Wall Street: It’s Crushing Entrepreneurship

I would've approahced this topic differently. Wall street and the big banks have grown to an oligolopoly supported by the gov't and subsidized by the gov't. In turn they are able to extract form main street a tax by virtue of higher, bid ask spreads, higher fees, lower interest paid, higher interst charged, etc.

pretty much agree with the title..

but it's been like this 100 years ago, it will be like this 100 years later...

it's not WS so much, but one's reponse to WS...

if you look at the big dogs, they pretty much shy away from the wall st bobbleheads, as paradoxically, they're the least knowledgeable in how the market actually works...

ie no wonder why bruce berk left his short shills, nj and nyc suite office for Wall street-less, plain vanilla, fl to manage his fund.. to get away from WS rhetoric.. ws laughed at his plebiean 1% fee structure vs 2/20% of hedge funds.. now they're all over his nuts..

i think there are 2 types of entrepreneurs...the MBA groomed faux-entrepreneur who's taught throughout his classes that they must go to west street or xyz VC to get funding via a three-tiered mezzanine debt structure, and they only give away 49% equity (what a deal!)...

...vs the entrepreneur who runs a mom n pop shop who generally hates debt, and prepays his 4.75% interest loan in cash, while his MIT buddies laugh at him since you can get 10% return on equities, without realizing the latter dude's 3rd tier mezzanine debt is due or they're taking his office space.

one can argue its not so much WS... they'll be up to the same tricks 10 decades from now.. but the laughable dichotomy of mixing MBA and "entrepreneurship" in the same sentence.

Hol4 - you are so dead on right. Actually, they'll rent you office space off site so that you can transistion.

"but it's been like this 100 years ago, it will be like this 100 years later..."

Not really. The push for quants, which seems to be what kedrosky is focusing on didn't begin in earnest until the 90s. Calvin Trillin did a pretty funny summary of this development: http://www.nytimes.com/2009/10/14/opinion/14trillin.html

But I don't think the guys who guy to Wall St. from the sciences are classic entrepreneurs anyway but probably the guys who would go into the research departments of larger companies. Of course they innovate as well but not in the sense that most people think about it.

Wall street was pushing quants in the late 80's as well. While deals then were not as complicated, the computers and spreadsheets to handle them weren't as complicated either. I remember a friend maxing out the memory on his machine (and AT I think) with a spreadsheet and having to run out to 47th St. Photo to buy more so he could plug it in and keep going. I think it was something like upgrading from 1 meg to 4 meg of memory and cost something ridiculous like hundreds or thousands of dollars.

I was talking to him on the phone once while he was working on the same model. He cursed suddenly and said "well, just hit the recalc button. I'll call you later, I am going to lunch, this machine will be tied up for another 40 minutes."

my own experience with B-school (Ivy league) was that there was a pretty small overlap between entrepreneurs and MBA's. MBA's tend to be a pretty risk averse bunch. That was one of their reasons for getting the MBA in the first place, a high probability of making a lot of money and all you had to do was jump the right hoops. Entrepreneurship is much more often a big roll of the dice.

The entrepreneur/MBA, wherever you do find it, tends to be a invention of the '90s dot-com bubble when that industry seemed to be the easy place to do the hoop-jumping.

My own experience is I have an MBA from a top school but today I run a small and growing business. I think it might finally pay off. While at school TA'd the entrepreneurship class which was open to mixed undergrad and grad students (including law students and MBA's). For the most part there was more "piss & vinegar" in the undergrads than the MBAs. The Law students seemed to mostly be there out of curiosity.

malthus.. appreciate the article, and somewhat agree with your sentiment but that article has more holes to fill than west 28th st...

for one, if the character in the article were smart enough to pull out pre-stock bubble, why wasnt he smart enough to put it in post stock bubble and pull out again in 2008??

re: the "new" landscape of quant... if you look at it in the broader sense, all you have to do is point at the LTCM fellas and how that blew up.

just look at the LTCM roster....

- MBA, University of Chicago
- Ph.D., Massachusetts Institute of Technology
- Ph.D., University of Chicago; Professor at Stanford University
- Ph.D. MIT; Professor at Harvard University; was seen as potential successor to Alan Greenspan
- Ph.D. MIT; former Harvard Business School professor

etc, etc, etc...

and these "smart" fellas were taught analytic and debt leverage in MBA.. how far did that get 'em.. (actually pretty far, since they were bailed out)

...now look at bruce b.. state school grad non-mba, 5 man shop, $20B fund.. read his prospectus and you get a simple, almost laughable approach...

"treat your fund like a grocery store cash register." there should be money at the end of the day left at the till.

.if you have to mortgage the store to sell more paper towels you probably have an MBA... why else would MBA courses teach you to take on excessive leverage at 2/20%...maybe bc it's these wall street alum who donate to said schools?? coincidence? who knows..

what they don't teach you in MBA school is how sometimes sentiment trumps analysis for analysis' sake.. of course there are exceptions.. there are some smart guys on the street who choose to work 5 years or so in the industry, live in a dump (comparative), to save enough in their till to launch that startup they work on Fri-Sunday to avoid having to one day utilize the high-feed products that they themselves ironically sell.

Well Trillin is a humorist so I don't think this was meant as anything too analytical. But I read the guy's story a different way. He was one of the older guys who didn't understand what was going on and he got out because it scared him, not because he was a market timer.

humor and satire usually exposes truth.. but point taken, in the end he won out. ie also why buffett "lost" by not taking advantage of the stock bubble, well because, he too didn't understand it.

re: 'analytical' yeh probably went on a rant there but just meant that many guys on the street focus on such things to a point where they don't see the 10 ft wave in front of them.. their bosses in the meantime actually have a much more conservative portfolio vs what they tell their clients to hold, for obv reasons.

I think some of you are right - its not so much that the quants would have STARTED facebook or Google - but they certianly make it more EXPENSIVE for Cisco and MSFT and so forth to hire engineers.

An easy way to quantify this - and I mean EASY - is to look at the undergraduate majors of kids attending the top-30 MBA programs over the past 30 years or so. These records would be easy to come by.

I am amazed they did not do this. In fact, I don’t even think you would need to contact the schools – you could just get it from the folks who administer the GMAT based on what schools the scores were submitted to and the major (or other post-graduate degree) of the test-taker. Did no one really think of this?

"my own experience with B-school (Ivy league) was that there was a pretty small overlap between entrepreneurs and MBA's. MBA's tend to be a pretty risk averse bunch. That was one of their reasons for getting the MBA in the first place, a high probability of making a lot of money and all you had to do was jump the right hoops. Entrepreneurship is much more often a big roll of the dice."

Totally agreed.

Hmmmm. Well, for starters Stanford and to a lesser extent USC, Cal, and UCLA's b-school programs to attract entrepreneurs - so much so that the big banks and consulting firms dread recruiting at Stanford (and often just DONT.) But I would agree that a Kellogg, Wharton, or NYU graduate is looking for a high-paying corporate job. most of the top 25-kids.

The most successful entrepreneurs in America don't have an MBA. If someone wants to beome one, their best option is to NOT get an MBA.

Socialist - Wow, I actually agree with you.

There are things you can learn as an MBA that an entrepreneur could really use, but not many and none that can't be learned elsewhere. Accounting, Intermediate accounting, business law and a good business law class would be at the top of my list of useful knowledge. But I would not include networking as I think that that is a skill and someone who knows how to do it doesn't need to go to B-school to build the contacts and network they might need/want.

The other best thing for an entrepreneur is that they won't have to spend the $100,000 to get the degree AND they can earn 2 years of additional income during that time that they can invest in their new business.

I should add that an MBA IS good if someone is looking to jump career paths from one discipline to another corporate discipline, or to enter the corporate world where they previously lacked some of the proper credentials (like if they only have an undergraduate degree in english lit or dram, etc.).

"Accounting, Intermediate accounting, business law and a good business law class would be at the top of my list of useful knowledge.'

Exactly. And the good thing is that you can take all those classes as an undergraduate busines major. No need for an MBA.

oops, re-read that when you quoted me. I got interrupted mid list. Instead of the 2nd B-law class I was going to add "good statistics" class. In fact I think every person that can handle a little math should study statistics so it wouldn't be so easy to lie to them using stats.

As to undergrad classes - hmmm. Not sure. While I didn't re-take everything in B-school I had taken as an undergrad, there were a couple of classes where this did happen (I didn't realize my first semester I could get out of the core classes so easily). The grad classes covered about 50% more material in a semester than the undergrad classes did. You also had the benefit of the knowledge and anecdotes of your classmates which was worth something since many of them had 2-10 years of experience working in some field or another.

All of that could be substituted by reading. Lots of reading. Non-fiction of course. ;)

"all of that" = the anecdotes and additional knowledge.

"Accounting, Intermediate accounting....would be at the top of my list of useful knowledge.'

add me to the 'can't believe I'm agreeing with socialist' list..

AvUWS, the only problem with stats is if you take any more than 2 courses, you'll never believe a stat again. Though I guess that can be a positive as well!

http://xkcd.com/552/