To the casual observer, one might think that with stocks at an all-time high, that is good for traders and salespeople on Wall Street. That's not the case. Perhaps less volatility has meant less trading, or less trading has led to less volatility, but either way, less trading is clearly bad for the Street. Less trading means less commissions, lower potential trading revenue and lower bonuses. In addition, it could mean fewer jobs going forward.
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Almost all my Wall Street friends complain to me that their job is more boring than ever. No matter how you fared from 2000-2010, that period was definitely not boring. Wall Street circa 2014 means more Facebook, Twitter and Tinder at work. What else is the guy sitting at Morgan Stanley supposed to do while waiting for his client to Bloomberg message him?
For the VP at a Wall Street firm, less trading means being less dynamic. You are more worried about self-preservation than rocking the boat and possibly making a difference. If 10 percent of the firm is getting laid off at year end, you spend a lot of time making sure you don't hold the short straw. Even if you make less money, that is better than the alternative. A lot of Wall Streeters fear that this could be their last job, because as ever more trading goes electronic, the sales trader becomes more obsolete than Blockbuster Video.
It also means NOT going the extra mile. If you are producing at an acceptable level, and doubling your revenue will mean very little incremental income, why bother? Why work longer hours, spend less time with your kids and take years off your life for marginal income?
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My friend who is head of sales at a Wall Street firm told me that as his group hits higher revenue targets, the percentage they keep goes down. That is the worst way to motivate. That's like telling Rory McIlroy, "Once you have won ten major tournaments, we will stop counting."
The current bonus structure is the greatest reason that socialism doesn't work. I don't believe in extreme capitalism where it's every man for himself. However, I do believe in rewarding those who work hardest and the smartest. When you tell someone that the extra revenue they produce has no effect on what you pay them, that is the downfall of socialism. It's not that you're paying the sloth at the expense of the hard worker — it's that the smart guy doesn't have to work hard to get by.
The smart guy can put in minimal effort and get by and that is the biggest waste of resources. If the smart guy never put in maximum effort, we would have never had a Steve Jobs or Bill Gates. They wouldn't have worked so hard and changed the world.
Think back to when you were in school. I was exceptional at math. I still had to study to get an "A" and a perfect score on my SAT. If the class or SAT was pass/fail, I would have never had to open up the textbook. I could have showed up drunk and still passed.
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But smaller bonuses have a ripple effect.
I understood why people outside of New York were outraged back in 2008 by Wall Street and the financial bailout. However, I didn't understand why local New Yorkers were Occupying Wall Street when they all benefit. If you own a restaurant or business, work as a doorman, drive a taxi, sell drugs, or even own real estate you benefit from Wall Street having more disposable income.
In fact, a side consequence of Wall Street having less money to spend on apartments has been the explosion of foreign cash buyers of New York City apartments. It used to be Wall Street buying those apartments.
The Census Bureau estimates that 30 percent of all apartments in the quadrant from 49th to 70th Streets between Fifth and Park Avenues are vacant at least ten months a year. You don't need to work on Wall Street to know that isn't good for the bodegas, ramen noodle shops and massage parlors on the East Side.
Now, wouldn't everyone rather have Wall Street criminals spending money, their wives getting their pedicures and sipping martinis every day, than Vladimir Putin's cronies doing so one month a year?