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The fall of wages in finance

Agreed, pay in finance is going down.
But what we should think is, what will the pay increase/cut be in other professions?
The value of money is coming down for sure, with parallel money printing going in the entire world.
As it is suggested below, is it really time to brush IT skills: will there be pay cut/increase in IT?
or is is best to ,say,become a farmer,if farming will become the next booming thing?:)
 

Dave Haan

aka nnyhav
It's a poorly argued op-ed piece, Matt Lynn generally does better. Just for example, the excess capacity ("There were simply too many bankers out there doing too much banking.") is in part misallocation, since the whole TARP thang is because too little banking is going on. But what I hate is the broad brush rationalizing.

Within banking, top revenue producers have seen their rewards increase relative to everyone else (credit modellers were included in this; but in structuring many of the revenues were illusory, brought forward.) But for support services (especially non-modelling IT), and in many market sectors that have become commodified (think thinner bid-ask spreads), the premium that Wall St paid has been in decline for years. True, the decline has become more precipitous of late. But there are many still in denial about this, and many who'd like to suspend mark-to-market as it applies to their compensation. Meanwhile, issues with the level of top executive compensation is hardly restricted to banking.
 
I tend to take the "there was too much banking going on" as more a statement "there was a lot of banking going on because of cheap credit etc, that would not survive a downturn". In the same way that a housing boom would likely to increase the number of real estate agents trying to sell homes, the availability of cheap credit meant a rapid expansion in market activity, which in turn required more staff. When things cool down however, all those real estate agents/bankers start to experience job cuts. Of course, that is just the way I interpreted the statement, which admittedly does seem to be rather sweeping.

Along the same lines, I guess I think that the justification for TARP varies according to what you define as banking. There is not as much cheap credit being extended, but then, the last few years have been an anomaly, and I think people have to realise that they should be treated as such... all the commentary I've been reading so far seems to suggest that somehow all these bailout plans can whip us back to the golden times of 2005, when regular joe people will easily and painlessly average a 20% return on their investments year after year... when, to my mind, that is patently, nonsense.

Finally, I have no doubt that IT and other industries will experience a downward trend in their rates for the immediate future, as more people compete for less jobs. The point I think that the (opinion) piece was making, is that those industries that were the MOST overinflated will experience the most decline, similar to how the most overcooked housing markets are likely to witness the greatest slumps.

To me, the interesting element was the attempt to decide just HOW overcooked the finance salaries have been, in comparison to their relative historical proportions.
 
To me, the interesting element was the attempt to decide just HOW overcooked the finance salaries have been, in comparison to their relative historical proportions.

I recall at least one other article during the past few months saying the same thing. What he's saying is true but not profound. Also, if memory serves, that pisswilly little bugger, Alastair Darling, has been resisting calls to regulate financial sector pay. So much for New Labour.
 

DominiConnor

Quant Headhunter
Darling says the government will investigate bonuses, and that I find interesting.

If you've read my workon this, you'd see that there is little evidence that anyone currently understands the bonus systems at major banks. Great effort is made at all levels to hide and obfuscate the distribution of rewards. So although some people know how much is given to a given division, the reasons for a specific bonus are not generally known, and of course the level of truth in explanations is never high, sometimes funny rather than plausible..
 

Dave Haan

aka nnyhav
Today's WSJ frontpage has another cite for Philippon & Reshev, in "Income Gap Shrinks in Slump At the Expense of the Wealthy" by Bob Davis and Robert Frank ($sub only, sorry), in much broader context. An additional datapoint:
The finance and insurance industries, which accounted for 5.9% of gross domestic product in 1990, rose to 8.1% in 2006, according to Moody's Economy.com. That fel to about 7.5% of the economy in 2008, the firm says, it estimates the figure will slip to 7.2% this year.
(P&R cite in next graf)
Of course, this being the WSJ, the tone is sympathetic to "Battered Top Earners" ...
... reduced rewards at the top also "could diminish incentives for talented people and stifle a certain kind of innovation," says Michael Spence, a Stanford economist and Nobel laureate.
IIRC, stifling a certain kind of innovation has something to do with responding to oversecuritization ...
 
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