When I graduated college in the mid 90s, Wall Street was really heating up. As soon as I graduated I was able to secure interviews from many different companies and departments across Wall Street. Investment Manager, Big Six Consulting , NYMEX Floor Runner, Investment bank back office.
The jobs I preferred most I didn't get; the one I wanted least gave me my highest offer (which to the chagrin of my head hunter I turned down), and so fate would have it that I landed at a Major US Broker Dealer working in the back office of the fixed income unit.
Like any other 22 year old, I didn't know much except that I wanted to make a shit load of money and the way to do it would be to get to the trading floor... And so that is what I did in my first year, landing a job as a trading assistant.
But what I found out after 2 years of menial labor, is that I was no closer to being a trader, and I wasn't getting much of the pie either - All the big guys were keeping it for themselves. So I made the leap to another Investment Bank, this time in the Finance Department, and what followed during the following 8 years was a familiar path of many 20 something Wall St workers at that time. The script was:
A) Learn as much as possible in your current role. Work hard and push for pay raise and promotion.
B) If you don't get it, jump elsewhere for a 20-30% raise.
C) Cycle, Rinse, Repeat.
It actually wasn't hard at all. If you had a good looking resume and presented well, then it was only a matter of time before you found your next gig for higher pay. At the time I thought I was super talented and super smart, but now I realize I was just hitting the late innings of a Wall St super boom that was about to go bust. During the late 90s while many were finding great work opportunities on Wall St, there was something else going on in the background that would have profound effects only 10 years later.
1 - Repeal of the Glass Steagall legislation in 1999 - To summarize, this law enacted in 1933 during the great depression segregated Commercial and Investment banks and the intermingling of those funds across the two. Retail Bank money and Investment Bank Investments were bifurcated. After 1999 though, they all were in the same trough and bank execs could use retail deposits as funding for Investment Banking activity.
2 - Bailout of Long Term Capital in 1998 - One hedge fund levered up too big and consequently lost big. Problem was that they were the counterparty on trades with other well connected banks who started crying about the losses and urged the regulators to orchestrate a bailout lest they want to "collapse the system." Bailed out they were, which continued a precedent started since the inception of the Federal Reserve - Companies make risky bets, and when they hit they get to keep all the money. However, when they lose, the taxpayer pays the expense so as not to "collapse the system."
Fast forward to 2008 and the financial crisis. The Banks were way too levered. A daisy chain of Derivatives connected IBs, Insurance Companies and Pension Funds. Many of these institutions and their levered bets now were intermingled with Mom & Pop's savings accounts. You couldn't let the banks go under because it would wipe out main street as well, so something "had to" be done, and do they did.
The Central Banks slashed interest rates, fired up the printing presses unleashing a tidal wave of liquidity, and pretty much bought and have continued to buy anything that is not nailed down -
The US Federal Reserve Balance Sheet ballooned from 500b to 5Trillion. The Bank of Japan is outright buying a majority of the ETFs in Japan and in 2016 became top shareholder of 55 of the 225 companies in the Nikkei 225 index. This artificial demand levitated asset prices and temporarily held off the demise - it appears their scheme worked - "The System was saved".
I'm not here to relive the past and start moralizing on the bailouts as it does us no good. Did they "save the system"? Or did they re-animate a corpse that would have been better off left dead? Only time will tell, but history has taught us that kicking the can usually doesn't turn out so well - it simply delays the inevitable reckoning which continues to gather force as time progresses.
What I can say with certainty is that along with a explosion of debt, and derivatives, there was a explosion of rules and regulations as well, which has severely crippled the industry. From a job creation and career perspective for the American Worker, things have changed dramatically, for the worst, and will never be the same again. The days of every graduate hitting the street with numerous job offers is gone. I often admit to the kids that worked for me, stuck in a junior role with little chance for mobility - "If I graduated today, I'd never be sitting in this Manager's seat - It was all timing.."
Since 2008 there have been at least half a million Wall St jobs lost. Close to $300b in fines levied, and with it a never ending sense of dread within these firms. There was a populist backlash against the bailouts, and hence Wall Street would now feel the full force of politicians positioning for re-election by promising the population that now, not only would they make the banks pay, but they would ensure that anyone employed at these banks would never get laid again!
Wall St today is ensnared in a web of rules and regulations designed to prevent greedy bankers from threatening the global economy. Profitability, and Compensation are way down. Where you used to have vibrant trading floors you now have packs of compliance, regulatory, and so called internal control departments. With new capital requirements and even tougher stress tests looming, the only answer the banks have is to continue squeezing costs, and retail clients with all kinds of fees, and this trend will continue for years.
This means three things are happening.
1) People are being tossed on the street into a terrible Wall St Job Market.
2) Whoever is "lucky enough" to keep their job, holds onto it with White Knuckles - They will do anything to hang onto their job, and they certainly aren't going to allow any bushy tailed up and comer to upset their apple cart.
3) Because everyone is just trying to hold on, it leaves the young talented folks with very little opportunity to either get hired, or have any opportunity for real career advancement.
So now that you have gotten the bird's eye view of this sad and sorry state, let us take a closer look.
The plethora of regulations that have been heaped upon the industry as a penance for our sins have transformed “Trading Desks” into utilities. Proprietary trading is no longer permitted. All business must be customer flow of which you are allowed a small commission or spread, but don’t try to make too much money off your clients, or off to the clink you will go.
Nothing is giving District Attorneys with political aspirations a harder erection than being able to throw some Wall St slob in the slammer for “ripping off” his accredited Investor clients from “5 Star” universities. The 5Star boys apparently couldn’t value a instrument they were buying with their client’s hard earned money, and now are crying foul, suing to get justice.
There are no shortages of lawyers of course, & Shiester & Fraudster LLC are on the class action case that will ensure they earn millions in fees, while 5 Star school boys recover pennies on the dollar for their clients.
Good ol’ Uncle Sam will then swoop in for his pound of flesh of course, which is effectively right out of the employees’ pockets and into the Government coffers.
Don’t be fooled though, it’s not the greedy evil banksters that will be “getting what they deserve”, rather it will be the Operations, Finance and support staffs whose good paying middle class job will vanish.
The moral of the story here is: Increased Regulation = Higher Compliance & Regulatory Costs + Higher Cost of Capital – Profitable trading strategies – Talented US Employees + Heavy dose of Low Cost morons = significantly reduced profits = massive layoffs & further offshoring of roles. i.e. No career opportunity for you.
You got all that? No? Then read it again, and again, until it sinks in.
The truth is, that while this hollowing out of the street has been terrible for many, it has been a blessing for us at 3ptCapital. We saw this coming from a mile away, and it gave us the excuse to chase our dream to start our own firm.
"Honey, please stop crying. I didn't quit my job and throw away my benefits to trade full time. THEY got rid of ME - I had no say in the matter"
So we aren't walking away from the industry, but rather we are lacing up our sneaks, and sprinting away! Good-bye, Good Luck & Good Riddance!
As I'm running away though, I'm seeing young people walking towards that hell-pit, and that is the purpose of this story. I want to provide a warning - Think twice about it. Wall Street is not the place it used to be. Unless there is a dramatic change in the Regulatory landscape you will be better off pitching your stakes elsewhere.
If you have a dream to be part of Wall St, then try to find a role at a Hedge Fund or small start up where they wont be subject to the crippling regulations, as opposed to one of these behemoth institutions.
If you feel you are getting boxed out and not being given a opportunity to trade, then find work elsewhere, and begin building your own trading business on the side.
If you truly want to become a trader, simply Don't be denied Your Goal.