Can You Say “Bubble”?

By James Kwak

Yesterday’s Wall Street Journal had an article titled “Foosball over Finance” about how people in finance have been switching to technology startups, for all the predictable reasons: The long hours in finance. “Technology is collaborative. In finance, it’s the opposite.” “The prospect of ‘building something new.'” Jeans. Foosball tables. Or, in the most un-self-conscious, over-engineered, revealing turn of phrase: “The opportunity of my generation did not seem to be in finance.”

We have seen this before. Remember That film documented the travails of a banker who left Goldman to start an online company that would revolutionize the delivery of local government services. It failed, but not before burning through tens of millions of dollars of funding. There was a time, right around 1999, when every second-year associate wanted to bail out of Wall Street and work for an Internet company.

The things that differentiate technology from banking are always the same: the hours (they’re not quite as bad), the work environment, “building something new,” the dress code, and so on. They haven’t changed in the last few years. The only thing that changes are the relative prospects of working in the two industries—or, more importantly, perceptions of those relative prospects.

Wall Street has always attracted a particular kind of person: ambitious but unfocused, interested in success more than any achievements in particular, convinced (not entirely without reason) that they can do anything, and motivated by money largely as a signifier of personal distinction. If those people want to work for technology startups, that means two things. First, they think they can amass more of the tokens of success in technology than in finance.

Second—since these are the some of the most conservative, trend-following people that exist—it means they’re buying at the top.

18 thoughts on “Can You Say “Bubble”?

  1. What? No one in VC backs non-technical founders. That’s ludicrous. Let them go, most of them are just destroying value in finance anyway…

  2. Whether tech or other business, it’s great to see the “bright but unfocused” of this generation eschewing law school and finance. The law and finance dangled riches in return for souls. Riches though siphoning, rather than creating. If these people head to tech, I hope it’s because the lure of financial reward (risk-adjusted, course) of Wall Street (and law firms) is now low enough such that they can be productive members of our economy instead of drains. Maybe it’s a bubble and many will fail, but maybe their souls and our pocketbooks will be saved in the process

  3. It is hard for me to believe that hours are better in tech startups than in finance. To succeed in a technology firm you have to know something substantive about the physical or social worlds. That doesn’t sound like most of the too-smart finance graduates I know of.

    Also, as you say, they’re buying at the top. I believe there are still fortunes to be made in tech, but it’s going to be harder—the low-hanging fruit has been picked, and picked over.

  4. I see this type all the time in the valley… We call them ‘seagull managers’ because they fly in, squawk a lot, poop all over everything, then fly out again before the extent of their technical incompetence can be discerned with certainty.

  5. BWAAA! Spot on.

    But you need to distinguish between the “tech startups” you’re talking about–that is, vaporware concept farms whose fresh-faced foosball aficionados spend all their time schmoozing Angels and VC wankers–and the “tech startups” that actually start with some actual tech.

    By Robert Scheer
    Google’s Spymasters Are Now Worried About Your Secrets
    Posted on Apr 29, 2013
    “A recent article in The Wall Street Journal by Google Executive Chairman Eric Schmidt, “The Dark Side of the Digital Revolution,” makes for very scary reading. It is not so much because of what he and co-author Jared Cohen, the director of Google Ideas, have to say about how dictators can use new information technology to suppress dissent; we know those guys are evil. What is truly frightening is that the techniques of the totalitarian state are the same ones pioneered by so-called democracies where commercial companies, like Google, have made a hash of the individual’s constitutionally guaranteed right to be secure in his or her private space.

    The dictators, mired in more technologically primitive societies, didn’t develop the fearsome new implements of control of the National Security State. Google and other leaders in this field of massively mined and shared information did. As the authors concede and expand on in their new book: (read more…)
    By Robert Scheer

  7. It’s important to note that the bubble that James is referring to here is a very peculiar sort of bubble, not that of dotcom as a whole. The people who venture in to finance in the first place are never very bright to begin with (not in the sense that really matters). They are already a walking bubble so yes, nothing has changed. They who are more likely to slay the goose than wait patiently for it to continue laying its golden eggs would carry taint wherever they go. I just hope that the innovators are alert enough to kick them straight back out before they do any damage.

  8. a fabulously concise & skewering description of the wall street types, professor james — i never heard it put quite so well!

  9. “a banker who left Goldman to start an online company that would revolutionize the delivery of local government services. It failed, but not before burning through tens of millions of dollars of funding.”

    Yes, shockingly it is difficult to make money when not playing with free money from the Fed who will, bailout your counter-parties for you, buy worthless securities created with the free money at par and guarantee the rest for free so you have time to sell them on to the chumps.

  10. Sounds as if you ended up on the chump side of that deal, but not one of the born suckers of the minute or moment tho. i’m not shocked.

  11. The herd stampeding from Wall Street to Silicon Valley is just one of several bubble identifiers. Ridiculous company names is another.

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