‘Five years after the beginning of the financial crisis,” Wall Street “remains in transition,” state comptroller Tom DiNapoli reported Tuesday. The industry is “still working through the fallout from the financial crisis.” No kidding.
Yet both the state and city governments, which depend on Wall Street to pay the bills, are still partying like it’s 2007. Unless they sober up soon, they’re in transition to nowhere.
At first glance, DiNapoli’s report on Wall Street’s impact on New York seems inconsistent. Wall Street should ink healthy profits this year — $15 billion, or twice last year’s levels. That’s back to where it was in 2006, before the crisis.
But Wall Street is shedding jobs — 4,800 over the summer.
And the industry never replaced the jobs it lost after 2007. Employment is still down 20,200 jobs since the crash, to 172,000 — a much slower bounce-back than after the last two recessions.
In 2000, keep in mind, Wall Street had 195,400 jobs — a number it’s never again reached.
Bonuses are falling, too, for the second year in a row — even though last year’s $20 billion was about 43 percent below the pre-crisis payout.
The numbers make sense, though — and are grim news for New York.
Profits are the difference between what the Wall Street firms take in — “revenues” — and their expenses. And revenues are still nowhere near the 2006 or 2007 level — in fact, they’re about 57 percent below the 2007 mark, and still falling.
So to keep profits high, Wall Street has slashed its biggest expense: jobs, and pay for those who still have jobs.
This trend is getting worse.
Morgan Stanley chief James Gorman said last week, “there’s way too much capacity” — meaning extra people — “and compensation is way too high.” Still. “The industry is still overpaid.”
And Gorman and his Wall Street peers have also figured out that their employees have nowhere to go if they’re unhappy.
So look out below — still. In the early ’80s, the average Wall Streeter made only twice the average private-sector income in other industries. It rose to six times that during the bubble years — but it’s now back to five times the average salary, and sinking.
The problem for New York, city and state, is that many of those “overpaid” bankers paid taxes on their bubble-era bonuses.
In 2008, Wall Street covered about $4.5 billion of the city’s tax payments — 12 percent of the total. Last year, it was $2.8 billion — 7 percent.
The state, meanwhile, got $8.7 billion from the securities industry last year, or 14 percent of its tax dollars. That was down from $12 billion — or 20 percent — in 2008. (The state numbers are bigger because Albany relies so heavily on income taxes.)
New York’s private sector can adjust to all this perfectly well. Yes, the conventional wisdom is that every Wall Street job creates two other jobs in the city (and one in the suburbs), through outsized spending and tax payments.
But Wall Street’s shrinking means cheaper real-estate prices, both residential and commercial — which will bring new people in new industries. Global tourism, too, supports retail jobs.
It’s government that’s refusing to adjust. Those new jobs will never pay what bubble-era Wall Street paid — and so tax revenues will stay slumped.
But the state and city haven’t cut spending accordingly. The state will spend $59.2 billion from its general fund this year — up 11 percent from $53.3 billion in 2008, when the crisis was setting in. The city has goosed spending 17.4 percent, to $52.7 billion from $44.9 billion in 2008.
For all the hand-wringing we’ve heard about belt-tightening and pension reforms in the past few years, mostly what the pols have been doing is waiting for Wall Street to return to the bubble years. They’ve replaced the “temporary” loss in revenues with a variety of one-shots, raids on rainy-day funds and similar gimmicks.
But it’s not temporary — even Wall Street is giving up getting back to bubble-era prosperity. As DiNapoli put it, the financial industry has had a chance to “restructure and position itself.”
New York government had the same opportunity — but didn’t seize it.
Nicole Gelinas is a contributing editor to the Manhattan Institute’s
City Journal.