Ezra Klein recently tried to answer the question "Why is Goldman Sachs full of Ivy Leaguers?" by interviewing a Harvard/Goldman alum. (h/t to a righteously repulsed DougJ). But Wall Street's love affair with Harvard and Yale isn't just a question of why Ivy Leaguers go to Wall Street (the question Ezra begins with). It's also a question of why Goldman Sachs and other Wall Street firms work so hard to recruit Ivy League undergraduates. And Ezra’s interviewee only deepens the mystery:
Why Goldman thought I'd be good for investment banking is a very fair question. There are a lot of Harvard people at Goldman and they've put a lot of effort into recruiting from the school. They really try to attract liberal arts backgrounds. They say this stuff isn't so complicated, that you'll pick it up as you go along, that it's all about teamwork, that they have training programs. That being said, it would be very hard to get a full-time job there without a previous summer internship.
So, Goldman Sachs is putting forth serious effort to recruit undergraduates with no particular academic preparation for banking, and to train them. The training is relatively uncomplicated. (It's a two-month summer program, over July and August; they give new recruits June off.) The wooing is aggressive ("in your face" in the word's of Ezra's source) and protracted, beginning by the recruit's junior year at the latest. And the pay scale is easily enough to attract smart and talented people from across the country. But clearly, Goldman Sachs attaches a specific premium to the Ivy League degree. And it’s not just Goldman Sachs; an acquaintance who once worked for a hedge fund tells me that the hiring there was driven by an almost obsessive focus on pedigree (not only undergraduate pedigree, in this specific case, but even prep school pedigree).
Now, almost all Ivy Leaguers are bright, but they’re not an intellectual breed apart. Every college in America has some students smart enough to thrive at an elite university. What’s different about the Ivy League classroom (or a Duke or Chicago or Stanford classroom) is that it contains nobody but those students. A roomful of Ivy League students and a roomful of students from a more typical university aren't like a major league team and a minor league team, but like an All-Star team and an everyday team. The everyday team has its stars, who could easily be on the All-Star team, but the All-Stars have dispensed with the average players. Goldman could get equally smart and talented newcomers without spending two years luring each new kid from Princeton, Cambridge, or New Haven. And they might get people who were actually interested in the business. So why the Ivy fixation?
I have three thoughts:
1) Investment Banks Are Looking for Aggressive Competitors
Ivy Leaguers are smart, and "hard-working," in the white-collar elite's sense of that word: able to focus obsessively on complicated tasks for long stretches of time. But the things that really set elite undergraduates apart from other student bodies are their competitiveness and ambition. Those are the traits that motivated those students to go to the Ivy League in the first place, and being on a campus filled with other ambitious and competitive people reinforces them. Such students are ambitious in many different ways, some laudable and some not, some of their ambitions exclude investment banking. (Some want to be great artists, or great surgeons, or world-changing philanthropists.) And their competitive drive is expressed (or politely concealed) in many different ways, some more evolved and some not. But the one thing that is true of every Harvard undergraduate, by definition, is that they applied to Harvard College, knowing that it had the harshest acceptance rate in the country. They have an easy time imagining themselves overcoming extremely stiff competition.
Not all of those kids fit into particular stereotype, and some wouldn't be caught dead in Goldman Sachs. But among them is an unusually high concentration of people who will set out to win any competition that is proposed to them, and to pursue any end that it is set as a goal. They might have no intrinsic interest in banking per se, but once you talk them into becoming a banker (because it seems like a safe job, and you're offering), many of them will set out to become the best banker in their recruiting class, or their department, or their firm, simply because they will always try to be the best. And alumni of famous schools are accustomed to competing intensely against challenging competitors; they adjust to cutthroat Wall Street fairly smoothly. Employees who are motivated by their own competitive tendencies are relatively easy to motivate, and they stay motivated even after they have gotten personally rich. Goldman Sachs traders try to rack up more and more enormous bonuses for the same reason pro athletes look for bigger and bigger contracts long after they have any need for more money: because it's a way of keeping score.
2) The Clients Like It
Princeton grads might not be any better at the business of banking than alumni of Inglorious State, but they have more practice talking to other people who went to Princeton. Whether an Ivy League student started out from a privileged background or not, by graduation most of them can get along smoothly with privileged people. They make the same chit-chat, they watch the same movies and read or pretend to have read the same books, they like to shop and eat and vacation in the same places that their bosses and most of their clients do. That tends to make things smoother, both with the Ivy-educated bosses, who naturally tend to hire and promote junior employees who resemble themselves, and with the clients, who are reassured by bankers who have been socialized in very particular ways. More than they should, some clients tend to trust Ivy Leaguers, because of the signs of social class and because of the Ivy League credentials themselves. Clients can't ascertain how good every employee of a firm is at his or her job, but the exclusivity of the firm gives them the sense of dealing with highly qualified people. When even the interns went to Dartmouth and Yale, the clients assume that everyone at the firm is very bright, even though another firm full of CUNY night school grads might get the same results. That impression of brilliance is a marketable commodity.
Goldman Sachs trades on that air of exclusivity and excellence, even when they've deliberately taken advantage of their clients. Here's part of an e-mail from the loathsome Fabrice Tourre, explaining how some Goldman clients responded to being sold junk that Goldman Sachs wanted off their own books:
...I feel very strongly it binds clients even closer to the firm, because the alternative of take ur money to a finn who is an under performer and not the best, just isn’t reasonable. Clients ultimately believe association with the best is good for them in the long run.In this case "association with the best" is what customers were paying for at the expense of their own portfolios, which their "elite" bankers deliberately undermined. Note the lack of irony with which Tourre describes rival firms which don't profit at their own clients' expense as "not the best." Clearly, "the best" has a very peculiar meaning here.
3) Expectation of Entitlement
Tourre's world view, in which a high-powered firm is worth your business even if it loses you money, exemplifies the value system of Wall Street corruption: one expects rewards not so much for particular results, but for one's elite own status. The clients, like the world, are imagined as owing the bankers a living, and a princely one at that. It's easier to bring young bankers and traders into a corporate culture of outsized entitlement if they had a privileged educational background first. Ivy Leaguers are used to being told that they are the elite, and that their privileges are a reward for their own specialness and brilliance. Not every Ivy Leaguers comes to believe in their own massive entitlement, but most of those who do not either don't go to Wall Street or don't stay. And the Ivy League does make it easy to believe that you are special, and that getting in is a natural route to boundless success. It's easy for the Lloyd Blankfeins of the world, who sold hot dogs in Yankee Stadium as a kid and then got into Harvard, to imagine that once he got to Harvard he was a made man; that's why some people apply to Harvard in the first place. If you're running the kind of shop that Goldman Sachs has evidently degenerated into, where profits are put above everything else, hiring some kids who already think they deserve millions of dollars for getting high SAT scores makes sense. Those kids won't question what the firm is doing; they'll simply fight each other to earn the highest commissions every quarter, schmooze the clients, and take their obscene financial rewards as a reflection of their own wonderfulness.
Of course, not every graduate of Harvard or Princeton or Cornell suffers from such a grotesque sense of personal entitlement; but all the Wall Street firms need is a share of the percentage of Ivy League kids who do. Not everyone with a Harvard degree turns into Lloyd Blankfein. Many other people have used their Yale or Dartmouth education in decent or admirable ways. Those schools give their students enormous opportunities, and their alumni choose how to use them. A fancy college won't make you an amoral and elitist greedhead unless you choose to become one. But if an amoral, elitist greedhead is what you really want to be, the Ivy League will make becoming one easier. And if that's what you want to do with your life, Goldman Sachs might have a job for you.
