Venture Capitalists on Top In Financial Pecking Order.

One of the unsettling aspects of the modern capital markets, especially if you work in them, is how quickly one's status within them can change. It's hard to measure this sort of thing precisely; still, it's not all that difficult to make a list of the pecking order in finance.

If you had gone to the Harvard Business School in 1985 and asked the students which role in the distribution of capital they'd like to play, they would have given you 300 versions of the same list of the most fashionable jobs. It would have looked something like this:

1) M&A at a big Wall Street firm.

2) Leveraged buyouts at one of the hot funds like Kohlberg Kravis Roberts & Co. or Forstmann Little & Co.

3) Junk bond, mortgage bond or risk arbitrage trading at a big Wall Street firm.

4) Corporate finance at a big Wall Street firm.

5) Bond sales at a big Wall Street firm.

The list could be extended right on down to equity sales in Dallas, and beyond, to all those poor schmucks who actually managed money for a living. But you get the idea. Most of the fashionable jobs in finance in 1985 didn't exist in 1970, when the best thing to be was a money manager or a stockbroker. By 1985, the best thing to be was a hotshot adviser or a middleman working for a big Wall Street firm.

Now, 15 years later, the 1980s pecking order has been re-ordered. There's been yet another reshuffling in the capital markets. The 2000 hierarchy looks something like this:

1) Billionaire entrepreneur who functions as a sort of one-man venture capital fund.

2) Silicon Valley venture capitalist.

3) The boss of a big buyout fund -- of which there are now many, many more.

4) The successful hedge fund manager.

5) Wall Street investment banker or analyst, but only those associated with computer-related industries.

Loss of status

We might quibble about the rankings. We might argue about whether it is right to include billionaire entrepreneurs in the capital markets, since their main jobs are something other than doling out capital. We might even argue whether hedge funds, since the stumbles of George Soros and Julian Robertson and John Meriwether, retain their prestige. But probably we would not argue about the general point: All sorts of once-desirable Wall Street jobs have been shoved down several rungs.

Or another, related point: If you want to get really rich on Wall Street, you avoid Wall Street, or, at any rate, big Wall Street firms. If you want to get rich in finance, you go to work for a firm that has few employees rather than many. And you go to work as an investor in very risky projects rather than as a middleman or adviser to those risky projects.

The few advisers and middlemen who continue to get rich prove this point because of what they do to get rich. The Mary Meekers and Frank Quattrones of the world no longer are valued for their wisdom, or for their control of the access to capital. They are valued for their talk. Essentially, they aren't bankers at all, but publicists.

It's not hard to see the big structural change in the capital market that has rearranged its pecking order: small groups of people can lay their hands on massive amounts of risk capital in a way no one in 1985 could have imagined. Hedge funds, venture capital funds and leveraged buyout funds were once the capital markets equivalent of beyond the fringe. They are now the mainstream, in some ways more powerful even than big Wall Street firms.

What's harder to understand is why, all of a sudden, owners of capital are happier to give it to a handful of people who don't wear suits rather than a giant army of people who do.

You might think that the capital markets would be a pillar of stability in a turbulent sea -- that there would be a single most efficient mechanism to distribute capital to productive enterprise and, having created it, the world would leave it alone. But no. Wall Street is doomed to have its caste system recast.

Michael Lewis, the author of "Liar's Poker" and "The New New Thing," is a columnist for Bloomberg News.