Aug

20

Hey Lil’ Lloyds, There’s A Finance Major Now

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If you’re one of those types that does nothing over the summer but obsessively check the academic bulletin on the CC website you’ve known about this for a while, but way back in late June the Econ department dropped a bombshell: the introduction of a new “Financial Economics” major replacing Econ-Operations Research.

The ostensible rationale behind the change is to spare all the Wall Street-aspiring Econ majors who dream sweet dreams of Lloyd Blankfein from having to worry about things like Rational Choice Theory and welfare economics so they can spend more time worrying about the Black and Scholes formula and corporate accounting (and hopefully bigger checks to the Annual Fund). The major adds a “finance core” to the Econ major and allows electives from a number of departments outside Econ including Math, Stats, IEOR and the B-School.

According to Econ Director of Undergrad Studies Susan Elmes, “the department had contemplated adding the major for a number of years due to strong student interest in the subject,” and the final major came about through cooperation with the business school. Additionally, the major is currently “predominantly quantitative,” but Elmes hopes that “over time other departments will offer classes suitable for the major now that there will be a demand for them.” Sociology of Finance, anyone?

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53 Comments

  1. is that a new major

    or just a new name?

  2. Actually...

    ... David Stark, the chair of the sociology department, wrote a number of excellent papers about Wall Street trading. That would be a good class.

    • Co-teaching

      David Stark would co-teach the Sociology of Finance with Diane Vaughan. She's the expert on the "dark side" of everything that Stark teaches.

      ..actually, that class sounds pretty awesome. Where do I sign up?

  3. Wow

    Wake up guys, the vulgar Phillistines are starting to run things now.

    • burntorange

      Nothing says "I'm so cool" like making fun of kids who actually want to make money and have nice things when they're older!

      • You're

        right. The implied sense of superiority in your comment is superior to the implied sense of superiority in "Wow"'s comment.

        • Wow

          So, I plan on making money part. Just not planning on the whole Phillistine thing

          • depressing  

            that no one knows how to spell Philistine.
            But what do you expect from a prospective finance major?

          • Wow

            I suppose it might rock your world to know, then, that not everyone won their fifth grade spelling bee

          • Wow

            On another note, does anyone else find it offensive that probably one of the most diastaseful professional schools at Columbia also has one of the most ugly buildings on campus? For all the talk of Lerner's crappiness, I hardly hear anyone mention Uris or it's ridiculous display of modern art, a la rusting paint

          • Wow

            *it's, for that language Nazi above

          • college alum

            distasteful? Really? To whom? Not me.

            Three things about Uris Hall:
            1) It was a mid-20th century building built on top of an existing McKim/Mead/White structure.
            2) It has been extensively renovated (interior and exterior) multiple times with alumni funds
            3) It houses one of the biggest success stories at the University in terms of building prestige and raising capital.

            and something to think about... the B-School is headed to Manhattanville, eventually the "ugliest building on campus" will belong to Arts and Sciences, i.e. the College. Would that now make the College distasteful?

    • Not exactly

      There were already FE majors; they just required lots of math classes. And at least we still don't have a Wharton.

      Why is my captcha "$2,959,000,000 irager"? Can you even have numbers in a captcha?

  4. This will

    Keep some kids out of FE, and SEAS altogether

  5. how long

    how long before there's a financial econ-philosophy major?

  6. Pathetic

    Another major for putz CC majors to think that they're like IEOR guys. If Elmes had said it would be quantitative I'd have given this major some credit but it'll likely end up being a place for finance-wannabe-tools who don't know jack about finance to congregate and big-up themselves.

    • umm

      she did say it would be "predominantly quantitative"...no?

    • Well listen here sonny

      Look, I'm CU '06 and work at a hedge fund with an AUM ~ 5bn and I've gotta say this whole discussion on here is bullshit. I dropped by Bwog b/c I heard through another alum that they created this major and I wanted to see if there was anything about it on here. The guy who said people who would choose the FinEcon major are "finance-wannabe-tools" is clearly that which he castigates. No one that is in any major has any right to claim that they are the "real" finance cool guys and everyone else is a wannabe. I realize that many of you are probably so buried in books and college life that you may not be paying attention to what has transpired on a day to day basis in the markets or thought much about the broader implications of the financial meltdown but it has truly been a paradigm shift for the brightest and most nimble in the game. In short, Black/Scholes, EMT, RCT, and all the other neoclassical bullshit is finally being seen for what it is: a delusional application of Newtonian principles to human behavior. Hence, worrying about how "quant" a major is or is not is pointless. Yes you need to be comfortable with numbers and be able to perform simple math in your head, but unless you are an algo trader you aren't going to be using anything more complex than Calc I. And if you are planning on algo trading you are going to need to sit out for the next several years because it only "works" (a term I use loosely because I question if something can be said to work if it only does so over a very short time frame and totally breaks down when certain constraints are breached) during more normal/stable market conditions. In times like this the whole "quant" thing is utterly worthless. See this is the problem with finance and it is a sad thing to see all these smart people from schools like ours blindly running head long into the industry. For too long the running theme has been that you need to be very quant savvy so that you can produce A+B=C. This idea was a sexy one because it gives investors confidence in the soundness of the firm they are investing with. As long as the people managing your money are good at math then it is unlikely that they will screw up reiterations of the goose that lays the golden egg (i.e. Black/Scholes, OAS models, etc.). This is also why the number of funds out there increased at an exponential rate from the early 90s to 2008. Don't quote me but I think in 1990 there were roughtly 100 hedge funds in the world. At the height of the market there were around 5,000-7,000 funds globally. It's hard to nail down an exact number due to various reasons I won't get into here. The so called "rising tide of wealth" from the dot com era in 90s and the credit boom of the last decade meant that a lot of upper-middle and upper class people had extra cash that they wanted to put to work and this increased the demand for asset managers. Well how lucky for these folks because there just so happened to be a lot of quant savvy folks (especially after many were laid off post dot.com bust) who were all to happy to start their own funds and use the goose to turn out golden eggs for their investors while taking 2% of total assets and 20% annual performance fees. However, for a number of reasons beyond the scope of a bwog post the monster that global markets had become finally faltered and the cold, hard reality of investment management was staring everyone in the face. Namely, investing, like pro sports, music, and painting takes talent. It isn't as simple as A+B=C although the heavy reiteration of models would suggest otherwise. There is a reason Buffett, Soros, Einhorn, Drunkenmiller, etc. are good at what they do and that reason is that they have some intangible talent for finance. It takes a lot more than a 4.0 in an engineering, econ, or math major to be a good trader or asset manager. It takes someone with a lot of different talents all rolled into one. One of the most important is someone with a very well thought out world view that draws on knowledge in many non-quant areas such as psychology, politics, geology, history, and sociology to name a few. One must use their knowledge in these areas to think about the world and after a time your own unique filter will develop that you will then use to make direction bets in the market. Some people sink and some swim but if you're meant to be in the game then you are just meant to and if you aren't it isn't a reflection on your intelligence it merely means that you're special talent lies elsewhere. The advice I would give any CU student wanting to get into finance would be to take a variety of classes on the domestic and foreign policies of various countries, international trade, the cultures of important players in global markets, and languages. Also, reading simple books such as Graham/Dodd's Fundamental Analysis & Securities Analysis, Soros's Alchemy of Finance, Lectures, and his book on the credit crisis, and The Essay's of Warren Buffett. Another very good source for current discussion can be found at such wonderful blogs as Calculated Risk, Naked Capitalism, and FT's Alphaville. If you want to gain some specialized knowledge in something like bonds then read one of the better books by Fabozzi to familiarize yourself with different bonds so you can have a general idea of the difference between municipal bonds and TruPS or any of the multitude of other securities.

      • CC

        Thanks for the perspective, I enjoyed reading it. Now I would get under a fire-resistant tarp until the all the kids whose carefully molded worldview you just called into question get done with flaming you.

      • Well listen here sonny

        To add another thought. I am somewhat disappointed that CU finally caved in and allowed a FinEcon major. The reason is that as long as Econ is pushed as a "science" that is attempting to be use the same methodology that Physics does it will be full of BS "laws" and principles that assume efficient markets, perfect knowledge, etc. I am seriously hoping that CU will allow for the FinEcon major to have a very basic quant background so that many of the classes I mentioned in my previous post can be included. OAS pricing models and Black/Scholes have been rendered useless and any hedgie worth his salt will tell you the same thing. If you hear unknowing neophytes who think a narrow education in advanced mathematics only is the key such as the kid who posted about some people being "wannabes" or whatever because just ignore them because they don't know what they are talking about.

        • Confused

          Why are you upset and added a FinEcon major? The alternative was MUCH more quantitative! If anything, CU is making the finance tools they produce much LESS quant. Isn't that what you think the markets need now?

        • college alum

          There is no Columbia College major that is narrow. The Core Curriculum still applies to all. That is the difference between the proposed major and what goes on at Wharton undergrad.

      • ...  

        i think i'll stick with index funds, tilted index funds and good ol' math, thankyouverymuch.

        • hah cynical finance alum

          index funds are for suckers--they are wall street's biggest scam. good luck, buddy! you really gotta know how to pick em to make up for losses compared to the actual market performance and losses from index mgmt

      • wowzers  

        off your meds there baby?

      • a correction, by another alum

        excuse me, i'm happy there's this major, but if i'm not mistaken, it was the non-quant people that messed up quantitative tools for EVERYONE because they didn't put them in context correctly. if you don't know how to use the tools, don't fuck with them. otherwise, for those who do know how to use them correctly there's less risky money to be made. don't be fooled by randomness.

        don't get all uppity about yourself and how big your firm's AUM is. i too am glad that you are a proponent of a diverse curriculum that includes international trade (except the undergrad course is hardly applicable in today's world), behavioral finance, etc... however, i think it's more important to understand quantitative tools and learn exactly where things went wrong.

        things went wrong when underlying assumptions about the value of assets would be stable/go up... This is an assumption that was made by people who clearly who did not understand the quantitative implications of the modeling methods. In order to see this is a wonky assumption, you don't need to be a quant, but you do need to see exactly what the quantitative implications are should that assumption is kept. the reason why buffet/soros etc are so good at what they do is because they know how to question assumptions and look at the fundamentals at a problem, rather than reject, wholesale, the validity of a powerful quantitative tool--i will bet you that there are certainly quant people on buffet/soros' teams, who understand and are questioning the fundamentals.

        i would argue that it is perhaps people who don't understand quantitative tools who contributed to the cause of the financial meltdown, not the other way around. organizationally, finance companies need to be able to integrate those who made financial tools with those who have the power to teach and make artful assumptions around models (not just dumb analysts!).

        all of the side notes and hidden fine print regarding tools on option pricing/black-scholes/HFM really just need CONTEXT, which is what has been missing. let's just say this: if you can't price risk you are no quant at all... and apparently this is exactly what happened.

        don't give the rest of the american people your hubris-filled heartbroken sentiments.

  7. Anonymous

    another bitter seas kid who got into the ivy via the good ol' backdoor.

  8. CC

    I completely agree. I've been frankly a little bit confused by the way many Econ Profs./Classes teach the kind of \laws\ you mention as gospel, even as they wink-wink/nudge-nudge the many faults to be found. I don't understand whether there's a party line within the dept. that profs are encouraged to teach.

    btw, I'm all for quant. skills. The antithesis to the people that pledge undying faith in their models is the enormous aversion to any kind of quantitative reasoning in so many kids (I used to be one of them). At some point it became dreadfully uncool to be interested in math, even in fields where it's fundamental e.g. physics, and it's a phenomenon that I think is pretty local to US education. But that's a whole 'nother issue, so sorry.

  9. woe

    columbia college is a liberal arts school. whatever the pretense it's created under, "financial economics" will be used as a pre-professional track. there's no pre-law at CC for a reason - it would mean future lawyers would miss out on a lot of the humanistic education they'll eventually apply when they become politicians / activists /even just citizens after law school.

    wall street lacks perspective, and kowtowing to the rush to pre-professionalism will only make things worse, not better. force these kids to delve deeper into philosophy and history; they can learn "financial economics" in business school.

  10. Depressed Alumus

    I am deeply sorry to see that the College has chosen to allow those who seek to be within their comfort zone to stay there. By creating a major tailored to those who seek the golden ticket to a financial career, the College has discouraged the type of personal exploration upon which any liberal arts college must base its existence. What makes the College special is not monetary value encapsulated in the physical degree; it is the personal growth that only comes with being pressed beyond one's comfort zone, which is not only done through the Core but also through the diversity within each major. Even the Classics Department, one defined by studyingt two dead languages, encourages a diversity of thought beyond its own confines. This major, relying on classes and doctrine from the Business School which is by defninition a school designed with the singular purpose of teaching a means to an end, will fail to accomplish that goal.

  11. Am I the only one

    who has never skipped a comment Hidden due to low comment rating?

  12. yet another alum

    Look, in the markets nothing really works. Fundamental analysis? no. Technical analysis? no. Quantitative analysis? not really.

    The problem with portfolio opimization and related implementations of MPT is that it requires one to estimate paramters (expected returns, standard deviations and correlations). It's been shown that historical data, especially for past realized returns, has poor predictive content. Researchers have a better handle on volatility though correlations are tricky to manage (not directly observable and notoriously unstable). Black-Litterman allows you to blend historical with forward-looking views, but there are similar challenges on how best to specify views.

    So for the HF analyst a few posts above, who says Black-Scholes doesn't work- I would challenge you to find an alternative- a tractable model with greater accuracy. You'll probably win the Nobel Prize if you're successful. Most exotic options are priced by Monte Carlo simulation anyway and if one wants to get into equity or interest rate derivatives trading it is extremely quant- take as much stats and programming as you can.

    I learned alot of this material on my own after college and there is no way I know it as well as if I worked through tough CU problem sets and took exams on it.

    You are correct that for investment banking, you basically need to know how to add, subtract, multiply and divide. FE grads tend to work in the capital markets function.

    • Well listen here sonny

      First, in response to "a correction by another alum": Your claim that you are a "correction by an alum" is pompous as hell. You aren't "correcting" me thank you very much. You are merely positing a counter argument/view. Also, "fooled by randomness"??? This wasn't randomness. The underlying assumptions used by the fed, capital markets, etc. were full of ridiculous assumptions. If you look at the systemic risks that were brought into the fold by the absolutely ludicrous repo market funding mechanism, the securitization of credit risk that kept rates artificially low and distorted perceptions of who even actually held the risk, the effect of the global banking model/one stop shop that, contrary to the media's focus, started long before the repeal of Glass/Steagall which linked up far to many nodes of the financial world that would collapse in on each other if there was ever a crisis. Additionally, what I frankly believe to be fraud committed by the traders at many firms via the negative basis trade and faulty P&L accounting systems which allowed these traders to discount future earnings on trades that they were to hold for the next 7-10 years and take bonus money on said future earnings. What other industry allows anyone to take money out of a company's profits based on hypothetical, unrealized, non-guaranteed earnings. I was not trying to brag about the funds AUM I was only emphasizing that I'm not working at some schlock day trading scheme. And I find it funny that merely because I call bullshit on the application of Newtonian principles to human behaviour you assume (incorrectly) that I am not quant savvy. Perhaps you are far better versed than I and are getting a PhD at MIT and writing your dissertation on Stochastic Differential Equations. However, I have taken Calc I-III, Stats, Discreet Math, ODE's, Deterministic Modeling, Stochastic Modeling, etc. So please don't talk to me as though I'm some fool who has a vague idea of what a limit is or something. I simply feel that the use of Brownian Motion/Random Walk theories in finance is foolish. It is insane to say that you can model something as unpredictable as human behaviour with the same methods one describes the diffusion of heat or particles in a solution. Capri pants became fashionable for men a few years ago...show me a model that would ever have predicted that. Human behaviour is far to complex to model accurately over long periods of time. Oh and as far as your suggestion that the problem is that people who don't understand the models as well as the authors should have either the authors themselves or someone with equivalent understanding of said models I offer of LTCM. Long Term Capital Management for those of you who were too young to remember was a hedge fund that lost $4.6 Bn in a few months in 1998 and they had fucking Myron Scholes and Robert Merton running the show along with John Merriwether and a laundry list of people who were considered the absolute unrivaled creme of the crop in finance/econ. I mean Scholes (as in the guy who's name is in the Black/Scholes model for those of you who aren't finance folks) helped run the fund and he didn't appreciate the exogenous variables at work that the model failed to capture. They totally failed to capture the systemic risk that occurs when other market participants try to copy your strategy. The global economy is just too large/complex to capture with a model or even many models. Thus, your assertion that merely having people who understand these models to a level of your satisfaction will prevent a disaster is utter nonsense. Your tone seems to imply that you used your models correctly with great effect and that it is everyone else that fucked up and didn't have people who used them in "CONTEXT" or something. Finally, I didnt' know that posting on Bwog reached the "American people." And to your comment that my posts are "hubris filled"...are you kidding...you and your ilk purport that you can model the world in an Excel file and that it is only because a lot of people who didn't go to a top engineering program were market participants that everything fell apart...and I'm the one filled with hubris? If you are so great at accounting for everything in your model then why didn't your model account for the blatantly obvious fact that a large portion of market participants are not quants? I mean hell you see the people who work at your firm and other firms every day. You talk to them on the phone, see them at meetings, and read about them in trade publications. You knew a lot of people didn't understand Black/Scholes as well as its authors so why didn't you take that into account? You coulda made billions man...you coulda had class...you coulda been a contender...

      • ...  

        you know, sometimes when i eat something with lots of whole grains, i'll take a shit that is both unbroken and realllly long. your long and unbroken paragraph reminds me of that.

        as far as predicting the collapse. it's not rocket science. just pick up an issue of the economist from around 2005. they were going on about the property bubble and dodgy mortgages in every other issue. in fact, if i remember right, i think they even ran a cover with a picture of a falling brick labeled "house prices."

        people that actually worked in finance all knew this was coming. (at least the smart ones) they just knew they were powerless to stop it as individuals so they pretty much ignored it, took faith in the "market's" ability to correct itself and pressed on to do the best they could in the meantime.

  13. Anonymous

    As an Econ-OR major who graduated in 2009 I'm disappointed that they are replacing what was one of the more legit undergrad econ majors that provided real exposure to IEOR/FE concepts with what seems like a fluffy and useless major. One of the most enjoyable parts of my undergrad career was cross-applying what I was learning in math prog with Analysis and optimization etc and although you don't need to take the major to take the classes I don't think I would ever have thought of taking the courses unless there was an Econ/OR major.

  14. Anonymous

    Fuck all you finance majors, be you SEAS or CC. You can point fingers but you are all part of the reason for the financial collapse. None of you have souls.

    • ...

      Yes, we caused a financial crisis that occurred while we were at college. Did we also cause the oil spill?

      Do you even know what an investment bank does?

      • Anonymous

        An investment bank gambles (yes gambles, fuck your shitty models), with the assets of entire corporations in an effort to make them even more money. Now sure, they provide necessary services (helping with mergers, this sort of thing) but they also trade in really shady shit like derivatives. Not a single thought is given to the millions you affect, all you care about is that Mercedes you get to drive at the end of the day. I also don't give a shit that you're in still in college. You're exactly the same as everybody who is I-banking now, and you'll be exactly the same as them once you make it to the top.

        As for the oil spill, no that wasn't the fault of banks but it was the fault of greedy and negligent businessmen, just the kind of people you'll be in a few years.

  15. hohum  

    all these people complaining about other people's majors should just calm down and go study their own major, without sticking their damn nose in everybody's business. don't you have a practice soapbox in your room?

  16. Tiger

    Dude, why is this post tagged "princeton"? Anything to do with money = old nassau?

  17. wall street

    for life...get money get paid and btw to all you little nonprofit world savers...the MDs on Wall Street donate and support the places you work so before you bash this industry realize that your Save the children fund probably has some rich philanthropist who has made his or her money on Wall Street....either by working on the street or by investing it with someone on the street

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