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For years, millions of Americans have pondered this vital question: Why isn’t there a sport that combines my love of martial arts with my love of cars? Good news, now there is. CarJitsu is a new wrestling-like sport that’s shifting into high gear because it happens inside a mid-size sedan.
Competitors begin buckled into the front seats (a coin flip determines who gets the more advantageous passenger seat – the steering wheel restricts hip movement and torso rotation). Windows are typically open and – don’t panic – the vehicle is stationary. The object is to force your opponent to submit. If the match is tied after two 3-minute rounds in the front (swapping seats for the second round), the road warriors move to the back row for the third round. It turns out the fight over the seatbelt can be decisive: get your seatbelt off, keep your opponent buckled – one of the few instances when it’s safer to be unbuckled. Striking or snapping anything off to use as a weapon is prohibited, but choking your opponent with the seatbelt is a standard feature.
The CarJitsu origin story? One day at a gun range the idea popped into the head of a Kansas State grad student with black belts in judo and jiujitsu. Early matches took place inside a 2005 Toyota Scion, selected for size, safety, and affordability.
Car make and model aside, it’s hard to imagine anything more American. Also because combat in a tight, enclosed space evokes the plight of nearly two million students graduating from U.S. colleges this month. An inordinate number of new grads are competing for good first jobs in an extremely narrow sector of the economy: investment banking.
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When I graduated from college, Procter & Gamble and a few advertising agencies recruited on campus. And for years, Enterprise Car Rental has hired thousands of new grads into its management training program: working behind the counter or showing clients to their cars, assimilating how to manage a branch. But increasingly, at many colleges – particularly selective schools – campus recruiting is dominated by investment banks to the degree that students honestly think they’re the only good jobs available.
If you’re not intimate with investment banks, their primary purpose is advising on and brokering the buying and selling of companies. They also help companies raise money. It may sound niche, but because there are millions of companies to buy and sell, and millions need more capital to grow, there are thousands of investment banks to help; for every Goldman Sachs you’ve heard of, there are hundreds you haven’t. The bigger picture is that they grease the wheels of our market economy. If entrepreneurs innovate and start new businesses in an attempt to generate wealth, investment banks play a fundamental role in this cycle.
Nevertheless, the math on college graduate employment is astounding. While investment banks represent less than 0.5% of the U.S. economy, 22.5% of Yale graduates start their professional lives there. At Harvard, it’s 21%. According to the Chris Hayes book Twilight of the Elites: America After Meritocracy, it may be higher at other Ivies; investment banking analyst is probably the #1 first job at every selective school with the possible exceptions of Stanford, MIT, and Caltech. As Tucker Carlson – or at least the SNL version – would say: “What are we doing? What’s going on?”
First, as a result of the large fees banks receive from completing transactions, they can afford to pay very well. For a first-generation student, a student from a low-income background, or a student with any student loan debt, landing an analyst position at an investment bank feels like a golden ticket. And for a generation scarred by Covid, wars, and the risk of AI, now brooding moodily over job prospects, demand for safety, security, and certainty may be at an all-time high. In addition, these jobs appear to lead somewhere. Investment banking analysts gain capabilities in accounting, financial modeling, and transaction execution – finance “trade skills” that are harder to learn in a classroom than by doing – as well as sales via putting together a never-ending stream of pitch decks for current and prospective clients. And because analysts are exposed to one or more sectors and dozens of companies during their tenure, the job is a good point of entry into business writ large. Meanwhile, because every company has a finance function, new analysts can convince themselves they’ve left their options open and could end up anywhere.
But there are downsides. For the new grad, a predictably punishing schedule – often sitting around for much of the day until associates, VPs, and MDs find time to assign work, then plugging away late into the night. Also, banking analysts may be deluding themselves on optionality; Kevin Roose of the New York Times estimates only 10% end up working outside financial services. But the flood of young talent into banking is also problematic for the country. Our world-beating, super-efficient capital markets are warping our labor market and, derivatively, distorting higher education.
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Investment banks aren’t on campus that often. They don’t maintain Ivy-covered offices nearby. They come to campus for information sessions and receptions; interviews start online. But their presence is felt almost from day one. Whereas 20 years ago, banks began recruiting for summer interns in the spring, today the process begins two years ahead of time. The upshot is that entering freshmen only have a few months before being bombarded by banks and banking hype is unavoidable. Rice now hosts an investment banking night for freshmen in November. For some students, the influence is felt even earlier, see e.g., forums on Wall Street Oasis where high school seniors appear to be making college decisions based on which school gives them the best shot at landing a lucrative “IB job.”
That’s a tiny minority; 20%+ of matriculating students didn’t pen college application essays on IB ambitions. But the dynamic changes quickly upon immersion and a surprising number of students come to the view that it’s the primary purpose of their college experience. My friend and colleague Seth Peyla, Director at ZOMA Capital, attended Cornell’s School of Industrial and Labor Relations where his senior thesis was Occupy Ivy League: The Social Perks and Perils of Wall Street’s Strongest Pipeline. In his excellent paper, Seth pointed to the importance of mimetic desire (because everyone seems to want it, it must be rewarding) and the fact that selective school students tend to be rule followers, not rule breakers, excelling at jumping through hoops. And a job in investment banking is the biggest, brassiest hoop they’ve ever encountered. So every year, lots of students with diverse aspirations hear their friends are interviewing. And they’re competitive, and some of these banks are bright, shiny brands. So why not try? And they do one interview. So why not two or ten? Bank recruiting is a slippery slope that reminds me of my college roommate Chris Corrie’s “keg theory” i.e., If you’re going to have a few beers, why not get a case? And if you’re going to get a case, might as well get a pony keg. And if you’re going to go to the trouble of picking up and tapping a pony keg, why not just get a keg? (Of course with banking interviews to prepare for and fewer parties, applying keg theory to IB recruiting is anachronistic.)
Adding fuel to the fire, bank recruitment presents a clear process, one that mirrors the college application process students successfully navigated the year before. In his paper, Seth cited a former Harvard student:
Applying to Wall Street is much closer to [the college application process] than applying anywhere else is… Harvard students are really good at formal processes like that, and they’re less good at… sorting through thousands of job listings from thousands of companies whose reputations they don’t know.
As a result, every year thousands of students who had contemplated teaching or pharmacy or public service, become, as Seth puts it, “accidental financiers.”
What happens when banks are the only companies recruiting a nervous generation two years ahead of time? Banking and investing clubs happen, transforming the student experience. Alongside consulting clubs, these student organizations are now the most popular on campus. They exist to help prepare students for interviews as well as to signal interest. And because there’s little substantive banking or investing work on offer for 18- and 19-year-olds — plus preparing too many fellow students too well might sink your chances — these clubs have limited capacity, which creates artificial scarcity, which necessitates elaborate application and selection processes, further stoking competitive fervor. At the same time, every new pseudo-pre-professional finance club means fewer students exploring actual interests. It means less student acting, singing, journalism, debate, intermural sports, community service, real student entrepreneurship, activism, and protests. And the more nervous students become about their career prospects, the more attractive banks and banking clubs become.
How have investment banks come to dominate campus life? It’s not like there aren’t entry-level workers at all companies and across the economy. The most important driver is the unit economics of campus recruitment + making inexperienced, unproductive new workers productive. The significant time and effort involved makes most sense when recruiting, hiring, training, and mentoring large numbers for identical (or at least similar) jobs. For companies that have to hire a handful of new workers every year across 20 or 50 departments or functions, the math doesn’t work. Conversely, investment banks can drop large numbers of new grads into identical jobs. The banking business model is built atop an army of young analysts (and, in time, associates and VPs) grinding through deals. So recruiting, hiring, training, and mentoring dozens, hundreds, or thousands of new analysts is a cost of doing business. And because they can do it in one fell swoop, there’s a strong return on investment.
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Even if some philosopher-financiers recognize the deleterious impact of their talent sourcing strategy, it’s too much to hope that investment banks will somehow, someday self-regulate; there’s a collective action problem. So if colleges recognize that career funneling and the corresponding gravitational distortion of campus life are problems, it’s on them to take action.
While some groups are pushing for colleges to privilege public service over the private sector, institutions don’t have to go that far. They simply need to do a few things:
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In some ways, this issue is as old as the Republic itself, hearkening back to the Jeffersonian ideal of the gentleman farmer and suspicion of New York bankers who in the words of Lin-Manuel Miranda’s Jefferson “just wanna move our money around.” It’s certainly been a problem most of our lives. Over 40 years ago Yale economist and Nobel laureate James Tobin expressed concern that “we are throwing more and more of our resources, including the cream of our youth, into financial activities remote from the production of goods and services.” What changed in the past generation is that companies other than banks and consulting firms have largely disappeared from campus recruiting and that colleges have permitted a recruiting race to the bottom. It’s changed college life for the worse and exacerbated the financialization of our economy.
So while last month’s Yale Report of the Committee on Trust in Higher Education addressed many reasons why higher education has lost public support, it omitted an important one: that America’s leading colleges and universities have become finishing schools for investment banks. For college presidents, adding this to the list of reforms will be key to limiting further public approbation, government scrutiny, and being ushered by a burly man into the front seat of a 2005 Toyota Scion.