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  • Dangers of Monoculture in Banking

    Posted by David Foster on July 24th, 2012 (All posts by )

    A banking equity analyst at a major bank talks about the growing uniformity in banks:

    In the old days you got people who had applied in their last year at university or who had other careers, in the industry or in trade papers. These days you get people who have started working at getting that job from the first year of university. The recruitment process has been industrialised and professionalised, it’s become so difficult to get in.

    “The result is paradoxical. Diversity has increased, with far more women and ethnic minorities than before. On the other hand it’s become a terribly homogenous bunch of people. You don’t get graduates who did not at 18 want to work at a bank. You only get people who spent their summers in internships at banks, who went straight from college into the bank. Their biggest exposure to the world outside is… business school.

    “This homogenous bunch deals quite badly with paradigm shifts. Quarter to quarter they are really, really good at cleaning out a bank’s books, digging up the one-offs, accounting tricks. What they’re missing is the big picture.

    “Also, they are not sufficiently cynical. Quite a lot of regrettable stuff was written in the last years of Lehman Brothers. This was in part because the young people writing it were unable to take a step back, psychologically, and ask themselves if they were being lied to, flat out.

    The whole interview is interesting.

     

    4 Responses to “Dangers of Monoculture in Banking”

    1. John Says:

      I’m reminded of one of the scam from the 70’s or early 80’s where a hot shot kid kited loans on some small business into a multimillion dollar empire. It began to unravel when an older baker, at a party given by the kid, asked him how he made money. The BS meter pegged at 11 when no coherent answer was forth coming.

      JJ

    2. John Wolfsberger, Jr. Says:

      “The BS meter pegged at 11 when no coherent answer was forth coming.”

      Have you ever noticed how much trouble people get into when they turn off the BS meter?

    3. elf Says:

      Monoculture is a key trait of our elites across the board, it’s eerie. It’s been achieved before of course but it usually required fear.

    4. Jason in LA Says:

      The threats of monoculture in banking and finance I suspect is real. It is a reason — before his death on 9/11 in the north tower — David Alger of Fred Alger Capital Management hired English literature majors for his research staff rather than business, accounting or economic majors. A staff that would eventually grow to over 200 before 9/11. When reading the footnotes of financial reports Alger found literature majors knew how to parse language, even financial lexicon, better than anyone.

      If you’ve ever listened to a quarterly conference call, particularly for a financial firm, you’ll realize that all these analysts do is ask management questions on how best to model the company. It’s then not difficult to understand how management teams adjust future expectations. Thus allowing management to practice the Donald Rumsfeld school of results of under promise yet over deliver (usually by a penny or two a share per quarter.) Whenever you hear an analyst preface his question with an “excellent quarter guys” or “good job fellas”, you know he’s friggin worthless and the proverbial dumb guy at the poker table.

      Excellent read David and thank you for posting. For another insight into the world of high finance I also suggest the blog “Interloper”. It’s been about a month since he’s posted but I hope he’s still around.

      http://interloping.com/