If you read last year’s seminal work by economist Thomas Piketty, you may have arrived at the conclusion that banking jobs are for suckers. Whilst acknowledging the existence of a new breed of well- paid ‘super manager’ (of which bankers are a sub-group) Piketty argued that the highest incomes in today’s societies are derived not from hard work but from collecting rents on accumulated capital. More importantly, Piketty argued that this kind of ‘rentier income’ is rising whilst super-managers are destined to become sidelined because the marginal cost of employing them exceeds their marginal productivity. Put simply, Piketty said banker-types are going down and trustafarian-rentier types living on unearned income are going up.
However, Piketty’s rationale has been questioned by a super-star 26 year-old MIT student, Matthew Rognlie, who thinks Piketty’s premise is wrong. Rognlie’s reasoning shows that rising inequality isn’t the result of rentiers’ rising earnings from returns on invested capital. – The more money that’s invested, the lower the marginal return on investment and the lower the resulting ‘pay’. Rognlie’s retort puts the emphasis back on inequalities in earned income as the source of growing income disparity. Over time and in aggregate, Rognlie’s implication is that people with high-paying jobs should be better off than people with high-paying investment portfolios. And if you want a remunerative job, banking jobs are still the highest paying of all.
Separately,don’t mis-mark your trading book at Citi. In a case reminiscent of 2008 and 2009, Bloomberg reports that Citi has fired both inflation trader Carl Bonde and his boss Keith Price. Price was an MD, Bonde was a director. Bonde was found to have mis-marked his trading book and exaggerated his performance. Price was fired for failing to supervise him. Let this be a warning to traders and traders’ supervisors everywhere.
Avoid ECM jobs? The European IPO market is in long term structural decline. (Financial Times)
Hedge fund manager David Einhorn says he only employs “nice” people and that banks’ “gratuitous meanness” in overworking juniors runs against his principles. (Business Insider)
The next financial crisis will come from a liquidity crunch in the corporate bond markets, (Telegraph)
Now is not the time to work in SE Asian M&A. (Bloomberg)
The worst thing you can do when switching jobs in banking? Tell your current employer where you’re going. (Wall Street Oasis)
New place to frequent in the City of London: Devonshire Square Club, opening spring 2016. (Sunday Times)