11 ms·

Friends don't let friends get into finance

140 points by mayukh 16y ago

ulugbek 16y ago
Only way you compete with Wall Street is you increase the utility of expected payoffs, not just the wage. People who are going to WS have different risk profiles than entrepreneurs. You can have low participation in entrepreneurship as long as participating ones are competitive and innovative. It is better use of talent and time if those who would have failed anyways (because they don't have the guts, etc) go and make themselves useful elsewhere.
- orijing 16y ago
  I think you have it backwards. It's not about max_a U(E(a)), but of max_a E[U(a)]. Otherwise insurance wouldn't work. Let's illustrate with an example. Suppose you buy theft-insurance, there's 10% chance of being robbed and the cost of robbery is $100000. Then, E[a] = 0.1 * -100000 = -10,000. So you'd be maximizing U(-10000). This is different from maximizing E[U(a)] because in this case it's 0.1 * U(-100000) + 0.9 * U(0). It's different if you are not completely neutral.
  - ulugbek 16y ago
    You are right
secretasiandan 16y ago
the quant finance that takes the best and the brightest (as opposed to the bankers and sales traders), uses informational and computational advantage to make money. How are internet startups any different? Also, even the bankers and sales traders are providing a service that apparently people want. If you can judge them as not creating societal value, why can't I say that the Nth photo sharing website is not creating value?
- erikpukinskis 16y ago
  People generally won't use your site unless it helps them in some way. It makes their life easier, it helps them move information around, or they enjoy it. It's debatable whether the specifics represent a net good for humanity (cough Zynga cough) but there's at least a decent chance that you're helping folks out. Some financial organizations provide important liquidity. They offer you a loan when you need one. But many exist only to shuffle around money in a clever way, so that some percentage of that money goes into their coffers. And it seems like the smarter the employees, the less likely they are to actually be providing any real services to people. After all, smart employees are the ones who can make truly spectacular exploits of the game... exploits that are lucrative but pointless. And I don't know anything about the details, but I can't help but wonder... when you write a brilliant algorithm that scrapes money out of the markets... or you set up a clever instrument that lets you capitalize on structural regularities in the market... whose hide does that money come out of? I honestly have no idea, but my instinct is that it's coming from people who are already disenfranchised.
  - secretasiandan 16y ago
    "And it seems like the smarter the employees, the less likely they are to actually be providing any real services to people" I would call this a negotiation that they are winning. Just like startup founders win in their negotiation with employees for equity. "People generally won't use your site unless it helps them in some way." And people generally won't trade with you unless it helps them in some way. Again, how is this different?
    - erikpukinskis 16y ago
      people generally won't trade with you unless it helps them in some way Not necessarily. People engaged in real trade set up financial institutions, but once these institutions are set up, a game is in place. That game may be beneficial overall to the businesses, but individual players aren't necessarily beneficial... even if they are participating according to the agreed upon rules. It's like cashing in a Groupon deal and then never returning to that business. The company loses money on you and they only agree to serve you because it works for them at scale. But at the micro scale you are hurting them. People who do so have every right to, but they are not contributing to the economy. They are just making a lot of money by making other peoples' lives more difficult.
tedunangst 16y ago
"They note that the finance sector today produces a greater percentage of GDP than at any time in history." This is not an effective argument. The computer software industry is also producing a larger than ever percentage of GDP. In other news, the building wooden ships sector is not responsible for much of the GDP in recent years. Is that a problem?
- rriepe 16y ago
  They follow up with why it's noteworthy in the very next paragraph: "Historians will tell you that empires collapse when they become too dependent on finance, but I’m not so pessimistic."
  - med555 16y ago
    ...and economists will tell you something completely different. His points are awful and rely on no empirical evidence.
    - fabjan 16y ago
      The difference being historians have facts to go by, and economists have dreams.
      - med555 16y ago
        Wait, what? Maybe the Austrian School goes by theory if that, but every other school of economics goes by facts -- including the Chicago School, Monetarists, Keynesians, New Classical, etc. Economists' whole basis for their arguments is through empirical data and mathematical facts. Saying economists just relies on dreams is absolutely absurd and shows complete ignorance of the field.
        robak 16y ago
        Oh really? What about latest Bernanke dream that you can solve problem of too much debt by getting more into debt? Isn't he dreaming?
ig1 16y ago
The report was produced by the Kauffman foundation, a foundation dedicate to improve entrepreneurship. It's not exactly an unbiased piece of research. Attacking finance is the popular theme of the days, but finance has done a huge amount in supporting global economic growth. From providing debt and capital financing to reducing foreign exchange costs.
- rbarooah 16y ago
  Presumably this growth that the finance has supported is happening somewhere other than in the US?
  - med555 16y ago
    Ummm, growth is still happening in the U.S., and has continuously happened aside from a few quarters here and there. The point is not if we're growing, but how much faster we can grow. This is very basic economics.
    - rbarooah 16y ago
      The growth has been primarily in the financial industry. Oh - I get it now - the finance industry has provided support for itself to grow.
      - med555 16y ago
        "The growth has been primarily in the financial industry." Completely false and absurd. Supply follows demand. GDP has grown throughout every industry that hasn't seen a decrease in its demand (e.g. railroads, newspapers, etc.). That includes technology, consumer goods, and technology. The economy doesn't exist in a vacuum. The finance industry provides capital to all industries.
        rbarooah 16y ago
        If the financial industry hadn't been bailed out, it would have contacted. In its case, supply hasn't followed demand. Supply is artificially high, because demand has been produced by force.
asanwal 16y ago
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.
- Jd 16y ago
  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.
  - asanwal 16y ago
    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?
    - mousa 16y ago
      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.
rbarooah 16y ago
Finance firms put 100% of their time and energy into finding ways of making money out of existing money without producing any other value. Entrepreneurs do a little of this too, but foolishly allow themselves to be distracted by an irrational desire to also make novel and valuable contributions to society. Eventually the entrepreneurs will learn that a part time effort won't cut it and they can't beat the guys who give it 100%
- med555 16y ago
  Google. Zynga. Facebook. Intel. eBay. Apple. etc. All needed bankers to get them access to capital and grow faster, helping them hire more employees and contribute to our economy's growth and standard of living. I'd highly recommend you rely your points on empirical evidence over populist talking points.
  - rbarooah 16y ago
    The evidence is that the finance industry has grown faster than all of the other sectors, proving my point. I'd highly recommend that you rely your points on empirical evidence than empty claims.
    - med555 16y ago
      What does that even mean? Economic growth has grown consistently. Technology now makes up a large portion of our GDP when it hasn't in the past. Why attack the finance industry when you could also attack the technology industry? There's more demand. Therefore, there's a larger supply. Simple, basic, very elementary economics.
      - rbarooah 16y ago
        The financial industry makes up a much larger portion of GDP growth. Artificial growth that would have contracted if it hadn't been bailed out. Demand for the financial industry has been produced by force, not through the marketplace, unlike other industries. Your simple, basic, elementary economics don't apply when an industry is being protected by the government.
Jd 16y ago
I'm of the opinion this understates the problem. First, it is an ethical problem. The idea of producing things is not taught in elite colleges, nor is the idea that it is possible to make a positive contribution to society (e.g. rms) without becoming superrich (no offense to those for whom this is their primary motivation). Second, a lot of the products of which the GDP percentage is based upon simply involve repackaging and selling debt. (e.g. http://ow.ly/1sf8Rp http://ow.ly/1sf8Rp ). In other words, a lot of the economy is based upon accounting tricks.
- secretasiandan 16y ago
  Not all ideas can or should be taught in (elite) colleges. The framework to analyze any idea should be and generally is taught at colleges. Repackaging and selling things is foundational to creating value. The insurance industry is perhaps the quintessential example. They create no direct expected value, and yet they create societal benefit by creating risk-adjusted expected value. What is manufacturing but repackaging?
  - jbooth 16y ago
    Fair enough, but culture matters. When you're surrounded by a culture of people who glorify rent-seeking jobs like finance and lawyering, "building stuff" tends to be regarded as lower-status and as such gets less of the top talent, even though it's the most important thing.
  - maigret 16y ago
    Insurance creates value, and so do banks. The problem really begins when the banks try to get more revenue than the value they can possibly generate. That's when it goes into bubbles and finally breaks. Insurance has its risks also, but the insurance system doesn't crash every couple years from itself (major natural events, terrorist attacks etc not taken into account).
- hammock 16y ago
  Repackaging debt is not an "accounting trick," it's creating liquidity. Which in turn allows more more "real" transactions to take place, more trade, more production, more manufacturing, more jobs, etc.
techcrunchtroll 16y ago
Some career advice for all of you on Hacker News. This advice may be two years too late, but may help someone just getting in now. The decision to leave a high-paying Wall Street firm is foolhardy and one that you will more than likely live to regret later. It would be much more prudent for you to stick around at a firm for 5-6 years, put away $500K-700K in cash, get some experience, make connections and then make your move. Otherwise, you'll probably end up stuck at a startup that is not really going anywhere anytime soon (maybe it will, but maybe it won't), and it will be too late to go back to Tier-1 firms to make some cash. So the lesson for you young guys out there: Don't pull the trigger too soon IF YOU ARE ALREADY IN A MONEY EARNING JOB. Wait it out for several years, build a small safety net, and stash away some capital for your entreupreneural endeavors a couple of years later.
- gfodor 16y ago
  "Life is what happens to when you are busy making other plans" No better way to ensure you'll never follow your dreams than set yourself up to be dependent upon a large salary and plan on pursuing them "a couple of years later."
  - jgamman 16y ago
    pay bulk of your salary into a savings account. get used to living on say, 20% of it. you'll see pretty soon if you're 'following you dream' or getting hooked on cash
Dilpil 16y ago
If investment banking is so needless, why did the economy falter when lehmen brothers went bankrupt? If high frequency trading is so needless, why does the entire market go into shock when the traders panicked and left on may 6th 2010? Most importantly- if these products are useless and harmful, why do people keep buying them?
- prodigal_erik 16y ago
  > If high frequency trading is so needless, why does the entire market go into shock when the traders panicked and left on may 6th 2010? Because HFTs, who enjoy the privilege of walking away from the market at the worst possible moment, had largely displaced traditional market makers who make expensive commitments not to do that. Nobody specifically chooses to do business with them, they're exploiting flaws in the way trades clear to front-run them and become unwanted middlemen.
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  - yummyfajitas 16y ago
    ...they're exploiting flaws in the way trades clear to front-run them and become unwanted middlemen. Could you explain the mechanics of how this works? Near as I can tell, the only way to become a "middleman" is to offer a better price than your competitors or to offer the same price at an earlier time. Is there a "front-run my competitors" FIX command I'm not aware of?
    - prodigal_erik 16y ago
fleitz 16y ago
Perhaps it's not a problem with finance but a problem with other industries that don't pay their people well. Who is to say that a CDO isn't a valuable economic activity? If creating a CDO creates more value to the economy than designing an automobile why shouldn't engineers focus on building those? People forget that prices and money are essentially information about the supply and demand of a good. As we progress in the information age deriving information from price will consume and produce ever more of our GDP. Spending money efficiently and directing it to the right purposes is a VERY valuable thing for a nation to do. Perhaps, dare I say it, more valuable than engineering widgets. If YC had engineers figuring out algorithms to determine the best startups and they found one that worked it would be a very valuable piece of information. Or more relevantly, what if you had a site that required a lot of bandwidth and you could buy a bandwidth future? If you could buy that sort of thing you could offer 4 year contracts to your customers with out taking on any risk. How about this instrument, a YC Summer 2014 startup future, it estimates the expected return from S14 and pays you if the return is less than expected. YC could sell them today and gain the advantage of knowing how many startups they could fund in S14. It would allow all sorts of people to pool their knowledge about what the Summer 2014 startup scene is going to be like. You might want to buy one right before the S14 season because you know that some great startup is applying, etc. If you held office space in SOMA you could use this as a hedge against losses incurred due to a poor S14 startup season. Most complicated financial instruments are actually risk mitigation and/or information pools. The fact that that kind of thing is pricable due to these engineers spreads all sorts of great information to our economy that you can use to make informed decisions about how to conduct your affairs and you don't even need to participate in the market to use it. Want to know what the best guess as to the price of oil in 6 months? Check the oil futures market. This one number contains the all the information known to man, vetted by experts as to what the supply and demand of oil is going to be in a few months. It also allows anyone with new knowledge to monetize that information and communicate it to all participants almost instantly. Southwest can offer cheaper flights because they use oil and jet fuel futures to buy jet fuel, the brilliant thing is that Exxon also gains knowledge of what Southwest and every other airline expects their passenger load to be in a few months and can make decisions accordingly.
- shareme 16y ago
jleyank 16y ago
paul kennedy. Britain. 1914.
Genmai 16y ago
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. f.

140 points by mayukh 16y ago

Only way you compete with Wall Street is you increase the utility of expected payoffs, not just the wage. People who are going to WS have different risk profiles than entrepreneurs. You can have low participation in entrepreneurship as long as participating ones are competitive and innovative. It is better use of talent and time if those who would have failed anyways (because they don't have the guts, etc) go and make themselves useful elsewhere.

orijing 16y ago
I think you have it backwards. It's not about max_a U(E(a)), but of max_a E[U(a)]. Otherwise insurance wouldn't work. Let's illustrate with an example. Suppose you buy theft-insurance, there's 10% chance of being robbed and the cost of robbery is $100000. Then, E[a] = 0.1 * -100000 = -10,000. So you'd be maximizing U(-10000). This is different from maximizing E[U(a)] because in this case it's 0.1 * U(-100000) + 0.9 * U(0). It's different if you are not completely neutral.
- ulugbek 16y ago
  You are right

secretasiandan 16y ago

the quant finance that takes the best and the brightest (as opposed to the bankers and sales traders), uses informational and computational advantage to make money. How are internet startups any different? Also, even the bankers and sales traders are providing a service that apparently people want. If you can judge them as not creating societal value, why can't I say that the Nth photo sharing website is not creating value?

erikpukinskis 16y ago
People generally won't use your site unless it helps them in some way. It makes their life easier, it helps them move information around, or they enjoy it. It's debatable whether the specifics represent a net good for humanity (cough Zynga cough) but there's at least a decent chance that you're helping folks out. Some financial organizations provide important liquidity. They offer you a loan when you need one. But many exist only to shuffle around money in a clever way, so that some percentage of that money goes into their coffers. And it seems like the smarter the employees, the less likely they are to actually be providing any real services to people. After all, smart employees are the ones who can make truly spectacular exploits of the game... exploits that are lucrative but pointless. And I don't know anything about the details, but I can't help but wonder... when you write a brilliant algorithm that scrapes money out of the markets... or you set up a clever instrument that lets you capitalize on structural regularities in the market... whose hide does that money come out of? I honestly have no idea, but my instinct is that it's coming from people who are already disenfranchised.
- secretasiandan 16y ago
  "And it seems like the smarter the employees, the less likely they are to actually be providing any real services to people" I would call this a negotiation that they are winning. Just like startup founders win in their negotiation with employees for equity. "People generally won't use your site unless it helps them in some way." And people generally won't trade with you unless it helps them in some way. Again, how is this different?
  - erikpukinskis 16y ago
    people generally won't trade with you unless it helps them in some way Not necessarily. People engaged in real trade set up financial institutions, but once these institutions are set up, a game is in place. That game may be beneficial overall to the businesses, but individual players aren't necessarily beneficial... even if they are participating according to the agreed upon rules. It's like cashing in a Groupon deal and then never returning to that business. The company loses money on you and they only agree to serve you because it works for them at scale. But at the micro scale you are hurting them. People who do so have every right to, but they are not contributing to the economy. They are just making a lot of money by making other peoples' lives more difficult.

tedunangst 16y ago

"They note that the finance sector today produces a greater percentage of GDP than at any time in history." This is not an effective argument. The computer software industry is also producing a larger than ever percentage of GDP. In other news, the building wooden ships sector is not responsible for much of the GDP in recent years. Is that a problem?

rriepe 16y ago
They follow up with why it's noteworthy in the very next paragraph: "Historians will tell you that empires collapse when they become too dependent on finance, but I’m not so pessimistic."
- med555 16y ago
  ...and economists will tell you something completely different. His points are awful and rely on no empirical evidence.
  - fabjan 16y ago
    The difference being historians have facts to go by, and economists have dreams.
    - med555 16y ago
      Wait, what? Maybe the Austrian School goes by theory if that, but every other school of economics goes by facts -- including the Chicago School, Monetarists, Keynesians, New Classical, etc. Economists' whole basis for their arguments is through empirical data and mathematical facts. Saying economists just relies on dreams is absolutely absurd and shows complete ignorance of the field.
      - robak 16y ago
        Oh really? What about latest Bernanke dream that you can solve problem of too much debt by getting more into debt? Isn't he dreaming?

ig1 16y ago

The report was produced by the Kauffman foundation, a foundation dedicate to improve entrepreneurship. It's not exactly an unbiased piece of research. Attacking finance is the popular theme of the days, but finance has done a huge amount in supporting global economic growth. From providing debt and capital financing to reducing foreign exchange costs.

rbarooah 16y ago
Presumably this growth that the finance has supported is happening somewhere other than in the US?
- med555 16y ago
  Ummm, growth is still happening in the U.S., and has continuously happened aside from a few quarters here and there. The point is not if we're growing, but how much faster we can grow. This is very basic economics.
  - rbarooah 16y ago
    The growth has been primarily in the financial industry. Oh - I get it now - the finance industry has provided support for itself to grow.
    - med555 16y ago
      "The growth has been primarily in the financial industry." Completely false and absurd. Supply follows demand. GDP has grown throughout every industry that hasn't seen a decrease in its demand (e.g. railroads, newspapers, etc.). That includes technology, consumer goods, and technology. The economy doesn't exist in a vacuum. The finance industry provides capital to all industries.
      - rbarooah 16y ago
        If the financial industry hadn't been bailed out, it would have contacted. In its case, supply hasn't followed demand. Supply is artificially high, because demand has been produced by force.

asanwal 16y ago

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.

Jd 16y ago
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.
- asanwal 16y ago
  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?
  - mousa 16y ago
    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.

rbarooah 16y ago

Finance firms put 100% of their time and energy into finding ways of making money out of existing money without producing any other value. Entrepreneurs do a little of this too, but foolishly allow themselves to be distracted by an irrational desire to also make novel and valuable contributions to society. Eventually the entrepreneurs will learn that a part time effort won't cut it and they can't beat the guys who give it 100%

med555 16y ago
Google. Zynga. Facebook. Intel. eBay. Apple. etc. All needed bankers to get them access to capital and grow faster, helping them hire more employees and contribute to our economy's growth and standard of living. I'd highly recommend you rely your points on empirical evidence over populist talking points.
- rbarooah 16y ago
  The evidence is that the finance industry has grown faster than all of the other sectors, proving my point. I'd highly recommend that you rely your points on empirical evidence than empty claims.
  - med555 16y ago
    What does that even mean? Economic growth has grown consistently. Technology now makes up a large portion of our GDP when it hasn't in the past. Why attack the finance industry when you could also attack the technology industry? There's more demand. Therefore, there's a larger supply. Simple, basic, very elementary economics.
    - rbarooah 16y ago
      The financial industry makes up a much larger portion of GDP growth. Artificial growth that would have contracted if it hadn't been bailed out. Demand for the financial industry has been produced by force, not through the marketplace, unlike other industries. Your simple, basic, elementary economics don't apply when an industry is being protected by the government.

Jd 16y ago

I'm of the opinion this understates the problem. First, it is an ethical problem. The idea of producing things is not taught in elite colleges, nor is the idea that it is possible to make a positive contribution to society (e.g. rms) without becoming superrich (no offense to those for whom this is their primary motivation). Second, a lot of the products of which the GDP percentage is based upon simply involve repackaging and selling debt. (e.g. http://ow.ly/1sf8Rp http://ow.ly/1sf8Rp ). In other words, a lot of the economy is based upon accounting tricks.

secretasiandan 16y ago
Not all ideas can or should be taught in (elite) colleges. The framework to analyze any idea should be and generally is taught at colleges. Repackaging and selling things is foundational to creating value. The insurance industry is perhaps the quintessential example. They create no direct expected value, and yet they create societal benefit by creating risk-adjusted expected value. What is manufacturing but repackaging?
- jbooth 16y ago
  Fair enough, but culture matters. When you're surrounded by a culture of people who glorify rent-seeking jobs like finance and lawyering, "building stuff" tends to be regarded as lower-status and as such gets less of the top talent, even though it's the most important thing.
- maigret 16y ago
  Insurance creates value, and so do banks. The problem really begins when the banks try to get more revenue than the value they can possibly generate. That's when it goes into bubbles and finally breaks. Insurance has its risks also, but the insurance system doesn't crash every couple years from itself (major natural events, terrorist attacks etc not taken into account).
hammock 16y ago
Repackaging debt is not an "accounting trick," it's creating liquidity. Which in turn allows more more "real" transactions to take place, more trade, more production, more manufacturing, more jobs, etc.

techcrunchtroll 16y ago

Some career advice for all of you on Hacker News. This advice may be two years too late, but may help someone just getting in now. The decision to leave a high-paying Wall Street firm is foolhardy and one that you will more than likely live to regret later. It would be much more prudent for you to stick around at a firm for 5-6 years, put away $500K-700K in cash, get some experience, make connections and then make your move. Otherwise, you'll probably end up stuck at a startup that is not really going anywhere anytime soon (maybe it will, but maybe it won't), and it will be too late to go back to Tier-1 firms to make some cash. So the lesson for you young guys out there: Don't pull the trigger too soon IF YOU ARE ALREADY IN A MONEY EARNING JOB. Wait it out for several years, build a small safety net, and stash away some capital for your entreupreneural endeavors a couple of years later.

gfodor 16y ago
"Life is what happens to when you are busy making other plans" No better way to ensure you'll never follow your dreams than set yourself up to be dependent upon a large salary and plan on pursuing them "a couple of years later."
- jgamman 16y ago
  pay bulk of your salary into a savings account. get used to living on say, 20% of it. you'll see pretty soon if you're 'following you dream' or getting hooked on cash

Dilpil 16y ago

If investment banking is so needless, why did the economy falter when lehmen brothers went bankrupt? If high frequency trading is so needless, why does the entire market go into shock when the traders panicked and left on may 6th 2010? Most importantly- if these products are useless and harmful, why do people keep buying them?

prodigal_erik 16y ago
> If high frequency trading is so needless, why does the entire market go into shock when the traders panicked and left on may 6th 2010? Because HFTs, who enjoy the privilege of walking away from the market at the worst possible moment, had largely displaced traditional market makers who make expensive commitments not to do that. Nobody specifically chooses to do business with them, they're exploiting flaws in the way trades clear to front-run them and become unwanted middlemen.
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- yummyfajitas 16y ago
  ...they're exploiting flaws in the way trades clear to front-run them and become unwanted middlemen. Could you explain the mechanics of how this works? Near as I can tell, the only way to become a "middleman" is to offer a better price than your competitors or to offer the same price at an earlier time. Is there a "front-run my competitors" FIX command I'm not aware of?
  - prodigal_erik 16y ago

fleitz 16y ago

Perhaps it's not a problem with finance but a problem with other industries that don't pay their people well. Who is to say that a CDO isn't a valuable economic activity? If creating a CDO creates more value to the economy than designing an automobile why shouldn't engineers focus on building those? People forget that prices and money are essentially information about the supply and demand of a good. As we progress in the information age deriving information from price will consume and produce ever more of our GDP. Spending money efficiently and directing it to the right purposes is a VERY valuable thing for a nation to do. Perhaps, dare I say it, more valuable than engineering widgets. If YC had engineers figuring out algorithms to determine the best startups and they found one that worked it would be a very valuable piece of information. Or more relevantly, what if you had a site that required a lot of bandwidth and you could buy a bandwidth future? If you could buy that sort of thing you could offer 4 year contracts to your customers with out taking on any risk. How about this instrument, a YC Summer 2014 startup future, it estimates the expected return from S14 and pays you if the return is less than expected. YC could sell them today and gain the advantage of knowing how many startups they could fund in S14. It would allow all sorts of people to pool their knowledge about what the Summer 2014 startup scene is going to be like. You might want to buy one right before the S14 season because you know that some great startup is applying, etc. If you held office space in SOMA you could use this as a hedge against losses incurred due to a poor S14 startup season. Most complicated financial instruments are actually risk mitigation and/or information pools. The fact that that kind of thing is pricable due to these engineers spreads all sorts of great information to our economy that you can use to make informed decisions about how to conduct your affairs and you don't even need to participate in the market to use it. Want to know what the best guess as to the price of oil in 6 months? Check the oil futures market. This one number contains the all the information known to man, vetted by experts as to what the supply and demand of oil is going to be in a few months. It also allows anyone with new knowledge to monetize that information and communicate it to all participants almost instantly. Southwest can offer cheaper flights because they use oil and jet fuel futures to buy jet fuel, the brilliant thing is that Exxon also gains knowledge of what Southwest and every other airline expects their passenger load to be in a few months and can make decisions accordingly.

shareme 16y ago

jleyank 16y ago

paul kennedy. Britain. 1914.

Genmai 16y ago

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. f.