The New York Stock Exchange’s likely sale to Frankfurt Stock Exchange is a sad event for the country, which is losing an icon of global finance to the Germans — including possibly the NYSE name, once one of the best-known brands in corporate America.
But the merger (slated to be announced on Tuesday, I’m told) is even sadder for New Yorkers. What little is left of our economic dominance as the “Empire State” has now been shattered by a deadly combination of global competition that is ruthless in picking winners and losers and the high taxes and vast spending of the New York nanny state.
Despite these burdens, the financial sector — the big banks and investment houses and the NYSE — managed to survive, providing plentiful jobs for blue-collar and back-office workers, as well as highly paid bankers and traders. But recent regulations, including those in the name of “financial reform,” have imposed so many fees and costs on investment houses that operating in the New York area, with its high taxes on business and individuals, has become increasingly difficult even for the biggest big banks that still call New York their home.
In response, these institutions have either moved out of New York or transferred major chunks of their businesses to lower-cost areas — or, as the NYSE is trying to do, simply sold to a larger, more competitive foreign player.
The saddest part of this sad story is that there appears little anyone can do, given the clueless crew in Albany. Consider: The state Assembly and its powerful public-union cronies are not only resisting Gov. Cuomo’s much-needed spending cuts, but want to make it even more difficult for people who create jobs and contribute to what’s left of New York’s economy, by extending a “millionaire’s” tax on the so-called rich.
The folly of this tax starts with its name — only in New York do we count “millionaires” as people making a penny more than $200,000 a year, which is where this income-tax surcharge begins. Worse is its futility: It will be further incentive for people who make money and start businesses to pack up and go elsewhere, leaving the state with fewer revenues to close its endless budget holes.
There are many reasons why the NYSE needed to sell to the Germans. The business of matching buyers and sellers of stocks (the cornerstone of any exchange) is rapidly changing. The old brokers on the NYSE floor have been replaced by computers that do that function at lightening speeds.
The NYSE computer-trading system now competes with exchanges across the country and the globe. In fact, stocks — including those listed to trade on the NYSE’s “Big Board” — don’t even need to be matched by the NYSE computer, one of its remaining floor traders or at any exchange, for that matter: A firm like Goldman Sachs can simply bring buyers and sellers together on its own trading desk.
Meanwhile, in 2003, the guy who knew more than anyone else about how to run the NYSE, its former chairman Dick Grasso, was run out of town following the disclosure of his huge pay package — despite everything he’d done to make the exchange one of the world’s best-known brands. Since then, the symbol of New York’s and the country’s economic dominance has struggled under feckless management that gave away many competitive advantages.
But the biggest reasons why the exchange really didn’t have a fighting chance to compete are economic: the high cost of doing business in New York, combined with the burdensome regulations that appear every time the markets crumble.
The costs to businesses from the Sarbanes-Oxley overhaul, enacted after the Internet bubble and the Enron scandal, didn’t stop Bernie Madoff from stealing tens of billions — but those burdens forced many firms to flee the NYSE and register their shares in places like Frankfurt.
The more recent Dodd-Frank overhaul has so many hidden costs and regulations, executives at the big banks still can’t figure them out. With that, they’ve begun shedding such businesses as proprietary trading, in which a bank risks its own money to buy and sell stocks, even though these had little to do with the ’08 financial collapse.
Put this all together, and the question isn’t why the NYSE is giving up the fight — but why it took so long.
Charles Gasparino is a Fox Business Network senior corre spondent and the author of “Bought and Paid For.”