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Financial Crisis Does Little to Dim Graduates’ Wall Street Aspirations

June 4, 2010 at 12:00 AM EDT
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As part of his continuing coverage making sense of the economy, Paul Solman talks to Harvard economist Ben Friedman about the college graduates who continue to flock to Wall Street, three years into the financial crisis.

JEFFREY BROWN: And finally tonight, we continue our theme of jobs, but, this time, a story about the enduring appeal of Wall Street to some of the nation’s top college graduates, even in the wake of the financial meltdown.

“NewsHour” economics correspondent Paul Solman has our look. It’s part of his ongoing reporting on Making Sense of financial news.

PAUL SOLMAN: Harvard commencement 2010 celebrating its newest graduates, and casting a critical eye on those graduates, Harvard economist Benjamin Friedman. They’re more able than ever, he says.

BENJAMIN FRIEDMAN, Economist, Harvard University: And, for that reason, it’s all the more troubling when I think that, after they leave us, so many of them go into activities that are not economically productive for the country, for society, even, just narrowly, for the economy.

PAUL SOLMAN: Friedman bemoans the fact that, three years into the financial crisis, top students continue to flock to Wall Street. At Harvard, as at other top schools, about one out of every four graduates entering the work force takes a financial sector job.

BENJAMIN FRIEDMAN: And, in light of how skewed some of the rewards are, today, the greatest incentives, ironically, seem to be for students to go into those activities in which at least the apparent economic function being served is harder and harder and harder to understand what it is.

PAUL SOLMAN: You don’t see any value? You think it is a waste of human resources?

BENJAMIN FRIEDMAN: Consider nano-trading, very high-speed trading, in which the only visible economic contribution is whether some tiny departure from what somebody thinks the right price of a security ought to be is corrected in one nanosecond, instead of two nanoseconds.

And, yet, people are receiving enormous compensation for putting their time and energy and inventiveness into making that happen.

PAUL SOLMAN: Indeed, while it’s still not clear what caused the so-called flash crash of the U.S. stock market on May 6, computer trading has been implicated, much of it designed by math whizzes from universities like Harvard.

To longtime bank analyst Chris Kotowski, however, Friedman’s critique is part of the usual anti-Wall Street bias.

CHRIS KOTOWSKI, Oppenheimer & Company: I think it’s a harsh value judgment to say that Wall Street doesn’t add any value. You know, and I — Wall Street is never a favorite of Main Street. I mean, politicians have always been running against it, because it’s — it’s a good and convenient thing to have, to be able to blame all of society’s problems on 1 percent of the electorate, right?

I’m not so naive to think that people will ever walk around their town or their city and they say, gee, you know, all these buildings, all these factories, they were — shouldn’t we thank the Wall Street financiers who put the money together to make all this happen?

PAUL SOLMAN: Do you personally think that it’s a good thing for America that the best and, literally, the brightest, by test scores anyway, of America’s college students go to Wall Street?

CHRIS KOTOWSKI: The world has become a more capital-intensive place, much more so than it used to be 30, 50 years ago. And getting capital together for any enterprise is a challenging thing, and it’s not easy.

PAUL SOLMAN: But Friedman argues that Wall Street has largely abdicated its role as financier, in favor of trading, to which his students increasingly flock.

BENJAMIN FRIEDMAN: I think it’s a very serious issue for our society, how we allocate resources in general and scarce resources in particular, and the high-end, super talented, super energetic, super creative young people have to be one of our most valuable, scarcest resources.

PAUL SOLMAN: Are you genuinely upset by this?

BENJAMIN FRIEDMAN: If these firms that are hiring so many of our best students had had troubles like Lehman Brothers troubles, then our students might have thought twice or three times about going there.

But I think the way the government has handled the situation has kept these firms vibrant and profitable and able to continue to hire our best students, and keeps the ball rolling in the same direction.

PAUL SOLMAN: And keeps your students flowing from Harvard to Wall Street.

BENJAMIN FRIEDMAN: We will have to see. We don’t know yet. And it will be interesting to see over the next year or two or three whether the share of our students who graduate and go into these kinds of jocks remains the same or goes down. We don’t know.

PAUL SOLMAN: Ben Friedman, thank you.