Wall Street is not made up of "numbers guys"

Chad Orzel's post, "Financiers Still Aren’t Rocket Scientists" is a timely reminder that Mitt Romney and other Wall Street Types are not, by and large, superhero math geniuses with their fingers on the arcane numeric truths underpinning all reality. Some quants are genuinely impressive mathematicians, but the industry's reputation for "numbers guys," is just wrong-o.

You would think that the 2008 economic meltdown, in which the financial industry broke the entire world when they were blindsided by the fact that housing prices can go down as well as up, might have cut into the idea of Wall Street bankers as geniuses, but evidently not. The weird idea that the titans of investment banking are the smartest people on the planet continues to persist, even among people who ought to know better– another thing that bugged me about Chris Hayes’s Twilight of the Elites was the way he uncritically accepted the line that Wall Street was the very peak of the meritocracy. It’s not hard to see where it originates– Wall Street types can’t go twenty minutes without telling everybody how smart they are– but it’s hard to see why so many people accept such blatant propaganda without question.

Look, Romney was an investment banker and corporate raider at Bain Capital. This is admittedly vastly more quantitative work than, say, being a journalist, but it doesn’t make him a “numbers guy.” The work that they do relies almost as much on luck and personal connections as it does on math– they’re closer to being professional gamblers than mathematical scientists. This is especially true of Bain and Romney, as was documented earlier this year– Bain made some bad bets before Romney got there, and was deep in the hole, and he got them out in large part by exploiting government connections and a sort of hostage-taking brinksmanship, creating a situation in which their well-deserved bankruptcy would’ve created a nightmare for the people they owed money, which bought them enough time for some other bets to pay off.

Romney has no shortage of nerve, and while he creeps me out, he has the sort of faux charm that works well in the finance community. But he’s not a “numbers guy” in any sense that looks meaningful from over here in the land of science. He can do the math needed to add up his personal fortune, but the game that he made his money playing isn’t a rigorously mathematical one– people get rich in finance as much by playing hunches and cutting sharp deals as by crunching numbers. There are people who make their way in that business by taking a rigorously data-driven approach to investing– one of the many things I need to write up for the blog at some point is a review of a forthcoming book called The Physics of Wall Street– but they’re nowhere near a majority of the industry, and Romney’s not one of them.

Financiers Still Aren’t Rocket Scientists (via Making Light)


    1. No shit. It’s brutally disillusioning to realize that the world of finance is ruled by demented grifters gripped by compulsive ego games that would make Shakespeare vomit.   

      1. Why? That’s been my assumption from the start. They TELL everyone how smart they are, but the laws are so obviously in their favour that you could give their job to a monkey on crack and it’d turn a profit half the time. 

        1. Monkeys on crack would actually do a better job than the guys currently working Wall Street, since they consistently fail to turn a profit even half the time.

  1. OK, the election’s over, Romney’s out of the picture.

    So can I now ask how many of the Wall Street crooks (particularly the ratings agency whores) have been indicted since January ’09??

    1. Even Obama and his “Justice” Dept guys buy into the Wall Street as a collection of geniuses myth – or at least – that’s the publicly taken position.

      Maybe they just need someone to buy speeches at $200K a pop a la Clinton after they leave office.

      1.  True.  If there is one group that’s sleeping very soundly since Nov 6, it’s the big guyz at the Too Big To Fail Five.

  2. Thanks so much for posting this article.  Dilbert is not a joke – it is real life.  Most business executives do everything through personal connections.  Romney might be really smart socially, but he, and I bet 99% of business executives, are not math, or any other kind, of geniuses.

  3. Most kids wanted to become firemen or doctors when they were young except the wall street guys , they wanted to melt all the ice cream in the world . Set fire to the bird sanctuary or make faulty fireworks or become politicians so they could make laws to put snowshoes on rabbits and snakes . Sadly for humanity they end up with lots of money, and that for most people gives them merit by default .

  4. its not just connections or hunches. Its hiring the numbers people to do all that crunching for you. And the richer you get, the more of them you can hire.

    And the more credit you can take for being a “genius”

    1. Sort of.  Qualified to note that they are NOT in it to make money for their clients.  In other words, people like Bain guys or GS, etc.. are not about investing for making returns for their clients.  People need to disabuse themselves of that idea.
      The numbers cruncher guys are hired to figure out ways to game the system.  Sometimes it’s even easier, ratings agencies just flat out lie about the product being peddled like say…  MBS.
      Also – 
      There’s nothing sexy or secret about making more money in financial markets than putting it in the bank or under your mattress.  You invest in diversified stock funds appropriate for your risk and you dollar cost average.  That’s already been proven, but is also boring.  Thus, you have a-holes like Jim Cramer on the air..

      1. Qualified to note that they are NOT in it to make money for their clients.

        I’ve been trying to figure out what to do with my IRA, which is sitting in a savings account making a trillionth of a percent interest annually. Not that long ago, there were financial consultants who would help you figure out what to do with your money in exchange for a fee. They don’t exist anymore. There’s nothing out there anymore except seedy guys who want to sell you stuff so that they can make commissions. In the financial sense, we’re already completely living in Mogadishu.

        1. Have you looked at investing through Vanguard? They’re known for high ethical standards, and all the company’s funds are investor-owned (it’s essentially a non-profit investment management firm).

          Also, look for advisors who hold the CFA designation; the Chartered Financial Analysts Institute is pretty good about policing their own.

          There are plenty of people in the investment industry who aren’t complete wankers, if you know where to look…

        2.  Sadly, they really don’t want to talk to you or any of us.  If you are making regular contributions to your IRA (and you should be) then start by moving it into something like a target fund that has (roughly) the year you hit 60 in the name.  They are invested in a changing mix based as the years go by for appropriate risk.  Mine is 2025 Target at Schwab.
          60 because one can start taking out money from their IRA at 59 1/2 without penalty.

  5. In the stock market and the world of complicated finance, there are tremendous unpredictable variables.  There may well have been hundreds of Mitt Romney equivalents of equal intelligence who never struck it rich, and who therefore were never considered presidential timber. The system often rewards based on chance.  Nothing is more true than past performance is no guarantee of future results.

    1. Indeed, on Wall Street you can often hear the refrain of “I have a cunning plan which could get you out of this problem.”

  6. The only guy who does the numbers is Warren Buffet. The rest are on a lucky streak. Flip a penny 200 times. You’ll find there are long runs of heads or tails. The so-called genius usually is playing out his run. The big names are good at loading the risk onto the other guy. As Buffet has said every deal has a fool. If you can’t figure out who it is it’s probably you.

    1.  Buffet was once asked if he could sum up his investment strategy in one sentence.  His reply: “I always get out too soon.”  Truer advice never given……

  7. One can be forgiven for thinking that people who make tons of money in the stock market are super smart. This is because of the following line of reasoning: it’s hard for any smart person to make money of the stock market, due to the Efficient-Market Hypothesis (https://en.wikipedia.org/wiki/Efficient-market_hypothesis ) – therefore the guys that do get above average returns consistently MUST be geniuses!

    But, then, if they’re not geniuses, how are they earning such record profits?

    The key to understanding this conundrum is to realize that the efficient market hypothesis only holds if the market isn’t being manipulated. In reality, you don’t need smarts to make money in the stock market – just a penchant for spreading rumors through the media. The whole mechanism is disgustingly simple and is done day after day. Here’s a six minute video that explains the details:

    1. Surely you are not implying my penny stock retirement account is anything but a rock solid exponential dynamo?!

  8. Lies!  Of course they’re smart, you can tell because they’re rich.  Only smart people get rich, and only rich people are smart.  Poor smart people aren’t really smart cause they haven’t applied that alleged smartness to get rich.  duh!

  9. I live 2900 miles away from Wall Street give or take; I have never met a high falutin, mega money making, economy destroying Captain of Capital…so I can’t really know how they behave.  (Does reading Bonfire of the Vanities count?)

    But I do know some rather successful individuals in the more prosaic field of income property.  Crunching the numbers is important (very important)…but what is far more valuable: Confidence.  (or at least the appearance thereof)

    A certain gift of gab, the ability to shine people on…get them to agree with whatever world view you are creating.  So that owners sell low and renters jump to pay whatever the market will bare.

    And when things fall apart?  Here’s the rub: once you have the money/signed lease etc?  Fuck em.

    “Should we change this water heater or have another couple whips and call it a day?”  ‘but what about the poor tenant?’ -Laughter- “barkeep, another round!”

    I’ve been a part of it.  It galls me.  And I won’t do it: defraud the old or mentally incompetent for their property, charge huge rents for sub-standard housing…but one close friend has built a freaking empire of rental property in 15 years.  Yet he has more enemies than real friends.

    But he’s rich as shit and confident as all get out.  It takes a certain type of individual…CEOs and Psychopaths: somebody wrote a book about it.

    I’ve chosen contentment over the big money.  I have no trouble sleeping.

    1. The problem is that those guys have no trouble sleeping either.  
      Unfortunately, we need the sociopaths because we actually do need some people like that who can take horrific decisions and not be haunted by them.  The difficulty is that the rest of us then abrogate our responsibilities to contain them (often by pretending that we live in democracies so the “system” will fix everything…)

      1. “Unfortunately, we need the sociopaths because we actually do need some people like that who can take horrific decisions and not be haunted by them.”

        Citation needed.

        1. Who else is going to slaughter the innocent to make a quick buck? What kind of a society would we have without that?

  10. I didn’t realize that anyone took that line seriously except for the kind of people who also, say, think that global warming is a vast conspiracy of scientists getting rich off of federal research funding.  

    I think a lot of the quants’ jobs, aside from manipulating the market by trading really fast, consists of covering for the CEO’s insider trading. 
    “Insider trading?  no-siree bob.  I just hired some really smart guys to crunch the numbers.”

  11. Buffet is far from the only man who’s made an honest living on Wall Street but the idea that his fortune is solely the product of his prudent investment strategy and not who he is strikes me as rather misguided, particularly at this stage of his career. The most recent examples: his deal with Bank of America last summer and his deal with Goldman Sachs in 2008. Buffet received obscenely favorable terms on both deals largely (entirely in the former case, imo) because of who he is.

    But I don’t mean to belittle Warran Buffet. I don’t buy the idea that all of Wall Street is gambling and that the best simply lucked out. Kyle Bass has done brilliant fundamental work in the past decade and made him and his clients fortunes (first via a short on the housing market, later on a short of Euro debt).

    On financial institutions vs. their clients – hedge funds and private equity managers DO have their clients’ interests in mind because their clients are their investors. If Bain loses money, their clients lose money. The clients fund the operation, ergo they ARE Bain Capital on some level.

    The relationship between an investment bank (e.g. Goldman Sachs, Morgan Stanley) and its clients is more complicated. Goldman Sachs frequently trades against their clients, yes, but it isn’t always as a simple as GS dumping crummy MBS onto Maw & Paw. GS will often serve simply as a market maker, i.e. a third party that facilitates a trade between two other parties, wherein it takes a cut of the bid-ask spread. This can get messy/criminal, however, when the other side of the trade is your prop trading desk that’s supposedly behind a firewall but in reality isn’t.

    Not typically a Wall Street apologist, just don’t believe the whole thing is a sham for rich white guys to get richer and whiter (but a lot of it is).

  12. In response to Antinous- Moderator- Hyperbole? I have worked in financial services for over 25 years. As in any business there are dishonest  and shady, self interested people acting as financial advisors. Yet with a little bit of effort you can certainly find an advisor who genuinely desires to assist clients with good advice and planning. The vast majority also now offer the option of paying an asset based fee or even a fee for service. I am quite capable of managing my own assets yet I continue to use two advisors because they are honest, hard working people who will serve my wife and children well if something were to happen to me. I also like having “another set of eyes” when making decisions. There are also certainly some very smart math people in the asset management business- most of them on the “quant” side.

    I share scorn for the excesses of Wall Street which heavily contributed to the financial crisis (as do many of my colleagues). The real problem lies in the intersection of money and politics which leads to bad regulation, lack of regulation and lax enforcement. Lots of money in the real estate and wall street worlds. Mix those two industries together and throw money around (for decades) to impact the political process and well… the rest is history.

    1. “Yet with a little bit of effort you can certainly find an financial advisor who genuinely desires to assist clients with good advice and planning”

      Here’s the clincher, though – the part I’ve never been able to figure out. How? You say “with a little bit of effort”, but what IS the effort needed? How can I find the good guys? Once I’ve found someone, how can I tell I’ve gotten one of the good guys?

      Honestly, it seems like it would take more than “a little bit of effort” – it seems like it would take a lifetime of involvement with the sort of people involved. Without that, I’m essentially gambling – that whoever I found is honest more than convincing, and that whatever standards of judgement I chose are accurate rather than mistaken.

      1. One thing to do is to check an advisor’s SEC filing (easy and free to do online – just google SEC advisor search). There you’ll find a complete list of complaints and disciplinary actions, if any, against the advisor in question.

      2.  I would start by getting referrals from several trusted friends, then (as Frank266 suggests below) do an online background check with FINRA. Finally interview a few advisors, inquire about their experience, philosophy, typical client profile and compensation options. My view is that the more questions an advisor asks YOU in the first appointment the better. They should be gathering information about your goals and objectives, investment experience, resources, risk tolerance etc.

        A good advisor will encourage you to save and invest early, put aside an emergency fund and set you on a path toward specific financial goals. This will probably involve living below your means. Most important of all an advisor “will hold your feet to the fire” when market conditions are difficult. Emotions and investing are a natural yet toxic mix. I often tell people that the most valuable behavior I have learned from my years of experience in the business is practicing “benign neglect” of my investment portfolios. I have a well diversified, professionally managed and indexed portfolio. In a typical year I make a few minor adjustments and never watch the market day to day. I do make an occasional bold move for a portion of my portfolio- usually when the majority of people are panicking and running for the exits.

        1. Yes, but my trusted friends who are fairly savvy investors, as well as my accountant, don’t know anyone who doesn’t practice predatory financial counseling.

          1. Ah yes but I suppose it would logically follow that those trusted savvy investor friends and your accountant don’t use an advisor precisely because the only ones they know practice predatory financial counseling. Sorry for them and you. Alternatively, I am full of crap and all advisors practice predatory counseling and you, your accountant and your trusted savvy investor friends figured it out. It’s all a scam and you knew it all along didn’t you? Please don’t tell anyone else, we have children and yachts and such to care for.

          2. The point, which you seem determined to miss, is that when I asked, I couldn’t find a single person who knew anyone whom they could recommend. Don’t you find that problematic?

          3. Forgive me for being a bit smart alecky in my response. Of course I find that problematic. I have worked closely with thousands of advisors in my career and I would estimate that 1 in 5 are up to the standard of integrity and expertise that I would recommend them to a family member. I suspect that you would probably hear a similar percentage from competent trustworthy people with inside knowledge of other fields be they plumbers, car mechanics, accountants, lawyers or doctors. I am sure with time and effort you can do well on your own. I sincerely hope that at some point you are able to work with a really good advisor.

      3. I’d recommend that anyone with money to invest spend some time researching how markets function. Investing doesn’t have to be rocket science (but it can if you’d prefer it that way) and there are plenty of great online resources out there to give small-time investors all the tools they need to make their own investing decisions. If you can find an adviser you trust, even better. Advisers aren’t seers, however, and very few produce above average returns for their clients. The same can be said of fund managers since the 2008 crisis; most have underperformed the S&P 500 even before collecting their fees.

  13. I have come to terms a while ago with the fact that Wall Street guys, politicians, all the rich and powerful people that pull the strings in our world, are pretty much the same bunch of dumbasses that the general population is. Rich, powerful dumbasses with no one to hold them back. And somewhere among this bunch of omnipotent dumbasses, sometimes, there are a few good people. Yay!

  14. To see how it works, play the name game – pick up on a finance world name, ‘Shapiro’ is a good one, and then google “bank” + [name].  Maybe choose a name from a well-known family like “Kronenbourg”.

    After a few tries and some alterations you start to see how common it is that famous surnames from all fields end up in banking, with a public image of some sort or another.

    If you’re hot at the game, you can start to spot the network, and even the order people got hired in.

    Makes sense, when you’re in you bring in your friends and family.

    But doesn’t speak well of meritocracy – that’s a silly concept made up to ensure the flow of drones to do the actual dirty work (eek! Excel spreadsheets for the deal!  Yuck!)

  15. Far be it from me to get in the way of a good old bankster bashing session, however you also have to (for balance) remember that the models that these ‘masters of the universe’ used to buy sell derivatives (and indeed some of the more complex derivatives themselves) were being created by Phd math geeks in the banks Quant teams. Numbers guys, absolutley – real life pragmatists – not so much.

    It is really a disconnect between the government’s oversight (Glass Steagall anyone?) and pure greed which itself is an option because of the government’s implicit backstop of the taxpayer to bail out these risk takers.

  16. It’s true. My husband was an investment banker and I’m in marketing, but I trained his analysts how to do more complex numbers crunching.  And he’s one of the more numbers-savvy bankers.

  17. Of course they are not math guys. It’s a pretty good rule of thumb that the top guys in any business are SALES people. Doesn’t everybody know that?

  18. In today’s idiocracy, a “number’s guy” is anyone who can do basic math. I’ve seen people type a column of numbers into a spreadsheet, then get out a calculator to add up the numbers and type in the total at the bottom.  It doesn’t take a math genius to realize that, on Wall Street, the brokers have the advantage, and they will screw you at every opportunity.

  19. I read Orzel’s book How to Teach Physics to Your Dog and it’s very good.  I didn’t know he was blogging.  Looks like I g=have some catching up to do in my reading.

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