The End of Wall Street As They Knew It

[Byron]

http://nymag.com/news/features/wall-street-2012-2/

And so, among the many dislocations Wall Street has suffered since 2008, none may have been more destabilizing than the headlines that flashed across Bloomberg terminals on the afternoon of January 17, when news leaked that Morgan Stanley would cap cash bonuses at just $125,000. A week later, Bank of America announced that it would be cutting the cash portion of its bonuses by 75 percent, giving the rest in stock. All across Wall Street, compensation is crashing. Goldman Sachs, coming off a lackluster fourth quarter, slashed compensation by 21 percent.

Banks have always had occasional bad years, but the sense on Wall Street is that this bad year is different. Over the past several weeks, I have had wide-ranging conversations with more than two dozen senior Wall Street executives, traders, bankers, hedge-fund managers, and private-equity investors. And what emerged is a picture of an industry afflicted by a crisis it would not be flip to call existential.

 

[Andy Nguyen]

It's a good read, a reality check but I don't suppose it will change anything the previous 1,000 articles haven't. "Bad" on Wall Street is a relative term.

 

[mfegrad]

things are supposed to be worse this year for eq, slightly better for credit/fi.

but that's only for the average people, right? all mfe applicants will clearly outshine everyone else!

 

[Ian Kaplan]

Pay, including pay for quants, is remarkably low in finance right now, especially when you consider the astronomical cost of living in the New York City area. If you look at compensation, adjusted by cost of living, you are probably better being a software engineer in California than a Quant in New York. But I don't think that this is a permanent state of affairs. My hope is that over time demand will overtake supply (of quants) and compensation will improve.

 

[bigbadwolf]

My hope is that over time demand will overtake supply (of quants) and compensation will improve.

You may hope for it but I don't see any logical reason it should improve.

 

[Ian Kaplan]

In finance, as in the rest of life, its good to try to remind yourself that tomorrow is not necessarily like today. These things come in cycles. If Wall Street has a boom, which will happen at some point, the job market will improve and big salaries will return. But I can't say when this will be. Since I can't predict the time, I'll simply hope that it will be in the spring of 2014.

 

[AndrewChang]

In finance, as in the rest of life, its good to try to remind yourself that tomorrow is not necessarily like today. These things come in cycles. If Wall Street has a boom, which will happen at some point, the job market will improve and big salaries will return. But I can't say when this will be. Since I can't predict the time, I'll simply hope that it will be in the spring of 2014.

"What goes up must come down, but what goes down may not necessarily come up."

 

[Jtdakota]

Hey I am trying to figure out a movie I once saw where the market was in trouble and all the major banks and myrle lynch etc... We're locked in a room till they decided who would buy what troubled companies such as countrywide etc... Does this movie ring a bell?????

 

[carlfox]

Hey I am trying to figure out a movie I once saw where the market was in trouble and all the major banks and myrle lynch etc... We're locked in a room till they decided who would buy what troubled companies such as countrywide etc... Does this movie ring a bell?????

Its on youtube. Search "Last Days of(or at, cant remember) Lehman Brothers.

 

[Andy Nguyen]

 

[Jtdakota]

I will have to watch them but I think it's narrowed down to " to big to fail" or last days at Lehman brothers Thank you guys very much

 

[daleholborow]

http://www.economist.com/news/finan...her-lousy-year-cap-disappointing-decade-going

Rather damning report card, usual conflict in the reader responses, but generally a good quick read i think.

 

[Ian Kaplan]

Thanks for posting the link, daleholborow. That was indeed a very interesting article. The article mentions Simon Lack, who wrote an interesting and controversial book on hedge funds and their returns.

I speculate that if you look at positive part of the distribution of hedge fund returns you might find a log-normal scale (a Pareto distribution) where a few funds do very well and others have pretty mediocre performance. One problem for investors is that the stability of those whose performance is on top is probably fairly low.

Institutions have gotten very good at looking analytically at hedge fund performance. I was talking to someone over the weekend who used to invest institutional money with hedge funds. He commented that hedge fund managers were not always truthful when discussing the hedge fund style. Institutions can now model the hedge fund performance to see if it corresponds to the style claimed.

An article I read looked at a hedge fund that did very well at the few hundred million level (e.g., 30% to 40% return, per year). The fund attracted a bunch of money on the basis of this performance and grew to a few billion. The fund then hit a bad patch of a year or so. With the new capital they lost more money then they had ever made, putting their performance at much less than US Treasury bonds.

Despite all of this, money continues to flow into hedge funds. So they are not going to go away. But there may be more pressure on the fees that they charge.

 

[alain]

Despite all of this, money continues to flow into hedge funds. So they are not going to go away. But there may be more pressure on the fees that they charge.

This is the key. As long as investors give their money to money managers, they are going to exist. If investors are not satisfied, they can pull their money away or not invest at all. If they don't do it because they have a dream, they have nobody else to blame but themselves.