The weirdo protesters “occupying” Wall Street in recent days ought to be rampaging in Washington — because it’s the feds who’ve been choking the golden tax-revenue goose.
The financial industry won’t shower its usual gargantuan share of tax money into New York’s budget for years to come, because a host of new federal laws and regulations are squeezing profits and forcing a huge retrenchment.
Some budget wonks will tell you that the city’s economy is now more diversified — that tourism will pump enough cash into the state and city coffers so their budgets can withstand a long-term Wall Street drought. Indeed, the State Comptroller’s Office reports that Wall Street’s contribution to the city budget has dropped to 7 percent from 13 percent before the financial crisis.
But tourism mostly creates lower-paying jobs — which don’t create as many other jobs. Other analysts note that every Wall Street job creates as many as three others because these people spend so much money. Because many work (and therefore pay taxes) in the city even if they live elsewhere, that means that New York budgets feast off of Wall Street success. In fact, for every $1 billion in bonus money doled out to Wall Street, the city retains around $200 million from personal income-tax collections, says the City Comptroller’s Office.
But now Wall Street faces what some say is a long-term decline in employment and profitability. Yes, lousy market decisions play a role in most recent cutbacks, but it’s fear of a long-term decline that explains drastic actions like Bank of America’s decision to slash 30,000 jobs, people at the bank tell me.
BofA isn’t alone. Goldman Sachs has ramped up its expected layoff tally as officials brace for third quarter losses and slimmer profits for quarters to come — again, thanks to regulatory costs.
Speculation that Morgan Stanley is overexposed to Europe’s financial problems is one reason Morgan’s shares have been getting hammered, but also worrying investors is the bank’s inability to make enough money here at home given all the new restrictions it faces. In response to the new regs, Morgan is getting ready to shutter its trading department and divested from other business lines. Officially, it doesn’t have plans to cut more jobs — but bankers inside the firm say contingency plans are being drawn up.
Want more? Experts say year-end bonuses (top Wall Street earners generally get most of their compensation in bonus checks) will be down as much as 50 percent at some hard-hit firms. In fact, the only areas that might see employment and bonus growth is in compliance departments — i.e., the folks who watch over the risk-takers and feed the bureaucrats the endless paperwork they demand.
But those jobs can’t make up for the looming layoffs — they’re an added cost to the firm, not real money-makers. Nor do they offer top salaries.
When they wrote their big financial-reform bill, Sen. Chris Dodd and Rep. Barney Frank either didn’t know or didn’t care why the financial system imploded in 2008. The law they concocted forces firms like Goldman Sachs and big banks out of lucrative businesses that had little to do with the problems that created the crisis, but showered Wall Street with fat bonuses, and city and state budgets with billions upon billions in revenues.
That irony is lost on all Susan Sarandon, Cornel West and all the weirdos marching on Wall Street: Uncle Sam has already done plenty to squeeze the industry — and it’s not providing more cash for the welfare state, but less.
In the old days, a Wall Street downturn was temporary — government big spenders just had to wait a year or two before the banks bounced back with big profits and lots of tax revenue. No more: City and state budget monitors are now looking at a long-term decline in Wall Street profitability.
Frank Braconi, chief economist for the City Comptroller’s Office, sees another problem: After all the class-warfare crowd’s screaming about large cash bonuses for Wall Street execs, the banks are now deferring a greater share of executive compensation — which the New York taxman can’t seize until some date well into the future, meaning less revenue now.
And good luck with “diversifying” New York’s tax base. The reason the Wall Street risk-taking crowd became such a dominant part of the local economy is that the politicians chased out nearly all the other businesses with high taxes used to finance New York’s big and inefficient government.
Now that sounds like something to protest about.
Charles Gasparino is a Fox Business Network senior correspondent.