NYT editorial: Wall Street Meets Reality

[ProSense]

Wall Street Meets Reality

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.

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http://www.nytimes.com/2011/12/28/opinion/wall-street-meets-reality.html?_r=1&ref=opinion

[DJ13]

1. How long will it be before they understand

theres no economic recovery without everyone benefiting?

[stufl]

2. "The Bubble?" More like 3 bubbles.

The subprime mortgage scam was the last and largest. Remember the savings and Loan bubble and the dot-com bubble. All resulted from cheap Fed money chasing speculation on "creative" financial products.

Investment banking is a zero sum game. That is, for every dollar they gain, somebody loses. They have learned how to unload the "turkeys" on their clients. If I managed a retirement plan or mutual fund, Goldman Sachs would be the last place I would put my money. It is now general knowledge that they screw their clients to make a buck.

[JDPriestly]

3. I liked this observation:

“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.”

Let's return to creative problem solving. This is the way to help the economy grow. Just passing inflated dollars back and forth on Wall Street created the uncontrollable spiral that twisted itself into a know in 2007-2008. I'm glad to see a glimpse of sanity returning to Wall Street. This is really good news if it is true.

Not that long ago, the best and brightest young mathematicians and economists were lured by Wall Street. It was a real waste of talent for our country. This could herald some really interesting new products -- marketable products that benefit ordinary people.

[ProSense]

4. Kick! n/t