Young Money: Inside the Hidden World of Wall Street's Post-Crash Recruits (19 page)

IN THE WINTER
of 2011, a joke started circulating among New York’s financial crowd:

As Wall Street banks began handing out their bonus numbers that year, recipients found themselves turning to self-pity and dark humor. At nearly every bank, flagging profits had made for bonuses that, while still massive compared to any reasonable norm, looked minuscule compared to the bounties of years past. Bank of America Merrill Lynch reduced the size of its cash bonuses by 75 percent. Morgan Stanley capped cash bonuses at $125,000 for everyone, even the cigar-chomping executives at the top. And at Goldman Sachs, the amount set aside to pay compensation and benefits was $12.22 billion, or $367,000 per employee, down 21 percent from the year before. (“A bloodbath,” is how one Goldman analyst put it to me.) The sector-wide compensation disappointment, combined with the layoffs that were still occurring, made Wall Street’s collective blood pressure rise.

“Seriously man, sinking ship,” Jeremy Miller-Reed wrote me after one particularly disappointing earnings report at Goldman Sachs. “I’ve been thinking more and more these days that I need to get out after bonuses hit in January. Although that is, of course, contingent on the world not having blown up by then.”

The thing scaring young Wall Streeters wasn’t really the money. That always ebbed and flowed with the markets, and while many post-crash recruits had never seen that kind of cyclicality, they had been conditioned to expect it. And in any other year of subpar pay, whining and complaints would have been tempered by the realization that the next year would almost certainly be better. What bothered people that winter and spring was the sense that what was happening to Wall Street was no longer part of a familiar boom-and-bust cycle—that they were witnessing the fundamental transformation of the entire financial industry.

Since the crisis, nearly every week had brought a new structural change to Wall Street’s business model. First came the Dodd-Frank Wall Street Reform and Consumer Protection Act, the law that was passed by Congress in order to try to prevent another 2008-style crisis. Dodd-Frank, which was signed into law by President Obama in July 2010, was the most sweeping piece of new regulation on the financial industry since the Great Depression. In addition to cracking down on prop trading, the law set up new regulatory agencies to manage systemic risk, created a so-called resolution authority that would give government the power to wind down a failing financial institution in an orderly way, and gave private equity firms and hedge funds tougher disclosure standards. Many of the rules in Dodd-Frank had yet to be written and implemented (and would subsequently be watered down by lobbyists) but it was immediately apparent that the law would put a crimp in Wall Street’s profitability for the foreseeable future.

Next came Basel III, an international regulatory standard that the United States decided to adopt in 2011. Basel III raised the amount of capital banks had to hold against their assets, which gave them bigger cushions and reduced the likelihood that a big, unexpected loss could wipe an entire firm out. By requiring banks to hold more capital relative to their assets, Basel III made the financial system less risky, but it also reduced the amount of leverage that banks could use to juice their trading returns.

That winter, JPMorgan Chase reported fourth-quarter profits that were 23 percent lower than the previous year’s. Goldman Sachs’s profits for all of 2011 fell more than 50 percent from the previous year’s levels. The net income earned by Bank of America’s investment banking division, which includes Merrill Lynch, dropped by 53 percent, and Morgan Stanley’s earnings fell by 42 percent for the year. With Dodd-Frank and Basel III kicking in, it wasn’t clear when Wall Street would get its mojo back, if ever.

“The new regulatory framework will undoubtedly make Wall Street less valuable than it was before,” William A. Sahlman, a professor at Harvard Business School, told me. “Whatever Wall Street used to look like, it looks half as good now. People thought of some of those organizations, like a Morgan Stanley or a Goldman Sachs, as safe career bets. They didn’t have a history of laying people off, and they were pretty great places for people to work. But after Lehman Brothers and Bear Stearns got in trouble, everybody got in trouble.”

Nearly every older Wall Streeter I spoke to that year was dismissive of Dodd-Frank and Basel III, which they viewed as annoyances at best and a waiting cataclysm at worst. Younger bankers, though, often recognized that tougher regulations were, on the whole, a good thing for society. Their concern was closer to home; they were just nervous about their jobs.

They had reason to worry. The financial crisis had been disproportionately hard on young Wall Street workers, who were getting displaced at a greater frequency than their elders. According to data from the Bureau of Labor Statistics, the number of employees in the securities industry in New York City between ages twenty and thirty-four fell by 25 percent from the third quarter of 2008 to the third quarter of 2011, whereas the overall decline in workers of all ages was only 17 percent. That difference—and the fact that younger Wall Street workers often don’t have substantial nest eggs saved up to cushion against the possibility of a job loss—made many twentysomething financiers fret that much harder about their futures.

“I’m interviewing for jobs in Asia,” one anxious Goldman Sachs analyst told me that winter. “With all the regulatory things over here, they’re the only ones hiring.”

What bothered many of Wall Street’s youngest workers was that although making it to the top of the financial world had always required elbow grease and dedication, the path itself had always been fairly straightforward. You put in two years of backbreaking work at a bank, then moved over to a hedge fund or a private equity firm for two more years of nonstop number crunching, went to business school, then came back with an MBA and began climbing the buy-side ladder. At each of these steps, your pay grew—from $120,000 to $180,000 to $400,000, perhaps—and one day, you woke up at forty as a managing director, making a few million dollars a year and living the good life.

But that basic formula for success was quickly eroding. That year, I met with dozens of young Wall Street analysts, and almost all of them seemed deeply confused about how to make it in the post-crisis world. Many of the a priori assumptions about how to succeed in finance seemed inadequate and outdated. An analyst could come from the right school, get a job at the right bank, live and breathe investment banking for two years, excel at every task, never complain about late nights or tough assignments, be the shining star of an analyst class, and still be kicked to the curb by a sudden round of layoffs. In the world of Wall Street, the crisis had created an alternate reality, in which performance and outcome weren’t always meaningfully correlated.

“Not that I was ever part of the old days,” Ricardo Hernandez, the J.P. Morgan analyst, mused to me. “But I think I’m resigned to the fact that the world of 2007 is never coming back.”

The clearest sense I got of how the economic realities of the post-crash era had affected the ambitions of young Wall Streeters was when I met with Trevor Nelson. Trevor works for a financial education company called Training the Street (the same firm that conducted my Excel spreadsheet-making seminar), and his specialty is helping young people prepare for their interviews at private equity firms, hedge funds, and investment banks. He’s a former Lehman Brothers banker who looks a bit like a young Christian Bale, with gray-flecked scruff on his face and intense eyes, and he charges nearly $500 an hour for his interview-prep services.

I went to Trevor’s office on Madison Avenue to ask him a bunch of questions about the private equity recruiting process. But when I sat down across a boardroom table from him, he immediately started telling me how bizarrely his clients had been acting.

“These are excellent kids who have been groomed for success,” he said. “They’ve gone to the best schools, gotten the best grades, worked at the best banks. For a long time, they’ve been searching for the highest level of attainment. And for a long time, private equity and hedge funds were the next step in that track. Now, it’s different.”

The way Trevor described it, young people who several years earlier might have happily jumped onto the time-tested track between top investment banks and private equity megafirms were no longer doing so quite so predictably. Instead, after their time in banking was up, they were going to work at small technology start-ups, joining large companies in fields unrelated to finance, and going back to school. It wasn’t because they were fed up with working hundred-hour weeks, or because they objected morally to the work of high finance. These financiers simply thought there were better and more enjoyable ways to make money. So they jumped ship.

“Seven years ago,” Trevor said, “the only way to succeed was in private equity or hedge funds. The folks I was in i-banking with weren’t asking about personal fulfillment. But now with the financial crisis and a tech boom, people are saying, ‘I don’t need to sacrifice twenty years of my life to get where I want to be.’”

As I walked home from my meeting with Trevor, I reflected on all the things I’d learned about the passions of the young financiers I was getting to know. I recalled Jeremy’s love of car mechanics and engineering, Chelsea’s business ideas scrawled in her notebook, Ricardo’s desire to be a doctor. I thought of how none of them had grown up wanting to be investment bankers, but had at some point been convinced to forgo their truest aspirations in order to work on Wall Street.

I couldn’t really begrudge them that choice. It’s a rare luxury, reserved mainly for children of privilege, to be able to make a job decision straight out of college based solely on passion, with no regard at all for money or security. Most entry-level jobs, in any field, involve corporate drudgery of some sort. And many of the young people I knew in New York who were pursuing artistic or creative endeavors also had substantial safety nets. In an economic climate where nearly 20 percent of people under twenty-five were unemployed, and far more earned less than they should have, it’s no mystery why finance jobs remained a desirable plan B.

Still, I knew people like Jeremy, Samson, and Chelsea well enough to know that banking wasn’t what they wanted to be doing, and that finance had been a poor use of their skills.

The British economist Roger Bootle has written about the difference between creative and distributive work. Creative work, Bootle says, involves bringing something new into the world that adds to the total available to everyone—say, as a doctor who treats patients, or an artist whose sculptures decorate public parks. Whereas distributive work—which could characterize many corporate jobs, but especially those that involve intermediary functions like banking and law—only carries the possibility of beating out competitors and winning a bigger share of a fixed-size market. Bootle explains that although many jobs in modern society consist of distributive work, there is something intrinsically happier about a society that skews in favor of the creative. “There are some people who may derive active delight from the knowledge that their working life is devoted to making sure that someone else loses, but most people do not function that way,” he writes. “They like to have a sense of worth, and that sense usually comes from the belief that they are contributing to society.”

Not all young financiers would, given their druthers, abandon distributive work and become musicians and painters. Nor should they. Whatever your views on Wall Street banks, their basic functions (advising on mergers, underwriting bond offerings, lining up buyers and sellers of securities) need to be done somewhere. Even though regulations and political pressure could eventually shrink those banks to a more reasonable size, they can never go away completely. As long as we want to have an economy where companies can merge and acquire other companies, and where businesses can raise money and compete in the global markets, we will always need some number of twenty-two-year-olds churning out Excel spreadsheets night and day in the bowels of investment banks.

After talking to Trevor, though, I began to feel some hope that in the future, those twenty-two-year-olds won’t clamor to stay on Wall Street simply because it’s the prefabricated and remunerative thing to do. Their restlessness, coupled with a shrunken financial sector that no longer pays as well as it used to, could mean that some of the brilliant and talented young people who would otherwise have ended up as career investment bankers will instead start great companies, contribute their talents to amazing organizations, and do creative work that rewards them, even if it doesn’t come with a five-figure bonus.

If the Wall Street career path continues to break down, in other words, it may lead to a more equitable allocation of resources, in which talented, highly creative young people use their abilities for purposes other than padding an investment bank’s bottom line. And if that happens, the financial crisis will have sparked at least one good change.

“COME IN, JEREMY.”

The Senator, rightfully known as Goldman Sachs managing director Graham Campbell, beckoned Jeremy Miller-Reed into his office. Jeremy entered the room, sat down, and crossed his legs.

“How are you doing?” Graham asked.

Jeremy took a breath. “I’m doing really well, Graham, how are you?”

“Well,” Graham said.

There was a long, tense pause.

“I’m going to be very straight with you,” Graham said finally. “You’re one of the best analysts we’ve ever had. You’re killing it. But we all know you don’t give a fuck.”

Jeremy smiled. Had it become that obvious?

After a summer mostly spent waiting to leave the office for the Hamptons, and a fall during which he simply went through the motions of trading oil and gas derivatives, Jeremy had fully checked out of his Goldman job. He’d continued to perform well, handling big trades and racking up more and more GCs. But his heart wasn’t in it.

The biggest factor in Jeremy’s disenchantment was still Penelope, the managing director who had made his life difficult that spring. But there were other reasons. As time went on, and people around him began to speak about staying on for a third year, he was also scared of losing his ability to make a clean break from Goldman. He knew that traders and salespeople at Goldman became addicted to the money and ended up valuing their yearly bonuses more than their independence. He saw some of that in Graham, whom he’d long thought could be the CEO of a Fortune 500 company, or an actual senator, if he could only start caring about something other than his bonus.

He also began to question the value he was adding by trading derivatives all day. He remembered that once, during his senior year of college, he’d been visiting a friend who was slated to work as a management consultant at McKinsey, and the two of them had talked about the societal value of their respective professions. To Jeremy, consulting—which involved advising corporate executives on how to improve their businesses—had seemed relatively low-impact compared to finance. But he was changing his mind.

“Ultimately,” he told me, “the product Goldman is selling is its balance sheet. At the end of the day, if you have the Goldman balance sheet in your pocket, your job is pretty easy.”

That day, in Graham’s office, Jeremy had tried to say as much of this as possible while remaining polite. He told Graham that he was being weighed down by “all the interpersonal stuff”—which they both took to mean Penelope’s mercurial management style. And then, after discussing some flaps he’d had with her and other managers, he turned the question back to Graham.

“So, what motivates you?” he asked.

Graham leaned back in his chair.

“Making money,” he said. “Making as much money for myself and the firm as possible. You know, if money is not your main concern here, you should leave.”

What Graham didn’t know was that Jeremy had already been angling to leave. A month earlier, at a recruiting event put on by a prominent Silicon Valley tech company, Jeremy met a woman who told him about a growing start-up that was looking for help on its business side. Jeremy followed up on the tip, and several weeks later, went to meet with the company’s founder about a potential job.

Jeremy liked the start-up, which had nothing to do with oil, gas, or any of his other areas of expertise. But more than that, he liked what the start-up
represented
—the boldness of breaking out of a stable corporate environment, the relaxed work atmosphere, the colleagues who cared more about improving their company than playing politics and angling for promotions. Working there would put him in the company of a bunch of smart, young, creative people doing interesting things. And although leaving now, instead of in February, would cause him to miss half a year’s bonus, who cared? If the start-up became a behemoth, his stock would make him rich.

“Maybe I’ll grow out a little stubble,” Jeremy told me, dreaming about the freedom his new life in start-up land would bring him. “Maybe I’ll get some hoodies.”

Several weeks after his meeting with Graham, Jeremy received an offer from the start-up, which said it would match his Goldman base salary, as well as give him some equity in the company. He didn’t hesitate. The next morning, he called Graham, who was on a work trip in Texas.

“I’m going to cut to the chase,” he said. “Today is my last day at the firm.”

Graham went silent. Jeremy heard him chuckling on the other end of the line. He’d seen it coming, clear as day.

“Congratulations,” Graham said. “You’ve done a great job, and I think very highly of you. I’ll miss working with you, but I understand why you’re leaving.”

Jeremy thanked Graham, hung up the phone, and told a few of his friends on the desk that he had just quit. He’d expected a blasé reaction, but they were ecstatic for him. They knew how unhappy he’d become in recent months, and they were excited to see him declare his emancipation. One even joked about reciting Morgan Freeman’s monologue from
The Shawshank Redemption
as he left.

Jeremy then began composing his good-bye e-mail. He decided to write two different versions—one for the entire division he worked in, and one tailored to his fellow analysts.

To the larger group, he wrote:

To the analysts, he tweaked his message slightly:

Jeremy sent his e-mails, then turned in his ID card and his corporate AmEx, and went downstairs to the security checkpoint in Goldman’s lobby.

“I don’t have my ID,” he told the security guard. “Can you scan me out?”

“How are you going to get back in?” the guard asked.

Jeremy smiled and replied, “I’m not coming back.”

He was gone by 9:30, and he walked through the streets of Lower Manhattan with tears in his eyes. This was, he felt certain, the best day of his life—on par with his college graduation, or winning his first crew race. After a year and a half of what felt like torture, his life was finally back in his own hands.

Jeremy went back to his apartment and logged on to Facebook, so that all his friends could see the momentous step he’d just taken. In the status box, he wrote: “The nightmare is over. As of today, I am no longer a Goldman Sachs employee.”