Will the Wall Street Storm Have a Giant Silver Lining?

There are surely a lot of ways to answer “yes” to the question posed in the headline. The people who hate the financial industry, for instance, must be happy to see the bloodletting on Wall Street, as must those who simply enjoy a dose of schadenfreude now and again.

But I am thinking of a different kind of silver lining, one that may reach far and wide and have lasting positive effects.

First, let’s step back for a minute and look at a different kind of labor shakeup that happened more than 50 years ago. At the time, about 55 percent of all white female college graduates worked as schoolteachers. Why? Because teaching was one of the few professions that educated women had good access to.

But as other job opportunities opened up, many of the best and brightest women who would have become teachers instead became doctors, lawyers, bankers, and so on. All those jobs paid much better than teaching (whose wages had long been held down because it was considered a women’s profession) and held higher status as well.

This was great news for the bright women. But a variety of studies have shown that the ensuing brain drain that hit the schoolteacher corps directly translated into significantly poorer classroom instruction. Not only did children’s test scores fall, but some scholars have argued that our national productivity took a serious hit — all from the decline in teacher skill brought about by new opportunities afforded educated women.

You may have guessed by now what all this has to do with Wall Street. Like them or not, the men and women who’ve gone into finance in the past 10 or 20 years have certainly been among our best and brightest. They are super-well-educated and work incredibly hard, with intense focus. In economic terms, these people represent a huge stockpile of human capital — and now, some 200,000 or so of them are losing their jobs. Perhaps even more noteworthy, however, are the hundreds of thousands, perhaps millions, of college undergrads and graduate students who had planned to work in finance.

Now where are they going to go? What are they going to do?

I’ve seen articles on the migration of New York finance employees to smaller, healthier U.S. markets … or to expanding Asian markets … or stories about the stray banker who is opening a string of barber shops or teaching kids how to bake cupcakes

But I think there’s a much broader and possibly hugely beneficial shift taking place. The other day I was interviewing someone who runs a company that does some very unusual work — let’s call it “inventing” for now — and he noted that one research group he was putting together was suddenly able to hire a bunch of recently unemployed Wall Street “quants” who are more qualified than his typical applicant.

I can’t say anything specific about this company (we’ll be writing about it in depth later), but suffice it to say that many of its products could have broad and deep social benefits.

I can think of a lot of other fields that stand to benefit from all the human capital that is currently sloshing out of finance and into other realms: technology in general, energy in particular, and alternative energy in super-particular; health care; research science; and, yes, education. Wouldn’t that be ironic?

I can also see a small subset of this human capital gravitating toward government work over the next few years, not only because of the decline in finance jobs but also because President-elect Obama seems interested in building an administration of best-and-brightest types who, in recent years, haven’t exactly been flocking to (or welcome in?) Washington.

Not long ago, we asked readers of this blog who were planning on investment-banking careers if they’d altered their plans. A few people said they were thinking about becoming financial regulators of some sort. Not very sexy, and surely not as high-paying as i-banking, but yes, it’s probably a growth industry in the short term, for better or worse.

Twenty years from now, when cancer has been eradicated, when the threat from global warming is a distant memory, when poverty is a hoary old cliche, I’d love to think that we could thank the Great ’08 Meltdown for providing the human capital that helped solve these problems.

[NOTE: I discussed this subject on The Takeaway.]


Cindy the therapist

For me, there's another very big silver lining to the financial meltdown -- the election of an incredibly gifted and the first non-white-male president, which might not have happened without the troubles on Wall Street. Yesterday we got the statement for our 401K -- I'm 60 and my husband is 62 -- and a huge chunk of it was missing. Looking at it, I thought, well, if this was the price for Barak Obama being elected, it was well worth it!

JG

In college I did know some very talented people, who went into teaching. I went to a small liberal arts school that had no education cirriculum. They are all ended up teacing at private schools that valued their deep knowlege of the subject matter. They could not get jobs at public schools because they had not taken all the fluff edcuation courses. We did have a program in music education and a friend took these courses. She was embarrased by how light weight all the education portion of the program was. This is the primary problen in public education.

AMG

It remains to be seen if the downturn in job opportunities will be sufficiently long to redirect the hordes of smart people who now head to Wall Street. I find it fascinating and mostly unremarked upon as far as I know) that Neel Kashkari, the guy in charge of the bailout for the Treasury, was an engineer before he decided to head for where the money is (was?). I'm sure Mr Kashkari is a supremely capable finance expert but it shows you how warped our economy has become. People can do better for themselves in jobs that involve moving money around than in ones that involve actually creating or improving tangible goods and services.

Venu

Was it Nathan Myrhvold the one you interviewed?

Clear Thought

Wall Street is in a pretty poor state, but many of those involved with Wall Street over the last 20 years have done very well for themselves. I'm not pretending that all (or most... any?) of those involved fully understood the dangers and continued anyway since it was in their best interest, but I am saying that their actions were pretty good (on an expectations basis) for their self-interest.

It's a problem of incentives. Get them to teach, but get them motivated to teach well.

Joe Smith

"a small subset of this human capital gravitating toward government work over the next few years"

So they can do for Washington what they have done for Wall Street?

charles

Great thought provoking post...prime example of non-linear thinking.

akb

But isn't it all about money? Women were given access to higher paying jobs and so a low paying job like teacher was less appealing. Last I checked, there are still many higher paying jobs than teacher for all those I-Banking types.

646Hedgie

Oh well. I for one will not apologize for wanting to live a certain way. I am not a crook, nor did I participate in buying or selling over valued assets. I love the schadenfreude. Enjoy it while you can. Smart people who want to make something of themselves will find a way to survive and succeed. The rest of you lemmings can keep clucking away.

Nancy

My university's alumni magazine had an article on all of the bright, young, mostly female engineering grads who were headed to Wall Street. With women underrepresented in engineering as it is, this has helped make the profession even more male-dominated than it used to be.

Now, perhaps these women will put their engineering degrees to work by ... oh, I don't know ... actually working in engineering? This supposes that there will be enough of an uptick in the tech/manufacturing sector to provide jobs for them, though. If not, they may very well join the art history majors behind the counter at Starbucks.

What a society we live in!

The best and brightest SOCIOPATHS you mean...What a one-dimensional view of talent Mr Dubner!

It was only after I read Martha Stout's excellent book, 'The Sociopath Next Door' that I fully understood the problem illustrated perfectly here.

Stout is perhaps the world's foremost expert on sociopathy.

We are a society, the only one on earth apparently, that not only tolerates high levels of sociopathic behavior, we actually reward it, even celebrate it.

Sociopaths are not like the rest of us. They are born with a faulty neurological design that makes them totally unable to emotionally connect with other people, or to empathize with others' pain. The successful among them are fantastic manipulators who learn to use the rest of us for their personal gain. THIS IS THE TYPE DRAWN TO WALL STREET. They can often fake feelings very effectively, and they can lie so successfully that they themselves don't even realize they are lying. Stout shows us some tell-tale signs that give them away, however. Check out her book for more.

Many of the more intelligent gravitate to Wall Street, into politics, and certain other professions such as banking, corporate management, or the law. But they exist at every level of society. The lesser gifted end up in police work, slaughterhouses, etc. Your garden variety low functioning sociopath attaches himself or herself to a lonely person and basically lives off them for life. Or cons them out of everything they own and moves on. The high functioning sociopaths live off the entire society while producing nothing of real value and doing immense harm to others.

Asian societies for example have a very low tolerance for sociopathy, which is strictly controlled by their powerful family structures. In China, many sociopaths are simply executed for relatively minor offenses when they surface. Some are even killed as children (read Stout). The Chinese have the highest rate of capital execution in the world and it is not all for political reasons. It's in the culture.The sociopathic gene has therfore been suppressed in those societies over time. Their extended family and communitarian social systems, totally alien to our way of thinking, may be the reason for their thousands of years of success. And perhaps that is why they will succeed in overcoming us in the long run.

Obviously, sociopathy and its ideological propaganda machine ('greed is good', etc) have run wild in the USA, esp in the last 20 years here, and have devastated American communities and society. They have succeeded in making themselves into role models for the Joe the Plumbers of America.

There can be little argument that derivatives specialists (for example) perform little or no work of social value, but they are admired simply for the fact that they succeed in making a lot of money. Truly in America, nothing succeeds like success. BY ANY MEANS NECESSARY, regardless of the effect on others. Enron was the perfect example of the Smartest Guys in the Room destroying people's life savings, ripping off 'old ladies in California' with laugh, and sucking the life out of their own employees and ultimately destroying their own company.

Do we really want these people anywhere except in prison? Even the idea of taxing these parasites for the common good, or attempting the mildest of regulation or oversight, let alone locking them up, is met with savage political and cultural resistance here, however.

The sad thing is that this ideology is deeply ingrained in American culture. The Dubner's of the world are their ivory tower mouthpieces. How else can you look at this disaster and look blithly by it's effects on the rest of us (indeed, the whole world economy now!) and simply praise these people as TALENTED??

One can argue that the country has always acted as a magnet for sociopaths as it advertises itself as an open arena for their 'talents'. As a result, the gene has proliferated here boundlessly. Aside from social control considerations in a rootless society with ever weaker social bonds, perhaps the proliferation of the sociopathy gene is part of the reason for our huge prison population; largest in the world in fact.

Read more...

dave

What won't help people move from Wall Street to engineering is using government money to prop up banks and keep paying those big bonuses.

Non-profit educator in Austin

Yeah, well what about those of us who are already IN those fields? What are we? Chopped liver? My (non-profit) industry is full of bright, committed people who already made the choice to put the community first. I have an outstanding education, always tested well, and have greatly enjoyed this field, which, though a blast, has never paid well and has always been rickety at best during economic turmoil. So now, not only are we facing budget cuts and possible layoffs, we've got people like you inferring that we are slackers partially responsible for the decline in our national stature, we're facing budget cuts and layoffs, AND watching these hyper-ego'ed "quants" running around looking for work. Please. Thanks very much for the shot in the arm. We need all the help we can get.

Jeong

“Islamic Financial Approach may be the Silver Lining from Another Cloud”

By Jeong Chun-phuoc

(11.11.2008)

I refer you to the above article "Will the Wall Street Storm Have a Giant Silver Lining" by Stephen J. Dubner in New York Times. The prospect of Islamic financial system as a form of financial intermediation could be considered as an alternative or a solution to the current 2008 US Financial Meltdown. But there is more to it than just 'well positioning'.

In the Arab world and in the muslim world demarcated by different school of mazahabs(thoughts) and differing perception in the subject of jurisprudence and fiqh between Sunni and Syiah scholarly establishments, muslim countries around the world must make a united stand to adopt a harmonised Islamic financial system that could be applied in all countries around the world in the light of the US Financial Meltdown.

It cannot be denied that modern conventional financial systems have propelled developed economies into what they are today-strong and powerful. However, we have yet to see how Islamic financial system could be an alternative in the current world competitive and economic scenario.

Be that as it may, advocates and critics of Islamic financial system must work together to forge a new and innovative financial approach that could be universally implemented throughout the world to avoid a repeat of the 1997 Asian financial crisis and the current US Financial Meltdown. This is perhaps one of the most challenging economic task of the 21st century.

..................

Jeong Chun-phuoc

Lecturer-in-Law

Jeongphu@yahoo.com

Read more...

Dave Buell

Lets see,

-they bet the farm on the assumption that house prices would always rise, could not see the forrest through the trees,

- didn't understand the investments they were making with billions, not careful

-worked long hours without creating anything of value other than thier own bank accounts, souless

-if they knew the risks they didn't stand up to thier bosses, got thier bonuses

Yeah, glad to have them.

James F Traynor, Punta Gorda,FL

The best and the brightest are still peasants and do what their superiors tell them. Even if they get up there, like Sheila Bair, they're subject to the ideolgical idiocy of the elite. There must have been dozens of people who were aware of what was going on but went with the flow. Hoover lives!

mp

This could definitely happen if finance work becomes stigmatized by society. Alot of these people are probably really into social status, and they won't like being looked down upon.

And the money just won't be as validating anymore because people will look at them and say, yeah you've got your money now, but you've probably got it on borrowed time or maybe it was flat out swindled. Wall Street money isn't earned so it means nothing towards self worth.

williambanzai7

Most of the MBAs lured to Wall Street have dumbed down to pitching power point presentations and drinking beers with hedge fund managers. Sheer genius.

jerry

Let's see what the women's movement has wrought. The "best women" used to become nurses. Now they become physicians. The best women became school teachers. Now they become college professors. The best women became "girls friday." Now they become ceo's. They used to become legal secretaries. Now they're lawyers. The bright, imaginative ones became frustrated and depressed. Now they've become entrepreneurs. They used to be mothers. Now they're part-time parents and household managers.

Hurray for the women's movement!

What a price society has paid. The computer has all but eliminated the need for executive secretaries or secretaries at all. No need for legal secretaries. But nursing quality and numbers have fallen far below what health care standards call for. Teaching at the primary and secondary school level has plummeted. Worst of all, the failure of full time, competent parenting has yielded a couple of generations of offspring with an indifferent attitude towards personal and societal integrity; call it greed and name it as the basis for the acquisitive society.

Societal "progress" has come at a cost. The contemporary economic conditions are simply the day of reckoning. It's easy enough to trace this gathering crescendo of misallocation and misdirection but what can we do besides lament the past that inevitably led to this point?

I hesitate to say that "the marketplace" will sort things out and get us "back on track." Look at what the free market has done to us. Bringing wealth motivated perps from Wall Street to take over the intellectual and values responsibilities in the classroom seems like the wrong way to go. A new approach to educating (not training), recruiting, employing, motivating (inspiring?) and managing teachers has to be a key to the long-term restored health of our society. GM, Chrysler, and Ford need refinanced, retooled and re-managed. Even more so the schools and society.

Read more...

John

The change in the corps of teachers more reflects a secular change in society. For there to be a parallel effect on Wall Street, one must assume that the events of the last year, and particularly last month, have created a fundamental change in the nature of the financial industry. While there have been important structural changes taking place in finance, it is less like that the shifts are secular in nature, thus more affecting future generations and more likely that it is cyclical in nature, thus more affecting individuals currently engaged in financial careers.