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Comment by asanwal | Hacker News Reader

Article is totally absent of any substantive suggestions to "fix the problem". The real issue is that if you look at the risk-adjusted reward of doing or working at a startup, it doesn't compare well with working on Wall Street.

And then there are those who say, let me do a few years on Wall St and then I'll pursue the startup thing. What happens during that time is they lose their entrepreneurial edge (they become corporate dull) or they take on a lifestyle (nice house, cars etc = high fixed costs) which makes startup life less feasible.

Of course, in startup land, you have your occasional stellar upside scenarios a la Zuckerberg, but if economics is the main motivator, Wall St is a logical, rational choice esp if you work to live (and not live to work).

I say all of this as an NYC startup who feels this pain at times (although I think it is overblown and more of an excuse). I just don't think bellyaching about it achieves much.

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The title is a suggestion. Discourage your friends from putting their energies into creating financial products of dubious value and instead encourage them to engage in substantive work that makes a clearly positive contribution.

Yes, yes, I know you want a secure source of income. Well, try think about ethics first, if not only.

These generalizations about finance being unethical are misguided and misinformed.

A bank/VC that gives a loan/investment to small business/startup. That's finance. Hardly unethical.

Allowing people to get a car today while paying for it over time (instead of paying upfront). Hardly unethical.

Yes, there are bad actors in finance as there are in every space. Don't the Zyngas and others of the world via their offers engage in "ethically questionable" tactics?

A lot of the financial industry though today works so many layers above actual loans it's hard to see how they contribute and even harder to see why they make so much more money than everyone else. I'm not an expert, I'm sure there is some justification, but it's not obvious to most people and that's why, sometimes, we the laypeople wonder.

I agree with you to some degree. There is a lot that happens well out of public (and sometimes regulatory) purview. I just think views that "finance is bad" or "startups are the best" are myopic, don't advance the discussion and ultimately fail to realize the inter-related'ness of all these different forces.

Ultimately, we live in a pretty free agent society and if Wall St can pay more (no matter the reason), the rational engineer whose primary motivation is money should take that job. There is nothing wrong with that. The engineer who is motivated by money and other factors (building something valuable, being his/her own boss, etc) also has avenues a la doing a startup.

This would be true if the losses from the last crash hadn't been socialized.

If the financial industry had actually had to bear the consequences of the risks they take in the same way that entrepreneurs do, the decisions would be rational. As it is, the finance sector is protected by the government whereas startups are not.

When the collapse of Facebook presents systemic risk (or the illusion of system risk depending on your perspective) to the US, I'm sure it will get a "bail out" as well.

Seriously? You're saying that it's fine for the financial industry to hold the country hostage when they fail because there's equal opportunity for other industries to do that too if they too can become large enough?

Not justifying it, but when people think the whole system could break down, crazya$$ isht happens. The rightness or wrongness of what was done is not what I was getting into.

Merely commenting on your point as to why the "finance sector is protected by the government whereas startups are not".

Right - but the finance sector wasn't chosen at random to receive a bailout because of 'craziness'. It was bailed out because it's dysfunctional. And now, people in the financial industry expect it to get bailed out when it screws up, since that's what's happened time after time. Whereas people joining startups have no such expectation.

If you don't seriously expect Facebook to get bailed out it's not a particularly meaningful thing to bring up.

I am guessing (and apologies if I'm wrong) that you've not worked in finance else I don't think you wouldn't paint the entire industry with such a broad brush. I don't disagree with you that a lot of stupid, ignorant and misguided things happen in the industry, but in general, I find that the "Wall St is bad" rhetoric is easy to get wrapped up into because it is fashionable and easy to do.

But nevertheless, I'll go back to my original point. If the gov't thought that Facebook (or any startup) presented systemic risk, it'd likely get bailed out. I'll leave it at that.

Equally relevant: if the government thought that Facebook had weapons of mass destruction, they'd topple Zuckerberg.

On the topic of straw men, I don't think you'll find me saying anywhere that the financial industry is "stupid, ignorant, or misguided", nor did I say that "wall street is bad". I'm not painting the people in the industry with any kind of brush at all. You make it sound like I'm kicking a puppy.

I believe that there's a systemic problem with the industry and its role in society and that it is damaging our future prosperity.

Yes, any sufficiently powerful institution could, in principle pose such a problem, but why distract ourselves with imaginary problems when we have a real one sitting in front of us?

Like General Motors?

And GM is blameless because they make SUVs?

What relevance has that comment?

Even engineers got a bailout : GM apparently presented a systemic risk to the US car industry.

You could as well say managers got a bailout. Or plant workers got a bailout. Are engineers the ones to blame the most for GM?

You are trolling, right?

Excellent point.

It's not even about a secure source of income. Unless you're a founder, simply low-single-digit employee number doesn't give you enough equity to beat even a low-end finance job. Simple math: if you do your business, 9-to-5 only, you'll be in the 150-200k range within 5 years of graduation. If you decide to manage and make it up a rung or two, join a financial startup, or just make "tech lead/architect" double that income.

Unless you're a founder, having a five-year startup exit strategy that pays out similarly to the income you could have obtained in a straightforward manner in finance is a microsoft/google/facebook/twitter-style long shot. And, the latter two haven't even IPO'd yet to allow full vested share liquidity...

All my friends consider it a fairly soulless industry. Though they joke about patent troll/NPE firms in the way most techies joke about financial firms.

It's easy to fix the problem. Stop the government from stealing money and giving it to the banks.

Please explain how the government is "stealing money" for the banks. That is completely absurd. Monetary policy keeps the system in check to stabilize the economy.

How does a massive bail out 'keep the system in check'?

On the contrary, it encourages disfunction. "Let us remove the consequences of your failures." Gee, I wonder if that memory will make them so grateful that they'll be more careful next time? Sure. It's not like their whole industry is about predicting risks and rewards based on past experience.

Bah. The mistakes will be repeated and the bailout question will arise again. And it will be worse next time.

We should have had the guts to say "fail and die." It would have sucked, but not as much as crushing debt and a sequel.

Exactly. GM should be dead by now.

You guys are hilarious with your chests puffed out screaming about death to the financial players who were in trouble. Have you considered the massive negative shock to liquidity that would have resulted?

Goldman Sachs, JPMorgan Chase etc. deal with an inordinate amount of the world's liquid assets. If they had failed, the problems wouldn't have been a few quarters of negative GDP growth--we could have seen the collapse of financial markets everywhere along with prolonged global depression. Should we have had the guts to deal with that too?

Perhaps not. But not everyone has their chests puffed up about this. As it stands, they were rewarded for taking excess risk and are doing it again. What should be done next time?

Speculation.

Let's speculate a bit more. There are two possible outcomes to letting a large bank/financial institution fail:

1. Financial institutions cannot transfer funds between each other as usual and they cannot accurately predict who might fail next, so they pull back credit access. Spreads blow up as money supply decreases, causing a sharp decline in equipment investment and a big rise in consumer interest rates. Shit gets worse from there.

2. Banks die and, in conflict with everything we know about liquidity, money continues to flow perfectly. Banks are not afraid of failure so credit flows freely.

What do you see as more likely? Can you sum it up in a one-word answer?

You're probably right - if they'd just been allowed to collapse we'd be in serious trouble.

However we're still in serious trouble because of the moral hazard created. Banks have been given the greenlight to take similar risks again because they know they'll be bailed out in future.

Frankly, without also taking steps to force banks back into smaller entities that we can afford to let fail, all we've done is compound the problem and delay it until later when it will be worse.

Is it better to force banks into smaller entities, exerting government control over the marketplace, or let their investors lose their pants when the banks take stupid risks, allowing the marketplace to correct itself?

Well personally, I'd prefer the latter, but if it really was going to crash the economy completely, then the former might be necessary. But the only point in forcing them into smaller entities would be so that in future they would be allowed to fail.

OK. What reason do the bailed-out institutions now have to avoid such irresponsible behavior in the future? Previously, they had "it might ruin us." Now?

If we've merely postponed this problem and are waiting for Round II, then yes, we should have had the guts to have a depression resulting from irresponsible investments rather than a depression resulting from irresponsible investments AND governments up to their nostrils in debt.

The government took money from people that were putting it to productive use and gave it to people that weren't. If they had allowed the banks to fail, their resources would have been auctioned off to the banks that didn't make poor decisions. Those banks would now be running the financial system, not the ones that destroyed it.

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