Park Place Station, New York City.
It was late in the evening and I was returning from work. As I rushed through the desolate station to catch my 3 train, I noticed a young man sitting near the steps. His briefcase lay a foot away from him, his tie hung loosely and his face was buried in his palms. He was audibly sobbing, shoulders heaving.
I stopped and briefly considered whether to speak to him. My Indian upbringing said I should offer a few words of comfort. But another part of me screamed inside that I was intruding, that I should ignore him and move on.
Maybe he has just lost his job, I thought, or maybe he just broke up with his girlfriend. Or did someone close to him die? What would make someone cry so bitterly and break down so completely in public?
I didn’t want to intrude on his sorrow. So I swallowed my words and ran down the stairs, just in time to catch the train that was just pulling in.
“He’s missing the train!”, I thought to myself in sudden alarm, but I doubt that he cared.
****
Three years later, I suddenly found myself thinking of that young man, all through the weekend and during the last few days.
Actually, I was also thinking of others like him, the tens of thousands of people in Wall Street who are going to be looking for jobs. With the economy being what it is, and with other Street firms fighting for themselves, not all of those laid off workers will find jobs.
I am especially worried about the Indians (and other international workers) among them. Whether on a H1-B visa or awaiting a green card, Indians tend to be especially vulnerable to layoffs. It’s bad enough losing one’s job, but it gets worse because you then become “out of status” – you have to return to India (or elsewhere). How does one sell the home, pull the kids out of school and upend one’s life at such short notice?
Immigration issues apart, I feel awful for everyone who will lose their job. Yes, even the investment bankers among them.
I have been reading a lot of comments in the Internet the last few days about how those bankers deserved what they got. People are envious, they are gloating, they are revelling in others’ misery.
It’s amazing how much joy they are able to find in others’ sorrow. I wonder if these people are plain malicious, or merely misinformed. I am hoping they are just misinformed.
***
I would like to start by pointing out that not all the employees of Lehman or Merill Lynch are investment bankers. There are the traders, sales people, the equity and fixed income research teams and then those in private equity and investment management. But no matter, let’s call all of them bankers.
Here are some of the sentiments I came across :
“Those bankers get paid a lot, and they don’t deserve it anyway. I am glad to see them let go.”
“All those guys who got placed on Day Zero and thought they were kings, now they are out on the Street! Ha!”
Pay is just one aspect of a job, and in fact high pay is often used to make an undesirable job more attractive. In the old days, automobile assembly line workers were paid very highly, for who wanted to spend their entire lifetime fitting one particular bolt on a car?
If you look at it, i-banking jobs are no less unattractive. Long hours spent doing endless tweaks on Powerpoint presentations or excel spreadsheets, face time… investment bankers work around 90 hours every week. Think about it, all you envious souls who work 40 hours and go home exactly at 6 pm to play with your dog. So if i-bankers get paid twice what you get paid, it’s still the same (or probably lower) on a per hour basis.
In my years at Columbia, living close to Harlem and even walking through Harlem several times, I rarely felt unsafe. But every summer, there were muggings, and invariably, these were the poor i-banking summer interns returning home at 3 am from work.
Think about the stress one goes through to be able to work 90+ hours a week. There is practically no social life outside work, unless you can sacrifice precious sleep to be able to socialize. If you can manage with four hours sleep every day, yes, you can have the semblance of a life.
If you live in New York City, then 50% of your pay goes in taxes anyway (yes, 50%). If you can spend long hours commuting from Jersey or Connecticut (and sleep on the train), you can probably shave off 4% on the tax rate. But when you work 90 hours a week, it’s best to live close to work. That means atrociously high rents that take away some more of your pay.
If you decide to have kids, then you would need a non-working spouse, or a live-in nanny. Compare with most families in the US, which have both spouses working.
Speaking of marriages, the long hours take their toll on many marriages too. The constant stress takes its toll on relationships and on health.
I could go on and on. I don’t expect you to feel sorry for investment bankers – they have chosen their lifestyle, just as you have chosen yours.
Why are you still envious of them? And if you really like the idea of being an investment banker, why don’t you try and become one of them?
“The guys who lost their jobs were responsible for the whole financial crisis anyway, so why feel sorry for them?”
If we are to start apportioning responsibility for the mortgage crisis, I wouldn’t know where to start. I would certainly not start with Wall Street.
Why not start with Main Street, and how people with $30,000 incomes thought they could buy homes worth $1 million? Why not start with the people who thought they could make a quick buck because housing prices would always appreciate?
Why not start with the financial irresponsibility of people who borrowed again and again against the “home equity” of their homes to buy jewellery, and designer clothing, and stuff on ebay?
Why not start with the banks who lent money to these people, knowing fully well that they (the banks) would not have to bear the risk for all these loans?
You can blame the lack of regulation and oversight, and many people blame Greenspan for presiding over the creation of an asset bubble.
Wall Street definitely shares some of the blame, and even there, why should the bankers in only a few institutions suffer?
***
Let me add a disclaimer – I am not an interested party, I have no vested interest in saying any of this. But my heart does go out to all those on Wall Street who face layoffs.
I feel especially sorry for the ones who have been working less than five years. They have endured the awful side of Wall Street, but most likely haven’t had much chance to reap much of the benefits.
I also feel bad for the Indians (and others on work visas). Being laid off carries a huge price for such people.
At some level, I also pity those misguided gloaters, including some who cannot look beyond the veil of envy and see the real suffering of their own classmates. But I admit, I don’t feel too sorry for them.
Sujatha
shyam
Anonymous
John Rennie
??!
See, see? We no fight.
A few points (although I generally agree that the woes of the financial system disproportionately affect junior employees, and they are deserving of some sympathy).
Let’s not ignore their political hypocrisy of the average financial industry executive – either top, middle, or lower-rung. Many of these people who are in the higher tax brackets oppose government spending on services for the poor, which includes programs that re-training for blue collar workers who suffer from job losses due to outsourcing. These guys oppose universal health care in America, but don’t balk at taking huge infusions of taxpayer money to save their organizations. These people want to keep their taxes as low as possible as well give unjustified incentives and protections to corporation which do not deserve them. When Main St is in trouble, even the average Joe in the financial industry dismisses it as a consequence of the ‘free market’ by saying that whatever firm is competitive enough should be allowed to fail (I am not against free market capitalism; I just want the gains and pains of market adjustments to be distributed in a way that makes sense). But Wall St itself, guilty at all levels of massive breaches of financial hygiene cannot be allowed to fail. Why does it get to be this way? Their bungling is of such magnitude that it precipitates a daisy-chain of destruction.
What I want is for the more fortunate in America to realize that reap the benefits of being born to a middle-class family, of going to good public schools in their suburbs and government-aided colleges, and of having a judicial system that protects their private property. They should realize that they too could one day exchange places with the neediest. The laid-off traders of Wall St should realize that America is way behind than other countries in providing necessary services to deserving citizens, and not oppose spending on good welfare plans and government oversight and mandatory disclosures on corporate America.
Secondly, many people who received approval for sub-prime mortgages and loans were often victims of deceptive marketing practices (See: http://www.ftc.gov/opa/2002/09/associates.shtm, http://www.federalreserve.gov/newsevents/speech/bernanke20070517a.htm). So these financial industry workers are not entirely blameless. They knowingly targeted low-income, often less educated and minority individuals.
I came to this discussion with an open mind. However, your comment section was illuminating. I ended up being more convinced than ever that I-Bankers do not deserve my sympathy. Yes, people should not be celebrating, but it is unrealistic to expect them to ‘care’ about job losses in Financial sector.
For all your talk about them working 17 hours a day and being geeky geniuses who deserved all the salary they earned, the fact remains that they bungled, big time. And I am not talking only about the upper management. As far as I know, the mid-level chaps would have been responsible for all the risk modelling with regards to securities they bought and sold.
As to your entirely valid point regarding blame not being apportioned to sub-prime home buyers, it is also an indictment of the creditors who lent them these loans. Obviously the banks didn’t lend sub-prime borrowers money because they thought that society should share the fruits of wealth. They did lend the money at hefty interest rates to compensate for the risk. They did it because they thought that the ‘brilliant’ idea of bundling their loans together with prime borrowers’ loans would mitigate that risk. Their bonus being linked to short term performance was a big incentive in not worrying about long term risks since these sub-prime loans were provided with an attractive teaser interest rate which they knew the sub-prime borrowers would pay off making their securities more attractive and showing up as good assets on their balance sheets, at least until their next bonus pay.
So, if you are a finance chap who happens to be paid tons of money and are supposedly amongst the finest minds, you are also in charge of loads of information about the credit worthiness of individuals and debt instruments you are dealing with, and yet, with all this information and long hours you put in, you cannot factor in some basic risks in your calculations? Then why the heck should I not think that you didn’t deserve your high pay and your fat bonus? I am not saying that me or other heartless people who think they deserve no sympathy or for that matter government regulation would have been better at managing the risks than these whiz kids. But, this is the system that these guys have promoted which they call creative destruction. They took the risk and it proved to be more than they could handle. Now its time to bear the consequences. This is what these finance types have been preaching to all and sundry in other industries.
Farmers are dying in Vidarbha: “Oh, well, farming, like all other professions, is a business and there are risks involved. If the farmers are in so much debt why the heck are they still in farming? They should change their profession and move to cities.”
Jobs are being lost and companies are being destroyed because of corporate raiders short selling stocks: “They serve an essential function in our economy. One should look at them as signaling mechanisms for the market about businesses that are going down.”
Jobs will be lost after this meger/acquisition goes through: “Tough luck, we are Investment Bankers. We facilitate these mergers. We don’t factor in the costs for families involved. We just make sure due diligence is done. It is not for us to worry about how many jobs will be lost. Ultimately the economies of scale would be beneficial to consumers.”
Auto majors are closing their plants and blue collar jobs will be lost: “Government should not bail them out. That will set a bad precedent. A moral hazard, if you will.”
But when their own jobs are on the line: “BAIL US OUT! It is not only us who will sink but everyone in the economy. Ban short selling of OUR stocks! And while you are at it, pretty please, don’t puncture our golden parachutes”
So when you are talking about a bunch of folks who didn’t bother about other people’s job losses resulting from their actions, then why is there an expectation that others should bother about their job losses? This is the kind of thinking these guys have favored when it came to other professions. When anyone highlighted these job loss incidents and tried to bring out the other side of the story they spoke about intellectuals ‘manipulating liberal guilt.’ They used their money to fund politicians that favoured their ideology. But when the other side wants to use the same tactic against them, they are crying foul and talking about a witch hunt! They are the ones who, for want of unfettered functioning of their businesses, made a Faustian bargain with the religious conservatives and brought about eight years of stupid policies that bore a hole through the heart of science in this country and depleted the finances in an unnecessary war.
Yes, all the reasons they gave when justifying their ideology are valid. I am not suggesting that automakers should be bailed out or that mergers and acquisitions should be banned. In fact, I am more sympathetic to their ideology than the other side. But that doesn’t mean that I sympathise with their plight. They didn’t let me sympathise with anyone else’s in similar situation. Given that they promoted this ideology, it isn’t unreasonable for people who had suffered from their actions in the past to feel smug that the wheel has come a full circle.
Another reason why people are angry at them is because, because of their actions many of them will be losing their jobs without any fault of their own. Many in IT, including me, will lose their jobs as the economy sinks. Not because we weren’t competent, but because these guys weren’t! So why should I shed a tear?
Anyways, we are the ones who are spending time debating whether or not we should lend a shoulder to cry on. I am certain that being the whiz kids that these guys are, they must have made wise investment of their own money which will see them through the downturn pretty comfortably.
One other aspect that is being muddled in this debate is individual versus institution. People are cheering the downfall of the institution. I doubt if anyone is really ‘happy’ that their neighbour/relative or someone they know has lost his/her job.
Just to remind you that the HUGE bonuses that are made on wall street are taxed at the capital gains tax rate of 15% and not 40% or so federal tax rate or definitely not 50% rate that you mention and we all surely know that it’s the bonuses that people in the i-banking field work for not the pay which is usually a pretty small component of the total package!
Lekhni: How I wish that were true, folks in Wall Street would jump up in joy on hearing this
Sadly, it’s not. What you are referring to is the concept of “Carried Interest” which is taxed at capital gains tax rate. That is applicable primarily to owners of Private equity and hedge funds – and even there, not to the employees, only the owners. Ordinary Wall Street employees get taxed at the marginal rate for every dime they earn.
great post Lekhni. and i am NOT a finance person so i won’t talk about who gets hurt and how much.
What I am, is an I-banker’s wife. and a less arrogant person i have yet to come across. there’s a saying in hindi about how the lowest constable wearing shorts at the police station, is the most arrogant of the lot. and i’ve noticed that a lot of the really intelligent, interesting or even moneyed people – are very humble. its usually the newcomers on the block who are cocky – but that usually wears off. i’ve noticed that in all fields. the newest airhostesses are the most arrogant of the lot!
my husband’s has i-banker friends too and i’ve yet to come across an arrogant one. most of the time i ignore them of course because they’re talking shop. but they’re some of the most humble, friendly people i know. its a silly sad stereotype and yes, i believe most of the people talking are doing it out of envy and ignorance. schadenfreude is right.
Lekhni: I agree completely
Arrogance has nothing to do with one’s profession. I have seen everyone from government clerks to customer service reps being arrogant – even though these people are supposed to be all about helping others 
Pay has nothing to do with arrogance. If we brand everyone in an entire profession as arrogant, it’s not them, it must be us 
You said: “My point is that the greed didn?t start in Wall Street, it started in Main Street with house flipping and no-doc loans.”
This is garbage, plain and simple.
Who gave thos no-doc loans, and why? Let’s say I’m on Main Street making 30K and go to a bank for a loan for a 1 mil house. Five, ten years ago, they would have laughed in my face and that would have been the end of the story. The greed DID start on Wall Street, with the mortgage guys thinking they could make a quick buck by lending to the poor sod, knowing full well the loan would turn sour down the road, but what did they care: their year-end bonuses would be pegged to how many loans they closed that year, not what happened 2 years later. Can you not see this: if huge bonuses are tied to how much money you make for the bank THIS quarter or this year, people WILL do the sort of nonsense that went on. The quants knew very well what was happening, but they were not considered “team players” if they pointed out the huge risks in these loans. So, yes, the industry at large is fully to blame for what has been going on, individuals working for the system also have to share part of the blame. When you are paid these huge sums in salary and bonuses, it is your responsibility to not screw up. Lots of professional put in as long, if not longer hours as i-bankers: doctors, academics, researchers, but they have infintely more accountability for their work even when they are paid peanuts compared to Wall Street.
Lekhni: I completely agree with you that the commercial banks who lent those mortgage loans are to blame. Yes, they should never have made those loans.
Except, commercial banks are not Wall Street. The reason they made those loans – because they don’t bear the risk, it gets passed on – to Wall Street.
The quants you mention don’t make loans. They are part of Investment banks, which are Wall Street, and who take the loans that commercial banks have already lent, and package them into securities.
You make it sound like Wall Street is completely innocent about these loans that just got “passed” on to them, when the truth is that this whole thing started the other way around: quants devised the mortgage backed securities, which fed the mortgage market and the bad loans, NOT the other way around. Except, the good quants knew how much risk was sustainable, but who listened to them? Look, Wall Street knew exactly where this was headed because they started it: the deregulations that allowed i-banks to carry more risk than before was the main culprit. The whole thing would have been sustainable and stable if everyone along the chain was satisfied with “reasonable” profits instead of exorbitant ones. Bot of course, fat bonuses drive these people, so this is the mess we have now. Don’t expect the common man to feel sorry for Wall Street: not to say gloating over anyone being laid off is good conduct. Just got back from lunch from my favorite Thai place in one of the NY suburbs and the owner was bemoaning the drop-off in business. This is not uncommon: EVERYONE is paying the price for the bonuses that a few got over the last few years that you seem to think were well deserved, beacuse hey, i-bankers put in so many hours.
Lekhni: No, in fact the exact words in my post are “Wall Street definitely shares some of the blame”.
All I said in my response to you was that Wall Street did not originate those loans. They were not the ones who lent to borrowers without documents or proof of income. They were also not the ones who borrowed loans they had no idea how they were going to repay.
Of course everyone is affected, and I and MJ say as much in this post. MJ had a very accurate (and prescient) analysis.
Wall Street definitely made some bad decisions, but whom do you think is to blame in Wall Street – the CEOs and senior executives who made those decisions, or the people with less than 5 yrs experience whom I am talking about?
i quite appreciate your point of view cause i think it is objective….but be positive..learn from the turmoil…shoulder the responsibility…tomorrow is another day!!!we will definetily get out of it!!