Why business schools charge so much and pay their teachers so little

College diploma with rip-off seal

by Brooke Allen

You and I know why business schools charge so much for an MBA.

Because they can.

But why do they pay so little to everyone except their superstars?

It’s not just because they can. I think the real reason is much more sinister than that.

Once upon a time—before starting my MBA at NYU in the early 1980s—I thought that there was something wrong with extracting the most from someone while giving the least in return. That was back before my first finance professor said, “The sole objective of the professional manager is to maximize the net present value of the wealth of the owners.”

I had an ethics class where the explicit message was, “Crime doesn’t pay.” But the implicit message was, “It isn’t a crime if it is merely immoral and not strictly against the law.”

At no time during my MBA did I learn how to make a product—any product. But that was OK. I was already a pretty good programmer and I didn’t need NYU to teach me how to make things. However, I was only a part-time student and freelanced full time to pay for school. I needed to learn how to get clients. Continue reading “Why business schools charge so much and pay their teachers so little”

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To save Wall Street, start with better parenting.

Boy in amazement holding money on white background
by Brooke Allen 

This past February, I retired from finance. Although I intend to continue to study the markets and write about them, I have no intention of ever working in the securities industry again. This makes it easy for me to talk to you about what I think is going on and what needs to be done.

I worked at Merrill Lynch as a computer consultant in the mid-1980s, and from 1986 through 1992 I was an employee—first doing research and later creating and running trading desks in New York and Japan. After a brief stint at Credit Suisse First Boston in Tokyo, I returned to the US in 1993 to work as a consultant to a couple of large Wall Street firms. In 1995, I built and ran a statistical arbitragetrading desk for the US branch of a medium-sized Canadian securities firm.

This February, at the age of 61, I retired from that job of 18 years. I can honestly say my time at that Canadian firm was the best of my entire working career and unlike anything I experienced at any other Wall Street firm. At first I could not put my finger on the difference, but at a Christmas party an elderly co-worker from South America I’ll call Eduardo told me he’d been wondering about the same thing. “I have figured it out,” he said, “The word is ‘decent’ and my theory is that in Canada they raise their children to believe that it is more important to be decent than to be rich.”

Although I’m US born-and-bred, both of our sons went to college at McGill in Montreal. That gave me an opportunity to meet plenty of Canadian young people, and if I suggest Eduardo’s theory to their parents, a typical response would be, “Of course I want my children to be decent; who wouldn’t?”

Real engineers understand ethics in a way financial engineers do not

Andrew Lo was the keynote speaker at the 2010 annual meeting of the International Association of Financial Engineers. Lo heads theLaboratory for Financial Engineering at MIT and his talk was titled: “WARNING: Physics Envy May Be Hazardous to Your Wealth!” He explained that a mistaken belief that financial markets can be treated the way physicists treat the natural world leads economists and financial engineers to a false sense of precision that can have disastrous consequences. You will find a very watchable version of his talk here, and if you love equations then you will find plenty in his 71-page paper here.

I came ready to ambush Lo, and after his talk I held up a slide rule and said, “Despite the fact that I brought my slide rule and my pocket full of pens, and that I’ve been using math in this industry for three decades, I know I’m not an engineer. And I know people who are engineers–some of my best friends are engineers–and I don’t think there are any engineers in the world of financial engineering.” I said the distinction between us and real engineers is that we don’t take responsibility for our actions and hold ourselves to the same ethical standards. I asked, “How come the other engineers don’t say, ‘What are you doing to our name?’?”

Continue reading “To save Wall Street, start with better parenting.”

How to give me a negative reference on LinkedIn

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By: Brooke Allen (you will find my LinkedIn profile here.)

Be aware that on LinkedIn you cannot give me a negative reference unless I approve it.

This is bad news because if it is impossible for you to say something negative, then the positive things I might allow you to say must be taken with a grain of salt.

I want you to give me a fair and balanced reference so others can have an accurate picture of who I am, and I want you to let me know what I’m doing wrong and how I can improve.

But before you give me a negative reference let us establish a few ground rules. Let’s begin with:

Motivation – Why do you want to say what you do? Why do I want to hear it?

Familiarity – How well do you know me and my work?

Rationality – Are you basing your statements on facts and valid reasoning?

Let’s analyze each in more detail…

Continue reading “How to give me a negative reference on LinkedIn”

Want passion? Look for something that makes you angry

WomanWithHair

Whenever I speak at colleges I begin by asking, “Why are you here?”

This catches the students off guard and after batting the question around for a bit someone says, “To find my passion.” The rest agree and they imagine they are done with the topic.

But I am not done with them.

I ask them to define “passion” because if you cannot say what a word means then you are shooting the shit rather than answering a question.

So they discuss that for a while longer and eventually settle on some variant of, “I don’t know what passion is but I’ll know when I have passion for my work because I won’t have to motivate myself to do it.”

“Really?” I say, “Where I come from we have a word for that, and it is ‘like’ as in ‘I like my job.’ But I know I am passionate when I do something even though I hate every second.”

“Why would anyone do a job they hate?” someone asks.

I want to say, “It might be because you have bills to pay and you don’t want to live off your parents or the state.”

But, instead I say, “I don’t know. Why did my dad lie about his age so he could enlist a year earlier than allowed by law to become a paratrooper and jump out of airplanes while the Japanese shot at him? That was something he hated to do, but he did it anyway, and he did it because of something called passion.”

At this point the class looks flummoxed but intrigued. Continue reading “Want passion? Look for something that makes you angry”

You do not need permission to do the right thing. No one can give you permission to do the wrong thing.

I went to college in 1970. By 1974 I had a degree in mathematics and experience hitchhiking  to every state of the union except for Alaska and Hawaii; perhaps 30,000 miles in all.

I learned more about how to live from those experiences than anything I learned in a school. Here is the story of what I learned from a man in the pick-up truck who took my girlfriend and me from central Minnesota to just west of Fargo, North Dakota.

Had I not learned this lesson my life would have been very different; not only would I have been much less inventive I would not have had the courage to stand up to some of the shenanigans I saw during the 30 years I was on Wall Street.

I’ll call him Jeb. I don’t remember his name, but during Prohibition he used to bootleg whisky, so Jeb sounds like a good bootlegger’s name, don’t you think?

He said the pay was good and it was exciting work because the cops were always chasing you, but it wasn’t very intellectual. The only creative thing he learned was the Bootlegger’s K-Turn. He left the Interstate for a side road to show us how it is done. I’ll draw it for you: Continue reading “You do not need permission to do the right thing. No one can give you permission to do the wrong thing.”

How my life was changed when I began caring about the people I did not hire.

Ask yourself this question, “What do employers owe the people they do not hire?” I asked myself that question more than a decade ago and it changed my life forever.

On Sunday, January 18, 2004, I ran a help-wanted ad in the New York Times that read in its entirety, “Programmer – Will train, enjoyment of mathematics a plus” followed by an email address. I was heading a statistical arbitrage trading desk and I needed help maintaining all the code I’d written.

 

I was surprised to get more than 300 resumes and because nobody had experience in the language we use (APL), and I could not gauge learning potential from a resume, I sent everyone a link to a 500-page manual (latest version available here), and I suggested applicants try their hand at a half-dozen puzzle questions they could easily answer in this language.

openhouse07Thirty-eight people answered the questions so I invited them in for an open house. I had them sit on our trading floor for a bit where they played a game I’d written called BF Game that simulated an information market. We talked about the technology and the nature of our work and then I asked them what they thought I should do next.

Twenty-seven of the applicants suggested I teach them all first and then make a hiring decision, so I ordered tables and chairs that arrived the next day. And the day after that we built a classroom. Continue reading “How my life was changed when I began caring about the people I did not hire.”

Do Traders and B-School Grads Play Fair?

I am a securities trader with a business degree, and I wonder if we are like normal people.

Let’s find out.

Imagine $10 has to be split between two people who will never meet each other. The first person can propose how the money will be split and if the second person accepts the proposal then that is how it is distributed. But if the second person refuses then neither gets anything.

Although this should be enough to understand the question, you might enjoy reading this article in Quartz called  Can You be Greedy Without Being Selfish.

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