The teleology of financialization

That’s perhaps a grand title, but this article from Bloomberg yesterday hit on one what I find a fascinating pattern:

Investment banks, faced with a weak industry outlook, probably will reduce the amount of revenue set aside for pay and should cut 20 percent to 30 percent of managers, according to Boston Consulting Group Inc.

Investment banks also will bring down compensation costs by dismissing flow traders as electronic trading becomes more prevalent, BCG said in a report today. The industry will see little to no growth in the total revenue pool over the next few years, the firm said.

Many of the largest investment banks including Goldman Sachs Group Inc. (GS), Credit Suisse Group AG (CSGN) and JPMorgan Chase & Co. (JPM) cut pay last year amid a slowdown in trading and mergers. Firms must eliminate more levels of management and some should reduce the proportion of employees with managing director titles, according to the report.

“Given that 50 percent of revenues were historically allocated to compensation, clearly people costs will have to be attacked,” Chandy Chandrashekhar, a partner at BCG, told journalists in New York today. Savings “will come from management as well as from the displacement of manual activity through automation.”

Granted, this is a consulting group’s ex ante projections, but it is fascinating to see someone loudly advocating for directing the ax of layoffs at the managing director level – that is not the norm, and points to how the same dynamic of technological replacement that has boosted corporate profits (and Wall Street trading salaries by extension) over the past 30 years is now hitting the very sector that made the loudest demands for short-term/bottom-line results.

Put another way, even finance doesn’t need financiers anymore, just computers.

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