Why people do this?

[Tomasz Krzywicki]

...

 

[Andy Nguyen]

Compensation, perceived prestige, mystique about Wall Street/finance industry as a place where fortunes/legends are made overnight.
Think about it, what other industry would make it possible for a 22-year-old kid to get into an investment bank, working long hours and making six-figure salary.
He must feel like he is at the top of his world while his peers look up with envy.
That's why so many young people go into IB.

The quant audience here is a bit different since you would need an advanced degree and the type of things they do are more technical and niche. Given that most MFE applicants are from Asia where brand names/banking/prestige/Wall Street is even more revered than in the West, it connects the dots.

Isn't it a good things that finance jobs are becoming like more and more a regular jobs? I hope these hyper-competitive/talented kids would open their own companies and make cool stuff.

 

[bigbadwolf]

I can understand why people did this in the past, but my question focused on people who start now, when the likelihood of similar success is pretty low...

Same goes for people who go for law degrees.

 

[physEcon]

I can understand why people did this in the past, but my question focused on people who start now, when the likelihood of similar success is pretty low...

Truth be told quant finance jobs aren't all what they used to be. That being said, they still beat most other jobs out there, especially for young people.

 

[mfegrad]

Same goes for people who go for law degrees.

darn it, you beat me to it!

 

[Som]

I think ultimately for a lot of people it also comes down to a glamorized life style of a trader or banker....

 

[mfegrad]

This is a bit childish... If this is supposed to be a tit for tat answer, then it just shows that you don't know much about the legal profession and it's not really responsive to my question. Plus this comparison is not really accurate... These 22-year-old kids are being told that they can make millionaires before 40 if they give up their personal life and health, but this is most likely not going to happen.

so you're saying the cushy days of 150k+bonus first-year jobs in big law for the top third of the class at the top fifty law schools are still around? or that there aren't two law school graduates for every opening as i've heard numerous times? or that mid-level associates haven't been absolutely annihilated over the past few years?

i have a bridge i'd like to sell you.

i'd also like to put you in touch with a large number of friends who've either gone through law school and have useless degrees (and a lot of debt) or are in law school and can't find jobs in this market; your knowledge of the industry will surely prove a boon to them. or maybe a trip to abovethelaw.com might help? either way, you should be a bit more careful before telling others they know nothing about something, especially when you're on shaky ground (that said, if you're speaking of the legal profession outside the major financial hubs, things may be rosier, but that's no longer apples to apples).

the response was neither childish nor inaccurate, as the comparison between the two is spot on; both involve young kids with dollar signs in their eyes, sold on a dream and waking up to a much harsher reality.

 

[bigbadwolf]

Also, I wasn't talking about getting a law or finance degree and just as people may get phd physics for various reasons, not all lawyers want to do m&a work in a large law firm. A salary for an IB analyst in London is just a little bit higher than in other areas and you still see people going there and spending days and nights in the office. The same is in many cities. GS maybe still pays a bit more than Google (although I hear that 100% bonus for analysts are the history) but they still find enough smart people. This is what I wanted to understand. Oversupply of graduates is not just problem of lawyers or finance but this is a separate topic.

Google also succeeds in attracting over-achievers. The point is there is an oversupply of talented and qualified people -- something predicted by Lester Thurow in his 1990s book, "The Future of Capitalism." It thus makes no sense to single out finance when the same problems apply to law, MBAs, and programmers. It's a generic problem.

Everyone knows the odds have lengthened in finding a niche in finance. The game of musical chairs is being played with fewer and fewer chairs. But the alternatives are just as bleak for those emerging with degrees in science, engineering, and computing. The jobs aren't there in general, not just in finance.

 

[bullion]

Hi, Tomasz Krzywicki. Around graduation time, (May/June?) a few articles regarding the unemployment status of recent US law graduates came out and were discussed extensively on this forum. So please excuse our cynicism and pardon our bitterness. You're absolutely correct in that the US has a bloated legal market and the investment banking world is altered quite a bit due to regulations. It is also common for non-Americans to question our tuition/debt spending, but sensible spending is quite another topic.

Aside from blind faith and bloated ego, there are indeed reasons to do finance even in this economic environment. Regulations may dampen the investment banks now, but lending and borrowing continue to exist through various channels among market participants. The shadow banking system aggressively fill in the voids left behind by fallen banks and risk taking persists among opportunistic investors. Most shadow-banking-system participants, however, do not have established practice to hire and train fresh grads. So even though students flock into banking internships and training programs, only a few handful intend to stay in the long run and most pursue more lucrative paths.

Now you see that "working for the banks" is just a mean and not an end, let's look at the banking profession itself. For the most of your networth, it will include a large portion of your savings that either sits idly in the bank or rides the market aimlessly in a mutual fund. Universal welfare assembles a defined-benefit scheme largely inaccessible to Americans (or is insignificant). So how can you turn your idle asset into revenue generating units? For most other professions, your expert knowledge will likely lie in your current profession or closely adjacent industries, so even your "outside investments" will only track closely to your day job. For bankers, their investment options are much wider. As a lawyer, it is not the specific law but the legal mindset you master; as a banker, it is not the upfront salary but the investment opportunities you desire over the long run.

Finally, you should remember that regulations and public sentiments are highly cyclical. The Glass-Steagal Act, enacted as an emergency response to the failure of nearly 5000 banks during the Great Depression, was eventually repealed in 1999 when investors once again found banking profit attractive and people forgot the pain. The tech industry, despite wiping away more than 80% capitalization of the Nasdaq Composite between 2000 and 2002, is now seeing a revival as investors rush in for return. Numerous major players announced aggressive acquisition of rental real estate. Recently, new laws have been passed to allow non-accreditted investors to bypass IPO due diligence and invest in startups, which directly conflict with many past security laws and consumer protection safeguards. All it takes is a few Facebook and Linkedin, then the past can be easily ignored or forgotten.

So to summarize why students want to go into finance
1) The banks are being forced to downsize, but much of finance exists elsewhere. Let it be treasury, risk management, credit, or operational optimization, there are ample opportunities if you know where to look and are flexible.
2) In comparison to other professions, banking allows you to lower the barrier of entry to opportunities in other industries. The domain knowledge allows you to convert idle asset into revenue generating units and diversifies your portfolio across various stage of the companies' growth spectrums.
3) As a new entrant, it is unwise to focus on the short term gain. The history of banking is as old as civilization itself, so the recent downturn should hardly be a determent if you believe that banking will continue to serve a vital purpose in our capitalistic society. People who truly excel in any industry are those who are willing to endure both the good and the bad, so even now can be an career opportunity in disguise.