Wall Street reported nearly $3 billion in losses in the third quarter of 2011, reducing profits through September to $9.6 billion, which was well below forecasts, according to a recent analysis by the New York State comptroller. The comptroller estimates that Wall Street banks and smaller brokerages may cut some 10,000 jobs in New York City by the end of 2012.
The weak economy, volatile markets, toxic mortgages and potential exposure to the euro zone are undeniably the biggest drags on banks’ profits. But bankers, their lobbyists, and the politicians who do their bidding are eager to heap outsize blame on new national and international bank rules, including trading curbs, consumer protections and higher capital requirements.
New regulations, properly implemented and enforced, will crimp the banks’ profitability. But that is not a sign they are defective — just the opposite. It shows that the rules are beginning to work as intended to rein in destructive products and practices that inflated the bubble, led to the crash and necessitated the bailouts. Higher capital levels, for instance, mean a hit to bank profits. But they are a boon to the broader economy because they help to restrain speculation and to ensure that banks — not taxpayers — absorb unexpected losses.
Pain on Wall Street means pain for New York. Instead of New York politicians demanding a weakening of the financial rules, they should champion new ways for New York to broaden its tax base and its professional portfolio.
Mayor Michael Bloomberg’s recent endorsement of higher taxes on private equity partners — they pay tax at about the lowest rate in the tax code on much of their income — is welcome. Mr. Bloomberg has also taken a big step in the right direction by promoting a New York-based high-tech center on Roosevelt Island, where Cornell University will develop its science graduate school. Other efforts, large and small, are also needed to capitalize on New York’s advantages in fields like media, advertising, entertainment, health care and tourism.
The cultural shift is already under way. The Times’s Kevin Roose reported recently that much of Wall Street’s latest retrenchment has fallen on young bankers, causing them to lose both cash and cachet. In the past three years, the number of Wall Street employees between the ages of 20 and 34 fell by 25 percent compared with 11 percent for employees over age 55. “The new status jobs aren’t at Goldman,” said a former Goldman Sachs analyst who left the sector this year. “They’re at Google, Apple and Facebook.”
Wall Street passé? Whether you agree or not, there is no disputing that developing more and different status jobs would be better for New York, and the rest of the country, than fighting financial reform.
Read Full Article »