The money wasn't flowing as abundantly through Wall Street this summer. Big banks are beginning to slow their hiring and reduce their workforces. And these aren't entirely back- or mid-office jobs, as front-office employees will also be affected. This indicates pessimism on the part of the financial industry, which is likely bad news for the broader economy as well.

Earlier this week, we learned that Morgan Stanley has implemented a hiring freeze on investment banking jobs through the end of 2010. Trading and underwriting have been slow and aren't expected to pick up much in the near-term. Usually, that means layoffs aren't far off. Indeed, reports also indicate that Bank of America has begun to shed jobs from its capital markets group for the same reason.

A Bloomberg article by Michael J. Moore on the Morgan Stanley freeze says:

Companies including Barclays Capital and Credit Suisse Group AG also have started reducing staff in Europe. Securities firms around the world will cut as many as 80,000 jobs in the next 18 months as revenue growth begins to slow, bank analyst Meredith Whitney of Meredith Whitney Advisory Group LLC said in a report dated Aug. 31.

According to a source who spoke with John Carney of CNBC, U.S. fixed income groups will be severely affected. The source describes volume down across the board, predicting a "bloodbath." Part of the problem is new financial regulation, says the source:

"It's a one-two blow for fixed income. The derivatives are being commoditized and put on exchanges. Swoosh. Now you don't need half the people you employ to trade and track those. And volume on corporates and agency paper is way down."

Usually when Wall Street firms begin laying off workers, a full-fledged firing wave begins. If volume is down for a few, then it's down for everyone. And for layoffs to ensue, they either overestimated the speed of the recovery or see a double dip. Either way, this is probably bad news for Main Street, since Wall Street firing tends to be a leading indicator for the rest of the labor market.

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