Young Money: Inside the Hidden World of Wall Street's Post-Crash Recruits (4 page)

OVER THE NEXT
year, as I spent more time interviewing young Wall Street workers, I felt the mysterious nature of their work coming into sharper focus.

Investment banks, I learned, are vast collections of different money-related functions, all jammed somewhat haphazardly under one roof. There are, of course, the true investment bankers—men and women who tour the country helping large companies raise money, acquire smaller firms, and in all other ways serving as paid advisors to the corporate elite. And there are the junior analysts and associates who do the grunt work for those bankers. But there are lots of other people at investment banks whose work has nothing to do with investment banking. There are traders, who buy and sell stocks, bonds, futures, options, and other financial products. There are salespeople, who work in tandem with the traders, and match up buyers and sellers of those financial products. There are “quants” or “strats,” a bank’s math geeks, who build complex computer programs that analyze and trade on market data. There are research analysts, who churn out detailed reports on various topics and companies. There are prime brokers, who provide basic services for hedge funds and other investment firms, and structured finance divisions that devise and package complicated derivatives. There are media relations people, political lobbyists, HR managers, and private wealth bankers. And there are lawyers and compliance officers, who help keep everyone else out of trouble.

Most of the young Wall Street workers I was shadowing were first-year analysts in the investment banking divisions, or IBD, of major banks. IBD analyst jobs are typically considered some of the most prestigious positions for new bank hires, but they also have the longest hours. Today, as before the financial crisis, it’s not uncommon for a first-year IBD analyst to work one hundred hours a week—the equivalent of sixteen hours a day during the week, then a mere ten hours on each weekend day.

Which is not to say that these twenty-two-year-olds are actively doing one hundred hours’ worth of work every week. In fact, many sit around idly for hours a day, listening to music or reading their favorite blogs while they wait for a more senior banker to assign them work. (These drop-offs are never pleasant, but they’re worst when they happen at 6:30 or 7:00 p.m. as the senior banker is leaving for the day, giving the analyst a graveyard shift’s worth of work before he or she can go home and sleep.)

Most of a first-year IBD analyst’s work revolves around gathering, organizing, and presenting financial data. If a bank is trying to convince one of its clients (say, Apple) that it should buy another company (say, Microsoft), the bank’s analysts first have to gather every available nugget of financial information about Apple, Microsoft, all of Apple’s and Microsoft’s competitors, and the entire consumer electronics sector. Revenues, expenditures, margins, buybacks, dividends, secular trends, ratings changes, large buyers and sellers of stock—all of this information, and much more, must be pulled from subscription services like FactSet, Bloomberg, and S&P Capital IQ. Once the data is pulled, it gets corralled into a “model,” a big Excel spreadsheet that is used to calculate the specifics of the deal being proposed. For an Apple-Microsoft deal, the model would be able to come up with a reasonable estimate of Microsoft’s present and future worth, as well as helping show how best to acquire it, what the risks are, and what the benefits to Apple’s long-term finances and product lines might be. Once the model is made, the most important information in it is put into tidy, organized charts and graphs, inserted into a template, and turned into a “pitch book”—a professionally bound, attractive-looking book that, over the course of several hundred pages, tells Apple a detailed story about why, exactly, it should buy Microsoft and how much it should pay.

Investment banks are ruthless about making sure models and pitch books—both called “deliverables,” since they get delivered to clients—are perfect, down to the last comma and decimal point. And that’s where the analysts come in. Every day, a Wall Street analyst works at the mercy of the associates, vice presidents, and managing directors above him or her, any of whom can request changes to any deliverable at any time. An MD wants a bar graph instead of a line graph on page 63 of a pitch book, and it’s 3:00 a.m.? A good analyst will wake up and snap into action. A VP finds a broken cell reference in cell L57 of an Excel model on Christmas Day? The analyst had better wait to open presents.

“Until you get older, you’re not setting your own pace,” one Wall Street executive told me. “You’re on call. It’s much more like a doctor’s life in that regard.”

At-will scheduling is the bane of the young analyst’s existence. It means that every evening activity is subject to last-minute cancellations, that stress-free vacations and personal trips out of town are impossible, and that work-issued phones function as permanent third limbs.

“It’s not the hours that kill you—it’s the lack of control of the hours,” one first-year analyst told me. “My life doesn’t belong to me anymore.”

Unflagging loyalty is taught to analysts early. In the
Vault Guide to Finance Interviews
, a short book used by many analysts to prepare for Wall Street work during college, would-be bankers are told to answer this question:

The correct way to answer, according to the Vault guide, is to “express the fact that you understand the hardships that an I-banking career would involve, and that you have endured such sacrifice situations previously.” In other words, you are expected to say: “Yes, sir, I will absolutely miss my best friend’s wedding to sit silently in this half-hour meeting, where I will say nothing and have no discernible impact on anything.”

Banks try to mitigate the effects of the nonstop lifestyle they force on their analysts by giving them some institutionalized perks. Many banks have gyms inside their buildings, and all firms provide dinner allowances for analysts who stay at the office past a certain time. Analysts at many firms are given vouchers for luxury town cars, which they are allowed to take home after a late night at the office. But often, these perks function more as incentives to work more and later.

Karen Ho, an anthropologist at the University of Minnesota who has studied the culture of finance, writes that young bankers are “oriented into a culture of instability and competition where they must hit the ground running.” Part of that orientation, she writes, is learning to conceive of their work differently from the work done by nine-to-five employees in the “real” economy, who clock in and out, who can leave work at the door, and who don’t live in constant fear of being called in on an urgent project. This sanctified status, which Ho calls the “cultural geography of segregation,” is bequeathed to analysts during the training process as a point of pride, and a rite of passage to which all analysts must subject themselves. And it works. In bullpens across the Street, young analysts play games of “misery poker,” in which they proudly—and often, with some exaggerated details—complain to each other about how overworked they are. (“I’m staffed on three deals, and haven’t left the office before 1:00 a.m. in a month.” “Oh, yeah? Well, I’m staffed on
four
deals, and I pulled three all-nighters last week.”)

Young Wall Street analysts aren’t victims, of course; they all choose this path voluntarily, and they are well compensated for it. But as I heard more of them describe the everyday frustrations and boredom associated with their jobs, it occurred to me more than once that some right-thinking people would be unwilling to do this work for
any
amount of money. Wall Street, more than most industries, makes its workers feel expendable; many entry-level bankers conceive of themselves as lumps of body mass who perform uncreative and menial work, and whose time can be exchanged for labor at any moment. The banks themselves reinforce this people-as-assets view, referring to their flesh-and-blood employees in purely transactional terms. (At Goldman Sachs, for example, what used to be the human resources department is now known as “Human Capital Management.”)

For first-year financiers—who just months earlier were happy, autonomous college students—the process of becoming human grist for Wall Street’s labor mill can be a blunt trauma. Among the young bankers I interviewed, I saw disillusionment, depression, and feelings of worthlessness that were deeper and more foundational than simple work frustrations. And at times, while listening to analysts nearly in tears describing how much they despised the mindlessness of making Excel models, or meeting a banker at a bar at 11:00 p.m. on a Sunday because it was the only free time he had available for an entire month—my thoughts drifted. I recalled those statistics about how many graduates of top colleges end up working in finance, and the massive allocation of the nation’s social and economic resources toward the functions of Wall Street banks. And I thought, with more melancholy than anger:
We’re giving all that to
this
?

After one analyst spent most of a late-night interview describing his anxiety and ennui, I reflected on a passage from
The Financiers
, an early book about Wall Street investment banks. The passage was written in 1976, a decade before Tom Wolfe coined the term
Masters of the Universe
, and it spoke of investment bankers as if they were a newly discovered superhuman species:

That passage may have been true of senior bankers in 1976, but it bore no resemblance to the life I’d heard so many young bank analysts describe in the post-crash era. Today, a more accurate version would read:

“IDS,” THE BOUNCER
grumbled.

Jeremy Miller-Reed and Samson White, two first-year sales and trading analysts at Goldman Sachs, fished into their wallets, pulled out driver’s licenses showing that they were, respectively, twenty-two and twenty-one, and handed them over for inspection. After a once-over, the bouncer nodded, and waved them into the Frying Pan, a floating bar and lounge built into an old ship docked on the west side of Manhattan. The bar served as young Wall Street’s favorite summertime haunt, and all around the boat, fresh-from-college bank analysts were drinking and mingling, their dress shirts still creased from the store packaging.

Jeremy, a lithe, golden-haired crew rower from San Francisco who wore black-framed glasses and dressed like an assistant professor, had picked out Samson—a pudgy prep from northern Virginia who favored polo shirts and Sperry Top-Siders—as one of the most like-minded people in his intern class at Goldman Sachs the previous summer. They had both been rising seniors at Ivy League colleges (Jeremy at Columbia, and Samson at Princeton), and their elite educations had given them the ability to fit in with the fratty, beer-chugging bros who populated places like the Frying Pan. But they’d both considered themselves less high-strung than the average Goldman intern, and their easygoing demeanors had made them fast friends on the trading floor.

Now, in the summer of 2010, the two were back in New York to start their full-time jobs. They were in the second week of a ten-week training program that was supposed to turn them from know-nothing college kids into hotshot Goldman employees.

Jeremy, who was working on the firm’s commodities desk, was learning about all the different kinds of commodities Goldman dealt in—oil, gas, corn, wheat, precious metals, and more. And Samson, who worked in the firm’s mortgage department, was being schooled in the many complex and esoteric mortgage-related products and derivatives Goldman packaged and sold to clients.

First, they had to endure all-day sessions of mind-numbing training in an auditorium at Goldman’s Jersey City office, most of it on topics they’d never need to use on their desks. (On one of the first days, they’d spent several hours playing a business-themed board game that involved buying and selling yachts. Nobody had been able to figure out how it related to working at Goldman.) Then, after learning about a host of other boring securities topics, they began studying for the Series 7, an examination required of all incoming analysts at large Wall Street firms, and the Series 63, a more specialized exam required for incoming traders, salespeople, and some capital markets workers. Only after passing both exams would they be allowed to do anything resembling an actual trade.

Jeremy never expected to end up on Wall Street. He was interested in sustainability, urban planning, and politics, and he had been planning to become a mechanical engineer since he was a teenager, when he spent six months and several thousand dollars of his lawn-mowing money turbocharging his car. But talking with older members of the crew team at Columbia had convinced him to apply for banking internships. He knew that the skills he would learn at an investment bank would be applicable to any number of other jobs. And he knew that Goldman’s internships paid around $15,000 for ten weeks of work, a tidy sum that would give him plenty of spending money for his senior year.

So he pursued a summer internship offer, then, when he got it, spent the next few months reading financial blogs like Dealbreaker and Wall Street Oasis, buying a navy blue suit (with his parents’ credit card) at Macy’s, and skimming Vault career guides for tips on how to impress his new corporate overlords.

At Goldman, the hierarchy of prestige was shifting rapidly. Before the financial crisis, the big money and status had been located in proprietary (“prop”) trading units, where traders had made millions of dollars a year making big, leveraged bets with the firm’s own money. A group called Goldman Sachs Principal Strategies had popped up to focus on proprietary trading, but there had been others, including prop-focused commodities and mortgage traders, and an elite team of investors known throughout the bank as SSG—the Special Situations Group. Jeremy had heard these groups spoken of in reverent tones, but he had also heard that they were on the way out of vogue. The Volcker Rule (named after former Federal Reserve chairman Paul Volcker), a much-heralded piece of the Dodd-Frank financial reform act that cracked down on proprietary trading, was moving toward implementation, and the days of glory for prop desks all across Wall Street seemed numbered.

Now, Jeremy was in the sales and trading side of Goldman, which had its own layers of power and prestige. There were “hot” desks like credit trading, mortgage trading, and commodities trading—the areas in which real money was made, and in which a successful trader with several years of experience could easily make $500,000 or $600,000 a year if he played his cards right. Then there were “cold” desks, like equity sales, prime brokerage, and internal risk management, which supported other desks and initiatives within the firm but were not big revenue producers themselves.

Goldman’s sales and trading internships were famous for the “desk scramble,” a ten-week cutthroat competition that in many ways resembled a fraternity rush process. At the beginning of the summer, all of Goldman’s roughly 120 summer sales and trading interns were assigned to three-week rotations on three different desks, the idea being that rotating among desks would give them the flavor of various parts of the bank. The interns, of course, saw it as a competition for spots on the hot desks, and spent all three rotations sucking up to the managers of the desks they coveted. In August, after the final rotation, managers got together to decide—via a voting process that resembles a professional sports draft—which interns would get the full-time offers on hot desks, which would get stuck with less desirable assignments, and which would not be invited back at all. For many incoming Goldman analysts, who spent their lives acing standardized tests and excelling in varsity sports, the desk scramble represented the first time they ever struggled to measure up.

Jeremy had started the scramble with a rotation on Goldman’s prime brokerage desk, a group that provided basic services for hedge funds who held their money at the bank. It was a cold desk whose work amounted to little more than acting as bank tellers to hedge fund managers, and he’d quickly grown bored of it. His second rotation, in equity sales, was slightly better, but still something a trained chimp could do. But his third rotation, in the commodities division, had redeemed the failings of the first two.

Commodities was one of the two or three hottest divisions at Goldman. It was known within the firm as a rough-and-tumble place, where huge risks were an everyday occurrence and where adrenaline ran nearly as high as bonuses. And Jeremy knew immediately that it was where he wanted to be.

The commodities division’s prestige could be traced to 1981, the year that Goldman bought J. Aron, a large commodities brokerage. The merger was rocky at first; J. Aron had been known for an aggressive, take-no-prisoners trading culture, which didn’t mesh well with Goldman’s buttoned-up civility. (For years, J. Aron had its own set of elevators within Goldman’s headquarters.) But in recent years, J. Aron had gone on to colonize Goldman from the inside. One J. Aron worker, Gary Cohn, became Goldman’s president; another, a Harvard Law School graduate turned commodities salesman named Lloyd Blankfein, was named the firm’s CEO. As a result of its success, J. Aron took pride in its legacy, and still considered itself a sort of VIP cluster within the firm. Thirty years after the initial acquisition, it was still not uncommon for a Goldman trader to introduce himself as “John from J. Aron.”

Jeremy liked the swagger of the J. Aron guys, and he quickly sidled up beside their desks during his rotation, learning the lingo and getting to know some of the more colorful characters. The most intriguing figure was Graham Campbell, who ran the firm’s energy desk. Graham was a born-and-raised Texan who had turned his oil-country pedigree into a lucrative gig selling oil and gas products to some of the world’s largest companies. He was brilliant, charismatic, and handsome, with perfectly cut suits and a full head of hair that was graying at the temples. He looked the part of a central-casting politician, which explained his nickname among the analysts in the group: “the Senator.”

The Senator had first impressed himself upon Jeremy at a commodities cocktail hour, when he stuck out his hand and introduced himself.

“So, how’s the summer going?” Graham asked.

“It’s great!” Jeremy raved. “I’m learning a ton, and—”

“Let me stop you before you continue to blow smoke up my ass,” Graham interrupted. “I know this sucks for you. I did it as an MBA intern, and I know it’s a shitty dance.”

Jeremy laughed. He was impressed by Graham’s straight-shooting personality and his willingness to forge an actual connection. Not every Goldman executive pulling in $4 million or $5 million a year would have taken the time to joke with an intern. After they had talked a bit more, Jeremy decided to cut to the chase.

“I want to work in the commodities business,” he said.

Graham chuckled. There were a few things standing between Jeremy and an actual commodities trade—namely, getting a full-time job and passing the Series 7 and 63 exams. But for the next ten minutes, they talked about the job—what it entailed, what kinds of risks were involved, and what the market for different kinds of products was like.

“Look,” Graham said eventually. “Just so you know what you’re getting into: We’re not here to save the world. We exist to make money.”

Jeremy nodded along. And after another few minutes of conversation, Graham decided he liked the kid’s gumption. So, at the end of the third rotation, when the sales and trading executives made the list of interns they wanted as full-time workers the next year, the Senator made sure to put Jeremy on his list.

And now, ten months later, Jeremy was here, on an anchored ship in the Hudson River, looking up at the jutting, gleaming towers that composed the skyline of his new city. He hadn’t even properly started work yet; still, he couldn’t stop dreaming about what was in store for him. He hoped he would one day learn to throw millions of dollars around the oil market before lunch. He hoped he would be able to impress Graham, who seemed to have a zero-tolerance policy for bullshit and fudging. And he hoped that eventually, he would find a way to make Goldman Sachs feel like home.

Sitting beside him at the Frying Pan, Samson also wondered how he’d come to this point.

The well-bred son of a lawyer and a playwright, Samson had taken an introductory economics course out of curiosity during his freshman year at Princeton. Later, he’d been inducted into an eating club—Princeton’s version of a fraternity—where he’d overheard some older students talking about finance. On their recommendation, he picked up
Liar’s Poker
, a memoir by Michael Lewis about Wall Street in the 1980s, in an effort to learn more.

Like Lewis, who worked as a bond salesman at Salomon Brothers after his Princeton graduation, Samson had no specific connection to the world of finance, except that he happened to go to a school that sends a phenomenally high proportion of its graduates to Wall Street banks. But after reading Lewis’s account, Samson was intrigued. The idea of working on Wall Street sounded slightly hollow to him, but the challenge and the prestige appealed to the same competitive part of his psyche that had landed him near the top of his class. He knew that as a Princeton student with good interview skills, he would likely have his pick of investment banks. And he knew that if he put in just two years at a bank, he would have amassed valuable skills that would serve him well in any industry.

His Goldman internship interviews, conducted in Princeton’s career center, were a breeze. The first Goldmanite pitched him softballs like “Why do you want this job?” and “Tell me ten financial headlines over the past year that were interesting.” The second round was a little tougher, and included the following brainteaser:

The question was a version of the Martingale, a French gambling strategy. The purpose of asking it was to test a candidate’s understanding of tail risk—the chance of low-probability, high-impact outcomes. The idea is that, while the theoretical expected value of the game is a small negative number (because the coin will probably land on heads within a few flips, ending the game and limiting your losses), there is a tiny possibility of a catastrophic result, in which tails comes up again and again until you owe millions of dollars. There was no right answer, but the way a person replied could shed light on what his thought process might be like as a trader; a candidate who said he’d need only a dollar to play probably wasn’t thinking through the tail-risk scenarios carefully, while a candidate who answered with too big a number was being excessively cautious. Tail risk was an important idea for someone working in finance after the crisis, since one of the biggest mistakes financial institutions had made during the inflation of the subprime mortgage bubble was ignoring the small chance that the entire interconnected mess would collapse.

Samson knew something about gambling—he’d read books on card counting and been to Las Vegas a handful of times with friends. But he’d never thought about the Martingale strategy as an interview question for a finance job. He talked through the possible outcomes and managed to convince the interviewer that he knew something about game theory and probability. Two weeks later, Samson got an e-mail telling him that he’d gotten an internship in Goldman’s fixed-income, currencies, and commodities division. Known as FICC, the division houses all of Goldman’s bond trading, mortgage sales, and other types of fixed-income transactions. It was also one of the most profitable areas of the firm, and accounted for anywhere from 50 to 70 percent of the entire firm’s revenue in a given year. In the moneymaking theater that was Goldman Sachs, he’d been invited to sit in the front row.