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Goldman Partners Shares A Measley $22 Million Amongst Themselves From Their 1999 IPO

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lloyd blankfein

Goldman Sachs went public in 1999, and the 30 executives from back in that day and age just got paid $22 million for it, the Wall Street Journal reports.

The group, which includes current CEO Lloyd Blankfein, made this money by exercising options and selling the underlying shares after the firm's 3Q report last month according to regulatory filings.

From the WSJ:

The options expire at the end of November, and cashing in produced instant profits because Goldman's share price is more than 50% higher than when the options were awarded in 2002.

"By exercising 10-year-old options before they expired later this year, executives captured some of the value we have built for shareholders over that period," said a spokesman for the securities firm.

In contrast, many of the executives' remaining options are worthless, at least for now, because they were granted from 2005 to 2008. The stock peaked in October 2007 at about $239, or 89% higher than Tuesday's closing price of $126.25 in New York Stock Exchange composite trading at 4 p.m.

So you're probably wondering who the big winners in this one were. The WSJ has that for you too:

  • Michael S. Sherwood, a Goldman vice chairman and the firm's top executive in Europe received $5.2 million
  • Chief Executive Officer Lloyd Blankfein got $3.1 million
  • Chief Financial Officer David A. Viniar got $2.3 million

A professor quoted in the article said that it looked like "the end of an era." And while these numbers may be large outside Wall Street standards, we can't help to agree.

Read the rest of the article at WSJ>

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Why You Didn't Land That Interview At JP Morgan

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lonely sad rejected businessman

It’s a question I’ve been getting a lot lately.

“Why didn’t I get an interview at Morgan Stanley New York?”

“Why was my friend selected for JP Morgan Houston but I was not?”

“Why did I get an interview at CS Hong Kong even though my resume had a typo in it?”

Interview selection at individual banks is incredibly random, and you never know what someone’s biases will be.

Yes, if you “bankify” your resume and avoid common mistakes, you have a higher probability of getting an interview. But that doesn’t mean you’ll actually get one – and sometimes even if your resume is awful, you might still get an interview.

Example #1: A Real-Life Jack Bauer

Once, we were sitting around reviewing resumes and someone stumbled across a guy who had served in the military (in a country where it was a requirement).

Alone, that wouldn’t be too impressive – but this guy had served in several well-known battlefields and listed them all on his resume.

One of the bankers in the room was also ex-military so this immediately jumped out at him – and even though this guy had 0 finance experience and his resume was marginal at best, he still got an interview on the recommendation of the ex-military banker.

If you know how to commandeer vehicles, pitch books should be easy, right?

Example #2: My Disagreeable Roommate

We had just received a resume from one of my former roommates. He was transitioning from wealth management to investment banking, and he had all the elements of a successful resume.

I took one look at it and told everyone in the room we shouldn’t interview him.

As roommates, we got into arguments over the smallest issues and there was no way I could ever see myself or anyone else working long hours with him.

You could argue that living with someone is different from working with him, but in banking you basically live with your co-workers.

Example #3: That (Fake?) Private Equity Internship

One time we saw a lot of applicants from one school had all “interned” at the same “private equity” firm. Normally we only spent 30 seconds per resume and never did any outside research, but seeing 5-10 people all with internships at one place raised some eyebrows.

None of us had heard of this firm, so it was either fake or another J.T. Marlin.

We did some digging online and found that it was real – but it was also inaccurate to label it “private equity.” It was more of a “Well, my rich uncle just gave us $5 million to invest so let’s look at some cool startups in the area” type of place.

We did not give an interview to anyone who claimed they “worked on LBOs.”

Example #4: The Failed Fraternity Guy

One guy who had some solid experience and a few banking internships had just submitted his resume.

When we were reviewing it, someone else in the room recognized him – it turned out this same guy had (unsuccessfully) rushed his fraternity a few years back. In fact, it was more than unsuccessful – everyone hated him and wanted nothing to do with him in the aftermath.

There were also suspicions of illegal activities on his part (use your imagination). Deciding that the risk was not worth it, we did not give him an interview.

Example #5: The Guy Who Wouldn’t Take “No” for an Answer

This one appeared in the comments the other day but it was in an article from over a year ago, so I felt it would be worth highlighting here:

“My situation was very bad…I had no prior work experience (neither industrial nor financial), I had no student exchange programs (highly rated in Europe), I had no stellar grades…BUT I had a genuine and strong interest for IB.”

Ok, so far you have an uphill battle…

“I wrote a full-of-passion investment banking cover letter, and they called me for the 1st round; my motivation impressed the Associates I talked with and after two weeks I was called for the 2nd round (a business case followed by a discussion with a VP, and a traditional interview with a Director).

The day after they offered me the job, although other candidates had better resumes (prior Internships in Bulge Brackets!).”

Nothing is impossible.

So What Can You Do About It?

If the recruiting process is so random and you get accepted or rejected for reasons beyond your control, what can you actually do about it?

  1. Spread your net wide. A great resume is only effective if you apply everywhere, from the tiniest boutique to Goldman Sachs.
  2. Play nice with others. Finance is a small world, and someone not liking you elsewhere often comes back to haunt you here.
  3. Don’t be afraid to be interesting– random facts can help you quite a bit (but please, don’t do a video resume, at least not in finance).
  4. Oh yeah, you still need to have a good resume anyway. Luck won’t help you everywhere, even if you are a real-life Jack Bauer.

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Four Quick Election Reactions From A Recovering Wall Streeter

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CNN Election NIght Empire State Building

Four quick thoughts now that the elections are over, from a recovering banker.

1. The equity indexes fell immediately at the open today, and remain down over 2% on the day.  Do not let any talking head from the financial-industrial-infotainment industry try to suggest that this is in response to Obama’s election.  Every trader on the planet knew that Obama had a 60% chance of winning as of last month, a 75% chance of winning as of last week, and a 90% chance of winning as of the final 48 hours.[1]  Nobody who manages capital for a living was caught off guard by the Obama victory, so nobody suddenly had to reposition their portfolio as a result this morning.  Markets and the people with real capital who participate in them are forward-looking and probabilistic, so equity markets  already reflected widespread expectations of an Obama victory.

2. The next Treasury Secretary matters tremendously for the biggest financial-regulatory issue of the day, which is the unaddressed problem of Too Big To Fail banks.  Secretary Geithner pre-announced that he would not serve in a second Obama administration[2] so the hunt for a new Treasury Secretary is now underway.  Geithner’s legacy – while not terrible IMHO – is that he absolutely failed to address the TBTF problem and pushed the Obama administration into a business-as-usual, same-guys-in-charge approach to Wall Street reform.  Secretary Paulson’s background as the former Goldman chief who grew up professionally with the rest of Wall Street’s heads played in inordinate role in selecting the winners and losers of the Credit Crunch of 2008, as well as in providing the ultimate government backstop for the country’s biggest financial firms.  Had Paulson professionally come from any other industry – instead of finance – he would have seen what the rest of us saw: It’s unconscionable to allow firms to pay executive bonuses[3] in the same year that the firms were bailed out by taxpayers.  Geithner continued Paulson’s protective approach to Wall Street banks, rather than seizing the opportunity to extract real concessions or reform when the industry needed the government simply to survive.

I’m not suggesting we put someone like Elizabeth Warren[4] in charge, but ideally someone who can independently evaluate what parts of Wall Street need supporting, and which parts need curbing.  Somebody, in other words, who didn’t spend their entire life working on the Street.

3. The “Fiscal Cliff” and fiscal responsibility.

Obviously the FC now becomes the next hot topic for overheated punditry, at least until we pass the January deadline.

I’m not optimistic about the tone of the discussion nor the results of fiscal compromise, but I do have my wishes.

My main wish is that, with national elections now two years away (in the case of Congress), can we have less complete bullshit when it comes to fiscal policy positions?  Would that be too much to ask?

One party’s leader says the solution lies in tax cuts.  The other party’s leader says the solution lies in more generous social spending.  One party’s leader says military spending is untouchable.  The other party’s leader says transfer payments and social safety net spending is untouchable.  All of those leaders’ proposals leave us in a worse fiscal position as a nation.

Hey guys?  Can you treat us like grown-ups?  We can handle a bit more truth than you’re giving us credit for.  We know budget deficits are on a terrible trajectory, and only a combination of tax hikes and spending cuts will correct the course.

Say what you will about the 2016 Republican nominee, Gov. Chris Christie, he’s proved that refreshingly blunt and seemingly unpopular – but actually honest talk – can appeal to both sides of the political aisle.  Let’s have some more of that as we drive, full throttle, toward the Fiscal Cliff.

4. Tax policy

I’ll have more to write about this shortly, but one of interesting lessons of the Mitt Romney’s candidacy is how little the US electorate understands, or cares to understand, about our income tax policies.

By not releasing more than his 2010 and 2011 income taxes, Romney effectively obfuscated his financial background.  He signaled (albeit quietly) that his tax-planning strategies were so aggressive that their release would explode his electoral chances.  And yet, I don’t think this cost him anything real in the end in terms of votes.  He calculated – correctly! – that the electorate’s ignorance of tax policy, and tax planning strategies of the wealthy wouldn’t hurt him.

In an era of heightened resentment for the wealthy, I take away that the “99%,” for the most part, has no idea what they don’t know.  They can’t even conceive of how someone like Romney avoids paying his proportionate share of taxes.  Romney knew that, and he was not about to wake that sleeping, ignorant, giant.



[1] Because professional traders pay attention to data and evidence, not pundits trying to hype a competitive race.  Which is why Nate Silver is a the mutherflipping P.I.M.P. of the moment.

[3] Bonuses are for success.  Bonuses are optional.  Bonuses should reflect private profit and should never be paid by borrowing from taxpayers.  Only a deeply embedded executive like Paulson could have missed the implications of this.

[4] I know I may sound strident when it comes to Wall Street reform, but I actually admire the industry very much and I want it to thrive.  Warren by contrast always strikes me as overly ideological when it comes to Wall Street, incapable of seeing the positive.

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Remember All Those UBS Traders Who Were Brutally Cut Last Week? Now The Bank Is Rehiring Some Of Them

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ubs doors

Last week, UBS brutally cut a bunch of fixed traders in London by deactivating their security passes so they could not enter the building.

The bank also called employees based in Stamford, CT to let them know they were cut as Sandy churned up the east coast, Business Insider reported. 

Now there's a surprising new twist.  

Reuters' Sarah White and Dasha Afanasieva report that some of those employees who were put on special leave are being asked to come back and more could follow, according to unnamed sources familiar. 

From Reuters

UBS has already brought back a small handful of employees who were on leave, two people familiar with the matter said.

It could also ask more to return or rehire some where needed, said three other sources, including UBS insiders, adding that some desks were now too thinly staffed to operate properly, if they were desks the bank ultimately wanted to keep going.

UBS has said it plans to cut 10,000 jobs globally. 

SEE ALSO: The New Way People Get Fired On Wall Street >

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The Standard Wall Street Career Path Is Shifting Under Everyone's Feet

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crumbling road

So you want to become a Wall Street master of the universe? Forget almost everything you know about how the ride to the top is supposed to go.

The basics are still the same. Go to a target school, take the right classes, and land an exhausting summer internship at a bulge bracket bank.

But say you've done all that. In fact, say you've even gotten a job offer at that big Wall Street bank.

Then what?

Five or six years ago the road was pretty clear — a few years as an analyst, some time as an associate (or maybe a dip into the buy-side), a stint at business school and then a leap into the buy-side or a long career at the Wall Street bank of your choosing.

Not so anymore.

Wall Street's career path has changed. Bulge bracket banks are concerned about finances, so they don't know what size analyst class they can sustain. Plus, there isn't always enough meaningful work for the analysts to take on because business is slow.

Naturally, that has lead young people to consider other options, specifically at mid-sized Wall Street firms like Evercore or Greenhill.

"People don't go to Wall Street with the attitude 'Hey I'm going to be working at this big investment bank for the rest of my life,' said Skiddy von Stade, CEO of Wall Street career matching firm, OneWire."They go to work on financial modeling skills that they can take with them... whether they go to a tech company, a start-up, or the restaurant business."

At mid-sized firms, young people work more closely with their superiors and take on more sophisticated projects. That's a huge advantage in an industry that's getting smaller and smaller by the year. Talented graduates are starting to notice, and that helps mid-sized firms overall.

"They're (mid-sized firms) picking up prestige because even if the deal doesn't close you're still doing the analysis," one young private equity analyst told Business Insider. "All the work you do is M&A there's no time wasted on IPO's and investment grade debt process work."

So if you're a college senior who just got that offer from JP Morgan in, say, the healthcare group, you might want to check out your options at a smaller firm and see if you can join a group that isn't as niche. A more general group means a more diverse skill set.

So what does that mean for the Goldman Sachs of the world?

"Big investment banks... are going to have to create a much better environment for these kids with much more responsibility and more opportunity for growth," said von Stade. "These firms in the old days had a big bench of analysts putting together pitch books and doing mundane stuff. Today kids want to learn all sides of transactions and work on their modeling skills."

And that's just the beginning. The path doesn't get any more clear after a stint as an analyst. Buy-side jobs are hard to come by, and if you do find one, you may not want to jump ship for business school and lose your spot.

In fact, some young Wall Streeters are wondering if business school is worth it at all.

Bottom line: The Street has become even more competitive than it was before, and if you're not careful you can get stuck in a sector where there's little mobility.

Amidst all this added complication, though, there is good news, according to von Stade.

"In the old days people would say 'I've got to go to Wall Street because I want to make money,' but now people are being smart with the decisions they make in their careers and are going into industries that satisfy their intellectual curiosity."

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Wall Street, Mike Mayo Is Tired Of Your Excuses

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mike mayo

Wall Street, as you know, Mike Mayo is watching your every move.

And today on CNBC, he gave you his honest opinion of what you need to do now that election is over and  leadership and Washington has been decided.

From CNBC:

“I'd say no more excuses, let's get on with it. It’s been two years since Dodd-Frank was passed,” Mayo said. “If you’re the regulators, get these laws written, if you’re the banks, at some point you have to play the ball where it lies. You need to get back to the business of banking.”

He said that we're in a situation like Japan. In fact, what's worse than Japan is the regulatory uncertainty — so it's time to just implement the laws we've already passed.

And in case you're wondering... no, there's no additional political risk after this latest election (even though the fearsome Elizabeth Warren is now in the Senate), "the die has been cast," said Mayo.

The risks that do exist are still the big macro concerns, but the banks are changing internally (think: UBS) which Mayo thinks is great. That's why he recommended Morgan Stanley and Citigroup for the first time in four years.

"UBS... shows the potential for banks like Morgan Stanley and Citigroup to better optimize what they're going to do. Oh and guess what, if banks don't do it I expect investors... to speak up more often."

And Mike, congrats on getting named on Worth Magazine's Most Powerful People In Finance list.

See, we're paying attention too.

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10 Ways It's Totally Different Being A Trader On The West Coast

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golden gate bridge

The center of the financial universe is undoubtedly New York City, but that doesn't mean every trader lives and works there.

A substantial chunk of the financial services industry considers the West Coast the best coast, despite the three hour time difference.

That time difference, however, affects a trader's work life and social life. 

We spoke to a trader who has experience trading in New York, Las Vegas and California to explain how life is different, and in many ways better, for a West Coast trader.  

Many of them don't have to commute to work.

That's because a lot West Coast traders tend to trade from home.

"We're already three hours behind our east coast brethren and we can't give away any more edge in terms of getting in front of our trading screens.  A commute would totally kill that." 

Of course, there are some traders on the West Coast that have to commute as well as those that work at financial services firms there, too. 



West Coast trader's style is more laid back.

"Because we trade from home, most of us trade in our workout clothes and dress very casually.  New York traders tend to have dress clothes." 



They're early birds.

"A number of us have our trading screens near our beds, so that we can check the status of the markets early in the morning anywhere from 4 to 5 a.m. Pacific Time." 

"Not only are we three hours behind New York, but we're eight hours behind London."



See the rest of the story at Business Insider

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Now Everyone Is Wondering If Romney Will Go Back To Wall Street

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Mitt Romney

Now that the Presidential race is over, the speculation race has begun.

The NYT has a fly-around on what Mitt Romney will do next. His first priority is to secure positions for the 400 individuals who worked tirelessly on his campaign by the end of November.

After that, who knows?

Obviously, he could back to Wall Street. Hedge fund legend Julian Robertson (a campaign supporter) once offered Romney a $30 million job running his firm, Tiger Management and has recently said that he's a "hot commodity" to him.

People close to Romney have said that he's turned down equally heft pay packages from private equity and other Wall Street firms before.

From the NYT:

But his friends can envision him pecking away at opinion articles for major newspapers, a passion for Mr. Romney, who is known to tap them out on his BlackBerry on the beach or on a plane whenever inspiration strikes.

Turning out a book has become a familiar ritual for Mr. Romney, a former English major who prides himself on his writing. He produced “Turnaround,” a look at his role turning around the Olympics, in 2004, and “No Apology,” a political manifesto, in 2010.

A book about the election? Bring it on! We can't wait to read it.

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Tiki Barber And Other Celebrities Got To Take Trade Orders Yesterday At Bloomberg's Headquarters

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Bloomberg Tradebook, which is Bloomberg LP's global agency broker, hosted a "Trick or Trade" charity day yesterday where the trading commissions were donated to different charities.  

For the occasion, celebrities interacted with clients on the phone and Bloomberg chat and those customers were then able to make orders and pick the charity that received their firm's commissions.  

The celebrities and their charities they represented included Tiki Barber (The Fresh Air Fund), Mariska Hargitay (Joyful Heart Foundation), Darryl Dawkins (Ronald McDonald House New York) and Jerry Stiller (The Actors Fund). A portion of the commissions received will also go to Hurricane Sandy relief efforts. 

We stopped by when former pro-football player Tiki Barber was taking some client orders.

"It's interesting because it's so much more relational, relationship-based than I thought it would be," Barber told us.

"I got some orders -- one for $25,000 and one for $100,000." 

Firms such as Cantor Fitzgerald and BTIG have also hosted charity trading days.  

Events like these are a really good idea because it's a win-win situation for everyone involved -- the Bloomberg Tradebook staff, their clients, the celebrities and the charities.  

"You had obviously a lot of distress in the last ten days, so people get an opportunity to kind of let their hair down for lack of a better word by getting dressed up and by interacting with celebrities like Tiki Barber, Daryll Dawkins, Jerry Stiller and Mariska Hargitay, to name a few. And some of those folks are getting on the phone with clients," Raymond Tierney III, the CEO of Bloomberg Tradebook, told Business Insider.

"The clients benefit by interacting with people they might not have otherwise and their monies are going away to a good cause not away from their client's commission dollars, but whatever they generate with Tradebook we contribute towards those charities their most interested in," he added.

Check out some pictures of the celebrities who stopped by yesterday.  

Here's Law & Order: Special Victims Unit veteran Mariska Hargitay...

Mariska

Comedian/actor Jerry Stiller takes a client's order. 

Jerry Stiller

Former pro-football player Tiki Barber shakes hands with retired pro-basketball player Darryl Dawkins. 

Daryll Dawkins and Tiki

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The Election, Spending, And What Obama's Victory Will Do To Wall Street Compensation

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barack obama victory confetti

I’ve gotten a few questions on the 2012 US electionand how the results – another 4 years of Obama – will impact the finance industry.

While I had fun writing the Occupy Wall Street post last year and pissing off a whole lot of people reading it (but mostly random visitors who wanted to complain…), I haven’t had the chance to do anything like that this year.

So let’s get started.

First, I’ll admit who I voted for and why… and then we’ll get into the implications of the election both for the economy as a whole and for the finance industry specifically.

The Truth

I was exceptionally unenthusiastic about either candidate, even more so than in 2008.

Generally, I am in favor of smaller government and less spending on entitlements – mostly because, as we’ll see below, the US is going bankrupt and simply CANNOT afford its current spending levels anymore.

My position has nothing to do with ideology – after all, there should be a “social safety net” in the richest country on Earth – and is 100% related to the finances of the US instead.

I look at what’s going on in Europe right now and say, “I do NOT want this country to end up like Greece or Spain – even if it means some short-term pain.”

On the other hand, I found it difficult to get behind Romney’s “Cut taxes by 20% and… we’ll grow the economy by so much that we’ll reduce the deficit!” logic.

If you do the math you’ll see that it’s completely impossible to reach the “break-even point” unless the US GDP grows at 6-7% this year and next and then 4-5% after that for years – in other words, completely impossible growth rates that are more in-line with emerging markets than this country.

Oh, and this is without those 20% tax cuts:

What we need to do to fix the fiscal problems is straightforward, but nearly impossible to implement: raise taxes AND cut spending and restructure programs like Medicare and Medicaid.

Liberals, of course, want to raise taxes and increase spending, while conservatives want to cut taxes and cut spending, with both groups unwilling to acknowledge that a compromise is needed.

And then they create gridlock in Congress and prevent anything substantial from ever getting done.

My Vote Went to…

Taking into account two candidates that I was extremely unenthusiastic over, I was able to make my decision very easily… but she was a bit of a “dark horse” candidate (or should that be “dark dragon” candidate)?

Yes, that’s right: Daenerys Stormborn is clearly the best choice to lead the country.

The public is unwilling to accept higher taxes? Or reduced government spending?

Just unleash one of those 3 dragons and you can instantly solve a bunch of problems.

Unleash all 3, and we wouldn’t even need a government to do anything.

The fact that I live in New York State, where my vote is completely irrelevant, also made it easier to go with such a bold and unexpected choice.

In All Seriousness

No, I didn’t actually vote for a fictional character from Game of Thrones, but I was very tempted to do so.

What I wrote above is just the tip of the iceberg of what I’ve been thinking about over these past few months; both parties had so many laughable positions, promises and “policies” that it really did feel like we were living in a fantasy kingdom with a Mad King who burns his enemies alive.

I am deeply concerned about the direction of the country, and I don’t think much of what was proposed by either candidate will fix anything.

Why No Policy Will “Fix” Economic Growth

There has been a ton of debate over tax policies and other government decisions, but all of this discussion ignores one simple truth: the president has limited power to “fix” the economy and macroeconomic / industry trends matter FAR more than policy decisions.

Yes, the economy boomed under Bill Clinton in the 1990′s and he balanced the budget… but how much of that was due to the IT revolution and the Internet vs. his own policies?

The biggest problem with the economy today is that there’s too little investment into “empowering” innovations that actually transform industries and/or create entirely new industries – which means that new jobs are barely being created, regardless of what the tax rate is.

See “A Capitalist’s Dilemma” for more on this one.

A secondary, but related, problem is that companies that employ hundreds of thousands of people simply aren’t being created anymore.

Technology and automation have made everything so much more efficient that the kind of labor force that was required in the 1950s – 1980s is no longer needed.

For a simple example, consider a business like this site and BIWS: getting to this level with a relatively small team would have been impossible 50 years ago.

Back then, I would have needed more like 40-50 people to run everything: someone to manually input transactions, trainers to go teach classes in-person, someone to print out and deliver newsletters on paper, someone to manually call customers on their land-line phones… and damn, Excel didn’t even exist.

So much of that has been automated and streamlined that the net impact is that even new, highly successful companies simply don’t create that many new jobs.

This is one of the reasons why each recovery since the 1980s has taken longer and longer and why the current “recovery” is so anemic.

And then you have other factors, like the shift from full-time or part-time “employment” to more and more contractor work, outsourcing many functions overseas, and more.

The bottom-line: I don’t think the official unemployment rate will drop back to “normal” levels of 4-5% anytime soon– regardless of who’s in office or what tax rates are.

Read more about this topic here.

How to Fix the Country

What would your “investment recommendation” be if you were analyzing a company and its annual cash flows looked like this graph below?

You would say, “Do NOT invest – stay far, far away unless you’re a turnaround / restructuring expert.”

And yes, that graph is the true financial profile of the USA as outlined in the excellent USA Inc. report from last year.

If you drill down into the data, you’ll see the primary reasons for the US fiscal problems: Medicare and Medicaid, combined with lower tax revenue.

If you’re outside the US and are unfamiliar with these, Medicare is a guaranteed health insurance program for citizens over the age of 65, while Medicaid is a guaranteed health insurance program for families with low income and resources.

Forty years ago, combined spending on these programs comprised 5% of total expenses in the US; today they represent 21% of all spending.

To give you an idea of the problem this presents, here’s what the Liabilities on our “Balance Sheet” look like:

But here’s the punch-line: by 2025, if left unchecked, entitlement spending plus interest payments will exceed TOTAL revenue – leaving no room for spending on anything else, and ultimately bankrupting the country:

While spending in other areas arguably needs to be cut or tweaked, Medicare and Medicaid make the US fiscal situation completely unsustainable– primarily because:

  1. Healthcare costs have risen at twice the rate of inflation over this time period;
  2. The number of people enrolled in these programs has skyrocketed, jumping from 12% of Americans in the 1960′s to 31% now;
  3. And, to be blunt, Americans are extremely unhealthy and “suffer” from many completely preventable “conditions,” like obesity (see pg. 112 of USA Inc. for more).

These are complex problems and I don’t have all the solutions.

But any solution will have to involve both increasing revenue and cutting expenses – the 3 most important points are:

  1. Raise Taxes– And it needs to be more comprehensive than the “Make The 1% pay even more!” line of reasoning. Yes, that will help a little… but as Michael Arrington points out, one huge problem right now is that “stored up wealth” is not being taxed at all. Should there be a “wealth tax”? Maybe, if it could somehow be used to encourage long-term investment in industries that won’t yield an immediate profit or ROI in 3-5 years. Maybe the solution is increasing tax rates, or maybe it’s expanding the tax base, or maybe it’s some combination of both.
  2. Reform Healthcare– Rather than making slight tweaks to this one, I believe something far more comprehensive is needed. The US system should be more like the healthcare system in Singapore, one of the most successful systems in the world. The main idea there is that everyone is forced to divert some pay into private healthcare savings accounts, which they then must draw on, at least partially, to pay for medical expenses. Nothing is “free,” which prevents the over-utilization that you see in places like Canada and the UK. I did mention that 60% of Medicaid spending goes to “optional recipients,” right? (see pg. 15 of the USA Inc. report).
  3. Encourage Long-Term Investment in New Industries– Perhaps you do what the “Capitalist’s Dilemma” article recommended and introduce 0% “super-long term” capital gains tax rates for investments held for 8-10 years or more, or provide some other type of incentive for investing in transformative industries that would actually create jobs. Alternative energy is one of the most likely candidates here, but there may be others.

Yes, we should have a “social safety net” and programs like Social Security should continue to exist.

I am not one of these crazy Tea Party people or “Libertarians” or Rick Perry arguing that it’s a “Ponzi scheme.”

I agree and disagree with both parties on many issues and don’t follow a particular “ideology” other than “Do what works and even if a solution seems crazy on the surface or is extremely unpopular, implement it if it solves the country’s problems.”

So my motivation for all the points above is not about ideology, but rather making the numbers work.

Will Any of This Happen?

If the past few years are any indication, the answer is a resounding no.

There’s way too much gridlock in Congress and no one is willing to acknowledge that entitlement programs need to be radically altered, not just tweaked slightly.

So I am quite pessimistic about the future of the country and the possible resolution of these fiscal problems.

I think the US credit rating will continue to be downgraded as the deficit and debt grow, and that, if left unchecked, the country will be on the path to bankruptcy within 15 years.

The only options to “solve” it are: 1) The government introduces massive inflation to pay off its debt; 2) Entitlements are completely gutted, resulting in panic and death; 3) They intelligently rework the tax code and healthcare system (I would put the odds of this one at 0.01%).

Options #1 and #2 would result in apocalyptic scenarios transpiring, but unfortunately they’re the most likely outcomes at this stage.

So in predicting how the finance industry will be affected, I’ll continue to assume that these problems will get worse, not better, because the “general public” (people who haven’t read USA Inc. or who don’t understand it) hasn’t even grasped the scope of these issues yet and how screwed we all are.

The Impact of the Election on the Finance Industry

Four years ago I predicted the impact on take-home pay based on Obama’s victory; this time around I’m not even going to attempt to do that because his proposals were vague other than the “Increase taxes on those earning above $250,000” line.

The bottom-line is that your take-home pay is going down by at least 5-10% because of that pledge, the “fiscal cliff,” and the new taxes that will come into effect as a result of Obamacare.

At the very minimum, the top 2 federal tax rates are increasing from 35% and 33% to 39.6% and 36%, respectively, assuming that the Bush tax cuts expire (which seems likely, at least for these top brackets).

Then you have increases in the capital gains and dividends taxes, the payroll tax increase, and a whole bunch of other increases; you can get a summary here.

The most relevant quote: “The top 1 percent of households face some of the largest tax increases in 2013 and would see their after-tax incomes fall by 10.5 percent if Congress does nothing.”

“The top 1 percent” here refers to almost everyone above the entry-level in the finance industry because of the income threshold; we’re looking at everyone beyond the $200,000 USD per year income level.

So yes, your taxes are going up – maybe by slightly less than 10% if you’re just starting to work full-time, but certainly by some amount.

But everyone expected that. The more interesting question is which industries will be impacted not only by his victory, but also by the looming fiscal disaster in the country.

I don’t have all the answers, but here are a few industries that come to mind:

HealthcareSome people seem to be optimistic about the healthcare sector because now companies will have more customers as a result of Obamacare.

I think the impact will depend on the specific sector; it might help pharmaceuticals, insurance providers and hospitals, but it seems likely to hurt medical device manufacturers due to the 2.3% tax on all sales of medical devices (that’s sales, not profits – ouch ). In fact, it has already resulted in layoffs and planned layoffs in the industry.

Some consolidation and M&A activity will probably result from all this, but the overall impact on healthcare depends greatly on the sector you’re in, and I am not too optimistic personally.

See more on healthcare investment banking and key drivers.

Real Estate & Home-Building– On one hand, the Obama administration has been very friendly to these companies because of “quantitative easing” (don’t even get me started there…) and the ripple effect that real estate has on the economy – and these stocks have outperformed the market as a whole over the past few years…

But then you look at an economic downturn that’s likely to continue, unemployment that may actually get worse, and consumer spending that may decline further as everyone deleverages and it’s hard to see positive trends in office, residential, or retail properties.

But real estate does have one big thing going for it: even in an apocalyptic scenario where the US government goes bankrupt and civilization ends, buildings and land still have some value.

See more on real estate investment banking and the key drivers.

Technology– There haven’t been too many new policies here and there probably won’t be going forward, and trends such as cloud computing and mobile devices will continue.

The most likely impact within the finance industry is not on the overall technology sector, but rather on specific verticals within it.

Healthcare IT, for example, may see a boom because of all the new regulations that make it even more important for companies to automate record-keeping and reduce the compliance burden.

We saw the same thing after Sarbanes-Oxley was passed in 2002: companies offering technology-based solutions for compliance started to spring up and get acquired by bigger players.

See more on technology investment banking and the key drivers.

Mining– Here’s where we might see the real “boom.” A falling USD (and other major currencies losing their value) plus possible runaway inflation mean that investors will sink even more funds into gold and other minerals… further pushing up prices and deal activity.

Learn more about metals & mining investment banking right here.

So, in short: if you don’t know what investment banking group you want to work in, mining just might be a great choice with the election results and the looming apocalypse. Other natural resource sectors, such as oil & gas, may also see a spike in deal activity if commodity prices there increase.

Many other sectors, such as consumer/retail, industrials and clean-tech could be anywhere from “neutral” to “bad,” depending on the overall economy and the specific sub-industry you’re in.

So, What Should You Do With Your Money?

I don’t give “investment advice” on this site, partially because it would get me in trouble and partially because I don’t do much public markets investing myself.

But I’ll make an exception here and give some simple advice: diversify out of the US Dollar and outside of the country.

You should think of your investment strategy in these terms: “In the case of a continued US government credit rating decline, possible bankruptcy, and global apocalypse, what assets would still have value?”

Three that come to mind are commodities, real estate, and agriculture.

Depending on how pessimistic you are, you may want to add weapons to that list as well; bullets apparently last forever and they might just become the currency of choice in the future.

While commodities like gold don’t have much value on their own, other metals and minerals and energy resources will still prove useful and have some value even if everything else collapses.

And agriculture is an overlooked but extremely promising sector – we’ll actually be publishing an interview with a reader who works in agricultural finance in the near future.

Let’s just say that it’s one of the few areas where you can get high returns with minimal leverage. And if humans continue to exist, they’ll still need to eat something to survive.

For Further Learning

My #1 recommendation is Mary Meeker’s excellent USA Inc. report, published last year.

This erases all the hype about what’s going on with the US fiscal situation and uses REAL numbers to show what’s happening.

You may disagree with the recommendations or you might be more optimistic than she is, but the report is 100% required reading if you want to understand the dire straits the US is currently in.

Also check out Rumble 2012: Jon Stewart vs. Bill O’Reilly– a debate between two talk show hosts that was far more entertaining, informative, and arguably even more honest than the actual “debates” during this election season.

To learn more about why the healthcare system in the US is broken and why the one in Singapore works so well, check out The Undercover Economist.

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A St. Louis Fed Economist's Fascinating Video On The State Of Wall Street

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St. Louis Fed Economist Bill Emmons released a video presentation analyzing the complexity of our current banking institutions, regulating the finance industry, and what the best route to take is going forward. Is there a better way?

Emmons describes the issue of “Too Big To Fail” and its ramifications for the country, and whether this problem can be solved. He explains two broad approaches to reform: 1) radical approaches that include breaking up the big banks and creating “narrow” banks and 2) regulatory approaches that include legislation like the Dodd-Frank Act, international accords such as Basel III that cover capital requirements and the establishment of a “death penalty” regime for failing banks.

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Greg Smith Finally Talks About What He Plans To Do Next

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It's been a few weeks since Greg Smith published his book, Why I Left Goldman Sachs, and opinions on the book aside, there are two questions we had left after the media swarm:

  • Who did Smith write this book for in the first place?
  • And what did he plan on doing now that he was done with Wall Street?
Smith stopped by Business Insider and answered both questions in the video below.

Produced by Business Insider Video

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Jefferies Is Being Sold To Leucadia In A $3.7 Billion Deal

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This just in from CNBC, boutique investment bank Jefferies is being sold to Leucadia in a $3.7 billion year.

Leucadia ($LUK) is a holding company that engages in a variety of businesses from gaming to energy to real estate.

Leucadia already had a big stake in Jefferies. In fact, when a lot of people thought the bank would follow defunct broker-dealer MF Global and fall under the weight of its European debt exposure last fall, Leucadia doubled down on its investment and increased its share in the bank to 57.5 million shares, or 29% of the company.

We caught the news from a CNBC Tweet:

CNBC Tweet jefferies

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Here's The Full Video Of An Ex-Barclays Trader Going On A Nasty Tirade Against Some Construction Workers

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Everyone on The Street has been talking about Olivier Desbarres for the last few days.

That's because Desbarres, the now ex-director/head of Asia FX strategy at Barclays Capital in Singapore, was caught on a cell phone camera going on an absolutely nasty tirade against construction workers.  

In the video, Desbarres calls the workers "Chinese f------g animals" and threatens to burn their house down.  He's also seen tossing a large piece of zinc into the construction area.  

The video was not embeddable until recently [via IanFraser.org].

Warning this video is NSFW and it contains highly offensive/foul language.

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Lloyd Blankfein Spent His Saturday Helping Hurricane Sandy Victims

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Following Hurricane Sandy, Goldman Sachs pledged $10 million in relief funds consisting of a $5 million donation to clean up and recovery efforts and $5 million in loans to small businesses impacted the storm.

Aside from donating money, the bank's employees and executives have also been pitching in with relief efforts.

Goldman CEO Lloyd Blankfein spent his Saturday helping with Hurricane Sandy relief efforts in The Rockaways.  You can see him in his jeans in the photo below from @GoldmanSachs

The bank's employees have also spent time in Staten Island and New Jersey helping package food for victims of the storm.

What's more is when much of Lower Manhattan was left with out power, the lights at Goldman continued to shine bright.  As a result, Goldman opened its doors at its 200 West Street headquarters to allow neighbors to charge their cell phones and get some bottled water. 

Lloyd Blankfein

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5 Rules For Getting A Job On Wall Street Even If You Didn't Get Into A Top School

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columbia

I’ve been in the industry for several years and I’ve come across every type of situation. I’ve met guys from top schools who work in bulge bracket firms, but I’ve also met people from those same schools who can’t seem to land a great job. Conversely, I’ve met guys from non-target schools who managed to get into a top firm.

Simply stated, I do recommend you attend the best school you can get into. Being the underdog is no fun and even if you “break in” it will take longer to get where you want to go. As well, there are many employers you’ll meet along the way that are very rigid about the “rules”. So even if you get in, it may still be harder to get promoted or find a better job later on. Therefore, the best solution is to attend the best school. This leads me to the first rule:

Rule #1: Remember the Michael Jordan Rule: Jordan was the best basketball player of his era. Charles Barkley was arguably #2. On any given night, Barkley might outscore Jordan. However, NO ONE would ever remember Charles Barkley as the best player of his era. The same rule applies for b-schools. There are many schools that rank “top 20” and claim they are almost as good as the top b-schools in the country. However, they are the Charles Barkley of b-schools. Even if they are that good… they’ll never get you the same amount of respect in the job market.

The next set of rules are suitable for people who don’t end up going to target schools:

Rule #2: Start small and work your way up: If you can’t land a job as an FX trader out of school (and it’s your ideal job), try to get a job as a commercial FX trader. Commercial traders are people who sell FX to mid-size companies under $100 million in size. You might not be able to leverage that towards an IB associate position, but if a bulge bracket firm is looking for an institutional FX sales or trader, they will look at someone with mid-market FX sales experience. I was told this is the case by an MD on an institutional FX desk who was looking to hire a junior trader!
In similar fashion, if your goal is to do M&A in a bulge bracket firm, you should get a job doing M&A at a boutique or an accounting firm. The same rule applies for lending: a commercial banker will eventually be able to land a corporate lending job. It takes 2-3 years of experience and a bit of patients but you will eventually get in. Also, remember that your time spent doing mid-market IB/FX/lending will not necessarily count as work experience in the big leagues.

Rule #3: Continue obtaining designations: Unlike b-schools which can vary in terms of credibility, nobody questions the value of an accounting designation or a CFA. All these things help! Keep trying to obtain additional letters after your name and your ability to land interviews will surely improve.

See the rest of the rules at WSO>

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The Truth About Whether Or Not Investment Bankers Add Value

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Investment Banker beggar

“With investment banking, you make a lot of money, and you get a distorted feeling of how wonderful you are. You’ll be flying around in corporate jets and you’ll be attending board meetings, but you don’t really add value.”

-Guy Kawasaki, New York Times Interview

And hey, it’s not just Guy – it’s a common criticism of investment bankers:

You work a lot, but you don’t actually do anything useful.

So should you cross banking off your list?

And what about those corporate jets?

First Off…

Before delving into these questions, let’s first address this specific quote:

  • There are no corporate jets unless you’re a very senior executive. Even MDs fly commercial.
  • Board meetings are rare as a junior banker– most of the time you’re too busy or too sleep-deprived to go.

Back in the day I was offered a chance to go to a board meeting for a major public company as a “reward” for having worked on a couple of pitches.

But I had pulled an all-nighter the day before, so I attended the sleeping room rather than the board meeting.

And as for making a lot of money, well, that’s dependent on the economy and whether banks are hiring or firing.

Elements of Truth

But Guy is not entirely wrong.

As a junior banker most of what you do doesn’t add value – you might revise that presentation 73 times, but chances are no one will even look at it.

Occasionally you might get to bring in revenue or save your bank money– which you need to capitalize on – but most of your day is spent on administrative tasks rather than changing the world.

So there’s some truth to his claim at the end:

“Jobs for college graduates should make them gain knowledge in at least one of these three areas: how to make something, how to sell something or how to support something.”

While you do learn a lot about markets, transactions, and dealing with massive egos in investment banking, you won’t learn as much about making, selling, or supporting products as someone working at a startup.

The Problem(s)

…but here’s the flaw in Guy’s logic: not everyone wants to start or manage a company.

Some people want other experiences, others want to gain a broader understanding of business, and still others aren’t sure exactly what they want to do.

So if you’re in one of those categories, investment banking is still a good bet.

And no matter what entry-level job you pick, you probably won’t be adding much “value” anywhere.

At first it’s all just learning and moving up the curve, and that’s the same whether you’re an engineer, a marketer, or an investment banking analyst.

Products vs. Services

Finally, you do learn how to make things, sell them, and support them in finance: it’s just that these “things” are financial instruments (if you’re a trader), your own services (bankers), or an investment from your firm (buy-side).

Yes, it’s different from building a new iPhone app that sets the world on fire, but at the very least you learn a lot about selling since you have to do it so much.

And scurrying around to handle all those last-minute changes from high-maintenance clients counts as “customer support.”

Alternatives

So while you may not be changing the world in investment banking, you’re still learning and making yourself more valuable in the process.

And let’s say that you went to work at a Fortune 500 company that makes “real” products.

Maybe you’re in sales, marketing, engineering, or customer support – how much value would you be adding there?

We’ve been over the trade-offs: with these positions the work can be even less intellectually stimulating than finance, and advancement may be near-impossible.

They try to make it sound more appealing by creating “leadership” and “rotational” programs but let’s face the facts: are you more likely to get hired somewhere after working at Goldman Sachs or at a random F500 company?

The More Interesting Question

So yes, compared to a startup founder the average junior banker or consultant doesn’t add value.

But you do learn a lot, position yourself for better opportunities, and give yourself flexibility – which is more than 99% of other undergraduate and MBA students can say.

The more interesting question is whether senior investment bankers themselves add value.

We know what bankers do: they advise companies on deals and help them find buyers, or sellers if it’s a buy-side engagement.

Just like Ari Gold.

Is The Pay Deserved?

So do investment bankers deserve to make this much money?

I view this as a silly question because it’s like asking, “Should Louis Vuitton be able to sell handbags for $45,000?

The market and peoples’ behavior – whether rational or irrational – determine what something is “worth.”

People get paid what they get paid based on how much revenue they generate, or what percent of other peoples’ revenue they receive.

So let’s look at the source of investment bankers’ pay: the fees that companies pay them for advising on transactions.

Is It Worth It?

You’ve just sold your company for $1 billion, and you pay the bankers advising you a nice $10 million fee, 1% of the transaction value.

Ridiculous, right? Why should the bank earn $10 million merely for “advising” you, talking to the buyer on your behalf, and making a few presentations?

But that’s the wrong way of looking at it.

Had you not paid them the $10 million, would you have sold for more than $990 million or less than $990 million?

If it’s less than $990 million, then their services were worth it. More than $990 million, and their services actually cost you money.

Measuring Value

But there’s no way to determine “what would have happened” had you not hired the bankers.

So you need to look at what they actually did – what new buyers (or sellers) they brought to the table, and whether their involvement resulted in higher or lower prices.

Rules of Thumb

Investment bankers add the most value when:

  • The deal is extremely specialized– a hostile takeover defense for a cross-border transaction– and requires skills that only a few bankers have.
  • The deal requires longstanding relationships and access to key decision-makers.
  • The company is not spectacular but bankers dress it up really well to generate lots of interest and competitive bids, driving the price up.

Investment bankers add less value when:

  • They run a generic sell-side M&A auction process where they contact dozens or hundreds of companies but don’t rely on specialized skills or relationships.
  • They’re in charge of an IPO or other debt/equity offering where you “have” to use bankers, but where they’re just dotting i’s and crossing t’s rather than increasing the company’s price.

This is why small companies with attractive offers on the table sometimes skip bankers: unless there’s a great potential buyer that only the bank has access to, they don’t add value.

On the other hand, distressed companies and PE firms looking to sell less-than-desirable companies often hire bankers because they’re great at making “ugly” assets look more attractive.

Value

So yes, investment bankers add value – when they help a company earn or save more than the company pays for the bank’s services.

And outside of banking, traders and others in market-related positions add value by making markets and enhancing liquidity.

No, these are not quite the same as changing the lives of billions of people, but if banks truly added no value then they wouldn’t exist.

Bankers get accused of “adding no value” because what they bring to the table – relationships, access to the key decision-makers, and specialized skills – is hard to quantify compared to a company making products.

Private Equity, Hedge Funds, and Others

The case for “value add” on the buy-side is more difficult to make because many times, PE firms and hedge funds don’t improve a company’s operations or help the company make more money – it’s just financial engineering.

Instead, they add value by earning a good return on their investments and then distributing the profits to their limited partners. The limited partners themselves are these firms’ “customers.”

But the public at large doesn’t understand how finance works, which is why you see so many attacks against PE firms for “not adding value.”

So What Should You Do?

If you’re interested in investment banking, then go do it.

You may not add value at the junior levels, but that’s true of any job. What you will do is learn a lot and make yourself more valuable in the process.

But if you want to do something less traditional, then you should go do it right away.

The “work for 2-3 years and save up some capital to try a risky venture” argument still doesn’t make sense, for all the reasons we mentioned before.

Rather than debating whether or not investment bankers “add value,” focus on adding value yourself– by saving your firm time or money or helping them earn more money.

And don’t listen to every interview you read with dubious claims about investment banking or finance – otherwise, we’d all be flying around in corporate jets.

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Tim Geithner, Meet Your Potential Replacement

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Lael Brainard

Treasury Secretary Timothy Geithner is expected to leave his post and now President Obama will have to pick his replacement. 

We've put together a rundown of some of the names being tossed around for the next Treasury Secretary. 

The next Treasury Secretary will be continuing our long slog to recovery after the financial crisis. And then there's China. And Europe...

Would you want that job?

Jack Lew

Current Job: Current White House Chief of Staff

Resume: Most of Lew's career has been spent as a public servant working in various positions from the State Department to the Clinton Administration. He also did a stint at Citi. Before becoming White House Chief of Staff, Lew was the director of the Office of Management and Budget.

Why He's Right For The Job: Noted economist Nouriel Roubini Tweeted that Lew is likely to be the next Treasury Secretary. As the director of the Office of Management and Budget, he's experienced with fiscal matters and he would be easy to confirm by the senate, CNBC's Steve Liesman reports.  However, he doesn't have the international experience or the banking experience even though he worked at Citi, according to Liesman's report.

Source: CNBC



Lael Brainard

Current Job: United States Under Secretary of the Treasury for International Affairs

Resume: Brainard is a Harvard grad who grew up as an American expat in Communist Poland. Before becoming one of the country's top financial diplomats, Brainard was an associate professor of Applied Economics at MIT. She also served as Deputy National Economic Adviser and Chair of the Deputy Secretaries Committee on International Economics during the Clinton Administration and spent time at McKinsey.

Why She's Right For The Job: She already works at the Treasury Department.  She also has the international experience such as the Basel bank regulations and the G-20. However, Nouriel Roubini Tweeted that he sees her likely becoming the Deputy Treasury Secretary.



Neal Wolin

Current Job:United States Deputy Secretary of the Treasury

Resume: Wolin graduated from Yale law school and has a masters in Development Economics from Oxford. Much of his career has been spent in public service from serving as General Counsel of the U.S. Department of the Treasury under Secretary Larry Summers to serving as Deputy Legal Advisor to the National Security Council during the Clinton Administration.  He was the president and COO of insurance giant The Hartford Financial Services Group. 

Why He's Right For The Job: CNBC's Steve Liesman reports that Geithner supports Wolin.  Liesman points out that he has the financial experience from The Hartford Financial Services Group and experience within the Obama administration.  

Source: Treasury.gov



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Broker-Dealer Explains Why It's Seeking To Hire And Train Military Vets

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Soldiers

Today is Veterans Day and we are honoring those who have served our country. 

And while we think our veterans, it's important to also remember that the unemployment rate for military vets is sky high compared with the civilian unemployment rate in the U.S.

As military servicemen and women transition off active duty, they are faced with an extremely challenging job environment, especially if they want to go work in the super competitive financial services industry.

Academy Securities, a FINRA registered broker-dealer/financial services firm, is combating the military unemployment rate by hiring and training military veterans.

The San Diego headquartered firm, which was established in 2009, employs veterans and service-disabled veterans in areas such as investment banking and trading.

"There is a need out there.  It's difficult for a military veteran to get into financial services.  The skill sets don't translate immediately just given the nature of the military.  It is something that is needed because those skill sets can be translated into the private sector.  That's what we're here to do.  This is our part of the equation -- help combat the unemployment rate," Academy Securities CEO Chance Mims said in a telephone interview with Business Insider.

Mims, who served in the U.S. Navy, explained that the advantage of hiring a military vet is that you get someone with crucial business skills such as leadership (especially in stress environments), attention to detail, discipline, teamwork and loyalty, just to name a few.  

Phil McConkey"I think when you talk about financial services, our industry -- or any industry -- can benefit from the high moral standards and commitment from these returning veterans.  It can't help but be a good thing.  We strongly believe our returning veterans can do that not only for Academy, but for the financial services industry and our economy as a whole," Academy Securities' president Phil McConkey told Business Insider.

McConkey, who also served in the U.S. Navy, segued his military career into a career in pro football as a wide-receiver for the New York Giants among other NFL teams. 

"I think that the traits and the skills I learned in the military -- the structure and discipline -- served me well in professional football in an extremely competitive environment.  So it applied to professional sports and it applied to my business life."

In the business world, Military vets can handle pretty much any workplace challenge, McConkey explained. 

For example, one of the toughest things people in financials services have to do is cold call people.  It can be nerve-wracking. 

"As humans we have apprehension, it's hard.  So you think about it with these returning veterans, 'What's the hardest thing they've been doing?' Learning how to avoid roadside bombs and bullets."

So for a military vet, cold calling would be easy and so would a lot of workplace challenges. 

Academy Securities, which received a $4 million subordinated loan from JPMorgan to help expand its business, is aiming to have fifty-fifty mix of both industry veterans and military veterans. Right now, about 40% of its 24 employees are military vets. 

What's more is Academy Securities focuses primarily on the post 9/11 veteran group, which has the highest unemployment rate currently. 

"Whenever a job opens up, first and foremost, it's open to a military veteran," Mims said.  

He added that the diversity of having industry veterans and military veterans has made for great team dynamic. 

"We've seen that work very well," Mims said, "We've seen that dynamic of a team adding value to what we do and what we do for our clients.  It's not a charity operation by any means.  The men and women that we hire have these skill sets to be successful in the financial services world," Mims said.  

"It's a very simple message.  Not only is it patriotic, but it's a smart business move."

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Expect Another Brutal Year For Wall Street Bonuses — 20% Of Wall Streeters Will Get No Bonus At All

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Nov. 13 (Bloomberg) -- Wall Street banks are deflating pay expectations to avoid a replay of last year when cutbacks on bonuses and increased deferrals surprised bankers and traders.

Almost 20 percent of employees won’t get year-end bonuses, according to Options Group, an executive-search company that advises banks on pay. Those collecting awards may see payouts unchanged from last year or boosted by as much as 10 percent, compensation consultant Johnson Associates Inc. estimates. Decisions are being made as banks cut costs and firms including UBS AG and Nomura Holdings Inc. fire investment-bank staff.

Some employees were surprised as companies chopped average 2011 bonuses by as much as 30 percent and capped how much could be paid in cash. That experience, along with public statements from top executives, low trading volumes in the first half and a dearth of hiring has employees bracing for another lackluster year, consultants and recruiters said.

“A lot of senior managers won’t have to pay up because they’re saying, ‘Where are these guys going to go?’” said Michael Karp, chief executive officer of New York-based Options Group. “We’re in an environment where a lot of people are just happy to have a job. Expectations have been managed so low that people will be happy with what they get.”

More modest expectations reflect a new reality as total pay is about half what it was in 2007, Options Group said in a report last month. Firms are struggling to earn the returns shareholders demand amid higher capital requirements, a proprietary-trading ban and lower deal and trading volumes. Of the 10 largest global capital-markets firms, the only one trading at more than book value is UBS, which eclipsed that mark after pledging last month to shrink its investment bank by half.

 

Compensation Pools

 

Goldman Sachs Group Inc. and the investment-bank divisions of Morgan Stanley, JPMorgan Chase & Co., UBS, Credit Suisse Group AG and Deutsche Bank AG set aside a total of $37.9 billion for pay in the first nine months, down 7 percent from a year earlier, according to data compiled by Bloomberg Industries. Those firms have cut more than 9,000 jobs in the past year.

The compensation figures include money allocated for paying salaries and bonuses as well as costs from deferred bonuses in previous years coming due. Wall Street firms typically reserve a portion of revenue throughout the year for employees and sometimes make adjustments in the fourth quarter, such as when New York-based Goldman Sachs reported negative compensation costs by cutting its accumulated pay pool in the last three months of 2009. Spokesmen for the banks declined to comment.

 

Traders’ Pay

 

Total pay for investment bankers and traders industrywide probably will fall 8 percent, according to the Options Group report. Traders in fixed-income businesses can expect to see a 6 percent increase in compensation, while pay may decline 17 percent in equities and 13 percent in investment banking, the report shows.

Credit traders in loan products with the title of vice president, the third-highest at most banks, probably will receive compensation averaging $800,000 this year, up from $720,000 for 2011, according to the report. Cash-equity traders with the same title may get $290,000, down from $370,000.

Employees were stunned by the 2011 bonuses in part because some banks changed their pay structure, said Joseph Sorrentino, a managing director at New York compensation-consulting firm Steven Hall & Partners. Morgan Stanley capped cash bonuses at $125,000, while Barclays Plc limited them to 65,000 pounds ($103,000). Credit Suisse paid employees a portion of last year’s bonuses in bonds made from derivatives to help the Zurich-based company cut risk and improve its capital position.

 

Clawed Back

 

Some banks clawed back previous years’ pay as they handed out smaller or no bonuses, which traders referred to as “negative bonuses,” said Paul Sorbera, president of Alliance Consulting, a New York-based search firm.

About 17 percent of global banks clawed back compensation from previous years in 2011 as European and North American regulators pressured them to impose penalties on employee risk- taking, according to a survey of 63 companies conducted by consulting firm Mercer LLC and released in August.

Bankers also were surprised last year because expectations had been built up during a strong first half, recruiters said. The 10 largest global investment banks produced $91 billion of revenue from advisory, underwriting and trading in the first half of 2011, according to data from industry analytics firm Coalition Ltd. That plunged to $50 billion in the second half.

 

‘Carried Away’

 

“Last year, the first half was much, much better than the second half, and people got a little carried away early in the year,” said Richard Lipstein, managing director of New York- based search firm Gilbert Tweed International. “This year, it’s been a generally crummy environment. It’s been a year of managing expectations.”

Low expectations this year have been driven in part by a lack of companies willing to poach non-star traders as banks exit some capital-markets businesses, said Options Group’s Karp.

UBS said last month it’s winding down much of its fixed- income trading and cutting as many as 10,000 jobs. Royal Bank of Scotland Group Plc said this year it was exiting most merger advisory and equities trading. Nomura Holdings, the Tokyo-based bank that added employees in the U.S. after the credit crisis, has pared jobs in its Americas equities division as it seeks to reduce costs outside Japan.

The impact on morale and the amount of grumbling following decisions about 2011 compensation also has led firms to take a more active role tamping down expectations for employees, said Rose Marie Orens, a senior partner at New York-based Compensation Advisory Partners LLC.

 

Vesting Period

 

“It’ll never be a non-event, but if you can take the surprise out and allow people to say, ‘Yeah, that’s within 5 percent of what I expected,’ it becomes less distracting,” said Robert Dicks, a principal at New York-based Deloitte Consulting LLP who focuses on compensation and benefits. “It means less hallway chatter and ultimately more productivity.”

Banks also have been discussing pay more in public, Dicks said. Deutsche Bank, Germany’s biggest lender, said in September it will increase the vesting period for deferred bonuses for top management to five years from three.

The bank, based in Frankfurt, last month named a panel of business executives and a former German finance minister to review compensation as it addresses criticism on pay. CEO Anshu Jain urged investors in September to hold other firms accountable for instituting longer deferrals and clawbacks.

 

‘Please, Please’

 

“We’re taking a step in the direction that you wanted us to take,” Jain, 49, said at a conference in Frankfurt. “Please, please, please, now go see my competitors, go see the boards that come to you and ask them this question as well.

“Let’s level the playing field,” he said. “It’s in your best interests. It’s in our best interests. And I would even go far enough and say it’s the society’s best interests.”

James Gorman, 54, CEO of New York-based Morgan Stanley, said in a Financial Times interview published last month that banks need to cut staff and compensation as “the industry is still overpaid.” Goldman Sachs said in July it plans to trim $500 million in annual expenses, mostly from compensation, on top of a $1.4 billion reduction earlier this year.

Pay at all levels will continue to fall, as “the readiness among shareholders to accept very high salaries has certainly decreased,” Credit Suisse Chairman Urs Rohner told Basler Zeitung in an interview published Nov. 10.

“Five years ago, compensation wasn’t the topic of conversation in every town hall, in every public statement that senior leaders made,” Dicks said. “Senior leadership is providing much more broad-brush, organization-level information about the direction of comp and the vehicles that comp will be paid in.”

 

More Palatable

 

Wall Street banks probably won’t make changes to the structure of bonuses on the scale they did last year, Steven Hall’s Sorrentino said. While that will make pay packages more palatable, it also means employees will continue to get less cash than before the financial crisis, he said.

“Most of the changes have been made already in terms of lengthening vesting, holding back some pay in the form of deferrals and stock and the continued use of clawbacks,” Sorrentino said. “A couple years ago, if I told you your comp was $100, you got $100. Now, it’s $50 in your pocket and $50 if you’re here in three or five years.”

Traders of cash equities and equity derivatives will have the biggest drop in compensation, both down at least 20 percent from 2011, according to the Options Group report. Traders in securitized products and emerging markets will see at least a 10 percent jump in pay, the largest gains, the report shows.

 

Bonus Expectations

 

Still, almost half of Wall Street employees expect a bonus increase this year, according to a survey of 911 employed financial professionals conducted between Sept. 26 and Oct. 3 by job-search website eFinancialCareers.com. A smaller number, 27 percent, said bonuses will rise in the next three years, while 31 percent saw no change and 42 percent anticipated declines.

There have been signs of optimism in recent weeks, as the nine largest global investment banks reported a 38 percent jump in third-quarter trading revenue from a year earlier, according to data compiled by Bloomberg. Companies also may start adding positions they had been waiting to fill until after the U.S. elections, providing some competitive pressure on pay, Alliance’s Sorbera said.

“Firms haven’t been doing anything for a few years, and you have some pent-up demand,” Sorbera said. “Management is guiding people low because they don’t know yet, and people are expecting it to be like last year, so there could be a surprise to the upside, though it won’t be a big one.”

 

Below is the compensation expense for the first nine months of 2012 compared with the same period a year earlier at Goldman Sachs and the investment-bank divisions of Morgan Stanley, JPMorgan, Credit Suisse, Deutsche Bank and UBS, as compiled by Bloomberg Industries.

 

*T

 

9M2012 9M2011 % Change Goldman Sachs $11 Bln $10 Bln 9.5% Morgan Stanley $5.2 Bln $5.7 Bln -8.5% JPMorgan Chase $7.0 Bln $7.7 Bln -9.4% Credit Suisse $5.4 Bln $6.0 Bln -11% Deutsche Bank $5.3 Bln $6.0 Bln -12% UBS $4.1 Bln $5.3 Bln -23%

 

*



--Editors: Robert Friedman, Peter Eichenbaum

 

To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net

 

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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