Max Abelson (via Paul Krugman) writes at Bloomberg about bankers and their struggles to live on half a million a year, in the face of government regulations and more work than ever:
Michael Karp, 42, CEO of New York-based recruitment firm Options Group Inc., said Wall Street pay will fall 30 percent this year, and more for executives. It will be flat or down even in businesses doing relatively well, such as emerging markets and commodities, he said.
Karp said he met last month over tea at the Gramercy Park Hotel in New York with a trader who made $500,000 last year at one of the six largest U.S. banks.
The trader, a 27-year-old Ivy League graduate, complained that he has worked harder this year and will be paid less. The headhunter told him to stay put and collect his bonus.
“This is very demoralizing to people,” Karp said. “Especially young guys who have gone to college and wanted to come onto the Street, having dreams of becoming millionaires.”
I'm not going to win any friends on this one, but it's worth asking, How hard do these wannabe millionaires really work?
It depends on where they actually labor, but the short answer is: Hard. Yves Smith, an econoblogger who has spent time in the financial trenches, wrote a long piece about this and other things last year. Here's a salient section about big investment bank culture:
Wall Street jobs have long been the prime objective at the top of the MBA food chain, and that has always been a function of the money. Aside from looking for people who are well groomed, articulate and reasonably numerate (image is important, given the fees charged to corporate clients), firms screen job candidates for money orientation and what is politely called drive. At Goldman, the word “aggressive” was used frequently a term of approbation.
But the firms are white-collar sweatshops with glamorous trappings. You do not know how hard you can work, short of slavery, unless you have been an investment banking analyst or associate. It is not merely the hours, but the extreme and unrelenting time pressure. Priorities are revised every day, numerous times during the day, as markets move. You have many bosses, each with independent demands and deadlines, and none cares what the others want done when. You are not allowed to say no to unreasonable demands. The sense of urgency is so great that waiting for an elevator is typically agonizing. If you manage to get your bills paid and your laundry done, you are managing your personal life well. Exhaustion is normal. On a quick run home en route to the airport after an all-nighter, a co-worker tried to shower fully clothed.
A setting that would seem to reward, nay require, cutting corners has another striking feature: intolerance for error. A computation mistake or a typo in a client document is a career-limiting event. Minor miscues undercut the notion that your firm can execute the more complex and risky elements correctly
And the dynamic doesn’t change much over the course of one’s career. The drill of being a medical resident (or pre-Iraq, a tour of duty) has a known endpoint. But investment bankers have signed a Faustian contract: You have no right to personal boundaries. The business says how high to jump, and you are expected to deliver. Yes, more senior people have more dignity, but the idea that your needs are second to those of the business never changes.
In my day, it wasn’t uncommon for the firm to ask associates to reschedule weddings if they conflicted with a deal. It wasn’t that firms were opposed to marriage; indeed, the partners knew a young man was theirs once he procured a wife and, better yet, kids. He was tied hopelessly into a personal overhead structure that would keep him in the business.
I spent much of last year reading the daily output of a whole bunch of bank analysts. The volume of content they produced was astonishing, especially during the four quarterly reporting periods each year known as earnings season. Some of them were so prolific that I had a tough time figuring out when they and their junior associates had the time to do the quantitative research that they included in their notes.
And these people weren't even doing deals or trading, where the real money was being made. To a certain extent, they were doing it for love. Or at least the love of getting to think about companies and money for 14 hours a day.
At the New York Times, Catherine Rampell points out that "30 years ago [bankers'] salaries were only twice as high as in the rest of the private sector." In fact, in 1981, average salaries everywhere weren't all that high — less than $50,000 a year.
So think about it. Working in finance is arguably much harder now than it was in the early 1980s. But it wasn't easy in the Reagan era, either. Investment bankers and management consultants — the two high-paying trades that elite MBAs most often pursue — sign up for some seriously hard labor. Let's face it: this isn't the Bailey Building and Loan.
We might not be aware of that, thinking that all bankers and consultants do all day is unproductively shift money around and tell people how to run their businesses. This is why the blood boils when a young i-banker is heard complaining that he's working harder than ever, but not getting the fat bonus he expected.
Unfortunately, the 1% don't seem to get that while they're entitled to perhaps a far better-than-average return for their efforts, they're not entitled to a return that would have made a Rockefeller blush.
Work hard. Get paid a lot of money. But not a crazy ridiculous bring-on-the-revolution lot of money.