Stop shitting on Wall Street

Wall Streeters are only human. If you want to fix Wall Street you have to design a system that works better, taking human nature into account. One big difference between Wall Street and startups is the heavily regulated nature of the financial industry. The public already has the control, but our government doesn't use it effectively.

I worked on Wall Street for many years before becoming an entrepreneur. My fingerprints were taken several times. No I wasn't being arrested, everybody's are taken--a holdover from the days of physical securities. I took 5 major exams over the years and many minor ones, in order to be permitted to do my job. Oh yes, the content of the exams had little to do the products I worked on, which were all invented only yesterday. Our company had offices set aside for regulators to use whenever they visited. The public never, ever heard or saw the results of those visits. Our P&L had internal and external auditors looking at it all the time. Only the internal guys were good, since it protected managers from rogue traders. Our capital was regulated, which capped our risk only in a very vague way. I could go on.

What did all this regulation accomplish? Nothing in the end. Why? Regulation pits bureaucrats against highly paid professionals. Some bureaucrats are highly motivated and intelligent (I know, I used to work with a few of them when they worked on Wall Street). But their bench is not deep and the stars show up only when there are investigations to lead and headlines to grab.

We need a system that pits the smart against the smart every day. It starts with opening up bank operations to public scrutiny. The balance sheet you and I have is open to creditors to inspect. The reverse positions, held by banks, should be visible to the public. Only then will privately employed bank analysts have a prayer of calling bulls__t in a timely manner. If you think this is some kind of socialist plot, think again. Even Friedman and Hayek knew that markets can't clear without adequate information. Where do you think all this volatility is coming from?

Will we get this kind of transparency from the new financial reform law? Afraid not. All we did was put the A-team of regulators in charge--but they will move on after a while.

"Stop shitting on Wall Street"

No. Wall Street has not been shat upon enough. Banking and finance have a proper place in a well-run market, and that place is much, much smaller than they currently are, with much less lobbying power. Until the financial sector is drastically reduced in size and power, we need to shit on them much, much more.

Okay. Meanwhile, 17 bailed-out banks overpaid executives with tax payer money. If my startup failed, man it sure would be nice to get a $MM exit. http://www.npr.org/templates/story/story.php?storyId=1287195...

Wall Street needs to return to partner-driven approach like law firms instead of taking risks with other people's money.

I'm honestly amazed at how quickly everyone has stopped throwing sh_t at the various financial institutions that caused the chaos of the last couple of years.

In the UK, where most public spending is being cut by 25% there are a lot of unhappy people who blame this mostly on the £850B bank bailout (of course, it wasn't just the cost of the bailout, but it certainly didn't help).

I think things could potentially get a lot uglier before they get better.

The author tries to explain the benefits of Wall Street, but unfortunately the benefits he describes are individual in nature, "what did I learn". It's all about the skills the author gained will working in that industry, but what good are those skills for? A critic of Wall Street might think that these skills are only "as value extractors rather than value creators". Edit: I'd rather see a more detailed explanation of how Wall Street creates value in a post defending them.

I'm not at all sympathetic to wall street. They relied on bad math and bogus assumptions, and ended up ruining a lot of people's lives in the most unprofessional manner imaginable, whilst absconding with a huge amount of tax payers money which future generations will be paying for.

A number of comments have hinted at it, however, I think that the key issue with the article is that it does little to break down Wall St. as a career as opposed to Wall St. as a mis-regulated industry.

I would agree with Ben that many in the startup community focus far too much vitriol against the profession of a financier on the Street. There is significant value in facilitating financial allocation and increasing market efficiency.

However, given the financial regulatory environment that has not allowed banks to fail, I think that it is legitimate to take issue with the fact that Wall St. as an industry is far too large and riddled with players that should have been washed out by both the S&L crisis as well as the most recent financial fracas.

I responded: http://news.ycombinator.com/item?id=1541442

Wall Street and Big Co. are the competition. We compete with them for talent and mindshare every day. And precisely because they are so appealing and have so much to offer, especially monetarily, we try to detract from their power and allure by spreading fear and talking shit. We try to make people afraid that joining Google or Goldman will lead to a forfeiture of their soul. Is it 100% rational or true? No, as he adroitly pointed out. But it is strategic and accretive to the startup ecosystem for us to talk such shit. It is marketing in its most pure and basic form.

Let's make a deal: I'll stop shitting on them when they stop shitting on me.

Thanks for writing this; it's been bothering me for sometime now.

Commonly, the arguments are Wall Street "doesn't create value," "merely moves money from A to B," or "just exists to extract wealth." Wall Street produces pricing information. Wall Street produces this pricing information by moving money in markets from A to B, and extracting some money as payment. All businesses exist to extract money from somewhere!

Good pricing information is extremely valuable. Bad pricing information is devastating. We just had a crisis caused by bad pricing information that had multiple origins, including Wall Street. However, the majority of the information produced by Wall Street is still good.

Wall Street gets the brunt of the animosity because Wall Streeters make a lot of money. Furthermore, there is a severe asymmetry between positive and negative perceptions. When markets are well-functioning, their success is easily obscured; When markets are poorly functioning, their failure is center-stage.

Before someone accuses me of conflating Wall Street with markets in general, I would like to counter that Wall Streeters are the maintenance men of markets. Some of those out-sized returns on short-term trading operations help pay for the fundamental research that helps produce good pricing information.

The funny thing is that there is a lot of innovation within large companies that will never see the light of day elsewhere. These inovations are viewed as a competitive advantage so will never emerge. Sometimes engineers have invented things within corporate confinement only to take those ideas and refine them within the freedom of a start-up. Then there are those who speak of things within companies like Google who swear what they have seen in open-software pale in comparison to what happens behind their closed doors.

Speaking of Wall Street, people need to realize that there's just as much emphasis on learning, evolving, and discovering new science there as there is in many smaller companies. The problem domain is more geared towards the maths, data mining and currently low-latency systems.

He is right--- bankers at the level he speaks of certainly don't deserve the crap handed out by the tech community. That said I'd still apply the 'Shakespeare' solution to the rest of the corporate pyramid just after handling the lawyers.

Wall street adds value to Govt. Start up adds value to the society.

Some say Wall St is a "Ponzi scheme". If that was accurate, certainly one could argue big changes are in order, but is it accurate?

In a Ponzi scheme, you have an organization that takes peoples money, does some complicated things with it that are difficult to understand, pays internal people handsomely, pays back early "investors" handsomely, then suddenly collapses and all the investment the later investors thought they had is gone. This happened in 2007 before the governments of the world contributed in $3,000,000,000,000 keep the scheme going.

The difference between the Wall St. Ponzi scheme and your average couple-million Ponzi scheme is three-fold: the organizers are still running it instead of being in prison, it is a million times bigger, and scheme insiders are running the Federal Reserve and the U.S. Treasury.

This is be made out to be a natural consequence of the complicated modern financial world, but was it unavoidable? The $3T bailout works out to about $10,000 for every person in the U.S.

eh, I think the real problem isn't wall street... the real problem is that we subsidize investing to sell over investing to hold through lower capital gains tax rates... If I sell my company, I pay less than half as much taxes than if I continue to hold the company and just pay out profits to myself.

this encourages short-term thinking.

If we still want to give preferential tax treatment to investing vs. working, you can do that without forcing people to sell by removing the double taxation on dividends... simply allow corporations to write off dividends as they would wages, and charge owners the existing capital gains taxes. this would allow owners to extract value at the lower capital gains rate.

"I spent two years and a summer as a junior banker. I knew from the get-go that I never wanted to be a career Wall Streeter. I viewed my time in banking as a continuation of my education. And you know what, from that perspective it was incredible. The nearly undeniable reality is that the skills and knowledge acquired in banking are remarkably valuable and broadly applicable throughout ones career. Contrary to uninformed opinion, it is not all about spreadsheets and powerpoints - it’s about understanding flows of cash through companies, analyzing markets, thinking critically about strategy and competition, and importantly, identifying and valuing opportunities."

This is so far from the truth. Most junior bankers come away learning little relevant or valuable towards actual business and the startup world.