After capital flight comes brains flight

Wall Street may free the world’s brightest minds according to Daniel Roth. Having studied finance at McGill, I can’t be more optimistic about the prospects of seeing the best students working on non-financial innovations.

One question still puzzles me though. If Wall Street is down and capital isn’t flowing as it should, then which interesting and innovating startups will have enough financing to hire these best minds? Who else than governments have money to hire when investment banks and VCs don’t invest in risky projects? Unless govts start betting on startups…


Crash Could Free Up Wall Street’s Grip on Bright Young Minds

By Daniel Roth  06.22.09

Walking around Wall Street these days is like being trapped inside the videogame Resident Evil. There are the dead (Lehman Brothers and Bear Stearns), the undead (AIG, which survives only as long as the government needs it to), and the living scared (every suit who still has a job). Even with the occasional announcement of a good fiscal quarter from one of the banks, it’s hard to see anything but neutron-bomb-like decimation. The glory days of Wall Street’s dominance are done.

No one likes to see an industry die, but there is an upside: Often, smart cubicle refugees will seize the opportunity to pursue their entrepreneurial dreams, unleashing waves of innovation upon society. The death of Big Steel in the 1980s gave birth to nimbler, more competitive mini-mills. The decline of the Hollywood studio system in the ’60s gave us independent films. And the current demise of print media is giving us new sources of information, as journalists band together to reinvent news coverage. Wall Street’s turn is next, and we should all be praying for one thing: that many of those liberated innovators seek playing fields outside of finance.

A new flowering of creativity on Wall Street would be a very bad thing. We tend to think of innovation as always and everywhere desirable—it has brought us printing presses, artificial hearts, and shoes that mimic barefoot running. But Wall Street’s creations too often devolve from enriching us all to enriching a select few (while sending the rest of us ducking for cover). Bundling mortgages into securities made home ownership possible for many. Then bankers figured out how to go from “many” to “nearly everyone”; foreclosures exploded and the economy imploded. Credit default swaps initially made it easier for companies to finance growth—until they were leveraged, tweaked, and sold to excess, cratering the financial system. Not all Wall Street innovation is bad. But the worst of its labs areThree Mile Island-style dangerous.

Such inventions do produce fabulous paper wealth, however, attracting many of our sharpest math and science minds. At MIT and other top schools, investment banks recruited hard and early, skimming the cream from each graduating class. Until the mid-1990s, college grads with bachelor’s degrees could earn more in engineering than finance; that flipped in 2000, and it hasn’t come close to parity since. A survey of Harvard alumni found that 5 percent of men graduating in 1970 went to Wall Street; by 1990, the proportion was 15 percent. The same trend was also apparent among women.

But the big paychecks came with what economists call opportunity costs. Instead of spending their days searching for exotic trades, some of these Wall Street wizards could’ve been creating drugs, imagining software, or solving energy problems. Capital markets need geniuses, too, but it’s hard to cheer such a massive money-chase.

“If I invent some superb method for quantitative trading, it puts money in my clients’ pockets and my own pockets. Is society any better off?” asks Michael Coen, a former Wall Street quant who now teaches and researches artificial intelligence at the University of Wisconsin-Madison. “You could argue that having healthy capital markets helps society, but it’s not particularly satisfying. My work in machine learning gets incorporated into medical applications. Does that make a difference? I can say that, in some humble way, it does.” Plus, he adds, his research will no doubt be picked apart by folks looking for ways to apply it to finance. But Coen will never see the results of that analysis. “It doesn’t go in the other direction.”

He’s right: On Wall Street, work in the lab never leaves the building; after all, a trading strategy’s value disappears when it goes mainstream. An innovation might strengthen capital markets, but the possibility of that research benefiting another industry—the kind of cross-pollination that turned Velcro from a NASA oddity into a modern staple—is eliminated.

Now’s the chance for other sectors to get their hooks into the young and brilliant, while Wall Street is distracted and busy rebuilding. This past spring, MIT held a job fair and saw a surge from companies that had never set foot on campus before—newborn startups, nonprofits, hospitals, and government agencies. A few years ago, these promising players didn’t stand a chance against Lehman andGoldman Sachs. Today, their recruiting could mean that out of the financial industry’s decay will bloom a thousand innovations far away from Wall Street.

Senior writer Daniel Roth ( wrote about why Wall Street needs transparency in issue 17.03.


Instant Power to the People or How Michael Jackson killed #iranelection

Twitter iranRecent news events have pushed the popularity and the limits of some networks. In a post I made recently, I mentioned how internet is helping democracy. The reality is that internet puts social pressure on whatever we’re looking at. Yesterday it was Iran elections, today it’s Michael Jackson.

Iran banned Facebook before elections

Right before elections, the Iranian government knew their control would be tested and that social networks would create instant journalists all over the country. That’s why banned Facebook before the votes. Pointless efforts.

Twitter exploded after Iran elections

Nonetheless, “fonctionnaires”, i.e. government workers, are as good as they can be when it comes to understanding new technologies. They probably tried and failed at shutting down Twitter but the result of not having done it was impressive. Twitter has since been overloaded with #iranelection posts and its general popularity is soaring.  The coverage has been massive and even though it’s not changing the actual conflict, foreigners can at least better understand what’s happening over there.

Micheal Jackson died and became more popular than #iranelection

Now in the midst of the Iran elections aftermath, the king of pop dies unexpectedly at age 50. No one saw that coming. Especially not Google who even thought they were being attacked. In a split second, #iranelection lost its leadership position in Twitter’s trending topics and even a week after his death, Michael Jackson still ranks better that #iranelection.

Could it be Ahmadinejad who killed the King of Pop?

I really appreciated Michael Jackson’s music and I have immense respect for his career. I however find it revealing to see how a general popular event can eclipse a social and political growing phenomenon. I guess it shows both sides of the medal, when it comes to the power we have in choosing the information we consume.

Incapable de jouer des coudes au Canada

Une chronique récente de Sophie Cousineau de La Presse relate la vente à des intérêts étrangers des grandes multinationales canadiennes lors de la dernière décennie.

On pourrait penser que c’est une tendance normale des pays occidentaux qui perdent le contrôle face à l’Asie mais c’est tout le contraire. Les Européens ont été plus gourmands, toutes proportions gardées, que les Chinois lors des dernières années.

Parallèlement à la vente de nos entreprises, on assiste à une montée du protectionnisme américain, notamment avec la mise en place de nouvelles législations dont le Buy American Act.

Dans l’industrie forestière, à l’heure où les scieries canadiennes et québécoises sont au pied du mur, les États-Unis ont créé un programme de crédit de taxes générant des milliards en bénéfices pour leur industrie.

Les conditions de marché sont de plus en plus difficiles et on semble laisser aller notre économie. Est-ce un manque de législation ou une culture canadienne trop molle en affaires qui nous heurte ? Il faut se poser la question, et vite pour réagir avant qu’on manque le bateau.

Et pourquoi on ne profiterait pas de cette situation pour mieux se repositionner pour les prochaines années. Investir dans nos noyaux d’entreprises technologiques et se réapproprier des ressources qui vont bien grandir.  S’orienter ressources et idées, ce sont les deux seuls piliers de notre futur, à mon avis.