Embattled Wall Street should prepare for worse

October 11, 2011

By Agnes T. Crane and Christopher Swann
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

There seems to be no end to bad news for bankers. They’re already on the defensive. Third-quarter earnings look set to be shoddy. Another 10,000 job cuts may be in the offing. And protesters are ready to camp outside Jamie Dimon’s house. Yet financials still haven’t shrunk enough, suggesting more pain is to come.

Despite the fallout from the 2008 financial crisis, the sector actually accounts for a bigger share of the U.S. economy than before the financial crisis, representing 8.4 percent of total GDP. Manufacturing’s output, while still larger, shrank between 2006 and 2010. Moreover, job cuts in New York City’s securities industry have only slimmed high finance’s payrolls by 22,000, or 12 percent, according to Thomas DiNapoli, the New York state comptroller. He expects another 10,000 pink slips to be sent out by the end of 2012, but if culls after previous financial mishaps are any guide, that may prove too optimistic. The Big Apple lost twice as many Wall Street jobs after the dot-com crash, for example.

Compensation also still seems out of whack. The average Joe at a securities firm saw his paycheck increase 16.1 percent in 2010 to more than $360,000. That’s 5.5 times higher than the going wage in the private sector, according to the comptroller. In 1980, it was only twice as fat.

There are a number of reasons Wall Street survived the aftermath of the 2008 crisis better than many had expected, chief among them taxpayer support and trillions of dollars pumped into financial markets, inflating asset prices and trading desk profits. But with the economy stalling and Uncle Sam running out of ways to jump-start it, more cuts look likely. Longer term, new regulations are likely to whack profitability further, enforcing even more trimming.

Bringing banks back into balance won’t just be painful for the pin-striped suit brigade. Reducing the industry’s contribution to the economy means fewer taxes for federal, state and local governments to collect, especially for New York, where no other sector looks healthy enough to pick up the slack. But it’s an adjustment that’s past due.


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They have plucked and stuffed the golden goose and are now wondering why it’s not laying golden eggs any more.

Posted by Tiu | Report as abusive

Time to limit financial institution size by statute and tax law. This “industry” has caused more damage to the American people as a whole than heroin dealers, and yet we keep giving them more money? Whatever for?

We need consumer friendly banks that are completely separated from risk taking, derivative spewing financial speculation houses.

Posted by txgadfly | Report as abusive

Wall Street should keep in mind that their jobs are not immune from outsourcing either. You do not have to sit on Wall Street to manage money, trade equities, or create derivatives.

John Howley
http://www.pacificadvisorsllc.com/john_h owley.html

Posted by HowleyGreen | Report as abusive

Nice to see the acknowledgment of “taxpayer support,” although that support was ripped from the middle class by the coercive force of the state over the howling protests of those taxpayers. They were ignored, because they were not, and still are not, a factor in the government’s decision-making. Those decisions are made on Wall Street.

Also nice to see the acknowledgment of the theft of production from the middle class by Bernie and Timmy, through the wholesale printing of fiat money. (“… trillions of dollars pumped into financial markets, inflating asset prices and trading desk profits.”)

Boy, I sure feel sorry for those banks. 10,000 pink slips is not going to be “the worst” though. Barred windows will be a fortunate turn of events for these execs by the time we’re through.

Posted by BowMtnSpirit | Report as abusive

Why do banks have to create junk (always a new name) and sell it to make garganuan profits and then what they sold ends up worthless. When will we just make all banking non-profit – no more derivatives, CDOs, etc. Stop the casino banking. No money is ever printed for any interest whether earned or owed, so interest fiat really does not even exist. With that in mind, everyone is chasing a fairy tale. Just save real money, forget stupid interest and make all banking world wide non-profit. Banks should exist to hold or transfer funds as needed and for no other reason.

Posted by JLWR | Report as abusive

its high time the economy grows through real value contribution from teachers,firemen, engineers, farmers, factory workers, technologists, policemen, doctors nurses cleaners
these people do realmwork.not some self serving shenanigans claiming that they’re supposed to be the middle men (make that parasite) facilitators of credit.
put them back into their original place : a supporting plain vanilla role in the economy facilitating credit flows minus the self serving creativity.

Posted by kellycfa | Report as abusive

Time for society to wake up and start a revolution…. the current financial model which they taught at MBA schools have failed. Corporations has been chasing EPS for the short termism CEO and its executives including all its golf buddies board of directors when middle class is trying to put food for their children and have shelters for them.

whoever can come out with the new financial model would definitely get a nobel prize in 30 years.

Viva revolut”cion”…

Posted by oracleson | Report as abusive

You guys should be marching on the Federal Reserve: a private bank which is responsible for all of this nonsense.

If you think I’m mad, try looking up the Federal Reserve Act which was signed off by Woodrow Wilson (he later came to regret it).

Posted by Lennon | Report as abusive

It took since Reagan to get Glass-Steagall out of the way (“Get the government off your back”), this led to a perfect storm in finance, we’d put up new floodgates against a repeat performance by the banks, we would regulate them into submission, wouldn’t we?

Since a few people looked at Inside Job, they might not take lightly the fact that next to nothing has actually been done. Enough broken promises to take to the street.

Posted by Lambick | Report as abusive