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The Wall Street Draft: How to Revive Interest in a Financial Career among Students

Posted by Chris Gillick | 2 Comments

Over the last two decades, much has been made about Wall Street firms attracting the best young intellectual talent from our nation’s top colleges and universities.  In a different era, the business, finance and economics majors were funneled into management training programs at General Electric or IBM.  Engineering majors designed planes for Boeing, weapons for Lockheed, or shuttles for NASA.  And what about those history majors from the Ivy League and its peer schools?  Well, daddy or daddy’s friend found them a job on Wall Street.

The history majors had it right all along.  During the last two decades, the lure of finance as a career, its much greater earnings upside, and the social prestige of working for Goldman or Morgan (JP or Stanley, take your pick) took the bite out of industrial America.  At some point, the most financially ambitious students had an epiphany, “Why be a vice president at GE at age 35 and make a modest six figure salary? For the stock options? For a free MBA?  Who cares about a corporate-sponsored MBA when I can make 9 figures running a hedge fund?”

The $100 million threshold is not an illusion.  Young hedge fund stars such as society fixture Chase Coleman, Lehman-slayer David Einhorn, and commodities trader Paul Touradji reached that number in their 30s.  For those interested in adding another zero, three managers made over $1 billion annually in both 2007 AND 2008 (John Paulson, Jim Simons, and George Soros), according to Institutional Investor’s Alpha magazine, which merged earlier this month with Absolute Return to create AR.  (Full disclosure: The author is a contributor to AR.)

While these gentlemen have survived the storm on the buy-side, the Wall Street industrial complex that fed their industry’s growth eventually sent the economy into a freefall.  The American people and the government still want all their bailout money back, and want stricter rules of accountability for the spreadsheet jockeys who blew up the world.  So, with less potential upside to finance than in years past, and with some firms still propped up by the state, how will young people remain interested in a Wall Street career?

I have the solution.

Make it like the NFL.

The Wall Street Draft

America loves pro football, and pro football is one of the more highly regulated, transparent and performance-based businesses around.  Teams must adhere to a salary cap and restrictions on hiring players and coaches.  All games are broadcast on television, so when you score a touchdown or fumble away the game, everyone knows about it.    If you succeed, you’re a hero.  If you fail consistently, or get arrested multiple times, you are often out of a job, with a second chance only for the most talented.  It really is capitalism at its finest within a somewhat socialist context.

Wall Street can be the same if it had a player draft system and pay caps.  Here it goes:

The top Wall Street firms would create a draft system for talented kids coming out of college, just like in the NFL.  To satisfy the government and taxpayers, they must pay for the privilege (more on that below).  Let’s cap participation at the top 15 firms who pay up, so they can still “attract and retain the best talent.”  This way, the top candidates who end up at Goldman Sachs and JP Morgan anyway continue to end up there.

Let Congress pass into law that the only way these firms can hire young talent is through this draft process.  No more CEOs calling in favors with HR and saying “you need to hire my neighbor’s son.”  If the CEO’s neighbor’s son wants to work at the CEO’s firm, he can enter the draft like everyone else.

Then, let the Federal Reserve and Treasury commence an auction to all registered financial services firms.  This will be restricted to the sell-side.  (Entrée into the buy-side will now require two years on the sell-side first, to ensure more mature stewards of capital.  The NFL requires a potential draftee be three years out of high school to ensure physically mature bodies.)  Each firm would submit a price secretly as to how much it would be willing to pay to participate in the draft.  The minimum bid will be $1 million, adjustable on an annual basis, just like a Super Bowl commercial.  Only after the bids are complete will the numbers be revealed to see who paid what to get access to the top talent.  The government would then take the bids and repay the taxpayers through TARP and/or reduce the federal deficit.  If Wall Street is to pay for its sins, let it do so by paying for the privilege of restocking its farm team.

In theory this could save firms tons of money on recruiting costs, as all candidates will be in a single pool, and must apply for the draft to attend a “combine,” just like the NFL.  No more spending money on-campus visits (except for internships).  The combine will be held on a weekend in the fall at the Javits Center in New York City.  Think of it as Super-Super Saturday.  Just like the firms will have to pay up for the draft, schools and their students will have to pay to join the combine, say $500 a head, with all proceeds going to Uncle Sam.  If development offices had a clue as to what they were doing, they would ask alumni to set up an endowment to fund spots in the combine each year. After all, schools need to develop their finance graduates to eventually manage their endowments as board members and write big checks to capital campaigns at a leadership level.

If the students don’t make it through their school’s internal process to get into the Wall Street Combine, then they can do what the rest of their classmates are doing, i.e. applying to law school, Teach for America, and those aforementioned management training jobs at companies that actually make things.

At the combine, “scouts” can watch the dutiful little future bankers and traders take modeling tests on Excel, grind through accounting exams, and take a mini-version of the Series 7.  Think of it as the Wall Street equivalent of the 40 yard dash and the bench press.  After those tests are complete, candidates can meet with firm representatives, introduce themselves and hand out resumes.  The firms can then do their due diligence, calling professors, coaches and family members to see if they’ll be a good “fit” for their organization.  Remember, hiring on Wall Street is all about “fit.”  They have cultures to preserve, after all.

I admit, this will be a little bit of a shitshow, but this is the new world order.  Top students shouldn’t go into finance because it’s “the thing to do” or so their parents can tell their friends, “My son is working at Goldman while you’re paying for your daughter to go to law school because she hasn’t met a husband yet.”  NFL prospects who have worked hard all their lives to get bigger, faster and stronger for a big pay day go through a rigorous process.  So should future financiers.  They should seek a career in finance because they love markets and deal making.  It shouldn’t be easy to get in.  It never has been, so make them go through the ringer.

Then the draft day comes.  The firm that bids the most will get the #1 pick, the firm that bid the second most gets the #2 pick, and so on.  It’s not like the NFL draft where the worst team from the season prior gets the top pick.  If you’re the worst firm on the street, you don’t belong in the draft, and should be out of business.

Given that 15 firms will participate, there will be 15 picks per round.  There will be no snake-like fantasy football draft format.  If a firm bids the most, it will have the first pick in EVERY round.  All normal draft day trade rules apply, and firms can trade picks like they would trade baseball cards.  They can trade up to get a student they want, or trade down to get more picks.  The only difference is that they cannot trade for picks in future years.  Remember, a firm must bid each year to get into the draft, so there’s no guarantee that a firm will be around the year after.  Imagine if Bear, Lehman and Merrill traded away future picks in a theoretical 2007 draft.  Would their acquirers, JP Morgan, Barclays, and Bank of America, respectively, have received those future picks for the next draft?  That’s tough to say.

(Along these lines, can’t you just see Goldman acting like the Patriots, trading down for more picks to get more analysts?  Though I’d like to think Lloyd Blankfein has a little more personality than Bill Belichick.  Had John Thain gotten that Goldman CEO job he was supposedly groomed for, then perhaps this analogy would be complete.)

The participating firms who win bids must decide collectively on a commitment to hire a certain number of new analysts.  Suppose that number is 50, for the sake of argument.  Then there will be 750 overall picks.  Depending on the firm’s hiring needs, they can pick up “free agents” in the remaining combine pool after the draft is over.  It’s highly likely that more than 750 people will attend the combine.

As for the candidates, there will be a fixed pay scale in place depending on the round in which he or she was drafted.  (The NBA has a rookie salary cap, and the NFL faces potential shutdown in 2011 if such a cap is not created.)  Candidates may not hire agents, and cannot leave school early like athletes do to play professional sports.  These jobs require a college degree.

The salaries will be on a sliding scale down from $70K to $60K, as they are now, and are subject to an increase/decrease by regulators.  All free agents will sign for $55K, because well, they weren’t good enough to make the cut in the first place and should be damn happy just to get in the door.  Just like in the NFL, free agents will have more to prove once they are inside the firm.  All candidates will sign two year contracts just as they do now, and become free agents again afterwards. Bonuses will be capped at 50 percent of salary in year 1, 75 percent of salary in year 2.  Afterwards, they can choose to stay at their firms, go to business school, go to a hedge fund or private equity firm, etc… just as they do now.   However, if the buy-side is indeed their calling, let the government run a buy-side draft that includes these folks as well as one for MBAs.

Sure the selectees can choose not to sign and pursue another career if they choose, but they cannot hold out of summer training camp for more money like Michael Crabtree of the 49ers.  The firms will simply pick up another cheaper free agent to take their place.

Now, there’s the issue of media coverage.  There will be Madison Square Garden hoopla.  CNBC will broadcast the draft, with the Squawk Box crew of Joe Kiernan, Becky Quick and Carl Quintanilla hosting, and top projected picks sitting in a “green room” dressed in suits with their families and walking up to the stage to shake Lloyd Blankfein’s or Jamie Dimon’s hand.  Charlie Gasparino will be the Mel Kiper equivalent of the Wall Street Draft, giving the scoop on who exactly will be the next Big Swinging Dick on the Street based on GPAs, majors, leadership positions, senior theses written, and of course, family connections.

The girls of CNBC (Maria Bartiromo, Erin Burnett, Rebecca Jarvis, etc…) will interview the draftees after they’ve been selected.  Socially awkward overachievers who might finally get laid, the lacrosse team captains who have been getting laid for a while, and the hot blondes, who will seek to get laid by older managing directors and hedge fund managers, will be in the mix.  Here are some examples of what they will say on camera:

“I’m so happy to be a Goldmanite today. Can’t wait to get into equity capital markets, where I interned last summer!”

“Realistically I thought Jefferies was going to pick me, but I really was hoping for JP Morgan, and they took me!  Thanks Jamie!”

Or for the disappointed:

“I really thought Goldman was going to take me, but I guess B of A will do.  I never thought of myself as a retail guy, but the draft is the draft.”

“Cantor Fitzgerald?  Does that mean I have to hang out with the B&T crowd on the weekends?”

As for the candidates who don’t make it to the combine and thus the draft, well, they can find jobs through regular channels at all the second, third and fourth tier firms just as they do now.  Though if the government gets greedy for more money to feed the pig, they can repeat the process for second, third and fourth tier firms in subsequent drafts, with again fixed payscales that would go down to as low as $35K.  As the tiers go down, investment banking and institutional sales and trading jobs will devolve into things like operations and retail brokerage.  So if the government insists on regulating all financial services firms, and to ensure the industry gets people who want to be there, make them participate in this recruitment process and raise some fee income in the meantime to reduce our $14 trillion in debt.

As Wall Street always does, it will find a way around the rules and complain how such restrictions don’t befall other industries (except say, oh, the NFL, NBA, Major League Baseball, and some highly sought after government jobs such as the foreign service and law enforcement).  Somehow that CEO’s neighbor’s son will get hired through the back door.  There will inevitably be draft fraud and HR reps secretly visiting campuses when they aren’t supposed to, slipping envelopes full of cash and Ritalin to candidates.

The more things change, the more they stay the same.

Chris Gillick is a freelance financial journalist who writes about hedge funds and traders. Until its closure, he served as Associate Editor of the magazines Trader Monthly and Dealmaker at Doubledown Media. He lives in New York City.

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    [...] The Wall Street Draft: How to Revive Interest in a Financial Career Among Students by Chris Gillick [...]

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