It is a much discussed issue these days and also Mr. Obama mentions that it is no loss if not every individual with analytical skills is headed for Wall Street. How right he is. There is nothing wrong with working in the financial area and I happen to be interested in it as well. I remember when I was choosing my study subject that I went with my guts, I have had a passion for economic topics early on and I went with it. That’s what many do and I was convinced it is best to choose according to your talents and interests, not where the job prospects are best or the highest salaries are waiting. Others might, of course, opt for the direction where the money is and seldom has the choice been so clear and easy: Finance is where the money is.
Well, it used to be the dot-coms before and I am too young to know what it was before that. However, this time even those who didn’t decide with their briefcase in mind in the first place got a second chance. Either they were lucky enough to be in some natural science field or if not, whatever you did before, you could go to a horrendously expensive business school for your MBA (I always wonder how expensive a year of education can be; if Paul Krugman explains international trade theory to me I might have sort of a headstart, but only to certain extent and I am not sure if I didn’t also get it those days with my old, rather unknown professor – but ok as an economist I should know – it’s just supply and demand). So it was comparatively easy to get into finance and even if it hadn’t been your passion, the prospect of big money was convincing enough. Together with a positive sentiment in society towards those who amounted material riches the smartest and the most ambitious went into finance. The talents helped making banks more and more inventive and exploit every smallest opportunity to make profits. Such talent involved obviously not only those who could crunch numbers, but also well connected political lobbyists that helped soften financial oversight. As a result, the boom in finance was alive for an unusually long time. Economic reasoning would suggest that one sector cannot uphold overly competitive salaries for an extended time because more and more talent will stream into those sectors and drive down wages. This did not happen this time and high-paid jobs remained plentiful.
However, the boom happened in a very sensitive economic sector. Financial institutions always walk on dangerous grounds and a failure of one institutions carries the risk of causing a collapse of the whole system. Exactly that happened and instead of regulating itself by decreasing wages the system fell apart. It is only natural that the people involved in finance want to go back to their old ways. The reason why those employed in finance made so much money is owing to an intrinsic characteristic of banks: they can take on huge risks promising them enormous gains in the case of success but may drive them out of business otherwise. Since nobody owns a bank personally and is only an employee, it is quite natural that too much risk is taken on. If the bets don’t win, the bank fails and the taxpayers needs to come up for the bill and if everything works out the jackpot is waiting. So the upside is on your personal account and the downside on somebody else’s. The problem is called moral hazard. Of course, for somebody in finance this is a good deal and why not continue with it after society paid the bill for the last disaster and pocket some money until we send them the next invoice.
There is nothing wrong with paying high salaries to top executives for that they are achieved leaders carrying lots of responsibility. However, the way to get rich should not be open to any newly graduated that can place some bets and ultimately risk taxpayer money.
Well, it used to be the dot-coms before and I am too young to know what it was before that. However, this time even those who didn’t decide with their briefcase in mind in the first place got a second chance. Either they were lucky enough to be in some natural science field or if not, whatever you did before, you could go to a horrendously expensive business school for your MBA (I always wonder how expensive a year of education can be; if Paul Krugman explains international trade theory to me I might have sort of a headstart, but only to certain extent and I am not sure if I didn’t also get it those days with my old, rather unknown professor – but ok as an economist I should know – it’s just supply and demand). So it was comparatively easy to get into finance and even if it hadn’t been your passion, the prospect of big money was convincing enough. Together with a positive sentiment in society towards those who amounted material riches the smartest and the most ambitious went into finance. The talents helped making banks more and more inventive and exploit every smallest opportunity to make profits. Such talent involved obviously not only those who could crunch numbers, but also well connected political lobbyists that helped soften financial oversight. As a result, the boom in finance was alive for an unusually long time. Economic reasoning would suggest that one sector cannot uphold overly competitive salaries for an extended time because more and more talent will stream into those sectors and drive down wages. This did not happen this time and high-paid jobs remained plentiful.
However, the boom happened in a very sensitive economic sector. Financial institutions always walk on dangerous grounds and a failure of one institutions carries the risk of causing a collapse of the whole system. Exactly that happened and instead of regulating itself by decreasing wages the system fell apart. It is only natural that the people involved in finance want to go back to their old ways. The reason why those employed in finance made so much money is owing to an intrinsic characteristic of banks: they can take on huge risks promising them enormous gains in the case of success but may drive them out of business otherwise. Since nobody owns a bank personally and is only an employee, it is quite natural that too much risk is taken on. If the bets don’t win, the bank fails and the taxpayers needs to come up for the bill and if everything works out the jackpot is waiting. So the upside is on your personal account and the downside on somebody else’s. The problem is called moral hazard. Of course, for somebody in finance this is a good deal and why not continue with it after society paid the bill for the last disaster and pocket some money until we send them the next invoice.
There is nothing wrong with paying high salaries to top executives for that they are achieved leaders carrying lots of responsibility. However, the way to get rich should not be open to any newly graduated that can place some bets and ultimately risk taxpayer money.
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