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Many Former Wall Street Employees Exiting Finance

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The problem with having narrow skills, like being able to structure CDOs, is that if you lose your job, your employment prospects are limited. Unless you have personal connections that are willing to give you a chance at something where your skills might be distantly relevant (say being the CFO of a small company), most employers, especially large companies, want to hire someone who is already doing precisely what the job calls for. I’ve seen enormously talented senior people (and I don’t mean from Wall Street) unable to land jobs because employers write the job specifications so narrowly.

Recall that in the dot-com bust, those who lost jobs in Silicon Valley faced similarly bleak situations, and stories abounded of principals of failed companies seeking work at the likes of Home Depot.

It is hard to be sympathetic with people who made so much money in the fat years. Nevertheless, naivetee, optimism, peer pressure and (of course) big bucks lead young people to chose these high paying careers and not consider how risky they are. Even though Wall Street’s cyclicality is well known, many assume the cuts will happen to someone else, and if something bad were to happen, they could always find a job on the buy side. They are learning otherwise.

As Bloomberg reports, many former masters of the universe are looking far afield for there next gig:

Wall Street professionals are trying new careers, and fetching smaller salaries, amid the elimination of 76,670 investment jobs in the Americas following the global credit crunch that started a year ago, according to data compiled by Bloomberg.

Bankers are “buying businesses for themselves, moving west or to Europe, including Russia, or to Dubai,” said Jeanne Branthover, managing director of Boyden Global Executive Search in New York. “They’re also moving totally outside what they do, buying a retail store or a ranch.”

“The job market is in the worst, most chaotic state I’ve ever seen it in fixed income,” said Michael Maloney, who recruits finance professionals for Maloney Inc. in New York. “I’ve been doing this for over 30 years and I’ve never seen anything like this.”

Half the people working in debt sales, trading or research in New York at the beginning of 2007 will have been fired by the end of this year or won’t get a bonus, Maloney estimated.

Jeff Salmon said job jitters prompted him to swap investing in asset-backed securities at Bank of New York Mellon Corp. for keeping the books at a hair salon. He and his wife, Olga, opened a Great Clips franchise in Mercerville, New Jersey, that offers $12 haircuts for both men and women…..

Traders and bankers who leave finance can expect to earn a fraction of what they used to make. Compensation for employees on Wall Street averaged $399,360 in 2007, compared with $62,390 for New York City jobs outside the securities industry, according to the state comptroller’s office…..

Bond salesmen and traders are trying everything from bartending to real-estate sales to make insurance and tuition payments for their families, Maloney said.

“I know a few guys that started gambling, playing poker to pay the bills,” he said. “Especially ex-traders.”

Joshua Perksy took to the streets after being laid off as an investment banker at Los Angeles-based Houlihan Lokey. He strolled New York’s Park Avenue in June wearing a sandwich board reading “Experienced MIT Grad For Hire.”

“It’s been slow and frustrating,” said Persky, 48. “The only places to turn are hedge funds and boutique banks. I’ve never been unemployed this long.”

While his gambit generated some job leads, none has panned out so far, Persky said. He’s considering a move to Omaha, Nebraska.

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13 comments

  1. Lune

    I’m all for finance guys taking their lumps like everyone else in the American economy these days. But there is a broader issue to be concerned about:

    Macro-economically speaking, the typical way to boost productivity is to become more educated (not necessarily college, but I include job training, experience, etc.) so that you can do more complicated tasks. But the byproduct of this process is that people become more narrowly specialized. And the byproduct of that is that their ability to find work outside their narrow niche declines as they invest more and more effort to becoming good at their current job.

    So far, this is not necessarily a bad thing. As people become better at what they do, the economy as a whole benefits. But this process runs into a roadblock when job insecurity increases. That is, a rational economic being will not invest 30 years of job training for a job from which he might be fired in a year.

    We’re seeing this conflict frequently now. Many corporations find that they can’t get their employees to develop very narrow, specific skills that the company may need. The employees would rather spend time learning broadly applicable skills that would be of help when the next round of layoffs come around. Even in manufacturing, companies are finding it hard to attract employees because no one wants to spend a year learning how to operate a piece of machinery only to be fired in a year with no marketable skills when the dollar rebounds and the factory gets shipped to China again.

    To take another example, this country needs brain surgeons. Generally speaking, knowing how to operate on a brain qualifies you to do little else. Now if you had a job market where the average brain surgeon was fired every 2-3 years, no one in their right mind would invest the 15+ years of training after high school needed to become one. It’s only the assurance of a reasonably secure lifetime career (even if you change practices, you’ll still be able to find a job as a brain surgeon in the future) that gives people the confidence to start the training course. Without that, you wouldn’t have any brain surgeons (or you’d have to pay them $10mil dollars a year so that they could recoup their lifetime earnings in a few years before being fired).

    I would assert that the amount of job insecurity in American labor markets these days is a serious impediment to incentivizing people to develop the ever more esoteric and narrow (not to mention more difficult) skillsets that people need to develop if American productivity is going to continue to increase and stay one step ahead of the emerging economies. Without further steps to assure job security, no one is going to waste time developing themselves in anything but the most generic, broad way possible. I’m always amused when people blithely say something like “the average American will change careers 5 times in his lifetime”. Sounds like a country of jack of all trades, master of none, which will be utter disaster for our country’s ability to compete with emerging countries and still provide a superior standard of living.

  2. Anonymous

    I am one of those bankers who was out of a job because of reorg, and then got a new one at a slight raise.

    There is a big difference between having a job paying $60,000 a year where you are at risk of being laid off, and a finance job where you make $200-600k a year. I haven’t been at Wall Street firms for long, but careful people can pile up money at an astonishing rate. If you live a modest lifestyle, it’s easy to save more than half of your takehome pay.

    I am disappointed at how few people actually do save that much. Remember that some of the compensation is in restricted company stock or stock options, and that can end up being worthless by the time you can exercise or sell.

    I know people making $500k+ a year who will have difficulty making mortgage payments when their loans reset. If these people lived modest lifestyles, they could have paid off their homes in under 5 years. I have very little sympathy for anyone who makes this much money and has no savings.

  3. Peripheral Visionary

    I think initial projections of reduction of the finance industry by 20% were overly optimistic. The finance industry is still far too big by any historic measure, and has a long way to go before getting down to size. The volume and velocity of money meant that there was plenty of money to skim off the top (and finance being an unproductive activity, it in effect is a money-skimming operation), but as the real money supply contracts and the economy slows, there will be far less money to take off the top.

    Trends always overshoot, and I think this one will be no exception. When deflationary expectations set in, people will resort to direct savings, which will further reduce the pool of money available for the financial industry to extract its earnings from.

    The first wave hit the real estate finance industry, and the impact has been dramatic. It’s rapidly becoming clear that there were far too many real estate related financial professionals making way too much money for what they actually contributed to society. When the supply of real estate sales contracted, a bloated pool of financial professionals competed for an ever-shrinking supply of customers, with the result being that everyone lost, part or all of their income. I see that as a direct harbinger for what is to come for the financial industry as a whole.

    And I disagree to a certain extent with Lune. True specialists will typically have some job opportunities somewhere; even COBOL programmers can consistently find work. The people who are the first to lose jobs are the people who are *not* specialists in their fields, and the finance industry over the last few years has acquired more than its fair share. The problem is not that the financial professionals were too specialized, it was that too many of them had no idea what they were doing.

  4. Yves Smith

    PV,

    I said that the typical peak to trough employment decline on Wall Street was 20%. That was a general comment about the risk of a taking a job on Wall Street, not a forecast for this downturn.

    As for employability of specialists outside their area, I have to beg to differ for anyone over the age, say, of 35. I know personally of COBOL programmers who were unable to find work even during Y2K when they were supposedly needed to go through legacy code.

    The skill level Lune and I are talking about is much narrower than the one you are thinking about, I suspect. COBOL programming does not take 15 years of investment, as does being a brain surgeon or, say, the head of strategic planning at a major corporation.

    I also know personally of MANY people with great resumes that have been completely unemployable. To illustrate: one started up the Russian operations for a major US information firm, got it profitable in 2 years (also claims to be the only person who sued a Russian oil company, won, collected the money, and is alive to tell the tale), then turned around a pan-European medical database business based in Paris. Being in Paris means you couldn’t fire people. Most managers do not know how to restore profits without firing tons of people.

    Yet he was completely unable to find ANY work in the US because his experience didn’t fit any job specs (and he also did a fair bit of networking when he got back, so this did not reflect want to trying).

    Without thinking very hard, I can name at least 20 people, all over the age of 40, all with good backgrounds and good reputations, who were unable to get another job at anything remotely resembling what they did before. Some tried consulting, one bought a franchise business, which means they all turned to forms of self employment. Many retired at a more modest standard of living than they would have liked (those tended to have a working spouse that made this option more viable).

  5. Peripheral Visionary

    Yves,

    Interesting thoughts. I can’t let the recruiting side of the business world off on this one; I do think there are problems in the hiring process. You are correct in that companies tailor job descriptions to find candidates who have done *exactly* what the job entails; in their minds, that reduces the risk of a bad hire. But it leads to all sorts of unforseen problems, primarily inflexibility in the face of change (because no one has ever done anything other than exactly what they are currently doing) and a lack of creativity (ditto.) Also, it tends to make industries as a whole more “ingrown”, to where they lose touch with the outside world and are blindsided by macro developments, something which has been a major factor in this crisis.

    With respect to your associates having difficulty finding work, I can’t comment on any specific cases, but my general feeling is that expectations are far too high. To put it bluntly, not everyone can have a C-suite position. The tech bubble saw many people pick up prominent and important-sounding positions, only to lose them; having their expectations at that level, they became “unemployable” as they were unwilling to accept anything less. We will definitely see the same this time around. There just is not that much room for $200k/yr salary positions in a healthy economy, let alone $500k/yr positions in a struggling economy. But expectations have been set, and so we will be hearing many stories about “eminently qualified” people unable to find work; and as the pool grows, the competition will increase and the salaries will have to come down to where they should have been in the first place.

    I don’t mean to denigrate your acquaintances; they sound very highly qualified. But there is an awful lot of competition out there for the good jobs, and it will only get worse. The one thought that comes to mind is that we could always use more entrepreneurs; and for those with the qualifications and who were careful about preserving their wealth, the next few years may be an excellent opportunity to open a new business and expand even as the rest of the business world is capital constrained.

  6. Anonymous

    Jeff Salmon said job jitters prompted him to swap investing in asset-backed securities at Bank of New York Mellon Corp. for keeping the books at a hair salon. He and his wife, Olga, opened a Great Clips franchise in Mercerville, New Jersey, that offers $12 haircuts for both men and women…..

    Hell, at least the guy is doing something useful now. I have a lot more respect for a guy who cuts hair than a shyster looking to fleece the sheep in the global financial ponzi scheme!

  7. Francois

    "I would assert that the amount of job insecurity in American labor markets these days is a serious impediment to incentivizing people to develop the ever more esoteric and narrow (not to mention more difficult) skillsets that people need to develop if American productivity is going to continue to increase and stay one step ahead of the emerging economies. Without further steps to assure job security, no one is going to waste time developing themselves in anything but the most generic, broad way possible."

    Bingo! Lune, your post clarify in a nice way, a feeling I had for quite a while now. That is, corporations are pushing harder and harder to have it both ways: very narrow skill set that fit EXACTLY with their need of the moment, while refusing to invest meaningfully in their employees, or to offer a career path that enhance more stable employment.

    The software industry is notorious in that regard. No wonder they are so fond of cheating the immigration system of H1Bs. There are even law firms willing to offer seminars on How to cheat the system so they don't have to hire American workers.

    http://www.youtube.com/watch?v=TCbFEgFajGU

    http://www.youtube.com/watch?v=Fx–jNQYNgA&feature=related

  8. L'Emmerdeur

    A long time ago, we all lived as monkeys in trees, and life sucked.

    The alpha males ruled the roost, so they had it a bit better, but everyone had to worry about their next meal, and whether they were going to be the next meal for some predator.

    We built this civilization to prosper as communities and reduce such anxiety. Sure, there’s still the alpha males taking the lion’s share of the wealth, but there should still be enough to go around so everyone can have some sort of stability and quality of life.

    Then, in the 1990s, a “new paradigm” was introduced. Now, everyone had to be an alpha, switching jobs like underwear, abandoning the desk job or factory for some post-industrial cyberpunk HUD-based meta-corporation, closing deals while jamming to their iPods and emailing their android lover.

    The alphas loved it.

    The rest developed anxiety and helped create a multi-billion dollar pharma industry for anti-depressants and mood enhancers.

    I’ve been saying this “new paradigm” is not for everyone, since the 1990s.

    Sure, America is portrayed as having been settled by “pioneers” who risked everything to come here and start new lives. But we forget that most of those people fled their homelands to escape the lack of stability and the hopelessness so that they could come here, find a piece of land, and settle down and become farmers.

    While we may like to think that most Americans come from alpha stock, we are for the most part just regular folks trying to achieve what those monkey ancestors could not imagine: a normal, safe and somewhat predictable life.

    This message is brought to you by someone who most people would classify as an aggressive alpha male.

  9. L'Emmerdeur

    A long time ago, we all lived as monkeys in trees, and life sucked.

    The alpha males ruled the roost, so they had it a bit better, but everyone had to worry about their next meal, and whether they were going to be the next meal for some predator.

    We built this civilization to prosper as communities and reduce such anxiety. Sure, there’s still the alpha males taking the lion’s share of the wealth, but there should still be enough to go around so everyone can have some sort of stability and quality of life.

    Then, in the 1990s, a “new paradigm” was introduced. Now, everyone had to be an alpha, switching jobs like underwear, abandoning the desk job or factory for some post-industrial cyberpunk HUD-based meta-corporation, closing deals while jamming to their iPods and emailing their android lover.

    The alphas loved it.

    The rest developed anxiety and helped create a multi-billion dollar pharma industry for anti-depressants and mood enhancers.

    I’ve been saying this “new paradigm” is not for everyone, since the 1990s.

    Sure, America is portrayed as having been settled by “pioneers” who risked everything to come here and start new lives. But we forget that most of those people fled their homelands to escape the lack of stability and the hopelessness so that they could come here, find a piece of land, and settle down and become farmers.

    While we may like to think that most Americans come from alpha stock, we are for the most part just regular folks trying to achieve what those monkey ancestors could not imagine: a normal, safe and somewhat predictable life.

    This message is brought to you by someone who most people would classify as an aggressive alpha male.

  10. Anonymous

    “True specialists will typically have some job opportunities somewhere; even COBOL programmers can consistently find work. “

    This is a myth. You Wall Street types have yet to suffer the pains of outsourcing and temp visas coupled with chronic ageism. That is the fate of specialists in engineering, the physical sciences and computer sciences.

    No one wants to pay for experience when they can get it cheaper in China (or have someone flown in for a couple of weeks from China). There is currently no enforcement of wage standards, or even any caps in the current visa system. The number of h1b visas granted is double the number limited by our virtual legal system.

    And what’s old-age in science-land?

    35 is the new 65! Build a life around that!

  11. Richard Kline

    As one of the few (accidental) working stiffs to regularly comment here, I will add that the ‘over-specification’ of hires is at least as endemic in the lower tiers of the economy as in the upper ones, if not more so. Jobs are incredibly narrowly defined unless they are mass turnover ‘sales opportunities’ and the like. If you haven’t done exactly what they want done today, the recruiter doesn’t even interview. And that’s if you’re under 40. The idea that a firm would actually _train_ you to do the job their way isn’t even laughable, it’s completely outside of their box. “Train them? But we’re hoping to fire them in 2.5 years when X happens/is done.” You have to be ready today since firms literally have no tomorrow in mind for you.

    And to Anon of 1:53: Regarding those marginally employed engineers and softwarians, one reason unions exist is because independent contractors are totally at the mercy of their hiring authorities unless they have known expertise that makes them hard to replace. The solution to the problem you identify is political organization. . . . Except we don’t ‘do’ political organization in the US this generation, unlike in France. We have this fantasy that it will be the other guy that get’s ‘done for’ until the Friday afternoon email comes for us, no?

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