Wall Street is getting smaller and dumber, and that’s a good thing
“Bankers are ruining the economy.” A lot of people have uttered this phrase or a similar iteration over the years. Usually it relates to the financial crisis or to gaudy compensation packages, but it’s always more of an inflamed opinion than some sort of fact. Well, a recent study has trotted out some numbers that are a bit more compelling than a random subway rant.
The study, launched by economists Stephen Cecchetti and Enisse Kharroubi, first looked at the economic output in 21 nations over a five-year period. They found that once a country’s finance industry grows to a certain size – specifically 3.9% of all workers – its national gross domestic product per worker declines. The faster the banking industry’s presence grows, the steeper the decline, according to Bloomberg.
The paper doesn’t argue that bankers are necessarily greedy or immoral. It simply says the prominence of the financial services industry impedes growth because the projects banks tend to invest in aren’t productive, at least from a macro-economic standpoint. The authors cite banks’ proclivity to invest in construction projects, for example, which create quick returns but don’t do much for greater economic development. Many have also made the argument that investment banking is a business that simply moves pieces around but doesn’t create any economic value.
But the authors go further. They also suggest that Wall Street’s ability to scoop up much of society’s talented youth is dis-incentivizing entrepreneurship. Essentially, banks are taking all our smart people and putting them to work in capacities that don’t spur long-term economic growth, or so goes the theory.
It seems like kind of a stretch, honestly, but if true we’ve got some good things going for us. Wall Street is shrinking – New York City’s securities industry currently employs 170,000 people, down from a record 195,000 it did a decade ago. Moreover, fewer bright minds are getting into banking, with more headed to Silicon Valley. Around 16% of Harvard undergrads will head to finance companies in 2015, down from 47% in 2007.
So Wall Street is getting smaller and dumber, and that’s actually a good thing for the economy? Weird.
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A judge overseeing an insider trading trial was removed from the case after attorneys accused him of taking joy rides in the defendant’s $157,000 seized Porsche. He had it parked right in his building’s garage.
The three founders of private equity giant Carlyle Group took home more than $800 million in 2014, despite a mediocre fourth quarter. They amassed roughly $750 million in compensation in 2013.
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Buzz Around the Office
If you missed last week’s epic llama drama, here’s a hilarious play-by-play of the chase. It was basically an hour of human beings trying and failing to form-tackle two escaped llamas in downtown Phoenix.
Quote of the Day: “I have no problem not listening to The Temptations, which is weird.” – Mitch Hedburg