As UBS announced plans to chop 10,000 staff this week, many traders reacted with shock. Little wonder: during the past three decades, it might have seemed inconceivable that any bank could slash its workforce so far, so fast.
The young(ish) traders who suddenly found themselves locked out of UBS this week built their careers in an era when finance seemed to keep inexorably growing; investment bankers were woven into the fabric of the modern economy, along with ultra-high levels of banking pay.
But viewed through a long lens of history — say 100 years —this week's news does not seem so unusual. For while finance might have swelled in recent decades, it is often forgotten that in earlier periods it also shrank, to a startling degree.
Take a look, for example, at some research conducted by a New York based economist, Thomas Philippon, partly in association with Ariell Reshef of the University of Virginia. They chart the fluctuations of American finance since 1880 and show, firstly, how dramatically finance swelled from the late 1970s to today.
Jobs in banking multiplied and the financial sector, adjusted for defense spending, rose from 4 per cent of gross domestic product to just under 9 per cent at the peak. Banker pay swelled too: although average banking salaries relative to non-banking professional salaries were almost at parity in the 1950s, by 2007 they were 1.7 times higher.
A similar expansion took place in the early years of the 20th century. Between 1880 and the early 1930s, finance's share of GDP rose from 2 per cent to 6 per cent. Banker pay rose from parity with non-banker pay to 1.7 times then as well.
But the trend does not always go one way. After the 1929 crash, finance shrank sharply and banking jobs disappeared. So stark was this decline that from 1940 to the early 1970s, finance looked like a "normal" profession: it paid its staff on a par with other professionals, working in medicine or education, say, with similar levels of education.
Could a comparable swing occur now? Until recently it seemed hard to imagine. After all, bankers have not appeared to suffer much since 2008, which is precisely why so many politicians and voters feel so much anger. Headhunters reckon employee numbers and salary levels have declined by a fifth or so since 2007; but this reverses only a small part of the previous decade's expansion.
However, this may reflect a time lag. For, once again, history is instructive. Back in the 1930s, bankers' relative wages did not start falling until the mid 1930s and the size of the financial sector, relative to GDP, peaked in 1932, not 1929. That was partly because the entire economy was shrinking after the Wall Street crash.
But another factor was that the Glass-Steagall reforms were not implemented until 1933. Arguably, it took even longer until bankers finally realized that the nature of finance had changed: it was no longer purely a profit-seeking, speculative game, but was shaped by more of a utility mentality, thanks to government pressure and deleveraging (and, subsequently, the second world war).
This time, change is slower: four years after the crisis, the modern equivalent of Glass-Steagall has not yet taken full effect and the shift from a speculative bank culture towards a utility mindset is less marked. That is partly because government does not control finance as tightly as it did in the 1930s; nimble financiers now hop across borders and many activities occur outside regulated banks.
Nonetheless, those half-formed Basel, Dodd-Frank and Volcker rules are starting to bite: when UBS announced its cuts, it said the new regime made it uneconomic to run a fixed-income operation. Deleveraging is under way too. So it should be no surprise that UBS now wishes to focus on simpler, more transparent transactions that serve the retail base. Nor should anyone be surprised that Axel Weber, UBS chairman, expects other banks to follow suit. After all, by earlier standards, we are still "only" in a period akin to 1933; there could be plenty more retrenchment ahead.
According to recent calculations by Mr. Philippon, the relative size of finance in the US economy did not even peak until 2010, not 2007; as in the 1930s, the really stark relative shrinkage might lie ahead.
That will be of no comfort to the UBS traders who were so crassly locked out. But there may be a silver lining for policy makers. In those postwar years, when finance was more of a utility and offered fewer ultra-well paid jobs, the brightest students flocked into other fields, such as manufacturing or medicine.
That has not quite occurred in the U.S. yet; surveys suggest that many business school students still dream of working on Wall Street. But with every new retrenchment, perceptions are changing. If that continues, the next decade could make the western economy a touch more balanced; or, at least, a place where finance finally starts to look more "normal", compared to everything else.