FOX Business's Charlie Gasparino reports that Morgan Stanley is attempting to manage bonus expectations among its MDs.

"Everything is not very good inside. It's the end of the year, its bonus time. James Gorman is telling people to lower their expectations about 2011 bonuses. He is indicating they will be down from last year dramatically and some Managing Directors, the highest paid people, should get zero bonus this year. I have not heard of a firm telling people they should expect zero bonus."

You can imagine similar discussions going on all over Wall Street. All this is pretty sobering. If the bank ends up making money, you would expect some people to get bonuses. But you cannot blame the top dogs from wanting to keep expectations in check. It certainly sets the right tone.

The real issue for most employees is whether they will have jobs before bonuses are given out. At most banks, another round of layoffs is quite possible over the next two quarters. That said, expectations for third quarter earnings have been reduced so drastically that we may see an upside surprise or two.

Here's Gasparino on Morgan Stanley's third quarter earnings: "Gorman is also indicating that third quarter earnings are going to be pretty good and it looks like the third quarter repost are likely to beat Goldman's."

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