Wall Street Meltdown

For just under a month, reporters have been fashioning articles about the financial crisis by simply listing the venerable Wall Street institutions that have met their demise: Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, and, most recently, Washington Mutual.

The body count is, to be sure, an astonishing one: in less than a year, three of the nation’s five independent investment banks are gone, and a major insurance company and two behemoth mortgage firms have been effectively nationalized.

Unsurprisingly, the news of so many failures has prompted some Harvard professors to begin hoping that undergraduates, who have been flocking to finance for as long as anyone can remember (that is, for four years), will take a broader view of their career choices. Indeed, the angst that accompanies “selling out” has never been far below the surface, so much so that University President Drew G. Faust devoted her baccalaureate address to that very subject in June. Just four months later, with the prospects for a career on Wall Street approaching the prospects of a career in journalism, isn’t it the perfect time for us to start choosing from a broader palette of careers?

But Harvard’s budding financiers have an easy response to people like Kenneth S. Rogoff, the distinguished Harvard economist and former International Monetary Fund official who garnered applause at the expert panel on the financial crisis last week by saying that the “bloated” financial sector has been in need of a correction and that Harvard students would do well to “go into other activities.”

Some Harvard students watching the speech—at least those sitting around me—sneered that Rogoff didn’t realize that for Harvard students accustomed to jobs at the upper echelon of finance, the usual recruiting suspects remain alive, if not quite well. Indeed, of the behemoths that have gone under in the past months, only Lehman Brothers was a major recruiter at Harvard. The most sought-after financial recruiters—namely Goldman Sachs, J.P. Morgan, and Citigroup—have survived the recent turmoil and have shown their health by buying up the dismembered parts of other firms. If these three remain strong in the coming years (all, including Citi, remain well-capitalized) and businesses continue to have the need for management consultants (who have been affected little by the downturn), it’s not clear at first blush that the recent downturn is anything more than a small, sealable crack in Harvard’s pipeline to Wall Street.

But the smug dismissal of Rogoff’s point and our confidence in our own brilliance shouldn’t obscure the facts. Some middle-of-the-road analyses by the free-market crowd at the University of Chicago find that about 15 percent of jobs on Wall Street are part of the bubble and won’t be replaced even when the finance industry regains its longterm health. And that too may not be for sometime. As Rogoff said in an interview with The Crimson on Tuesday, “we might be back at full steam in 2010, but full steam will probably be slower than it used to be, because our financial system is decimated.”

So at least for the moment, there just might be that perfect storm of trends that could compel students—at least in the Classes of 2009 and 2010—to seek out the options that Faust urged upon us before the Street imploded. And there’s some evidence that we are: Officials from Teach for America, the national teacher-placing service that has made significant inroads on elite campuses, report that the number of students turning in applications by the first deadline skyrocketed. Peace Corps administrators report an uptick in applicants, as do graduate schools of all sorts. And if Barack Obama—the heartthrob of liberals and college students, and a particular one for liberal college students—wins the presidency this November, more of us would probably head south to the Potomac than in any year since 1992, and potentially since 1960.

And politics, to finish the circle, might end up being more important for future jobs than one would think. A little-noticed provision added to the bailout bill over the weekend would, in five years time, remove the burden of today’s bank woes from the backs of taxpayers and dump them right back from where they came. If the troubled-securities bought by the Treasury Department aren’t worth what the Treasury paid for them, the president must submit a plan to use new taxes to recover the government’s losses from the finance industry. With so many demanding a pound of flesh from the big banks, lawmakers may just be pushing Wall Street’s medicine five years down the road. But that’s a worry for the Class of 2015.