The glamorization of finance and its excesses in Martin Scorsese’s film The Wolf of Wall Street — which, with a three-hour running time, is borderline excessive itself — has once again drawn attention to the financial industry, painting a picture of debauchery and corruption that supposedly epitomizes the darker side of the banking culture. But does it have any relevance to the present state of Wall Street? Not much, say financiers.
The movie describes the rise of Stratton Oakmont, a “pump-and-dump” brokerage firm in operation during the late 1980s and early ’90s, and its co-founder, Jordan Belfort, who attempts to steamroller his way into the Wall Street fray by cheating poor, unwitting customers out of their money. The operation was actually not located anywhere near the real Wall Street but an hour away, in a Lake Success, Long Island, strip mall. The company was a streetwise, rule-bending boiler room operation that used cold-calling techniques more akin to a double-glazing sales company than an investment bank. But the film, in Hollywood fashion, hypes the Wall Street lifestyle, leaving the life of a financial executive looking a lot more alluring than the reality.
It might be true that some 25 years ago many twentysomethings sitting at trading desks of major banks drove cars like Ferraris. “Back in the day, there were firms that paid you a percentage of what you brought into the bank. The likes of DLJ [Donaldson, Lufkin & Jenrette], Jefferies or Bear Stearns paid you anywhere between 19 and 22 percent of the profits you brought in,” says Louis Gargour, founder of LNG Capital, a credit hedge fund firm based in London. “Ten to 15 years ago, a salesman at Bear Stearns could generate $500 million in profit and would get paid a percentage of it. If you make a lot of money, you’re bound to spend it on stuff that’s meaningless.”
Unfortunately, for those dreaming of money and fast cars, life at an investment bank is a lot more mundane these days. Lower pay, public denigration and increased levels of stress, along with very long hours, have made the sector increasingly unattractive to young graduates, especially following the 2008–’09 financial crisis and the promulgation of regulations such as Dodd-Frank and its Volcker Rule, which has reduced trading profits at Wall Street firms. Tim Green, a banker who writes about the profession on his blog, Secret Banker, says, “People have melted away from the crisis with their bags loaded. It’s like an extended holiday. The fun has gone out of the game.”
Nowadays, someone straight out of undergraduate school heading into finance in London will usually earn annually about £45,000 ($74,500), whereas newly minted MBAs working in the City can expect about £70,000, according to London Business School figures. This puts the salary very much in line with other traditional MBA employment areas, such as consultancy.
“Bankers are being paid a fifth to a quarter what they used to get,” says Gargour. “The concept of a star performer getting paid multiples of his salary has significantly diminished. No one wants to signal they’re that person. It’s no longer cool to be the trader.”
London Business School, part of the University of London, reports a decline in the number of students applying for finance internships, down from 56 percent in 2008 to 31 percent during the most recent hiring cycle. At the same time, the MBA program at the University of Pennsylvania’s Wharton School of Business in Philadelphia saw 33 percent fewer entry-level applications into investment banking in 2012 compared with 2007, according to one participant. At Stanford University’s Graduate School of Business in Palo Alto, California, the heart of Silicon Valley, technology companies finally eclipsed financial services firms during the 2013 recruiting season, according to statistics from the Wall Street Journal: 32 percent of the graduating class went into tech, whereas 26 percent headed for finance.
Why the switch among the brightest graduates from finance to tech? Although both career tracks provide lucrative remuneration, and tech jobs abound in New York’s Silicon Alley, the seemingly never-ending snow burying the East Coast this winter could be a factor in the California tech sector’s favor. Working at a fledgling tech company can also give one a sense of pioneering industriousness, of having built something from the ground up. “And if it does not turn into the next Amazon, Facebook or Twitter, a tier-1 bank will still welcome them — with all their additional entrepreneurial experience, risk inclination and demonstration of intrinsic motivation,” wrote Daniel Nadler on December 5 in his Institutional Investor blog, At the Digital Edge. Nadler himself is a tech entrepreneur, having co-founded Kensho, which develops financial analytical software. Also, ask a Gen Xer or millennial about working at Google, and the phrase “at-work massage chair” is more likely than not to factor into the conversation. Wall Street these days is hardly associated with workplace spa treatments.
In fact, the stress on new recruits is sometimes hardly believable, tragically underscored by the fate of Moritz Erhardt, a 21-year-old Bank of America Merrill Lynch intern who was found dead in his London flat in August after apparently working for 72 hours straight.
In times of austerity, excess is particularly frowned on. Many have taken exception to the myths of Wall Street perpetuated in the film. “The most disgusting thing is that there are banks or firms supporting this, hiring out screens for private showings, having special events and so on,” says John Bowman, managing director and co-leader of education at the CFA Institute in London. The film is far from being an indictment but is instead a glorification of the banking sector, he says. “It’s one thing for a 22-year-old to support the debauchery of the film, another when you’re endorsing the lifestyle and saying it’s part of the world of finance.”
Richard Bland, associate director and head of finance careers at London Business School, points out that the seductive image of finance perpetuated by the entertainment industry is little more than a myth. “The Wolf of Wall Street is a fun film, but this is not what finance is about. It is the media that wants to make it more interesting than it is. Good bankers are just normal people going around doing a worthwhile job,” says Bland. “The crisis will, however, have seen a lot of the froth leaving — people who probably wouldn’t have lasted in the industry.”
Still, where there is money, there are those hanging on for the paychecks and bonuses. Most acknowledge that the risk-averse and austere financial climate of the past few years is just the latest iteration of the business cycle. As that great Hollywood finance villain, Gordon Gekko, protagonist of Wall Street, once said, “Money itself isn’t lost or made; it’s simply transferred from one perception to another.”
For more Hollywood-style financial analysis, see II’s feature “Oscar-Winning Director Costa-Gavras Skewers Finance.”