Reports of the death of big finance, it turns out, were greatly exaggerated. In fact, it appears to be relatively fit as hard-hit finance shops start beefing up their rosters.
There has been no shortage of dire reports in the past year. For example, the writer Michael Lewis, whose 1989 memoir "Liar's Poker" spurred a generation of the young and hungry to try their luck on Wall Street, penned a November article in Condé Nast Portfolio magazine titled "The End." The headline was followed by an addendum that read: "The era that defined Wall Street is finally, officially over."
How bad did things get for finance foot soldiers? Since its peak in the fourth quarter of 2006 through the second quarter of this year, the U.S. finance industry shed almost 7% of its workforce, roughly 572,000 jobs, according to data compiled by the Bureau of Labor Statistics and Moody's.
But some of those desks are being filled again and it seems the fallout zone will be relatively small when all of the dust settles. Rather than a Chernobyl-like wasteland depicted in the fall of 2008, the toxic danger has shrunk to include just a few areas of business.
"I used to say that we were all working for 2010, living off of 2008 and praying that 2009 would end," said Richard Lipstein, a managing director at Hawthorne, N.Y.-based Boyden Global Executive Search LLC. "But we've gotten through this and we are increasingly convinced that this is a real recovery."
Not surprisingly, a swelling volume of financial activity is leading the industry's labor market. In the first half of 2009, profits from finance corporations increased by almost $300 billion, erasing much of the $411 billion decline seen in the second half of 2008, according to data from the federal Bureau of Economic Analysis.
Similarly, by Sept. 11 this year, the market value of the 29 largest finance shops had surged by almost 3.5 times since its March low, according to figures crunched by the New York Times. And the biggest firms on Wall Street are on track to pay a record $140 billion to their employees this year, 20% more than last year and $10 billion more than in 2007.
Those kinds of numbers have headhunters like Lipstein back in the game. Morgan Stanley, for instance, shed about 7,000 positions in 2008 and another 1,880 early this year. But it kicked off a buying spree in August, shopping for as many as 400 workers for its sales and trading operations.
"I've joked that if you were marketing a product that started with a C -- CDOs, CDSs, etc. -- you better plan for a career change," Lipstein said. "But companies will always need financing; people will always need to sell their companies; people will always need to invest."
The smartest managers have used the crisis to buy a level of talent that they could not afford in a bull market and to cut less productive workers.
Still, if recent research proves accurate, the entire finance labor market depends on the regulatory decisions of lawmakers in Washington, D.C., not the whims of hiring managers on Wall Street. Ariell Reshef, an assistant professor of economics at the University of Virginia and coauthor of a December 2008 study on compensation in the finance industry over the past 100 years, expects little change in demand and compensation for financial pros given what has been proposed in Washington, D.C. in recent months.
"The party will go on," Reshef said. "If you look over time, there were a few major regulatory changes. In between, you had stock market crashes, booms and busts and none of those show up in the labor market."
Salaries, jobs and innovation in finance went into a slump in the 1930s when the U.S. government beefed up bank regulation, according to Reshef and his research partner, New York University's Thomas Philippon. The sector started booming again in the 1980s, as lawmakers gradually eased regulatory constraints. By 2005, almost one in 10 college graduates was going straight into finance, according to the pair's research.
Since the start of the crisis, Congress has not come up with any legislation that would drastically change the volume of business being done in lending, investment banking, mergers and acquisitions and asset management.
"So far, it's just talk," Reshef said. "And I don't see it happening. If anything, one of the things that we're seeing is that some of the top people in finance are actually being paid more."
Reshef said that Wall Street will even manage to restore trade in the most complex and volatile instruments by renaming them and figuring out new ways to measure their risk.
Among economists, Reshef is in good company. In April, Nobel laureate Paul Krugman wrote: "Despite everything that has happened, most people in positions of power still associate fancy finance with economic progress."
Progress and economic vitality aside, many would-be college graduates still associate finance with a big paycheck and a relatively exciting way to pass a workday. Jon Williams, a 20-year-old sophomore at Penn State, has had his sights set on Wall Street since his senior year in high school when he read "The Intelligent Investor" by Benjamin Graham.
Currently, he helps run the Nittany Lion Fund LLC, a private, student-managed mutual fund, and blogs about Wall Street. The disappearance of Bear Stearns and Lehman did not sway his resolve; nor did a Dow below 6,600 points.
Still, when Williams talks of his career plans, he often gets words of warning.
"But to me, that doesn't really make sense," he said. "I'm into value investing and it seems three years down the road everything is going be above where it is now."
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Kyle Stock here.