Is there any impact to quant career prospect by subprime crisis

[markchan]

Given that some big names are cutting their size of staff due to subprime crisis.

 

[alain]

Given that some big names are cutting their size of staff due to subprime crisis.

Yes but if you are good, you won't have any problem finding a job.

 

[bigbadwolf]

Given that some big names are cutting their size of staff due to subprime crisis.

Alain has answered the question for the short term. For the medium-term, it will depend on the extent of the ensuing economic crisis and the extent to which this forces a new political ideology to the fore. At the moment I don't see any new political thinking (but it's early days yet). Eventually this must come to pass and financial markets will have to be regulated as they were in the old days. If they are regulated there will be probably be a sharp decline in financial innovation (maybe a good thing), and hence a sharp decline in the need to calculate prices and risks. This will cause a sharp decline in the need for quant labor. But to reiterate, this is all in the medium-term.

 

[joe_bradley]

Alain's answer is a truism no matter what the market conditions. However, it depends what is meant by "if you are good."

Your answer does not indicate what timeframe you're talking about. The current market for newly-minted quants breaking into the business is foul. One headhunter I met with says part of the reason is that there is an expectation among employers that newly-unemployed quants will be hitting the streets, and that as such, employers would rather be patient and skim off some of these more experienced quants than take a chance on someone new. Same headhunter implied that there will be a rebound soon because the number of quants hitting the streets may not make up for the fact that unhappy quants who would otherwise hit the job market will sit tight in their present postions during this period.

Of course, this is my own experience and other headhunters will certainly know more than I do. Comments, anyone?

 

[Andy Nguyen]

There is certainly less pricing, structuring, trading jobs for MBS, CDO now than 6 months ago.
The job market is in a slump now so it's very hard to know which product space got cut more when there is little hiring across the board. It will be awhile before we can be for certain.
As Alain said, if you are hot commodity, people will want you. Even so you will have to work harder now than before to get what you want.
Things go in cycle so brace yourself for the bad and good times ahead.

 

[Andy Nguyen]

If somebody cares to read a very long article, there is one on NYT yesterday. Interesting for its historical insights or maybe future implications.

Regardless, with profit margins shrinking in traditional businesses like underwriting and trading, Wall Street firms rushed into the new frontier of lucrative financial products like derivatives. Students with doctorates in physics and other mathematical disciplines were hired directly out of graduate school to design them, and Wall Street firms increasingly made big bets on derivatives linked to mortgages and other products.

http://www.nytimes.com/2008/03/23/business/23how.html

 

[bigbadwolf]

Things go in cycle so brace yourself for the bad and good times ahead.

I apologise for my consistently negative tone and hope that I'm wrong but I don't think we'll go back to business as usual. Quant work has depended on a certain "financialisation" of the US and global economy and there are indications -- strong indications -- that this hand is just about played out. More on this can be found here (the writer was an assistant secretary of the treasury in the Reagan administration). For more context, this is also a good piece. For people already in the field or in the "pipeline," one piece of advice might be to concentrate on "portable skills": scientific computing, optimisation, numerical analysis, and mathematical modelling. Again, I hope I'm mistaken.

 

[Michelle]

It's never as bad or as good as it looks.
On a related article, one can find out how many jobs have been cut since last July. Most are mortgage related and support staff. I don't expect too much cut in the hard core, quantitative groups.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aTARUhP3w5xE&refer=home#
Here is an interesting part

Boyden's Branthover said she doesn't expect this cycle of job cuts to reach post-2001 levels. One of the lessons the firms learned from that period is that it's costly and difficult to replace human capital lost during times of distress, she said.
``A lot of support staff will be cut because those are easier to replace when the business turns around,'' she said.

Firm Positions Cut

Citigroup 6,200

Lehman Brothers 4,990

Bank of America 3,650

Morgan Stanley 2,940

Washington Mutual 2,600

Merrill Lynch 2,220

HSBC 1,650

Bear Stearns 1,550

WestLB 1,530

UBS 1,500

Goldman Sachs 1,500*

National City 900

Credit Suisse 820

Royal Bank of Canada 500

Fortis 500

Wells Fargo 500

Wachovia 443

Deutsche Bank 370

JPMorgan Chase 100
_____
TOTAL 34,463

 

[bigbadwolf]

The first indication things might change:

The Treasury Department on Monday plans to unveil a series of recommendations that would radically reshape the regulation of the US financial services industry, giving broad new powers to the Federal Reserve to tackle systemic risk.

The move comes amid growing pressure in Congress to overhaul financial regulation in the US, after the credit crisis exposed significant lapses in the government's ability to monitor Wall Street and prevent it from making overly risky bets on mortgages. Some of the largest institutions suffered multi-billion dollar losses, and the Fed this month was forced to take the dramatic step of offering emergency cash to investment banks.

This is all a bit vague and in my opinion doesn't go far enough. With the passing of time there will be inexorable popular pressure for sweeping regulatory powers by the US government (and not just the Federal Reserve). The era of financial laissez-faire is probably over. The implications for many financially engineered products -- and by implication, the demand for financial engineers -- should be clear. But let's wait and see.

 

[RussianMike]

The first indication things might change:



The era of financial laissez-faire is probably over. The implications for many financially engineered products -- and by implication, the demand for financial engineers -- should be clear. But let's wait and see.

Your statement is unclear. Not sure if you were saying something similar, but

My opinion is nothing changes(old products become more regulated, new products come out to the benefit of fin engineers who will create/price/trade them)

Welcome to the brave new old world

 

[bigbadwolf]

Your statement is unclear. Not sure if you were saying something similar, but

My opinion is nothing changes(old products become more regulated, new products come out to the benefit of fin engineers who will create/price/trade them).

Opinions vary. You may be right. This is the latest from the FT:

The US Treasury will on Monday unveil a plan for the biggest reshaping of the financial regulatory system since the Great Depression - but its recommendations may be more notable for what they do not seek to tackle.

Under the plan, the Federal Reserve will have greater power to regulate investment banks and limit the risks they take, but only when their actions pose a threat to the financial system - something the US central bank has already been doing in recent weeks.

The plan also does not address the practices linked to the current housing and mortgage crisis, including the practice of packaging risky subprime mortgages into securities that formerly carried high credit ratings.

The executive summary of the blueprint - which will be outlined in a speech by Hank Paulson, US Treasury secretary, on Monday - also does not discuss regulation of the huge derivatives markets, including instruments such as credit defaults swap, which have been playing an increasingly prominent role in financial markets.

Under the plan, the regulatory net would become wider, but with fewer, more powerful agencies. Yet the new authorities would not necessarily translate into the kind of stricter regulation some lawmakers are demanding.

In my humble opinion, this is a stalling tactic by the Fed and the US Treasury, designed to forestall demands for more radical and effective change. This tactic may not work because of the clamor for more effective safeguards. But even if the call for more effective federal oversight and regulation is effective, it'll probably be some time before it can be translated into concrete terms. We're in the twilight days of one of the most corrupt and incompetent US administrations ever, and nothing will happen until and unless there's a new president and new team. I still contend, however, that we shall be seeing the end of unfettered financial markets. The call for transparency and stability is going to mean more attention paid to derivatives and the practice of assessing risks. If even quants can't assess the global and destabilising impact of derivative products, how can a case be made for continuous financial innovation? The likely outcome is fewer jobs for prospective quants, with those already in the arena struggling to keep what they have. But this is all crystal-ball gazing on my part and I may well be wrong. Time will tell. Not trying to provoke anxiety and hysteria but we should have an idea of where the profession is headed. It's been a good thirty years for increasingly deregulated financial markets.

 

[DominiConnor]

It's going to be tough to do this well.
It is easy to forget that credit derivatives have their basis in managing risk, and in particular moving it to those parts of the system best able to cope with a given structure of risk and return.

Thus what we have had is the equivalent of a medicine for a very common illness found to have terrible side effects. It is easy to withdraw a drug, but we are likely to get a reaction from the arts graduates in the political part of the system of the equivalent of banning the use of any compound containing Chlorine, simply because a dangerous drug was called resublimated thiotimoline chloride.
Various randomly chosen types of instrument and business process will be banned.

 

[owais]

Hi All
Nice to see all of your Discussion but can any one give me answer of followings in my Mind

Any Suggetion for emerging economies like Pakistan where still 90% people doesnot understand Quant or Financial Engineering simple work is going on still in the initial phase of developing Advance Financial Products or you may say still learning ABCs of Quants, hope you guys help me in enhancing my knowledge of Quantitative Finance issues

 

[bigbadwolf]

Clive Crook, in his column in the FT, is talking along the sames I have been, in my previous posts on this thread:

The main question any regulatory architect must consider is whether Bear and the rest of the extended banking system took the risks they did knowingly. If the answer is no, moral hazard is beside the point. The problem is complexity, opacity and inadvertent exposure. Regulation ought then to aim at restoring simplicity to financial markets – in other words, to roll back financial engineering.

The right answer may well be it is all of the above: innovation run amok; privately rational but socially harmful risk-taking; and an extra measure of moral hazard (thanks to the Fed’s new procedures) now thrown in. Each has its own implications for the future supervision of financial markets – but in one respect they point the same way. Running repairs alone will not do. We need an entirely new model.

There will be more discussion about this in the months to come. The biggest hurdle, of course, is that it will be exceedingly difficult to think outside the box of the governing neo-liberal ideology of the last thirty years, which worships deregulation and the (supposed) self-correcting tendencies of free markets. And the difficulty resides in that there's no ideological alternative to take its place at present. This is why everything being advocated at the moment is, in Crook's words, patch-and-mend.

Postscript: Here is a debate among some economists.

 

[Andy Nguyen]

Who is willing to bet this new Fed thing will have no chance of ever materializing? Sound like election year politic talk (just like the immigration reform)

As Treasury Secretary Henry M. Paulson Jr. on Monday formally laid out an ambitious plan to overhaul the regulatory apparatus that oversees the country’s financial system, senior lawmakers and lobbyists from industries opposed to the plan predicted that most of it would be dead on arrival.
Mr. Paulson said on Monday that he did not expect the bulk of the plan to be adopted during the current administration — and he recommended that Congress not even consider adopting most of it until after the housing and credit crises ended. That could take many months, perhaps not until Congress all but shuts down for the elections in the fall.

http://www.nytimes.com/2008/03/31/business/31cnd-regulate.html

 

[bigbadwolf]

Who is willing to bet this new Fed thing will have no chance of ever materializing? Sound like election year politic talk (just like the immigration reform)

Ceterus paribus it has no hope of succeeding. It depends on how serious the financial crisis is and its impact on the real economy. It was the same thing back in 1932: without the Great Depression, there would have been no New Deal reforms. In short, there will have to be riots in the streets, long breadlines, and an incessant public clamor for change. If we were using a normal distribution, we would call this a five-sigma event. But people like Taleb tell us we shouldn't be using such distributions and that such phenomena occur more frequently than we might expect. Let's see. I'm betting there will be changes but not along the lines of this half-baked lily-livered set of proposals from Paulson that accomplish nothing and are designed to forestall demands for more radical action. Expecting a Wall Street figure like Paulson to come up with effective regulatory mechanisms is akin to expecting a fox to design a safe chicken coop: ain't gonna happen.