Because unlike, say, rocket science, painting, music, or programming, banking is a largely unfulfilling, yet incredibly stressful job. Without the gigantic and absurd financial incentives there's really no reason to get into it.
I went to school in engineering and knew more than a few people who went to Wall Street because of the pay (and social status, since our society worships bankers and the ground upon which they tread). I'm not proud to admit it, but there was schadenfreude when the banking industry collapsed - most of these engineers-gone-Wall-Street are still as of yet unemployed. They spent their time dreaming about big money and not enough on, oh, being capable engineers... so now they're stuck up shit creek.
This is just insane, and sadly mirrors the experience of everyone I know interning in finance.
But do they also treat their tech/engineering employees like this? I can't imagine an engineer working 80 hours on Wall St. when they could make quite good money Facebook, etc. as well.
Here are my unsolicited 2 cents on why not to work on Wall Street:
Solve real problems.
Don't be a second class citizen (e.g. if the firm is financial, software engineers aren't going to be CEO and that says something).
Make sure you have upside. Don't work in a job where your function is to maintain some legacy system and if it breaks its as if you lost the firm millions but if its running smoothly no one cares.
From a money standpoint you probably can't beat Wall Street. From a mental stimulation standpoint it probably blows.
Most people who go into a technical major probably do so because they want to create and learn. I don't think the majority who choose those types of (Wall $reet) gigs initially came out of high school saying "I'm going into theoretical physics and math to get a job on wall street".
They just gave up on the dream.
At any rate, if your goal is to make a lot of money, going to a top law school probably has better average expected return than a similar caliber school technical degree, with far less variance, as someone here has pointed out.
I'd also add it is upsetting to see engineers and comp sci grads head off into finance to build credit default swaps and binary exotic options instead of, as you said, working on things that really matter. I'm guilty of it myself, but escaped 2 years ago and started a company to help soon to graduate students find cool companies, rather than just those that can come to campus.
I believe the reason for the Wall St / hedge fund path is the promise of working in a challenging work environment, solving difficult problems, and earning a lot of coin. The first two wore off for me after 2ish years and the financial crisis detracted from the last. They can be a persuasive siren song though and it is easy to settle when there aren't a lot of other options that are immediately available.
The engineers I know working for banks vs. those working for SpaceX confirm your thoughts; however, there are plenty of engineers working insane hours for fintech, finance, or even engineers-turned-financiers.
The problem is- let's say you're a brilliant genius who's willing to work 80 hours per week doing very difficult tasks. You can make $130-150k net working for space travel, or engineering traffic lights, or you can do similar very complex work for $200-800k in finance. They're hoovering up the smartest, most competitive people because the rewards are the most outsized.
From "Max Dama on Automated Trading" [1]:
> Quantitative trading is the job of programming computers to trade. It is the best job out of undergraduate - you commonly make $100k base salary, plus a bonus which is often larger, the hours are flexible as long as you produce, there is no dress code, the work is extremely fascinating, fast paced, and uses the most advanced technology, and your performance is evaluated objectively. Quant trading combines programming and trading. Programming is the fastest way to take an idea and turn it into reality (compare it to writing a book, publishing, etc or to architecting a building, getting zoning permits, doing construction, etc). Trading is the most direct approach to making money (compare it with starting the next facebook, programming, hiring, advertising, etc or to creating a retail chain, hiring, waiting for money to flow in to reinvest, etc. Combining programming and trading, you have the most direct path from an idea in your brain to cash.
I know more than a few dudes who work on Wall Street, most of whom graduated EE or CS from Carnegie Mellon/MIT/Harvard.
Most of them view it as a mercenary job, nothing more. They don't give a shit about finance itself, but they enjoy the money, they enjoy solving problems - especially ones that are seen as impossible - and obviously they also enjoy the deep technical aspects of the job as well. It scratches a lot of different itches and it's a very high prestige gig ("Wall Street", "Wolf of Wall Street", etc.) to boot.
Look at it another way: if they're out in the Valley, they're one of thousands of talented engineers, competing against gender disparity in a very competitive social arena. In NYC, they're young, brash hotshots working less hours for more money with all of the ego, bonuses, and cocaine that goes with it, in an infinitely more exciting city. Tell me which setup you'd rather have.
Controversial take from me. Also this was more in the context of legacy finance tech whereas you are in fintech.
I used to work in tech at an investment bank. When I first joined I was all starry eyed and eager to learn about the business, even to the point of trying to get a CFA (which some of my colleagues apparently had done).
Fast forward many years, I came to the conclusion that the limited time I had was best spent becoming a better technologist/engineer instead of a halfassed banker/trader/investment professional. Of course it’s still useful to know the basics of the industry and anything specific to your role, but beyond that the returns diminish sharply.
FWIW most of my engineer colleagues that spent all that grueling time and effort to get a CFA no longer work in the finance industry, so it’s arguably all down the toilet unless they ever go back. AFAIK none of them want to
I have read arguments that if you believe you have the skills to beat the market, a job on Wall Street is the best course of action - Other People’s Money means no risk to you, and the expected value of your incentive pay exceeds your own returns unless you have a ton of personal capital to play with already. If it turns out you’re right, take your saved bonuses and strike out on your own. If you’re wrong, being a Wall Stret alum opens plenty of career opportunities.
The real challenge underlying Wadhwa's article is how to incentivise traditional engineering careers to counter the lemming run to investment banks and hedge funds that the best technical minds make these days. Because high finance careers offer lucrative compensation according to market demand for talent, perhaps the demand itself needs to be adjusted.
Another roundabout approach to counter this phenomenon is greater regulation to curb non-transparent / overly risky / exploitative instruments. Arguably, better regulation will help flatten the casino-eque boom (and bust) fortunes that we've been seeing in recent years. In turn, this may eventually translate to more moderate compensations in financial careers and may eventually reduce the outsized finance field demand for engineering talent. The rub is that government regulators are simply no match for the sharp pointy minds and enormous resources high finance firms can muster - the financial regulations of today will be easily be circumvented by the clever finance and accounting tricks of tomorrow.
Were it implementable (fantasy), the people who create and subsequently sell these fancy financial products should be paid with their own products and be required to hold them until maturity.
My friends that went into investment banking did so because they were going to make shit loads of money without having any technical skills. They put in a few years of hellish hours then move to private equity for even more money at less hours.
Don't be an engineer? If you're purely in it for the money, I would suggest the way to get 1mn/year is to join a hedge fund or prop trading firm as a trader. Steps: 1. Graduate from an ivy league school with a good GPA so it's easy to get in the door 2. Pass rigorous math based interviews - lots of guides on studying for these 3. Make money on your desk, which requires the ability to learn financial concepts, and quick thinking on the job - if you can play Starcraft well, or multi task online poker, you can do this. You don't need social skills or anything for this, apart from the interview process, it's almost purely analytical.
Making that kind of money as an engineer is much more of a crap shoot. Just be the best engineer you can and have big influence wherever you work. Then get very lucky and work on the right project at the right time at the right company.
On a more philosophical note - if you spend your life chasing money, odds are you're going to end up pretty unhappy. Try not to succumb to the capitalist rat race - I know it's hard, but it will make you happier :).
edit: Updated to be less hyperbolic. It's still tough to make a lot of money even going the trader route.
I questioned Friedman's use of anecdotal evidence to make this point about engineering talent being redirected to finance. You've supported Friedman's point with more anecdotes. People were taking physics and engineering degrees and eschewing careers in engineering long before the Wall Street mess happened. My cousin has a nuclear engineering degree; he's in advertising now.
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