How do investment bankers benefit society?

Career Opportunities & Internships Investment Banking
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<p>This is a serious question, what do investment bankers do that makes them able to have such high salaries? Do any of them feel guilty for not using their skills for things like scientific research or engineering? Is it all about the money for the most talented people in America these days? </p>

<p>I don't mean to sound as if I think all investment bankers are greedy and selfish but I seriously believe that those talented people should be putting there skills to better use, e.g. trying to find a cure for cancer vs. trying to find a new type of financial derivative.</p>

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<p>Just because you’re good with finances doesn’t mean that you would be good with that other stuff. I for one don’t find engineering/sciences that interesting but I do find business/finance.</p>

<p>from this site:</p>

<p>[How</a> Do You Respond to the “Traders Just Move Money Around” Argument? | WallStreetOasis.com](<a href=“http://www.wallstreetoasis.com/forums/how-do-you-respond-to-the-traders-just-move-money-around-argument]How”>How Do You Respond to the "Traders Just Move Money Around" Argument? | Wall Street Oasis)</p>

<p>“Traders provide liquidity to the markets allowing them to function efficiently. Well functioning markets allow companies to grow and improve which in turn helps society.”</p>

<p>then there are some people that admit why their line of work doesn’t benefit anybody. It all depends on what you do I guess… if your client is a company working on engineering/the cure for cancer then helping them financially can help them to achieve their objective</p>

<p>I’m not too familiar with this line of work but that’s the way that I look at it… the CEO of a dildo making company isn’t really doin much as far as you’re concerned, but they may be helping to create jobs. Those people with jobs may be able to afford to go back to school or send their kids back to school. Who knows, maybe those ex-dildo factory employees will find a cure to cancer because of the help given to them by their previous employer lol</p>

<p>alright, I may be stretching it and just rationalizing this for myself but it seems to make sense</p>

<p>look up the invisible hand theory, maybe they aren’t doing as much as doctors but they’re doing something</p>

<p>edit: with that being said, I’m almost as unsure about this subject as you are and am probably going to ask this question on that website</p>

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<ol>
<li>who said they are talented/smart? investment banking mostly rewards precision, not as much problem solving</li>
<li>investment bankers are amongst the hardest workers, up there with med interns. thats nothing to look down upon
3.technically, they provide avenues for entrepreneurship and help business growth/expansion/change. a big part of capitalism. now, you wouldnt want to go against capitalism, would you?</li>
</ol>

<p>im just playing devil’s advocate. im currently not pursuing IB as a career, and i do have my reservation about it</p>

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<p>Oh, another reason I’m going for IBing is because I have a son and would like to eventually send him to the best schools possible (whether it be grade school, high school, or college). As far as I’ve heard, engineering/sciences take a good amount of time to be able to make a good amount of money… unless you’re a genius. As far as I’m concerned, the more money I get, the better. One less thing to worry about ya know?</p>

<p>again, I don’t know much but this is what I’ve picked up</p>

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<p>Investment bankers make society more efficient. They provide money for businesses to grow through debt and equity capital markets. They make businesses more profitable through aqcuisitions (synergies). They are an essiential part of any society.</p>

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<p>I certainly agree that investment bankers are essential for the economy, especially the people who focus on mergers & acquisitions, etc. I was mainly focusing, in particular, with the quants on wall street who hold PhD’s in science and math subjects as well as talented science/engineering undergraduates who decide to go into investment banking. I bet if you actually look at the number of MIT cs and engineering students who go into those fields, it’s miniscule because many end up on wall street. I have no problem with top finance and economics students going to wall street, but why do all these science and engineering students go? I just think its greedy to spend 4 years mastering subjects like engineering and science and then do nothing with what you learned in exchange for a fat paycheck on wall street.</p>

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<p>you bet? or you know the stats</p>

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<p>ok now you’re pretty much saying that finance and economic students are less important to society. not cool</p>

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<p>“I bet if you actually look at the number of MIT cs and engineering students who go into those fields, it’s miniscule because many end up on wall street.”</p>

<p>It’s a fact. About 30-40% of students take up jobs in finance and financial services consulting.</p>

<p>What they are suppose to do: help people translate their ideas into productive ventures that add value to the society and enable the economy to grow. I think they do a pretty good, no where near perfect, job of that.</p>

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<p>I seriously believe that those talented people should be putting there skills to better use, e.g. trying to find a cure for cancer vs. trying to find a new type of financial derivative -> You need funding in order to search for a cure for cancer. I could be wrong but money is just as important for research as people. Financial Services are very important for our economy and it gives us resources to fund things like research. Also, the idea that someone knows where someone’s skills are best used was a major reason why communism failed.</p>

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<p>“How do investment bankers benefit society?”</p>

<p>For one thing:
They facilitate liquidity in the capital markets, match buyers and sellers for debt and equity securities, which decreases funding costs for corporations (and governments), allows them easier and cheaper access to capital which they need to fund their activities and initiatives. </p>

<p>"what do investment bankers do that makes them able to have such high salaries? "
for one thing- they generate income for their firms equal to multiple times those salaries. By convincing corporations to engage their firm’s services, over those of other firms, and then managing the execution of those financing efforts. Since these activities are critical to the financial well being, and even sometimes the existence, of these client corporations, their work can make a bigger impact on their client than what most other people do, in dollar and cents terms. There are huge dollars at stake, so the corporations (grudgingly) pay huge dollars. And the investment banks in turn pay their people big dollars because the quality of their human capital is the key to their success, in direct competition wth the best and the brightest the other firms can marshall. Sort of like football teams. You want Favre, you have to pay. Or you can save money and get me to do it. They seem to prefer Favre.</p>

<p>“Do any of them feel guilty for not using their skills for things like scientific research or engineering?”</p>

<p>They use their skills to finance the companies and the projects that employ the engineers in the first place. Without sufficient access to capital many fewer engineers would be able to accomplish anything. They help make those projects possible,Does Obama feel guilty for not using his skills for things like scientific research or engineering?</p>

<p>"Is it all about the money for the most talented people in America these days? "
Given the proportion of people from the best schools who go into law, medicine, and banking, I think one has to conclude that money is at least highly relevant to a decent chunk of such people. Though by no means all.</p>

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<p>Finally, truly excellent responses to the type of questions asked by the OP…</p>

<p>I have found in other threads that many uninformed and naive people attempt to downgrade the role of the Investment Banker to society…</p>

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<p>Great response moneydad. Like I said, I was unsure about what exactly goes on but you confirmed my suspicions.</p>

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<p>"… but why do all these science and engineering students go? "</p>

<p>Not an investment bank, but when I worked at a commodities firm we had a whole quant department staffed wth ex-physicists and bailed-out physics doctoral students. They left their field because they were downsized from their area of training and could not get work in their field, saw that the students ahead of them could not get tenure track positions, etc. Others were there because they just got interested in the markets; that’s how I got into it.</p>

<p>My nephew started out intending to be a chemical engineer, but proceeded to pull C’s in his intro Chem E courses. Many at his college were heading to finance, so he checked it out, took some courses, and got a relevant internship. He found he was better suited, by intellect and personality, to go that route. </p>

<p>Others are no doubt attracted to compensation prospects. So there are a variety of factors at play. However, in any event, the preponderance do not go . Only a few schools get highly recruited for these elite high-paying jobs. Even at the few schools where as many as 30-40% are doing these other things, that means 60-70% aren’t. And there are very few engineering schools whose students are that attractive to investment banks.</p>

<p>"…spend 4 years mastering subjects like engineering and science and then do nothing with what you learned "</p>

<p>In my nephew’s case, once he found he was not the ace engineer he had intended to be, he switched fields, and courses, accordingly so there was not so much class time that was wasted. There are majors in engineering that are really more “applied mathematics” in nature, and some programs actually have applications to financial markets directly.</p>

<p>But you’d be surprised how quantitatively complex work related to financial and commodities markets can be. All their training is not wasted. These physicists were hired because those were the people with the quantitative skills and mathematical training to do the work. The only time I used calculus in the workplace was while working in finance and commodities, not when I was an engineer.</p>

<p>What is wasted is the content-specific coursework. People who have gone through a whole technical engineering major will take a bunch of content-specific courses that they will never use if they go the finance route instead. I think that’s a sub-optimal use of their one shot at a college education, and a shame for them personally. But I don’t think they are slighting mankind or anything, just themselves.</p>

<p>We live in an integrated market economy. We need people who design stuff, and we need people who help finance stuff and generate $$ so those people who design stuff can become employed. We need good and motivated people in every stage of the effort.
The overall effort is most enhanced when at each link in the chain people are doing what they are individually best suited for, and are most motivated to do.</p>

<p>Those people are getting hired by the banks because they are best suited to do the needed work, by intellect and training. Even if specific science is not drawn upon (though the math aspects may well be).</p>

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<p>Funny post about Analyst salaries: [Investment</a> Banker Salaries Vs. McDonald’s: Hourly Pay | Mergers & Inquisitions](<a href=“http://www.mergersandinquisitions.com/investment-banking-salaries-mcdonalds/]Investment”>http://www.mergersandinquisitions.com/investment-banking-salaries-mcdonalds/)</p>

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<p>Countries without properly functioning capital markets are universally lagging in terms of economic development. If you cannot mobilize your savings in the form of productive investment, you have a problem. Go to any country where people’s savings are in the form of sacks of rice and you cannot get financing for a tractor or some fertilizer and you’ll understand why. </p>

<p>Now, investment banks’ intended purpose is to help properly allocate capital as intermediaries in capital markets. The problem is that they have strayed from this. I would argue that they have overshot their original objective as a result of a series of perverse incentives. Investment banking is a highly concentrated industry and this allows banks to engage in rent seeking behavior. Banks have an incentive to increase the volume of transactions while taking rents on these transactions, even if they provide no value. I would argue that banks actually have an incentive to misallocate capital as they perpetuate greater asset bubbles. Asset bubbles=larger volume of transactions and greater short term profits. </p>

<p>Also, much of investment banks’ most profitable activity is centered around proprietary trading-not just market making. Banks have an artificially low cost of capital and this allows them to behave like hedge funds with a totally asymmetric sharing of risk. Again, this does not lead to the proper allocation of capital because the price of risk is so distorted. </p>

<p>So while quants working on high frequency trading algorithms may do a good job within the confines of the system, the system is broken…these quants only help to arbitrage away micro second pricing anomalies. They do not help with absolute price levels-only with relative price levels. There are many actors at fault and obviously its silly to scapegoat any one individual. But most economist would not buy the argument that Hi frequency quant trading provides much, if any, social gain. An investor does not need liquidity on a microsecond time scale, nor does a 1/100 penny make a difference for someone with a long term horizon. Especially not when overall valuations are completely out of wack.</p>

<p>We need highly developed capital markets, but our current system needs to change. So, to the OP, the answer is that investment banks are very important but they need reforming.</p>