Monday, November 19, 2007

My First -- And Only -- Investment Banking Post

A story in the NYT this morning describes the success of the investment bank Goldman Sachs in the current, unsettled financial climate. According to the article, the foresight of David A. Viniar, Goldman's CFO is largely responsible for Goldman's ability to profit while others have suffered:
"[T]he holdings of Goldman’s mortgage desk were down somewhat, but the notoriously nervous Mr. Viniar was worried about bigger problems. After reviewing the full portfolio with other executives, his message was clear: the bank should reduce its stockpile of mortgages and mortgage-related securities and buy expensive insurance as protection against further losses, a person briefed on the meeting said.

With its mix of swagger and contrary thinking, it was just the kind of bet that has long defined Goldman’s hard-nosed, go-it-alone style."
As the article states, on Wall Street "money travels in herds." That seems to be true of almost every industry, whether it's in business, sports, or academics. Simply because everyone is doing something doesn't mean that it's the right way to do it; if you can reexamine your first principles, you have the opportunity to get something right that everyone else gets wrong.

Of course, if it were that easy everyone would do it. The reason that all law schools admit students based on LSAT and undergraduate GPA is that those predictors of law school performance, while lousy, are better than any others we're aware of. The reason we use proxies such as clerkships and fancy law school credentials in faculty hiring is because, for entry-level hires at least, we don't have more solid data to go with.

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