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The Lasting Legacy of the Financial Crisis

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A Psychologist, a Physicist and a Philosopher walk into an investment bank...

While this may sound like the start of a mediocre joke, it could in fact turn out to be the most important consequence of the current financial crisis. A popular complaint levelled at the financial industry is that it is, to mangle an accusation, a great vampire squid wrapping itself around highly skilled young non-finance graduates and diverting their talents to the fabrication of complex, socially-useless money-making instruments.

However, it is precisely these graduates that could prove to be far more transformational in rescuing the damaged financial industry than the barrage of knee-jerk laws and legislation that are being created every month.

The financial crisis came about due to hubris, arrogance and an almost religious conviction that the existing banking model was doing 'God's work'. This blinded those leaders who considered themselves and their institutions as 'too big to fail'. It is fair to hope that this new batch of future leaders of our financial world, with their diverse schooling and multi-disciplined training, will be better equipped than their predecessors to ensure that such mistakes are not repeated.

There are two reasons why the crisis has led to an increase in graduates from a broader range of disciplines, one based on demand, and one on supply.

The decreased demand comes from the fact that there are simply less finance students looking to pursue a career in investment banking. A recent survey showed that the main reason for this drop-off in interest is that the rewards - the so-called 'models and bottles' - are not what they used to be.

Many students took the decision to take up finance related disciplines for the simple reason that the jobs at the other end were extremely well remunerated. These people are now looking to other areas which are perhaps of more personal interest to them (students going in to consulting or entrepreneurship are at all time highs), which can only be a good thing for themselves and the companies they join or create.

Empirical evidence of this trend comes from The Wharton School at the University of Pennsylvania, 'the conveyer belt of Wall Street'. Wharton has seen a 35% drop in students entering investment banking from 2008 to 2012. While a large chunk of this is undoubtedly due to there simply being less investment banking jobs available, cuts have been bad, but not that bad. But where exactly is the extra supply coming from to make up for this decrease in demand?

The answer is non-finance graduates. The crisis has meant that terminology which was previously confined to economics lecture halls is now common in history, politics and philosophy discussions, not to mention the headlines of the daily papers and evening news. Admittedly, most of the comment associated with this terminology has been negative but in this case, the old adage that 'all publicity is good publicity' may hold true.

People from assorted and varied backgrounds who previously knew nothing about the industry are now looking in on it with curious fascination. As a history student who applied for a banking internship on the back of Lehman Brothers filing for bankruptcy protection, and whose class of joiners had everything from classicists to pharmacists who all expressed similar motivations to my own, I have seen this transformation first hand. When I joined my desk, I realised that the older generations had a far narrower set of educational backgrounds.

So what does all this mean for the future of investment banking? If these people are joining due to a genuine interest, as opposed to the money which was previously the main motivator, that can only be a good thing.

Furthermore, the next generation of investment banking is going to be very different to the previous one. Precisely what shape it will take is impossible to say. What is certain is that in twenty years we can expect to have teams of finance professionals who can draw on a much wider range of educational experiences than the previous generation, who can work together and share contrasting opinions and approaches to the challenges that the financial world will continue to face, and who are motivated by more than simply maximising their own pecuniary rewards. This will add a vital new level of perspective and heightened judgement to an industry which has been brought to its knees by people so sorely lacking in these attributes. And that is no joke.