Why Are Investment Banks Laying Off Employees?

If you're in the U.S., unless you've been living in a cave, you're aware that major banks and investment firms have taken huge financial hits. As a result, they are laying off thousands of workers. This puzzles me.

I understand in the short term why these firms would slash payrolls (I'm not an idiot), but this implies one of three things about these firms' workforces:

  1. These workers weren't needed, and should have never been hired in the first place.
  2. These firms are firing more experienced workers with higher salaries, and replacing them with newer, lower paid workers (and hoping the lack of experience and the turnover don't hurt their performance).
  3. Laying these workers off is destructive in the long term, and these companies have done more harm than good.

I ask this because it's a shitty deal to lose your job because someone else screwed up (and received a golden parachute in the process).

Discuss.

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your implications only work under the assumption that it's incompetence at work. that's not necessarily true. maybe they tried opening a new department to handle a new type of business - one that was non-profitable or inefficient. perhaps they hired workers under the assumption that business would pick up, and the workers would gradually become more and more necessary - instead, business slacked, the outlook changed, and now keeping employees on as growing room is no long the proper course of action.

i'm not saying it's true - just that there are more reasons available than your 3.

You might also want to consider that maybe they are not reducing the number of employees, but shifting where those are located. Any number of service sector industries have been moving jobs off-shore, particularly to India, which has a highly educated workforce with excellent English language skills. This has been going on for a long time. I don't know if there are any prohibitions to such actions in financial services, but don't be surprised the next time you call your broker, you get someone in Bangalore. This is pretty much inevitable until there is a greater parity in labor costs.

In a business downturn, expect less business. A lot of people who were needed to prepare business deals, make loans and whatever won't be needed for the next couple of years.

Janne is correct. When you're not doing well, you can't pay as many employees and you don't need as many.

They were too loose with the subprime mortgages (and the Federal Reserve was too loose with the 1% interest rates).

Laying these workers off is destructive in the long term, and these companies have done more harm than good.

I think it is this one and they did what they had to in the short term, hoping the long term allows expansion again. Yes, it certainly is a drag! Here's hoping there is an upturn soon!
Dave Briggs :~)

I think it is this one and they did what they had to in the short term, hoping the long term allows expansion again. Yes, it certainly is a drag! Here's hoping there is an upturn soon!
Dave Briggs