Want a job in investment banking?
November 7, 2008 | Jack FitzGerald

Has i-banking permanently lost its sheen?

LONDON, UK — Current market conditions and mass lay-offs are making students re-think joining the ranks of investment banks. Newspapers in both the US and UK have reported this and, although the evidence seems anecdotal, it is a story that instinctively makes sense.

However, it’s not only job security leading to the hesitation of students, but the view that bankers have now been exposed as contributing so little to society. Structuring and trading complex banking products (in this case collaterised debt obligations or CDOs) reminds me of building a room full of mirrors, then disappearing with the cash. CDOs are the very reason why sub-prime defaults are linked to, and therefore have crippled, the wider global economy. Sure, structured finance bankers have lost their jobs and done little for the world, but will there really be a sustained trend away from joining i-banks?

Apparently students are now closely examining capitalism, questioning high risk/high reward careers, and leaning towards jobs in engineering, consulting and teaching.

Something about this feels unlikely to me. The single greatest reason for going into investment banking has to be the money, despite what they might say about challenge, pressure, or working in a meritocracy. For many, university is the most socialist one will ever be during their lifetimes, so those hard-nosed enough to be money-minded at the age of 21 are hardly going to transform into magnanimous liberals overnight. Conversely, students sensitive to social worth are unlikely to go into finance in the first place.

Part of the problem is that the gulf in remuneration between jobs that pay and jobs that pay back is so massive. Those with good results, good degrees and who consequently have options often opt for what pays. While hedge funds continue to close and banking graduate positions decline, there will clearly be those who are forced to go elsewhere. Nevertheless, until empirical evidence is available I can’t see the world of high finance, once described by a fellow Backbench contributor as today’s nobility, suffering the reversal in popularity alluded to in the press. For that to happen there needs to be systemic cultural change and we are a long way from witnessing that.


Jack is an editor for The Backbench.

Article posted on Friday, November 7, 2008 at 12:30 am in Business & Finance

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2 comments to “Want a job in investment banking?”

1.  Maynard Hayek on November 7th, 2008 at 4:28 am:

Jack,

Great article.

It is disappointing that so many of the brightest use their skills acquired in an engineering or law degree to perform hocus pocus on pieces of paper, vs building infrastructure or providing legal aid. Regrettably, I too am guilty of this.

I’d also add power - the whole “Masters of the Universe” thing. A lot of financiers get off on the fact that they can have enormous leverage over a country’s future - just think of Soros shorting the pound or a sovereign debt investor bringing a 3rd world country to their knees.

Let’s not forget that working in the public service is also a big turn-off for these alpha types who want to get things done quickly and with impact.

DFAT is a case in point - it’s arguably the most prestigious government department work for. But as a graduate your chances of getting a posting to one of the world’s hotspots (from what I hear), is getting increasingly rare. You’re more likely to end up in New Zealand negotiating agreements on apple diseases, than being sent to say Washington or Beijing.

Yes we’re likely to see greater regulation of financial markets following the current mess. This may have a short-term effect on people going into finance. But in the end markets will recover and people, institutions and countries will still need to raise money, still need to borrow money and still need to spend money. The reality is bankers will continue to work out new ways to exploit and profit from changes in regulation.

Though not totally related (and worthy of its own post), I reckon increasing politician’s pay would be a useful step. While it would never happen because it’d be deeply unpopular, a higher quality of candidate would be attracted to political office and lessen the impact of the bland, uninspiring political hacks that dominate now.
2.  W.B. Yeats on November 7th, 2008 at 5:08 am:

“The best of all lack conviction
While the worst Are full of passionate intensity”

While the attempting to bridge the gulf between remuneration rates in ‘power’ professions and social-structure positions is an eminently practical way of dealing with this problem, a far more effective method would be to introduce or resurrect something like the persona non grata status of the merchant classes in classical Japan.

Maligned for feeding off the work of the masses and the wealth of the elite, money lenders and their like were forced to wear dowdy outer wear lest they flaunt their wealth. More of that I say! No more of your Zegna suits and Malanos.

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