whole complex of financial institutions.
“Nothing wrong with making money. …”
Really? I was literally glancing through the Bible the other day, as in flipping at random from one book to another and just happened to see 3 separate passages that warned of the evils of money. It’s a lesson we clearly don’t seem to be learning, despite all the evidence in the world to substantiate it.
Money, get away
Get a good job with more pay
And your O.K.
…Money, it’s a hit
Don’t give me that
Do goody good bullshit
…Money, so they say
Is the root of all evil
Today
But if you ask for a rise
It’s no surprise that they’re
Giving none away
-Money, Pink Floyd
Right now, the lure of Wall Street means, essentially, that people are well-compensated for minor risks that have virtually no chance of creating anything other than a zero sum game — A CDO has no chance of “creating” value — it’s only attraction is to shift income from one party to another. So, “risk taking,” as minimal as it was for IB employees under the circumstances, has virtually no chance of paying off for society as a whole.
Compare that with risks taken by people in Silicon Valley. In fact, I am going to go out on a limb and say that one reason why Silicon Valley is so dynamic is that it is as far away from the core of the financial industry as possible. Kids who graduate from Stanford or Berkeley or UCSF don’t want to move to the East Coast, and so are not lured by the easy money no risk to you gigs offered by the financial sector. I don’t think Silicon Valley could exist on the East Coast, because too many whiz kids are sucked into the financial sector and find it impossible to take the golden handcuffs off once they get there. And many of the younger set have, how shall I say, a preening sense of overentitlement. In that respect, to the extent that debt from college contributes to this dynamic, it truly is a bad deal for society.
Venture capital and private equity, as greedy as they may be, still have their eye on economically productive activities.
How do you all like the idea that ‘they’ only pay 15% capital gains tax.? When you radio listen to ball games in Ca. you are forced to hear a tax attorney firm [Moskowitz] tell you’ The McCourts who own the Los Angeles Dodgers paid no Federal or state taxs on 100 million dollar earnings. Call our office for tax advise’ nice huh.. Wonder what the TeaParty says about that? another reason to root against the Dodgers?.
“As a resident of a rust belt state, i admit to a bias in favor of industries that make real things…e.g. durable goods.”
Michael –
As I see it one of the great problems with our system is that the goods are no longer durable. The goods (except for rare products like the Apple ones) are shoddily made of inferior materials so they’ll break quickly and we’ll have to buy some new ones. This sends us to the malls in droves. This economic system results in our working longer hours to buy the junk, so we lose leisure time, a commodity Americans increasingly have little of.
A great part of the problem is the educational system — kids aren’t introduced to the various sorts of activities that are much more satisfying than buying junk. By satisfying pursuits I don’t just mean reading. The old stereotype of a “rich person’ is no longer someone with money and the leisure to enjoy the beautiful things money can buy. “Rich person” has been revised — enjoyment of leisurely pursuits is no longer included. Americans still count travel as part of being rich, but they travel in order to go shopping in foreign countries, which also produce tons of junk.
People aren’t educated until they know that there is value in life even beyond ephemeral sensate pleasure. Unless they are grounded in philosophy and/or religion and are taught what the possibilities of leisure are, they won’t realize that the American way of life is an infinitely repeating loop of fleetingly fulfilled desires.
OK, OK, so that’s an over-simplification, but it describes a great deal of living in the U. S. The Popes are right about this.
There is a movement in Britain to teach philosophy even in grammar schools. Yay, British! Go to:
http://www.philosophypress.co.uk/?p=1186
HT Antonio Manetti :-)
P. S. The schools should also start economics in the grammar school. Many, many years ago I saw a TV program about an econ class for little bitty kids. One great image was of some third grade kids dutifully answered a question with, “Scarcity! Scarcity!” ISTM that economics should be integrated with the ecological stuff now being introduced in many grammar schools.
I know it’s easy to criminalize Wall St. with a broad brush, but I think before we do this, one of the things we have to consider is that today not many companies provide defined pension plans. Most people have a 401k. This means everybody has to become familiar with Wall St. one way or another. Maybe what we really need is better ethic’s courses in our MBA schools. Wall st is not going away, and maybe every child at a young age should learn some fundamentals of Wall st so they don’t go in totally ignorant. This phenomenon of investing is as much part of life developments as as television and the internet. You can’t wish it away. The idea is to send some of the best talent into Wall St. and make it operate morally.
Andrew P Savarere wrote:
“Maybe what we really need is better ethic’s courses in our MBA schools. ”
Last year, some new graduates of Harvard Business School created a voluntary code of ethics oath. (NYTimes article here: http://tinyurl.com/mav2ns )
Only 20% of the graduating class decided to sign it – probably because it included a number of outlandish (!) pledges. Here it is in full:
I promise that:
• I will manage my enterprise with loyalty and care, and will not advance my personal interests at the expense of my enterprise or society.
• I will understand and uphold, in letter and spirit, the laws and contracts governing my conduct and that of my enterprise.
• I will refrain from corruption, unfair competition, or business practices harmful to society.
• I will protect the human rights and dignity of all people affected by my enterprise, and I will oppose discrimination and exploitation.
• I will protect the right of future generations to advance their standard of living and enjoy a healthy planet.
• I will report the performance and risks of my enterprise accurately and honestly.
• I will invest in developing myself and others, helping the management profession continue to advance and create sustainable and inclusive prosperity.
Too much Boy Scout bullshit for the other 80% of the class, I guess.
So, I will attempt a (very) modest defense of Wall Street, without seeking to excuse greed or dishonest dealing.
Financial markets are critical to the functioning of the marketplace, and have been for many decades now. The traditional “rust belt” manufacturing industries being praised here raised the capital to build the plants that employed those mllions of workers by issuing stocks and bonds on Wall Street. The first derivatives, futures markets, were created to make it easier for farmers and ranchers to do business with the food industry, and to provide price-protection mechanisms for the producers (i.e. the farmers).
The market players being reviled here – the traders and managers – are, whatever their personal characteristics, also indispensable to the functioning of the markets, if for no other reason than they provide market liquidity, which benefits the big guy and the little guy alike.
Silicon Valley, also being praised here, had very few true bootstrap operations. Most start-ups received one or more rounds of venture capital, which was provided from, among other sources, venture capital firms that also are big players in the financial industry. As they reached critical mass, the great West Coast high tech companies – Microsoft, Google, Oracle, Intel, et al – went public, which is to say, their stocks and bonds are now traded by Wall Street. There are many workers who prospered – a lot of millionaires have been made – via this route, not by trading stocks, but by working for value-producing firms who make use of the financial markets as part of their daily operations.
MBS’s and the “exotic” financial instruments had, in many cases, praisworthy beginnings. Securitizing mortgages provided a way for retail lenders to offload the risk of making long-term loans. This lubicrated the housing market and was one of the reasons that home-owners, of whom therea are many tens of millions in the US, enjoyed increasing property values for decades. That there were flaws in MBSs, istm, is due at least as much to stupidity as greed. Of course, ignorance is another deadly sin, but it’s conceivable that a properly regulated market for such securities might provide a modicum of risk abatement. (As I understand it, this is one of the big features of Obama’s financial reform plan).
People on the East Coast may be prone to overvalue the uniqueness of the Ivy League. Other universities in other locales all over planet earth have stellar programs that attract extremely bright and ambitious young people. I’ve read that 1/4 of the high-tech entrepreneurs throughout the last two decade in the US were immigrants who came to the US with excellent educations from India, China and other nations.