Will Bank Reform Chase Jobs from NYC?
Today, I was asked to comment on whether bank reform would chase jobs from New York City, for a new 30 issues in 30 days website created for the Brian Lehrer Show. The other commenters (we're all being called 'wonks') think it would. I don't. We'll be talking about it on air this Thursday morning at 10:15 AM EST.
You can follow the debate, or add your thoughts here.
This is my take: Meaningful bank reform wouldn’t result in a tangible number of jobs leaving New York City (aside from the yearly pilgrimage of hedge fund god wannabe’s to Connecticut for better tax treatment). As we have witnessed firsthand, recently – it is the inevitable crash of improperly restrained, reckless banking activity that gives rise to widespread economic pain, including job cuts, throughout multiple sectors.
During the past two years since the banking system was given an unprecedented adrenalin shot of cheap money, guarantees, toxic asset transfers, and Fed backing for the biggest institutions to become bigger, two things have happened: Wall Street profits and bonuses have come roaring back, and job prospects and conditions for those outside of the financial industry, have deteriorated. None of that is because of the financial reform bill, not least because no stipulation from that bill has taken effect. Secondly, the bill is exceptionally weak in general.
The financial reform bill doesn’t meaningfully alter the banking landscape. It doesn’t make bigger banks smaller – instead, the Federal Reserve decisions to allow Goldman Sachs and Morgan Stanley to become bank holding companies, to enlarge Bank of America through the acquisition of Merrill Lynch, JPM Chase through the acquisitions of Bear, Stearns and Washington Mutual, and Wells Fargo through the acquisition of Wachovia have only consolidated federally backed practices. Any related job cuts came through the cast-offs that occur when companies merge. They were thus, a result of the opposite of bank reform or prudent regulation.
Further, under the Dodd-Frank Act, banks won’t have to separate into investment vs. commercial entities as they did when Glass-Steagall was enacted in 1933, which would contain problems and choices resulting from the creation of speculative assets at entities providing deposit and lending services to Main Street. The bill barely limits proprietary trading and hedge fund ownership, plus banks don’t garner a sufficient enough revenue percentage for this to make a huge difference. At any rate, prop spinoffs are tending to be staffed by current employees, so no job change there.
The financial reform bill won’t change Wall Street – one need only to look at the recent Bloomberg survey stating that half the financial execs polled, expect their bonuses to rise by 50% or more, to know that banking is at status quo. Meanwhile, people in other fields, from fashion to journalism, teaching to sculpting, caring for the sick to caring for the elderly, don’t have the same prospects for bonuses or jobs. If we had meaningful financial reform, we might be better protected from the next round of speculative excess that will explode in our faces, causing more job losses. We would be better insulated from the illusionary highs and crushing lows that Wall Street can imbue on the rest of the city. Meanwhile, job losses in New York City have not been the result of strong regulation, but of a financial sector that wasn't regulated enough, and still isn't.