I stumbled across a blog that I really enjoy: Stern on Finance  that I added to my blogroll. The categories are broad but the blog covers the things that interest me most – would love to see more real estate , naturally.
A week ago I wrote about the bonus phenomenon in New York  and its relative importance to housing. The 2008 bonus was 44% below the 2007 yet still the 6th highest in history. I brought this topic up again because of the post Are Bankers Over-Paid?  by Thomas Philippon.
The paper is a fascinating analysis that shows that pre-depression, the financial industry was classified as high skill and high wage . This crumbled from the depression through the early 1980s, when human capital began to return through today’s market.
Human capital (I love this term!) left post-depression and returned in the early 1980s.
Hey! Wasn’t the early 1980s about the time mortgage backed securities became popular  a la Liar’s Poker ?
A dramatic shift occurred during the 1930s: the financial sector rapidly lost its high human capital and its wage premium relative to the rest of the private sector. The decline continued at a more moderate pace from 1950 to 1980. By that time, wages in the financial sector were similar, on average, to wages in the rest of the economy. From 1980 onward, another dramatic shift occurred. The financial sector became once again a high skill/high wage industry. Strikingly, by the end of the sample, relative wages and relative education levels went back almost exactly to their pre-1930s levels.
In other words, the paper concludes that wall street bankers are overpaid – this has serious ramifications for the New York luxury residential housing market going forward as the economy de-leverages and all the investment banks shift to the world of regulatory overlay that commercial banks have long been entangled in. This suggests that the sweet spot for the NYC housing market won’t be the high end in the near future.
One other comforting thought after it was deduced that bankers are overpaid: forecasting is less accurate during a recession. 
St. Louis Fed: 
Forecasts of GDP growth and the unemployment rate both generally tend to be overly optimistic: Forecasts of GDP growth tend to be too high, whereas those for the unemployment rate tend to be too low.