Death by a thousand cuts

The banking industry in New York is dying. It is death by a thousand cuts and indiscriminate layoffs. If you ask Goldman Sachs, they are only top-grading, and getting rid of the bottom segment of the industry. In reality, the bottom feeders are really at the top, making these decisions to cut. The banking industry has been in-bred, and corrupted for years with crony capitalism, and nepotism being the main talents for survival. Anyone that has any real talent, capability, or ethics, has been systematically purged from the system.

So now we finally have the inevitable death throes of the industry. After facing the reality of the consequences of their actions in 2008, and refusing to accept this reality, finally Bankers are at a point where the golden goose is not laying any more eggs. So instead of trying to save the industry, they have decided to kill the goose, and make a last meal of whatever remains.

It is all fine in the free market text books, to allow for a hire and fire environment, that allows a bloated manufacturing firm to trim their costs, and remain competitive in a global environment. However, we are talking about banking and not manufacturing. These same banks were hiring last year. In reality, they have no idea how many people they need, because they have no idea as to their purpose in the economy. The Wall street firms are just serving up BS, and consequently there is no set number of people required to do this job. It is an extremely variable number.

The real reason the banks costs are high is because of the number of Managing Directors on the payroll. Do the math. If you have a thousand MD's earning over a million dollars a piece, that is a billion dollars in expense. It is hard to make any money when your costs are so high. Instead of turning out thousands of low level grunts into the streets, they need to lose the MD's. Since the MD's are the ones doing the firing, this is not likely to happen unless you have a very brave CEO.
Since the situation is as it is, we need the government to mandate (hey if the firms did what was good for them, we would not need big government to step in) that for every thousand workers they fire, they need to lose an MD.

The current situation is bad on many levels. Due to the bottom feeders having moved up to running the firm, they have no other talents besides surviving at all costs. They do not have any actual technical abilities to run anything. So after each round of firing, they have to go back in the market and hire some people back, because someone has to do the work! Then we go to the next round of firings because the MD cost situation will continue to be a drag on the firm. Which is why we are seeing these endless hire and fire cycles.

The other option that the firms are following, is to move all the support jobs offshore, so that atleast on a short-term basis, the cost situation is alleviated. Which brings us back to why this will kill the industry in New York. The derivative products that the banks are peddling,despite their fancy names, can really be whittled down to four or key five asset classes - Equities, interest rate derivatives like interest rate swaps, Foreign Exchange products, Commodities and the infamous credit derivatives. These products are pretty much commoditised on the front-end, and a used car salesman could peddle them. No real irreplaceable talent is required to trade or sell these products. The real technical know-how which differentiates one firm from another is in the infrastructure, systems, regulatory framework, Accounting and everything else that has been built-up in the Banking industry, over the last century. If all of these functions are moved offshore, then how long will it take your overseas competition to pick up the front-end of the business, and own the industry end-to-end ? All we will have left will be proprietary hedge funds, masquerading as brokers and Banks.

There was actually a brave soul at Lehman, who suggested that if the Bankers skipped their bonuses for one year, they could save the firm. He/she was laughed out of the firm. Obviously, it made more sense for the MD's to simply change the flag, and get paid by someone else, rather than sacrifice their bonus for one year and save the firm that had enriched them for so many years. Nothing can save this industry without a real change in the leadership.