What has Wall Street learned from last year’s financial cataclysm? One would have hoped that the financial service industry might have used this near-death experience as an opportunity to return to basics — stocks, bonds, fundamental research, furnishing capital to corporate America and sound investment advice to the rest. Gone would be the reliance on complex models, mindless quantitative strategies and opaque derivatives.
Alas, I’m not sure that Wall Street got the message. A quick perusal of efinancialcareers, a financial job posting site, gives a sense where the industry is allocating its scarce capital. Even in this environment of layoffs, searching for the key word “derivatives” produces 206 listings, “quantititative” yields 294 results, and “quant” adds another 86 to the list. Among these postings, you’ll find Wall Street searching for talent in the area of “developer, exotic equity derivatives,” “quant trader with high frequency model,” and “algorithmic trading quant.” To be fair, the site’s search engine pulls in many unrelated postings or positions targeting risk management, but the financial industry is still hiring hundreds of people whose focus will be on the types of strategies that have been so costly to the industry, the economy, and now the taxpayer. By contrast, a search for non-quantitative, fundamental research analysts results in fewer than two dozen openings. And it’s not just the number of positions, but the dollar investment as well; of the website’s 20 positions showing a minimum compensation of over a half million dollars per year, 16 use quantitative, derivatives, or “high frequency trading” in the description.
Don’t get me wrong — quant analysts and derivative products have an important place in the industry and can add value. But in a marketplace where derivatives and faulty analysis have taken us to the edge of disaster, perhaps Wall Street’s priorities should be elsewhere. After all, The cure for problems caused by large complex models is not to builder bigger, more complex ones.