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Michael Lewis on the End of Wall Street

Michael Lewis' article on the demise of Wall Street is definitely worth the read. My favorite part of the article though was the first couple of paragraphs:
To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall....I’d never taken an accounting course, never run a business, never even had savings of my own to manage.

This phenomenon always made me scratch my head too. I knew plenty of people who got jobs as "financial analysts" or "financial planners" at young ages. The year before they were bartenders and then all of a sudden, without any training, *poof* they were experts in stocks, bonds, the market? Always struck me strange.

Many times the truth of the matter was that while they had the fancy title, most of their job was really apprenticing - cold calling and doing other grunt work that was the first step in their on the job training. But, with that, that didn't mean that if their firm had an opportunity to make some money off of these junior folks giving advice, making recommendations, etc. that they wouldn't.

I get cold called from time to time by brokers (not as much anymore). Whenever I do, the broker inevitably tells me that what they are particularly good at is finding gaps in the market, or undervalued stocks, etc., etc. and that we can make a lot of money together. My response to them is that if they're so good at finding these gaps, why the hell are they cold calling me? Shouldn't they be executing trades while sunning on their yacht?

Most of the time they hang up on me when I ask that.

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Comments (1)

eternitus:

I was one of the "greedy bankers" before leaving to join an investment management firm. I don't know anyone on wall street who makes decisions on their own at 24. To even have a little responsibility, you need to work 75-80 hours per week for 4-5 years under experienced managers... about as long as it takes to become a doctor... don't know how it works for brokers, however, but they don't make decisions with billions of dollars like the ibankers.

Even after getting experience... the "young" 27 year old doesn't make many decisions unless he/she displays exceptional capability. The shots are still called by experienced managers. The mid-level professionals are often asked to help frame the discussion and provide opinions/potential solutions... but their main jobs are to oversee projects once decisions are made, with the help of the young 24-year olds, who mainly crank on spreadsheets.

It's convenient and reassuring to blame it all on "whippersnappers," but that belies the real problem: short-term incentives with long-term consequences.

When I was one of those young 24 year olds, I asked my boss about the advisability of putting one of our clients in a deal that would almost certainly ruin the company and burn all of the investors. He said to me "IBG, YBG" I'll be gone, you'll be gone. The deal was done and the revenues went into the bonus pool. Sure enough, 3 and a half years later, we've moved on, the company's nearly worthless, and all of the investors got burned.

Bankers can make enough money to be set for life in the span of a year... as long as the good times roll past bonus season, no one cares. Until bankers can no-longer make obscene bonuses without regard to the long-term implications of their decisions, this silliness will crop up again and again. It's only a matter of time before investors pour en masse into new products that have only been stress tested in Microsoft Excel.

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