After former Bear Stearns trader Guy Irace lost his job on the bond desk a year ago, he moved back to Long Island to teach high school maths and lost three stone. Jack Yang's deli in Manhattan sacked three employees.

Cavonberry's, Yang's 46th Street shop near the headquarters of the New York firm taken over by JPMorgan Chase, once bustled with finance workers jostling to buy a barbecue chicken chopped salad and bottled water for $12. "They used to be turning them away at the door," Irace said.

Last week, slow enough that one cashier instead of the usual two operated the register at midday, Yang tallied up the ripple effect of the financial slump: He negotiated a $4,000 monthly decrease in rent to $17,000, and is spending 35% less a week for such things as artichokes and ham. "Since January, everything's dead," said Yang.

The biggest Wall Street crisis since the Great Depression isn't just a setback for bankers. The contraction may wipe out $185bn in wages and profits, or $600 for every man, woman and child in the US, according to Thomas Philippon, a finance professor at New York University. The trail of reduced income affects car mechanics, waiters, sports teams, hair stylists, jewellers, and housecleaners.

"We're seeing lots of lives derailed," said Simon Johnson, professor of entrepreneurship at Massachusetts Institute of Technology.

Irace, who worked at Bear Stearns for 19 years, is one of 255,441 people who've lost US finance jobs since January 2008, according to data compiled by Bloomberg. Thousands more have had their pay cut. In New York alone, bonuses fell to $18.4bn last year from $32.9bn in 2007, the largest absolute drop ever.

The consumer discretionary and industrial sectors – dependent on people who buy fridges, restaurant meals or cars – are the only areas that have shrunk more than finance, with 383,340 and 270,278 job losses. For each finance post eliminated, 3.3 in other industries will vanish.

"The higher your income, the more in services you consume," said Ariell Reshef, an economics professor at the University of Virginia. "You don't iron your own shirt."

On the convertible bond desk at Bear Stearns, traders made from $175,000 to $1m annually, depending on bonuses, Irace said.

He dined with co-workers at Del Frisco's Double Eagle Steak House, home of the $55.95 porterhouse.

Now he earns $75 to $175 a day at Kellenberg Memorial High School and often brings a packed lunch.

Other banking refugees are navigating new lifestyles. Peter Stavropoulos, a one-time hedge fund strategist, handles drunk-driving cases as a lawyer in upstate New York. Amy DePaulo, a facilities manager at a New York bond firm for 14 years, may retrain as a paralegal after losing a job paying $100,000. Michael Gabriel, a former fund manager for Victory Capital Management, has applied for 100 jobs since his position was eliminated in 2007.

The average securities industry salary reached a record high of almost $400,000 in 2007, or 6.8 times the average for non-financial jobs in the city.

Gabriel started cutting his own lawn, costing his gardener $450 a year, he said. DePaulo used to splurge on gifts for her nephew, spending $1,000 at Christmas. This past year the 22-year-old got lots of underwear, she said.

Stavropoulos, whose father George made dresses for Maria Callas, stopped buying a daily venti black iced tea from Starbucks, which said in January it will cut 6,700 jobs this year.

"I used to take $300 for the week; that was walking- around money," he said. "Now I take $100 for the week. Forget about ordering sushi for lunch."

Stavropoulos remembers accompanying 16 people in 2007 to Morimoto, the West Village sushi restaurant. The group spent more than $3,200, he said, then headed to the Buddha Bar. Many nights, financial types crowded tables where "bottle service" starts at $250 for a Veuve Clicquot Brut Rosé 2000 champagne, said Jessica Rosa, a waitress at the time.

It wasn't uncommon to see someone with a black American Express card ringing up a $30,000 tab. The black card is available by invitation only, according to the company's website. At the peak, Rosa, 30, said she made $85,000 a year working three days a week. As tips fell, Rosa stopped taking frequent trips to Miami and to Puerto Rico.

The pullback may prove worthwhile in the long run, by directing the economy to more productive areas, said the University of Virginia's Reshef. Wall Street compensation may have been as much as 50% too high from 1995 to 2006, according to his December 2008 survey with NYU's Philippon.

The other period of excess pay was around 1930, the year after the stock market crashed. "What happened here is a misallocation of capital on a gigantic scale," Reshef said.

Eventually, people will replace lost income as they retrain and find jobs, said Johnson at MIT. "An economy like the US has the ability to create new jobs and it has a bounce-back ability that we shouldn't discount," he said.

Irace, with his three-bedroom, Colonial-style house in Long Island paid off, got a "very generous" severance from JPMorgan that runs out in September. His teaching job ends in June, and with no guarantee of a job in the autumn, he plans to look into unemployment benefits.