Is Wall Street Really Doing as Well as People Think?

With the election of President Trump and his administration’s clearing out Washington cobwebs as the stock market hits record highs, many people have assumed that Wall Street firms are cleaning up as the nation’s economy zooms to newfound heights. Job numbers are up, the dollar is stronger, and the outlook for business looks tremendously sunny.

Unfortunately, while much of that may be true, Wall Street firms are not, in fact, “raking it in” as many people might assume. Even though bank stocks have shot up more than 30 percent since Trump’s election, a new report from a New York State fiscal watchdog tells a different story.

First, it is true that Wall Street profits rose last year — on average by 21 percent. Bonuses and jobs were plentiful; this was a big change from the previous three years during the term of President Obama, when profits had fallen. “The jump in profitability is good news, since the industry generates a significant amount of tax revenue,” said Tom DiNapoli, the New York state comptroller.

But in spite of the fact that financial firm profits may be up, revenues are down. In fact, they’re down for the second year in a row, falling by 1.3 percent. And many Wall Street banks only managed to turn a profit last year because one major expense was significantly reduced: the billions they’ve been paying to the government for fraud and other settlements in the wake of the 2008 financial crisis.

For the most part, these settlement costs are nearly entirely paid off. The banks should be celebrating, but they’re neither beefing up staff nor raising bonuses, at least to pre-2008 levels. In fact, total employment at Wall Street firms is off by almost 12,000 people of the nearly 189,000 that were employed before the crisis.

Thus far, only half the number of laid-off workers from before 2008 have been hired back, despite positive economic numbers (some of which were partially fudged by the Obama administration) over the last seven years.

As far as bonuses, the average Wall Street worker took home $138,210 for 2016 — not a bad number compared to most people’s incomes — but still less than the $146,300 that was made in 2004 (the latter number being adjusted for inflation). Essentially, pay on Wall Street is still good, but clearly, a decline is in evidence.

And those numbers don’t reflect a general shrinking of the financial industry as a whole. In December 2006, 8.4 million people were employed in finance, from investment banking at companies like Goldman Sachs to retail banking at firms like Bank of America. But as of December 2016, that employment figure was down to 8.3 million.

In New York, the numbers were even worse. The total number of New Yorkers working in the industry in 2016 was roughly 465,800; but in 2000, the number was 22,800 more people, for a total of 486,600.

The culprit? Like many other industries, automation and offshoring are both to blame. Human stock pickers are being replaced by computers; a recent financial article pointed out that Goldman Sachs once had 600 traders working in its cash equity department in the year 2000 — today, it has just two.

At the same time, financial houses have been hiring many people to work in other places like India, where currently the four biggest U.S. banks employ 12,500 people — a 50 percent increase since 2008.

Even though President Trump would like to see the financial industry grow along with other American businesses, it’s not clear which of his policies will allow that to happen, or at least, which will create jobs. Some Wall Street observers were excited by Trump’s talk of ditching the “Fiduciary Rule” that financial houses will have to follow when investing customers’ retirement income.

This 1,023-page piece of legislation — scheduled to take effect in 2018 — mandates that firms put their clients’ interests above their own fee-making concerns, eliminating or lowering fees for the companies in many instances. But the fact of the matter is that much retirement money these days isn’t invested with high-fee professionals because fee structures are extremely transparent and able to be compared with one another, resulting in clients’ seeking out low-cost alternatives.

It’s true that Trump may repeal the 2010 Dodd-Frank regulatory laws. But he also promised to only enact one regulation for every two that could be identified for elimination. Therein lies the rub — the regulations only had to be “identified” — they haven’t actually been taken off the books, and it’s unknown at this point if they actually will be.

While all of this has been going on, interest rates have been going up, making it harder for people to buy houses. This means that profits at banks are likely to fall; this is just one small factor of many that are expected to contribute to continuing bank branch closings around the country, putting hundreds of middle-class Americans out of work.

While the financial industry’s woes aren’t epidemic yet, the above facts inject a bit of reality into the unbounded optimism that’s been infecting Main Street America. It’s true that Wall Street isn’t the biggest American industry, but it does account for a significant portion of the country’s GDP. Thus, President Trump may want to huddle with his advisors to see if any of the bad news cited above can be reversed or at least contained.

~ Conservative Zone


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