Stop shitting on Wall Street

http://bsiscovick.tumblr.com/post/849658406/stop-shitting-on-wall-street

by bsiscovick • 16 years ago

35 56 16 years ago

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hsmyers• 16 years ago

He is right--- bankers at the level he speaks of certainly don't deserve the crap handed out by the tech community. That said I'd still apply the 'Shakespeare' solution to the rest of the corporate pyramid just after handling the lawyers.

arethuza• 16 years ago

I'm honestly amazed at how quickly everyone has stopped throwing sh_t at the various financial institutions that caused the chaos of the last couple of years.

In the UK, where most public spending is being cut by 25% there are a lot of unhappy people who blame this mostly on the £850B bank bailout (of course, it wasn't just the cost of the bailout, but it certainly didn't help).

I think things could potentially get a lot uglier before they get better.

Jd2• 16 years ago

Not "could potentially" but "will definitely."

There is a one word description that suffices to describe the problem: corruption.

wheaties• 16 years ago

The funny thing is that there is a lot of innovation within large companies that will never see the light of day elsewhere. These inovations are viewed as a competitive advantage so will never emerge. Sometimes engineers have invented things within corporate confinement only to take those ideas and refine them within the freedom of a start-up. Then there are those who speak of things within companies like Google who swear what they have seen in open-software pale in comparison to what happens behind their closed doors.

Speaking of Wall Street, people need to realize that there's just as much emphasis on learning, evolving, and discovering new science there as there is in many smaller companies. The problem domain is more geared towards the maths, data mining and currently low-latency systems.

dyc• 16 years ago

"I spent two years and a summer as a junior banker. I knew from the get-go that I never wanted to be a career Wall Streeter. I viewed my time in banking as a continuation of my education. And you know what, from that perspective it was incredible. The nearly undeniable reality is that the skills and knowledge acquired in banking are remarkably valuable and broadly applicable throughout ones career. Contrary to uninformed opinion, it is not all about spreadsheets and powerpoints - it’s about understanding flows of cash through companies, analyzing markets, thinking critically about strategy and competition, and importantly, identifying and valuing opportunities."

This is so far from the truth. Most junior bankers come away learning little relevant or valuable towards actual business and the startup world.

leelin2• 16 years ago

I can't speak for bankers, but I can confirm a similar situation from my hedge fund days.

I interviewed lots of interns and junior full-time folks who worked in IT or infrastructure groups supporting trading desks. They all claimed it was a great experience learning how markets work, how their asset classes behaved, etc, and wanted to move to front-office. Sadly, the vast majority were completely clueless of how the asset class worked or even what instruments their code was pushing through databases, booking systems, and PNL calculators. Keep in mind I'm not faulting them for being ignorant of the actual trading strategy (which by design the front-office keeps a secret).

Fresh college candidates fortunate enough to play around with an options-enabled eTrade account during undergrad have far more market knowledge and passion for finance than say, a 2nd year infrastructure or trading platform coder at a bulge-bracket bank.

It stinks that the IT guys get pigeon-holed into the least glamorous part of finance, but after trying to keep an open mind for years, I can understand now why firms are so reluctant to let their back-office shift their way to front-office. For anyone trying to make the move, my advice is take the extra time to learn about the liquid you are plumbing through the system, get truly passionate about the underlying finance and math, and then change firms, because your current one likely won't let you make the leap.

EDIT: Responding to comment below. Hard work and a high threshold for pain will get someone pretty far in finance, but I suspect not far enough if there is no underlying passion. Anyone who really wants big bucks and prestige must eventually earn the pilot seat, or at least be in the cockpit (as a co-pilot). Maybe the saddest part of finance is that far too many people want to be pilots and not enough are happy being flight attendants and mechanics.

Jd2• 16 years ago

I'm not sure that "market knowledge and passion for finance than" translates into big bucks and prestige, which seems to be what most people going to Wall St. are seeking.

noname123• 16 years ago

As a programmer at a HFT broker. I completely agree with what you have said. I was wondering if you could get into the more specifics of what one should do, to take the leap from back-office to front-office.

Particularly, should one, (1) study and take the Series 7 exam, (2) study and do more statistical/Matlab/Monte Carlo/quant projects on the side, (3) open a IB account, collect some real time data and write your own algo's to trade, (4) take an unpaid internship at a 2nd-tier prop shop as a trader trainee or trade your own account at a trader's arcade.

Please let me know if you have any ideas or suggestions. Thanks.

pxlpshr• 16 years ago

Okay. Meanwhile, 17 bailed-out banks overpaid executives with tax payer money. If my startup failed, man it sure would be nice to get a $MM exit. http://www.npr.org/templates/story/story.php?storyId=1287195...

Wall Street needs to return to partner-driven approach like law firms instead of taking risks with other people's money.

chasingsparks2• 16 years ago

Subjectively, I think the executives are overpaid in general. However, bailed out bank executives are objectively overpaid for the reason you stated: you can't have capitalism without losses.

In fact, I don't think they shouldn't have been bailed out at all. The banking system probably had to be rescued, but bailouts mangle capitalism. Banks that needed bailout should have been nationalized with the very explicit constraint that they be re-privatized after the storm had passed.

(Note: I mostly just parroted Nassim Taleb's argument from two years ago.)

dasil0033• 16 years ago

Did they have to be rescued? We already have FDIC to ensure the little guy doesn't lose his shirt.

Sure, top financial experts claim that if some those big insolvent banks failed then the economy would die. Well, maybe or maybe not, but most of the top experts testifying to congress had an a tremendous conflict of interest with regard to their personal careers and holdings. We don't have any example of what would have happened... somehow I doubt people would just stop producing though.

Also, even if we accept that a bailout was necessary, then the taxpayers should have owned those banks. The government should have seized them, purged the toxic assets, and then re-privatized when the books were clear. This is, as far as I know, the textbook way that the World Bank recommends bank insolvency be handled, recommended over and over again to third-world countries, but somehow never got seriously considered when it's big American banks.

ojbyrne• 16 years ago

If you define a failed startup as one that's never made a profit, there's no shortage of them with "$MM exits." Bebo, anyone? Plus its easy to find startups where founders or execs took money off the table long before there was a whiff of profit.

And since many VC funds include CALPERS as a large investor, it often ends up that "tax payer money" is the ultimate source of the funds.

known• 16 years ago

Wall street adds value to Govt. Start up adds value to the society.

rmk• 16 years ago

Well said. Startups add value to society.

But society quickly discards anything that is not of value. How come Wall Street still thrives? Surely there must be something that they offer?

It's Government that doesn't add value. It failed miserably at its job of regulation (whatever was left after glass-steagall, that is), passed highly unpopular policies whose results have been questionable, and now passed another monstrosity that it hasn't even finished, but will leave it as an 'exercise for the readers'.

I would say Wall Street is an ugly manifestation of the perverse incentives that Congress helped create.

chasingsparks2• 16 years ago

Thanks for writing this; it's been bothering me for sometime now.

Commonly, the arguments are Wall Street "doesn't create value," "merely moves money from A to B," or "just exists to extract wealth." Wall Street produces pricing information. Wall Street produces this pricing information by moving money in markets from A to B, and extracting some money as payment. All businesses exist to extract money from somewhere!

Good pricing information is extremely valuable. Bad pricing information is devastating. We just had a crisis caused by bad pricing information that had multiple origins, including Wall Street. However, the majority of the information produced by Wall Street is still good.

Wall Street gets the brunt of the animosity because Wall Streeters make a lot of money. Furthermore, there is a severe asymmetry between positive and negative perceptions. When markets are well-functioning, their success is easily obscured; When markets are poorly functioning, their failure is center-stage.

Before someone accuses me of conflating Wall Street with markets in general, I would like to counter that Wall Streeters are the maintenance men of markets. Some of those out-sized returns on short-term trading operations help pay for the fundamental research that helps produce good pricing information.

euroclydon• 16 years ago

Oh Please! Wasn't it the repeal of the Glass-Steagall Act which allowed these Wall Street Firms to simultaneously act as hedge funds and as you would put it, purveyors of "good pricing information?"

Faced with the choice between making a few dollars providing pricing information, or manipulating that information (and sometimes the markets themselves) in order to make big-time money, they chose the latter.

hga7• 16 years ago

No. Glass-Steagall prevented bank holding companies from holding other financial companies ... and I'm not aware of many of the former causing large problems (Citicorp, yes, but that three time loser should have been put down a long time ago). Of course many bank holding companies that were holding subprime toxic instruments as capital got slagged, but that's a very different problem.

In fact, if what you wished were true, the rescues of the surviving investment banks, American Express, CIT Group (big middle market financing company) and General Motors Acceptance Corporation would have been impossible (or at least would have had to proceed differently). The government's solution was for them to become bank holding companies. Two investment banks, Bear Sterns and Merrill Lynch, were rescued by having bank holding companies buy them (JPMorgan Chase and Bank of America, the latter in the end at virtual gunpoint).

mcantelon• 16 years ago

Markets can create pricing on their own. As you say, bad pricing is devastating and Wall Street played a huge part in the bad pricing that created the crisis we're still in. They are hated because they take more than the value they add merits.

dasil0033• 16 years ago

You're right that Wall Street serves a valuable function.

The reason for all the animosity is because they did a piss poor fucking job of it and then used their influence at the highest levels to convince the government that a bailout was necessary, enriching themselves instead of taking their lumps. In 1929 wall street men were jumping out windows. In 2008 they were jumping out planes with golden parachutes paid for by the taxpayers while vast swaths of America were losing their homes and jobs.

Bottom line is, Wall Street fucked up and they should have taken their lumps for it. That doesn't mean everyone on Wall Street is to blame, but it means that generally yes, Wall Street does deserve our scorn (as well as congress).

hugh3• 16 years ago

Wall Street has already taken their lumps. I'd like to see feel-good government policy take its lumps now. Specifically, the kind of policies that encouraged and/or forced banks to make loans to uncreditworthy individuals.

Any time you hear a politician shitting on a bank, it's because they're trying to distract from the role the policies they advocated had in all this.

notahacker• 16 years ago

Problem is that these institutions make the largest profits when they produce bad pricing information in the form of complex overvalued derivatives poorly understood by those rating and buying them.

It's also possible to accept that providing prices, liquidity and investment is a positive contribution to society whilst still thinking that this contribution is massively overvalued when it comes to pay packets, lobbying power and protection from the results of their own errors.

MediaSquirrel• 16 years ago

I responded: http://news.ycombinator.com/item?id=1541442

Wall Street and Big Co. are the competition. We compete with them for talent and mindshare every day. And precisely because they are so appealing and have so much to offer, especially monetarily, we try to detract from their power and allure by spreading fear and talking shit. We try to make people afraid that joining Google or Goldman will lead to a forfeiture of their soul. Is it 100% rational or true? No, as he adroitly pointed out. But it is strategic and accretive to the startup ecosystem for us to talk such shit. It is marketing in its most pure and basic form.

isleyaardvark• 16 years ago

The author tries to explain the benefits of Wall Street, but unfortunately the benefits he describes are individual in nature, "what did I learn". It's all about the skills the author gained will working in that industry, but what good are those skills for? A critic of Wall Street might think that these skills are only "as value extractors rather than value creators". Edit: I'd rather see a more detailed explanation of how Wall Street creates value in a post defending them.

leelin2• 16 years ago

I agree, the better title seems to be "Stop Shitting on Wall Street Employees".

For the defense of Wall Street, a small start might be the capital marketplace argument:

http://news.ycombinator.com/item?id=973663

motters• 16 years ago

I'm not at all sympathetic to wall street. They relied on bad math and bogus assumptions, and ended up ruining a lot of people's lives in the most unprofessional manner imaginable, whilst absconding with a huge amount of tax payers money which future generations will be paying for.

drunkpotato• 16 years ago

"Stop shitting on Wall Street"

No. Wall Street has not been shat upon enough. Banking and finance have a proper place in a well-run market, and that place is much, much smaller than they currently are, with much less lobbying power. Until the financial sector is drastically reduced in size and power, we need to shit on them much, much more.

T_S_5• 16 years ago

I think vitriol plays into the hands of the industry. It appeals to anger, which will fade and is not focused. I think we should be analyzing how to shrink the industry's size and influence, and design what should replace it. After all this site's readers are nothing if not problem solvers.

hga7• 16 years ago

Well, the shrinking of the size of the financial sector is happening all on its own and I'm not sure we need to do anything to help that (and it's a fantastically dangerous and inherently politicized thing to do anyway, by definition "picking winners and losers").

What I'd prefer concentrating on is reducing firms that are "too big to fail" to "small enough to fail". Except that that wouldn't have prevented the 2008 financial crisis, it just would have changed its shape. People have this unfortunate pattern of group betting AKA manias that regularly produce financial bubbles and that's a system problem for which I don't see any solution.

What have we learned since the Tulip Mania, the South Seas Bubble, etc. etc. etc. other than that we don't learn from history?

As for shrinking their influence, how do you do it to the people who are handling your money? Buying your bonds (government (e.g. the Federal primary dealers) and corporate)? Etc.

As for replacing it, with what? What type of institutions or economic system?

Mongoose• 16 years ago

The fact that this comment has almost as many upvotes as the OP speaks wonders for the HN community.

T_S_5• 16 years ago

Wall Streeters are only human. If you want to fix Wall Street you have to design a system that works better, taking human nature into account. One big difference between Wall Street and startups is the heavily regulated nature of the financial industry. The public already has the control, but our government doesn't use it effectively.

I worked on Wall Street for many years before becoming an entrepreneur. My fingerprints were taken several times. No I wasn't being arrested, everybody's are taken--a holdover from the days of physical securities. I took 5 major exams over the years and many minor ones, in order to be permitted to do my job. Oh yes, the content of the exams had little to do the products I worked on, which were all invented only yesterday. Our company had offices set aside for regulators to use whenever they visited. The public never, ever heard or saw the results of those visits. Our P&L had internal and external auditors looking at it all the time. Only the internal guys were good, since it protected managers from rogue traders. Our capital was regulated, which capped our risk only in a very vague way. I could go on.

What did all this regulation accomplish? Nothing in the end. Why? Regulation pits bureaucrats against highly paid professionals. Some bureaucrats are highly motivated and intelligent (I know, I used to work with a few of them when they worked on Wall Street). But their bench is not deep and the stars show up only when there are investigations to lead and headlines to grab.

We need a system that pits the smart against the smart every day. It starts with opening up bank operations to public scrutiny. The balance sheet you and I have is open to creditors to inspect. The reverse positions, held by banks, should be visible to the public. Only then will privately employed bank analysts have a prayer of calling bulls__t in a timely manner. If you think this is some kind of socialist plot, think again. Even Friedman and Hayek knew that markets can't clear without adequate information. Where do you think all this volatility is coming from?

Will we get this kind of transparency from the new financial reform law? Afraid not. All we did was put the A-team of regulators in charge--but they will move on after a while.

shantanubala• 16 years ago

Oddly enough, a video game quote (Deus Ex) sums it up quite well:

"A system organized around the weakest qualities of individuals will produce these same qualities in its leaders."

Replace "leaders" with "bankers" or whatever you'd like. Greed isn't always good.

T_S_5• 16 years ago

I agree to the extent that almost all regulation is aimed at the worst behavior of "evildoers", not the average bad behavior of "louts". Short of the worst behavior we all have "freedom", which starts to define what is acceptable, even though it shouldn't. Loutish behavior is best controlled by eliminating secrecy. Sunshine kills mildew.

My argument is that bank positions are determined by potential louts, not so much by evildoers. But either type depends on nobody looking. Give us (literally you and me) the right data and they won't be able to operate the same way anymore.

redrobot50503• 16 years ago

Often, they will move on to a large firm once they (or the large firm) have spotted the most profitable, low-profile loophole in the regulation.

T_S_5• 16 years ago

It's never that obvious. When a regulator is hired by the Street, it is usually because they have lots of industry knowledge and know all the other regulators. That alone is sufficient. It also makes the case for industry self-regulation easier to swallow (in the eyes of regulators).

jbooth• 16 years ago

We don't need a system that pits the smart against the smart, we need a system that pits the smart against nature. I'm sick of zero-sum competing to leech a bigger share of money out of the system rather than giving it to investors or investees.

Smart people should be creating things. Discover/fund a new market and get rich? Great! First one to see a big trend and have the guts to bet against it, lining up market pricing? Good, I hope you get rich.

But playing video games in order to nip the largest number of pennies off of actual investment is just a giant waste of time, talent and money.

T_S_5• 16 years ago

Ideally, the efficient allocation of capital is the smart against nature. However the nature of the current system injects too much noise into the markets, since trades and positions are generally secret, except as occasionally viewed by regulators or post-mortem as in the Madoff case.

mmt• 16 years ago

TLDR:

The public never, ever heard or saw the results of those visits.

It starts with opening up bank operations to public scrutiny.

I wholeheartedly agree that if the prerequisite to the solution, if not the solution itself, is more "sunshine."

We live in the Information Age, after all.

ubernostrum• 16 years ago

Let's make a deal: I'll stop shitting on them when they stop shitting on me.

marze• 16 years ago

Some say Wall St is a "Ponzi scheme". If that was accurate, certainly one could argue big changes are in order, but is it accurate?

In a Ponzi scheme, you have an organization that takes peoples money, does some complicated things with it that are difficult to understand, pays internal people handsomely, pays back early "investors" handsomely, then suddenly collapses and all the investment the later investors thought they had is gone. This happened in 2007 before the governments of the world contributed in $3,000,000,000,000 keep the scheme going.

The difference between the Wall St. Ponzi scheme and your average couple-million Ponzi scheme is three-fold: the organizers are still running it instead of being in prison, it is a million times bigger, and scheme insiders are running the Federal Reserve and the U.S. Treasury.

This is be made out to be a natural consequence of the complicated modern financial world, but was it unavoidable? The $3T bailout works out to about $10,000 for every person in the U.S.

thailandstartup• 16 years ago

Also the Fed can print money. Which is how the story inevitably ends.

It seems to me that the problem is created by economists winging it. I'd rather see a financial system designed and run by engineers.

ccamrobertson• 16 years ago

A number of comments have hinted at it, however, I think that the key issue with the article is that it does little to break down Wall St. as a career as opposed to Wall St. as a mis-regulated industry.

I would agree with Ben that many in the startup community focus far too much vitriol against the profession of a financier on the Street. There is significant value in facilitating financial allocation and increasing market efficiency.

However, given the financial regulatory environment that has not allowed banks to fail, I think that it is legitimate to take issue with the fact that Wall St. as an industry is far too large and riddled with players that should have been washed out by both the S&L crisis as well as the most recent financial fracas.

lsc• 16 years ago

eh, I think the real problem isn't wall street... the real problem is that we subsidize investing to sell over investing to hold through lower capital gains tax rates... If I sell my company, I pay less than half as much taxes than if I continue to hold the company and just pay out profits to myself.

this encourages short-term thinking.

If we still want to give preferential tax treatment to investing vs. working, you can do that without forcing people to sell by removing the double taxation on dividends... simply allow corporations to write off dividends as they would wages, and charge owners the existing capital gains taxes. this would allow owners to extract value at the lower capital gains rate.

Stop shitting on Wall Street

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