Who to Blame For the Rise of the Yuppie? Investment Banks, Obviously

Phil Calian, editor-in-chief of the Brown Daily Herald, could have worked at nearly any newspaper in the nation after he graduated in 1985. He had never considered an investment banking job—that is, not until Wall Street recruiters began appearing on Brown’s campus every week that spring. Calian applied to Merrill Lynch’s mergers and acquisitions department on a lark. “I had to look up ‘capital market’ the first time I had an interview,” he admitted. The interviewer assured him that he did not need any special expertise beyond his undergrad degree.

A year later, Calian was putting in ninety-hour weeks as an analyst, taking his desktop computer home over Labor Day weekend to work on a deal. “It doesn’t take any great brainpower to do this,” he confessed. “It just takes stamina.” Asked about his choice to abandon journalism for banking, Calian expressed few regrets. “It’s much more fun to put together a million-dollar deal than it is to report it.”

Calian was one of thousands of young students from top schools who abandoned other plans to take jobs on Wall Street during the 1980s. In those years, this formerly quiet sector of patrician bankers advising long-term corporate clients became a highly competitive and highly profitable business—one that now shaped the fates of the corporations it had once been content to serve. Banks had long supplied the capital that allowed the industrial sector to expand.

Of course, financialization not only remade corporate America. It also re-shaped Wall Street itself.

But now, finance, not industry, emerged as the source of American economic dynamism. Even within manufacturing companies, profits from financial activities eclipsed those of their more traditional business lines. Investment bankers and takeover artists took a leading role in determining which companies would be sold, merged, or broken apart. This revolution, part of the broader process often called financialization, would have profound consequences for corporate America.

It led companies to prop up their stock prices instead of investing in new technologies, hiring more workers, or raising wages. It had corporations spending vast sums on bankers’ and attorneys’ fees as they defended themselves from hostile takeovers. And it meant loading up companies with debt—which, not coincidentally, allowed them to write off much of their federal tax liability. Together, all of those developments deepened class and regional inequalities, as capital flowed away from workers in the industrial hinterland toward financial centers like New York.

Of course, financialization not only remade corporate America. It also re-shaped Wall Street itself. It increased the dominance of the largest banks; stoked fierce competition among those banks; encouraged the creation of new investment vehicles and merger activity; and brought ever-greater streams of capital to Wall Street, as investment banks pioneered the use of novel funding sources: high-yield debt, money market mutual funds, new securitized assets, and liberalized global capital markets.

But the transformation of Wall Street demanded more than just capital. It was also a social process, one that required thousands of newly hired yuppies to do the daily work of financialization. Indeed, as the 1980s wore on, the most profitable banks were those who could muster the largest number of associates to dream up deals, analysts to vet them, salespeople to win new business, and traders to buy and sell securities.

By the mid-1980s, Wall Street became the top employment destination for graduates of Ivy League schools.

What’s more, as technological advances erased the information differential between banks and their clients, Wall Street needed more highly educated bankers to craft narratives out of torrents of macroeconomic data, or to explain and sell exotic financial products. So banks looked to hire more young people like Phil Calian, whose storytelling skills made up for their lack of mathematical acumen.

As the sun set on the gentlemanly era of relationship banking, Wall Street needed to recruit huge numbers of the most talented—not just well-bred or best-connected—bankers to keep up. To find them, banks launched recruiting campaigns on the campuses of America’s elite colleges, universities, and business schools. Wall Street offered new hires a host of enticements: astronomical starting salaries, signing bonuses, lavish dinners and parties, and special provisions for those planning to pursue graduate business degrees. Through a barrage of advertising and on-campus information sessions, investment banking sold itself as the most attractive, lucrative, and secure job for top students.

The pitch worked. By the mid-1980s, Wall Street became the top employment destination for graduates of Ivy League schools. And for the first time, top Wall Street banks weren’t just attracting WASP or old-line German Jewish men with family ties to banking, the historic mainstays of the finance world. To meet their growth targets, banks hired increasing numbers of women, African Americans, Asian Americans, and white ethnics, all of whom had been excluded from or simply wary about pursuing careers in finance.

Why were yuppies suddenly gripped by a fever for investment banking? Most accounts of the era blame greed—a new ethic of cupidity that displaced whatever youthful idealism remained from the 1960s. These morality tales, focusing on figures like Michael Milken and Ivan Boesky, make an implicit claim that individual avarice somehow explains the excesses of an entire era. Journal ists unfailingly repeat the motto “greed, for lack of a better word, is good,” uttered by financier Gordon Gekko in Oliver Stone’s 1987 film Wall Street (and based on an actual Boesky quote), as if those words alone explain why finance assumed such an important place in the American economy.

That story, however, gets it exactly backward. Instead of uncovering the material forces that brought finance to the fore—and brought yuppies to Wall Street—“greed” narratives are retrospective accounts of a culture struggling to understand the newly financialized order. Greed was always good on Wall Street. That didn’t change in the 1980s. But what set the decade apart were the economic and institutional changes that elevated Wall Street, making it irresistible to an entire generation of young professionals.

What were those changes? First, investment banks benefited from a range of loosened regulations that, when coupled with new technologies and leveraged by new securities, made investment banking fantastically profitable. These included shelf registration, relaxed international capital controls, eased restrictions on bank deposits, the rise of index and money market funds, lax oversight of corporate mergers and takeovers, and the creation of banking free-trade zones.

Second, Wall Street firms were the among the first employers to exploit universities’ new career-services offices, which helped to funnel a large and diversifying population of women, white ethnics, and minoritized graduates into finance careers. Another factor was the slackening appeal of industrial companies, which had long absorbed the greatest number of young graduates. The 1980s marked the first time that finance captured a larger relative share of profits in the American economy than either manufacturing or services. Soaring profits meant higher compensation for bankers, of course.

This was doubly true for students from disadvantaged backgrounds, who hoped to use their educational credentials to catapult themselves up the class ladder.

But it also leant Wall Street rising cultural cachet. White-collar professionals who might have previously become middle managers in a Midwestern conglomerate were now drawn to the superior pay and excitement of a career at Lehman Brothers or First Boston. The turn to finance also had a geographic dimension. By choosing investment banking, an industry almost entirely based in Manhattan, students were expressing a predilection for its unique lifestyle and consumption options.

In the 1960s, those young people might have moved to a place like Detroit to become a manager at Ford or GM. But as finance began to move to the center of the American economy, it pulled all of those graduates away from the rest of the country and toward New York.

The psychological preferences of elite students mattered, too. Their hard fought route to the Ivy League had conditioned them to vie for status, but only along well-established pathways. They were accustomed to going after whatever was considered the most prestigious option—as long as it offered a clearly defined route to success amidst widespread economic uncertainty. This was doubly true for students from disadvantaged backgrounds, who hoped to use their educational credentials to catapult themselves up the class ladder.

Writing in the 1990s, journalist Nicholas Lemann captured this emerging “upper-meritocratic” worldview: a “love of competition” tempered with a “herd mentality” and an “aversion to risk.” Bank recruiters, many of them Ivy League alums themselves, tapped into this attitude. A Wall Street career, they told students, offered that heady combination of status, exclusivity, social validation, and just as importantly, safety. The discourse of meritocracy, then, came not only from yuppies themselves: it was also repeated and reinforced by banks and their recruiters. This hiring campaign brought a flood of young professionals to New York to work in banking and banking-related jobs.

Between 1978 and 1986, investment banks added 117,000 jobs in the city. The overall number of securities and commodities brokers doubled. And as banks expanded, the law and professional service firms that worked alongside them also grew, with many of the largest doubling their workforces by the end of the 1980s. These bankers and lawyers would form the core of New York’s rising class of yuppies. And their arrival would have a profound effect on every facet of life in the city: on its neighborhoods, its patterns of work and leisure, its consumer economy, and its politics.

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Excerpted from Yuppies: The Bankers, Lawyers, Joggers, and Gourmands Who Conquered New York by Dylan Gottlieb, published by Harvard University Press.