Wall Street has good reason to be rattled by the news that Goldman Sachs laid off senior personnel, including managing directors, last week. It is likely the beginning of a new kind of deleveraging that will occur at every major Wall Street firm.
…many Wall Street firms, especially Goldman Sachs, have engaged in another form of leverage that has persisted through the crisis but now seems ready to crack. Despite being public companies seemingly dedicated to capitalism, many Wall Street firms remain as high-income workers collectives. Regardless of the legal ownership structure, they are compensation machines for their employees.
… At Goldman, for instance, managing directors reportedly earn $500,000 in annual salary. Similar figures can be found at most of Wall Street’s bigger institutions.
…When business runs cold, however, these upper-middle-ranks are costly.
They have high fixed costs but do not produce much stand-alone income for the firm…
Wall Street firms describe their people as “human capital.” But in many ways, they are more like “human debt.”
via Wall Street’s (Other) Great Deleveraging – CNBC.
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