<p>“WASHINGTON (Reuters) The financial sector will make up a smaller part of the U.S. economy in the future as new regulations clamp down on “massive risk-taking,” President Barack Obama said in an interview published on Saturday.”</p>
<p>“Obama said some of the job-seekers who may normally have gone to the financial sector would shift to other areas of the economy, such as engineering.”</p>
<p>This should be interesting to see how many students change out of investment banking and the financial sector and into other areas. Maybe all those MIT grads will actually go into engineering now instead of business and wall street.</p>
<p>Obama’ s message - spoken like someone who lacks understanding of economics. Which is the case. Of course of Bush one could say the same. </p>
<p>The blunt truth is that the financial industry is suffering from an excess of capacity. A woeful excess of capacity. This is not unlike the auto industry. The financial industry kept itself afloat by finding customers and deals that were not creditworthy (aided by a Congress that wanted to support certain constituencies), and used its oligarchic power to dodge regulation and amass leverage to make profits, as opposed to using intrinsic deal quality. It is not the risk in the deals per se - we want financiers to take risk - it is the leverage and the concentration of leverage in an oligarchic structure that has made the for this “awful” too big to fail scenario. Of course, one could ascribe this mess as having too many dumb people get into the business with limited knowledge of economics - a very defensible position, too. </p>
<p>All this is as the former head economist at the IMF, Simon Johnson, has pointed out in this out in a recent article in the Atlantic. I am not sure I agree with Johnson’s siren call to nationalization of banks, but we could all learn from the economic medicine he speaks of as to his days at the IMF, where troubled nations simply had to learn to spend a lot less - what we need to do - fast. </p>
<p>As far as impact on colleges, more bright people will go into non-financial fields. And that is a good thing. The problem lies in the 6/7 years of transition, where the financial institutions as we know them will exist in a far changed form, and employment and wealth dislocation will result.</p>
<p>The MIT grads will find other ways to make more money than they would by taking typical engineering jobs. They always have. When it wasn’t banking it was dot com companies.</p>
<p>“When it wasn’t banking it was dot com companies.”</p>
<p>A few people got rich on .com companies. For the vast majority, it was just another stock market bubble. That really was the financial industry too.</p>
<p>There really isn’t the money in engineering that there was in IB and Finance so for those new prospective engineers: go into engineering if you will really love engineering. There are aspects of engineering that are unpleasant and you’ll need the love of doing it to carry you through the tough times.</p>