Wednesday, July 23, 2014

How Wall Street recruits so many insecure Ivy League grads

George Washington's statue looks over the New York Stock Exchange, a solitary copper tear traveling slowly down its cheek. STAN HONDA/AFP/Getty Images

Kevin Roose is a New York magazine writer and author of the book "Young Money," in which he follows eight young Wall Street recruits through their first few years as investment bankers. The result is a searing portrait of confused kids getting what they thought they wanted and, in most cases, finding themselves truly miserable, and even a little broken by the experience. With graduation season upon us, I asked Roose to explain why so many kids who could seemingly do anything choose to work 120-hour weeks at investment banks.

Ezra Klein: My big takeaway from your book was that Ivy League graduates aren't going to Wall Street because they love risk and want to make a ton of money. They're going because they hate risk and are terrified about what to do next and Wall Street has figured out a way to calm their anxieties.

Kevin Roose: Wall Street invented this new way of recruiting in the early 80s. Before that they hired like any other industry. If you wanted to be a banker you applied for a job at a bank and they hired you or they didn't. But in the early 80s Goldman Sachs and others figured out they could broaden their net and get lots of really smart people if they made it a temporary position rather than a permanent one.

So they created the two-and-out program. The idea is you're there for two years and then you move onto something else. That let them attract not just hardcore econ majors but people majoring in other subjects who had a passing interest in finance and didn't know what else to do. People now think going to a bank for two years will help prepare them for the next thing and keep them from having to make these hard decisions about the rest of their life. It made it like an extension of college. And it was genius. It led to this huge explosion in recruitment and something like a third of Ivy League graduates going to Wall Street.

EK: This seems really at odd with finance's vision of itself as a world of capitalist cowboys.

KR: We think of Wall Street as being full of these crazy risk takers. But in a lot of schools it's these scared organization kids going to Wall Street. One thing Wall Street does that's really smart is they actually tell you way earlier than other industries if you got a job. They'll let you lock the job down in the fall of your senior year. So you can take that job on Wall Street or you can gamble on getting something after you graduate.

EK: One of the other programs that uses that model is Teach for America. And it's amazing, anecdotally, how often you see college seniors deciding between making huge money on Wall Street or making almost nothing with Teach For America. It really suggests to me that this isn't nearly as much about the money as people think.

KR: The lesson of that is you don't have to pay people a ton of money to come to your program after college if what you're giving them still offers prestige and structure and the sense that they're not signing up for something forever. Teach for America has really approximated the banking model without the money. If what you're seeking is short-term rewards there's no way you'd choose teaching in the Mississippi Delta over working at Goldman Sachs but there's something calling people to do work they find meaningful.

EK: Wall Street seems particularly good at both valuing the skills and managing the fears of liberal arts majors. A lot of kids graduated with a degree in sociology or English literature and feel they don't know any skills that will help them get a job. Wall Street both seems to see the value of that kind of learning and see how to position themselves as a kind of continuing-education program.

KR: It's amazing. They have turned investment banking into this two-year bootcamp for adulthood. They teach you to make powerpoint slides and Excel spreadsheets. But if you ask the banks what's interesting is they see this as a labor advantage: they can get not only the smartest econ majors but the smartest history majors. Lloyd Blankfein was a history major, for instance. And they view this as a source of prestige. They're not just getting finance-minded kids but they're getting the smartest kids from all fields. That lets them broaden their intellectual inputs. A history major might have different perspectives on a trading desk than an econ major.


EK: Does Wall Street have data on which majors end up working well for them?

KR: In my experience, when I was following these eight people, the ones most likely to wash out were the ones without clear reasons for being there in the first place. The people with pragmatic reasons, like having lots of student debt to pay off or having immigrant parents and wanting to build a better life for them, tend to stay. The kids who got into trouble were the ones who did this as a kind of cultural drift. So I think it has less to do with what they study than with their basic motivations.

EK: The recruiting model is smart but it also seems to require Wall Street's massive profit base. I'm sure the Washington Post or the New York Times or Vox would love to hoover in dozens of top Ivy League graduates and pay them huge salaries knowing that most will drop out pretty quickly but journalism doesn't quite have the business model to make that possible.

KR: I think to a certain extent consulting firms can do that and now you see tech companies like Google and Facebook emulating the recruiting model. But most industries can't. It doesn't just require money but also stability in your business model. The secret of young Wall Street is these people are essentially commodities. The banks care less about their qualifications than their work ethic. Being a Rhodes Scholar doesn't make much of a difference when you're a young banker. More of it is being willing to stay at the office for 120 hours a week.

EK: This is something your book goes into really great detail on. Being a young banker seems like an incredibly miserable existence. The people you follow are beyond unhappy. Putting aside the ethics of the workload, it seems like a dumb recruitment practice. In your book, the most talented recruits leave for jobs they like better. It seems off to put so much energy into recruitment and then drive the best recruits out.

KR: It's a terrible labor practice and the banks are getting wise to that. They're seeing their attrition rates going up and their recruitment going a bit down and they're trying to limit the hours junior bankers are working. But until the last four or five years the hours weren't really a problem. The banks had this social contract with young people: give us two years of your lives, don't see your friends, chain yourself to your desk, but we will give you this glorious life where you're making many times what you could ever imagine. But now that contract is being broken.

EK: I think the conventional wisdom in Washington is that Dodd-Frank didn't do much to structurally change Wall Street. But your book argues that Wall Street really feels like a different place to the people on it. The salaries are still high by any reasonable standard, but the insanely good times feel, to the participants, like they're over.

KR: You could argue at a systemic level that not enough has changed. But on a cultural level it's just not the same place. You could talk to 100 people who've been on Wall Street for years and they'll all tell you it's very different from before the crash. People just don't believe things will ever get back to where they were before the crash. They don't think the banks will ever make the kind of money they did before the crash. So what you're seeing now is banks are making themselves smaller and safer. Barclays is shedding its investment bank. Morgan Stanley has gotten into safer lines of business. Prop trading is going away among the big banks. So the young people have had to resign themselves to this being a safer and more austere place to work.

I should also say that I think the bigger factor in causing disillusionment among young people is the rise of Silicon Valley and other parts of the economy growing much faster than Wall Street.

EK: Google and Apple and Facebook and Twitter now seems to occupy the place in the Ivy League firmament that the major banks once did. It's the place where everyone envies you for getting to work.

KR: College students basically want a couple of things out of their job. They want money. They want structure. And they want respect when they tell people where they work. And Google now has that in a way the banking industry doesn't. There's a lot of risk aversion in that. You get the sex appeal and allure of the tech industry without taking on the personal risk of starting your own company.

EK: Have you been watching HBO's Silicon Valley?

KR: Yes, I love it. But the part it gets wrong is that if you look at who actually works in Silicon Valley now, the geek contingent - the stereotypical socially awkward hackers - is no longer the dominant phenotype of SIlicon Valley. Now it's people who are well adjusted, good looking graduates of elite institutions. It's gone from weirdos in pocket protectors to the guys who used to go to Wall Street.

I talked to one guy who's a former Goldman Sachs guy who left to go to the tech industry who said the adage in the tech world now is "be wary when the pretty people show up."

EK: So after writing this book, what would you say to a college senior thinking of going to Wall Street?

KR: First I would ask them why they wanted to work in an investment bank. If the answer is "because I'm tremendously in debt and need to pay it out" or "I've been reading Barron's since I was 12 years old and I desperately want to be an investment banker" then those are legitimate reasons. Go ahead. But if it's just about taking risk off the table and doing the safe prestigious thing, I'd tell them first that it will make them truly miserable, the kind of miserable it could take years to recover from, and that it also no longer has that imprimatur. It can actually hinder you. I've spoken to tech recruiters who say they only hire bankers in their first year or two because after that banking ruins them.

EK: How does it ruin them?

KR: It makes them too risk-conscious. It gets them used to a standard of lifestyle they may not be able to replicate in any other industry. And it has a deleterious effect on creativity. Of the eight people I followed, a few came out very damaged by the experience. And not in a way a vacation can cure. It's not about having bags under your eyes. It destroys your ability to think in creative ways about what it means to build something of value. The people I followed would admit they got a lot out of being a banker but I don't think they're all that tuned into the ways the experience changed them.

This interview has been edited for length and clarity.

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