On the three-year anniversary of the financial crisis, Wall Street is in the dumps. Not the same dumps as the big banks and Wall Street firms found themselves in back in 2008, but the mood on Wall Street is pretty dark.
It's not easy to refrain from vomiting when millionaires and billionaires cry on your shoulder, but for the sake of making a larger point (just bear with me for a few paragraphs) here are some of the sob stories I keep hearing at bars where traders and bankers drink themselves silly (or I should say sillier) and at places like San Pietro restaurant, the mid-town Manhattan cafeteria for the banking CEO.
From what I'm hearing, it's not just that America hates Wall Street for its greed, excess and bailouts that has the typical Wall Streeter so glum; in fact, the typical Wall Street executive can live quite comfortably with being hated by some guy in Kansas who actually works for a living.
Wall Street's foul mood is all about money: Three years after the collapse of Bear Stearns and Lehman, and the taxpayer-financed bailouts of Citigroup, Bank of America, Morgan Stanley, Goldman Sachs and JP Morgan, Wall Street isn't being allowed to return to old ways of making money in any way it can.
Profits are down this year and so will be bonuses for 2011, big time, I am told, at least by Wall Street standards. How much are bonuses off? It all depends on who you speak to and where they work; my guess is look for average reductions anywhere from 10 percent to 30 percent depending on just how bad the bank is handling the lousy business environment of low levels of trading and shrinking profit margins.
By that measure, people at basket-case banks like BofA might want to start looking for jobs at places like JP Morgan -- and they are. Resumes are flying out of BofA, which just announced 30,000 layoffs and today, had its credit rating cut by Moody's.
It wouldn't be so bad if this was a one-year phenomenon. The relatively new Dodd-Frank financial reform legislation is just starting to kick in and crushing profits for the foreseeable future as banks have to exit certain businesses like proprietary trading. Throw in new global banking regulations also crimping future profits and that means even smaller profits and bonuses to come.
And it's so unfair, I keep hearing from the Wall Street whiners. It's unfair because all the new regulations are the result of the financial crisis, which many on Wall Street still believe wasn't of their own making. An aggressive media (they put me high on the list) whipped the markets into a frenzy in 2007 and 2008, exaggerating the exaggerated risk taking at Bear Stearns and Lehman Brothers, whose combined downfall set the stage for the wide financial crisis, and now, all those nasty new regulations.
Throw in the actions of short sellers, who made so many billions by spreading "rumors" exaggerating the exaggerated risk taking at Bear and Lehman, and the rest of the big banks and Wall Street had no choice but to beg the taxpayers for all those billions in bailout money.
"And we paid it all back," one senior investment banker at a big firm recently told me. All those billions in bailout money were paid back with interest, this executive reminds me. Some firms like Goldman Sachs were offering to repay the government almost immediately after taking the money, which is further proof that the bailout wasn't really a bailout, but something like a temporary loan.
Its pretty astonishing that the same Wall Street firms who couldn't control risk taking for all those years, can produce a fairly coherent message articulated by both CEOs and traders alike, even if it's all bullshit.
What most people on Wall Street fail to accept as fact is that they now work for the government. The minute Wall Street took even a dime in government bailout money it became a ward of the state. Traders, bankers and even CEOs have been reduced to bureaucrats, whose ultimate boss is the guy in the White House who whenever his approval rating dips below 50 percent (which is almost all the time these days) calls them nasty names and demands that they make less money.
Working for the government has its perks, of course. Banks were able to repay the government all the bailout money and pay their execs fat bonuses within a year or so after the bailouts because the government helped them in every way imaginable. It's almost impossible not to make money on Wall Street when it costs almost nothing to finance your operations thanks to zero percent interest rates, QE1, QE2, which brought down interest rates even further, not to mention all the other programs instituted by the government to help support the banking business.
The price paid for helping Wall Street and the banks is a modestly stronger financial sector, but a weaker overall economy. Main Street gets screwed because investors bid up commodities in search of higher returns, but that means higher food and gas prices for Average Americans. Zero percent interest rates also means that even risk-averse investors (think the elderly) must roll the dice in the stock market because money market funds and other low risk investments offer almost no return these days.
Of course, the new regulations are now squeezing bank profits and bonuses, but the biggest sin of Dodd-Frank and the global regulations being pushed on our banks known as "Basel III" is what it's doing to Main Street rather than Wall Street. Small businesses can't get loans if banks are under pressure to hold more capital, one of the big reasons we have 9-plus percent unemployment well into President Obama's much-hyped economic "recovery."
Finally, it is pretty amazing that Wall Street executives with educations from the nation's best schools and make boatloads of money consider themselves "victims" of class warfare and ambitious reporters. In their world, if reporters like me never mentioned the fact that Bear Stearns borrowed 30-to-40 times more money than it had in capital to finance mortgage-bonds that were losing money, the financial crisis would have been a mere blip.
In the real world, the Wall Street complainers should be happy to have government jobs and just keep their mouths shut.