What private equity layoffs mean to the economy

The New York Times paints a picture of how the current private equity lull could cause a large number of layoffs at the firms themselves, the investment banks that provide them capital and consulting firms providing due diligence. The paper reports: "wide swaths of Wall Street, and many of the industries that serve it, are in for some serious collateral damage."

Investment banks keep large groups of high level people whose only job is to call on private equity firms. The fees for providing capital for these deals have been so huge that this has been a very profitable business. Companies like KKR also turn to firms like McKinsey to handle research on companies that are targets.

With private equity deals almost entirely on hold, there are two side effects for the economy. Several thousand people, many of them in New York, could lose jobs and lose them fairly soon. Most of these people make six or seven figures a year. This would cause a ripple. Private equity compensation has driven up salaries and bonuses at banks and law firms as they compete in a common pool of talent.

There have been times, like 1987, when thousands of financial services employees lost their jobs.

The economy in New York City and New York State would face a significant loss of tax income if Wall Street starts to bleed high level jobs.

While New York City has only about 5% of the national population, it is likely, with the high median income on Wall Street, that it is a much higher portion of the national GDP.

Think of all the unsold Porsches. But, really, the impact may be much broader than that.

Douglas A. McIntyre is a partner at 24/7 Wall St.