Fallouts from a gilded age

An opinion on Bloomberg indicating that banker salaries will fall by 50%...

It is now obvious that a lot of the financial innovation of the last decade was a waste of everyone’s time and energy. We didn’t need all that complexity: It certainly didn’t make the world economy run any more smoothly. This past decade was the best time to be a banker. Yet the one thing we know for certain is that markets get back to normal over time. If oil is trading at $140 a barrel, it’s probably going to fall in price. If gold is trading at $200 an ounce, it will probably rise. And if bankers are paid 40 percent more than their long-term average, then -- well, you get the idea.
The era of light-touch regulation is over. State-run banks will be tightly controlled by their new shareholders. Even the banks that need no taxpayer bailout will find the authorities keeping an eye on them. We are only at the start of that process. In all likelihood, the regulations will get heavier and heavier, leaving little room for innovation because the last thing anyone wants right now is an elaborate piece of financial engineering. Yet if bankers are just doing dull familiar things in a dull familiar way, they can’t expect to be paid very well. Investment banking won’t disappear. But the compliance officer and the corporate social-responsibility executive are suddenly the most important people in the office. And that will make it a quieter, less dynamic and less profitable profession.
To get back to their sustainable long-term level, salaries will need to fall 40 percent. But, as any trader will tell you, markets always overshoot, both on the way up and the way down. So, in reality, a 50 percent drop seems more likely.