Wall Street is facing a crisis even worse than the financial meltdown of 2008, reports New York magazine in a sweeping cover story. As pieces of the Dodd-Frank financial-reform act come into effect, revenues are plummeting, bonuses are getting slashed, and firms are selling off chunks of office space.
"If you're a smart Ph.D. from MIT, you'd never go to Wall Street now," a hedge-fund executive told journalist Gabriel Sherman. "You'd go to Silicon Valley. There's at least a prospect for a huge gain. You'd have the potential to be the next Mark Zuckerberg. It looks like he has a lot more fun."
During bonus season, Wall Street heavyweights could expect seven- and eight-figure rewards. But Morgan Stanley capped its cash bonuses at $125,000. Bank of America trimmed its compensation by a quarter and set $150,000 limits on some cash bonuses. "It's a bloodbath," one mid-level Goldman Sachs employee told CNBC about bonus day. "One girl was actually crying, I think," said another. After final quarter profits in 2011 fell by 58 percent from the same time last year, the firm shaved wages and bonuses down 21 percent.
The firms are cutting costs in other areas too; as The Wall Street Journal reports, financial institutions are subleasing or selling off over 2½ million square feet of space. Bank of America may sell off every inch of its office space, keeping only its headquarters in New York City and North Carolina.
It's not just a temporary belt-tightening, according to Sherman, who interviewed over two dozen financial players for the piece. While the slow recovery, the financial crisis in Europe, and the tsunami in Japan have all had an effect, there are bigger and longer-lasting shifts underfoot.
The controversial Dodd-Frank act, which is gradually coming into effect, touches every single aspect of the financial services industry. Most significantly, banks will no longer be able, for the most part, to conduct proprietary trading and hedge-fund investing. They have to keep a lot more money on hand too, and can no longer leverage at the 30- or 40-to-1 ratios that were commonplace at the peak of the credit boom.
Last year, trading and mergers slowed as a result, and financial stocks were the limpest performers in the Standard & Poor's 500 Index. As Sherman writes, "there has been a growing recognition on Wall Street that the system that had provided those million-dollar bonuses was built on a highly unstable foundation."
In recent years, finance has been able to grab top talent from the nation's top schools. But it seems the public vilification of the financial sector, led by Occupy Wall Street and outspoken politicians, has infiltrated campuses. 25 percent of Yale graduates go into finance or consulting after college, but the Yale students that attended a Morgan Stanley information session last November were greeted by 50 of their classmates, chanting phrases like "Give change a chance, don't go into finance," and "We've got talent, we've got smarts, but our careers are moved by our hearts."
It's unclear if fewer graduates are seeking work in the financial sector, but there are certainly fewer jobs for them. Last year, the global financial services sector announced 200,000 layoffs.
"Wall Street did a really good job convincing people it was really complicated," a former Lehman trader told Sherman, "and they were the only ones who could do it and it justified paying them millions of dollars." These days, Wall Street may not even be able to convince itself.
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