I think you're right. I recently graduated from one of the nation's top universities and I can tell you first hand that only a couple years ago, you could ask almost any ambitious student what their aspirations were after college and the default answer for many of them would be banking or consulting. I think this default position can be partly explained by the large salaries attached to these jobs and partly explained by students not knowing what exactly they wanted to do with their lives. If they were going to do anything, they should be well-compensated for it...right?
It is surprising, however, that graduating students are still gunning for these i-banking jobs given current industry conditions. If you're bright, ambitious, and hard working, I would think the odds of procurring some measure of wealth from some form of entrepreneurship would be on par with i-banking. Students lack foresight if they don't see that the banking industry will be drastically changed given current events.
I think they think it's going to come back within a year or two or five at most.
I think they are being delusional. For the next twenty years, minimum, bankers in general and investment bankers in particular should come to expect that if anybody's making lots of money, they're going to get scrutinized. Not just by the government and not just by the people, but by the banks themselves. The banks have seen what happens when you pay too much money to those people, and while the upper echelon shall always be handsomely paid, I think the rank and file are going to see a severe and long-term pay cut.
At this point, you tell an investment bank that if they don't pay a lot they aren't going to get the smartest possible people and the reaction is likely to be "Thank god! At least when they make mistakes they won't make really smart mistakes! Those are the worst." Why should they pay someone five million to destroy the company when they can find people for $200,000 who will do quite adequately? (Recall that "beating the market" is very hard and that an index fund is generally an astonishingly good investment, all things considered.)
It will come back, though. It will come back when those who remember how we got here are flushed out of the system and the people of 2040 or 2050 make the same damn mistake and fall into the credit bubble trap again, as the balance of the workforce tilts away from those who are at least 20 today. But that's probably not soon enough for the students of today.
I don't think the investment banks will be back for a while because all of the action is moving to smaller firms. There will be a shakeout in the hedge fund industry, but there will continue to be successful firms that do very well. Believe it or not there is still a lot of money out there looking for investments. I already see what looks like a bull market in the creation of financial startups trading markets that are not related to fixed income. These people will not have the government looking over their shoulder on compensation so they will be able to attract the best young talent that is sick of the uncertainty over pay and firm performance at a big institution.
Why is it be surprising? We just witnessed these banks lose hundreds of BILLIONS of dollars, hundreds of billions of dollars of shareholder wealth, probably hundreds of billions of dollars of bondholder wealth... and bonuses fell by half. With incentives like that, anybody would be a fool not to at least consider it.
Edit: and while I hope so, and we'll deserve what we get if we don't take action, it's actually not at all clear that the finance industry will be massively regulated after this, at least not in the right way. Many congresspeople are a combination of incompetent and outright owned by the finance companies and people.
It is surprising, however, that graduating students are still gunning for these i-banking jobs given current industry conditions. If you're bright, ambitious, and hard working, I would think the odds of procurring some measure of wealth from some form of entrepreneurship would be on par with i-banking. Students lack foresight if they don't see that the banking industry will be drastically changed given current events.