The Lost-Out Generation
A generation of highly educated young Americans have signed up at law firms, investment banks, and hedge and equity funds, happily assuming that the boom times would last forever. Now Wall Street is to young financiers what Detroit is to would-be autoworkers. The adjustment won’t be easy.
In recent years, up to 40% of the graduating class at Harvard sought work in the finance sector. Suddenly those jobs no longer exist. Post-AIG, those jobs that remain look far less appealing.
An individual who has worked many years in finance agrees and told NewMajority: “the politics of receiving government funds and coming under government supervision is something that is being considered by potential employees.” He adds: “Basically all less regulated entities will benefit when it comes to hiring decisions.”
While some may argue that the limits on compensation would only affect a few employees at the top of the pyramid, the brain drain could be more widespread than many expect. “When someone moves, he’s not just moving himself. Invariably, they will take their practice group with them. You may think that you are going to lose a couple talented people at the top, but in the long run you will lose a lot of human capital. That’s hard to replace…” a banker told NM.
One option: working for non-American employers. An investment banker notes that “The administration doesn’t seem to have grasped the extent to which this is a global industry. American firms have to compete with everyone else. If you limit compensation or vilify those who work for American institutions, well, they aren’t going to work there.” A former investment banker who is now a senior associate at a New York law firm that works closely with many institutions that have received TARP funds points out that moving to a foreign employer need not require a move abroad: “I think that there could well be a brain drain from our banks. Washington doesn’t get how easy it is to move from one firm to another. In the old days if you didn’t want to work for an American bank, you packed up and moved to Europe. Today, you just cross the street.”
Understandably, Washington is concerned with returning American firms to good financial health. But in their work to restore discipline and remove toxic assets from the books, they run the risk of going too far and punishing American institutions, making it harder for them to compete effectively in the long term.
Many individuals draw parallels to the passage of Sarbanes-Oxley in the aftermath of the Enron, Tyco and WorldCom scandals, arguing that the unilateral decision to pass more stringent regulations on business in the aftermath of these scandals ultimately harmed American interests. One person who works with the derivatives industry expresses this worry “My big question is whether Congress will again over-regulate and drive business offshore… The last time that Congress laid a heavy regulatory framework on the finance industry was with Sarbanes-Oxley, and all that did was drive securities issuers to foreign markets. It basically drove IPO work off-shore. The real beneficiaries of Sarbanes-Oxley were London and Hong Kong.”
There is a great deal of uncertainty on Wall Street about the future. And there is a growing sense that the overseers in Washington might not understand the issues faced by the financial services industry: “There is a disconnect between Washington and Wall Street. Its hard to watch Congress grill Geithner and Bernanke and wonder if some of those Congressmen even know what a reserve currency is.”
The Obama administration and Congress would do well to remember that whatever measures they implement to resolve the financial crisis: the end result should not only return American financial firms to good health but ensure that they remain competitive with their global counterparts and are able to retain their talented employees. To achieve this they may want to listen more to the concerns on the Street and work to find global solutions that will not hamper American finance.
In recent years, up to 40% of the graduating class at Harvard sought work in the finance sector. Suddenly those jobs no longer exist. Post-AIG, those jobs that remain look far less appealing.
An individual who has worked many years in finance agrees and told NewMajority: “the politics of receiving government funds and coming under government supervision is something that is being considered by potential employees.” He adds: “Basically all less regulated entities will benefit when it comes to hiring decisions.”
While some may argue that the limits on compensation would only affect a few employees at the top of the pyramid, the brain drain could be more widespread than many expect. “When someone moves, he’s not just moving himself. Invariably, they will take their practice group with them. You may think that you are going to lose a couple talented people at the top, but in the long run you will lose a lot of human capital. That’s hard to replace…” a banker told NM.
One option: working for non-American employers. An investment banker notes that “The administration doesn’t seem to have grasped the extent to which this is a global industry. American firms have to compete with everyone else. If you limit compensation or vilify those who work for American institutions, well, they aren’t going to work there.” A former investment banker who is now a senior associate at a New York law firm that works closely with many institutions that have received TARP funds points out that moving to a foreign employer need not require a move abroad: “I think that there could well be a brain drain from our banks. Washington doesn’t get how easy it is to move from one firm to another. In the old days if you didn’t want to work for an American bank, you packed up and moved to Europe. Today, you just cross the street.”
Understandably, Washington is concerned with returning American firms to good financial health. But in their work to restore discipline and remove toxic assets from the books, they run the risk of going too far and punishing American institutions, making it harder for them to compete effectively in the long term.
Many individuals draw parallels to the passage of Sarbanes-Oxley in the aftermath of the Enron, Tyco and WorldCom scandals, arguing that the unilateral decision to pass more stringent regulations on business in the aftermath of these scandals ultimately harmed American interests. One person who works with the derivatives industry expresses this worry “My big question is whether Congress will again over-regulate and drive business offshore… The last time that Congress laid a heavy regulatory framework on the finance industry was with Sarbanes-Oxley, and all that did was drive securities issuers to foreign markets. It basically drove IPO work off-shore. The real beneficiaries of Sarbanes-Oxley were London and Hong Kong.”
There is a great deal of uncertainty on Wall Street about the future. And there is a growing sense that the overseers in Washington might not understand the issues faced by the financial services industry: “There is a disconnect between Washington and Wall Street. Its hard to watch Congress grill Geithner and Bernanke and wonder if some of those Congressmen even know what a reserve currency is.”
The Obama administration and Congress would do well to remember that whatever measures they implement to resolve the financial crisis: the end result should not only return American financial firms to good health but ensure that they remain competitive with their global counterparts and are able to retain their talented employees. To achieve this they may want to listen more to the concerns on the Street and work to find global solutions that will not hamper American finance.