Young Money

Young Money

Young Money by Kevin Roose

 

Fear-mongering about Wall Street is nothing new, but it’s something that is very relevant to me. Not too long ago, I had half a foot in the door. Whether I made the decision myself to step back or was pushed out, the end result was that I didn’t end up in finance after college. A lot of people around me did though. And this book is about them. Somehow, I actually don’t know anyone in IBD or S&T that well. I don’t think this is an accident. Everything is the way it is for a reason. Anyhow, I thought it would be interesting to see what Wall Street junior bankers had to say about their lives. Without a doubt, this book paints a very bleak picture of working at the big banks as a minion, and I was constantly reminded how lucky I am to have gotten out early.

1) The two and out program was introduced in the early 1980s.

Roose says that it was a deliberate move by the banks to brand themselves as places where smart college grads could spend two years learning useful skills and then move onto other things. To this day, most conventional post-grad job choices follow this idea. Banks obviously do this. Consulting firms do this. And, to a much less extent, with their vesting schedules, I would say tech firms and mature startups also do this. I think it’s actually a great idea. There’s no shame in “not knowing what to do with your life” when you graduate from college. Why not spend two years inside an established system in NY or SF, make good money, and see where to go from there? I honestly see no harm in the basic idea of two and out. It more or less puts a formal spin on a natural process. Ultimately, if you excel and like your job two years in, you’re likely to keep accelerating upwards. If not, you should leave.

2) Goldman bought J. Aron in 1981.

The current GS CEO, Lloyd Blankfein, started there. It’s also the reason why GS supposedly has a good commodities desk.

3) The number of women working in finance fell by 2.6% between 2000 and 2010.

For all the noise you hear about companies pushing diversity at the workplace, this type of statistics shows up very often and across industries. As you move up the corporate ladder, the numbers get worse. Where are women going? Especially when women have increasingly outperformed men at attaining education. Why don’t people talk about the industries that are female dominated? Is it all about the money?

4) Fashion Meets Finance is a mixer for male bankers and female fashion workers.

It’s sad that it exists, but it makes too much sense.

5) Back office knowledge is one reason for the divide between front office and back office.

I’ve never thought about this. Someone who has worked in the back office knows how things are actually done. When equipped with that knowledge, they can do a lot of damage in the front office. Roose lists bankers from Societe Generale and UBS who have done this and gotten caught.

6) Black Diamond is a Harvard student-run hedge fund.

This club reminds me of the MIT poker club and 21. They can definitely make a movie out of Black Diamond.

7) In 2010, 35.9% of Princeton seniors with jobs went to Wall Street.

2010 was not a good time to be in finance. Yet, over a third still chose finance. Roose repeatedly cites these statistics to show that fewer and fewer Ivy grads are choosing Wall Street, but this number is crazy high.

8) Kappa Beta Phi is a secret fraternity of the most powerful on Wall Street.

The chapter on KBP is the highlight of the book. I had never heard of this club before, and Roose’s story about his infiltration into the club’s annual dinner is funny and mindblowing.

9) Houston Street is pronounced “How”-ston.

No way.

10) Roose predicts that banks will stop their two and out programs to target people who want to be lifers.

I don’t think stopping two and out programs will affect applicant pool much. The best candidates at top schools are very unlikely to go into recruiting with the mindset of finding a company to stay at for the next 5/10 years. I would also argue that banks should not target potential lifers since they are people who are probably more narrow-minded. Information asymmetry is a problem here too. How can banks tell who is truly going to stay and not burn out? At the end of the day, even without an explicit two and out program, most junior bankers are going to leave. That’s because of two clear reasons. First, the brightest prospects likely have more to gain by jumping from firm to firm or industry to industry. Secondly, banks, like most companies, have a pyramid structure. It’s impossible for everyone to keep moving up. Would Ivy graduates be okay with plateauing at the junior levels? No. Roose’s point is more nuanced than “targeting lifers”. He thinks that banks should recruit those who are truly into finance and won’t burn out easily. For example, banks should hire a great fit from a tier 2 school over a top candidate from an Ivy who has no real interest in finance. Does Wall Street want to be a safety net for Ivy graduates or not? In their best interest, they should continue to be, given the benefits of network effects at the top schools. Ultimately, Wall Street needs to become a place where students don’t feel like they have to give up their lives for the money and the status. So far, it hasn’t had to do this. But the cost-benefit analysis no longer favors Wall Street. Recently, banks drastically increased their entry level pay by 20-25% to rewrite the cost-benefit equation. This is a bad sign. It shows that they are more willing to throw more money at the issue than to change Wall Street into a place where people don’t feel guilty working at.

 

I didn’t expect much from this book since I’m somewhat connected to the Wall Street circle and have briefly seen how it works. I still enjoyed the book though. It was a quick read, and this genre of interview-based social or historical commentary is one of my favorites. At times, I wondered how much of the book is made up, especially because it had such an anti-Wall Street tone. I’ll give Roose the benefit of the doubt and instead admire his ability to get a good number of junior bankers to risk their careers and talk about their lives.

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