The Real Wall Street

Street theatre is always compelling. It fills the television news and captures the imagination.

Under the circumstances it is worth pointing out that Occupy Wall Street is nothing more than an exercise in frivolity. It’s an opportunity for children to play at revolution in the sandbox called Zuccotti Park.

This morning David Brooks called the protesters “milquetoast radicals” because, at the end of the day they have nothing serious to say about how to solve today’s economic problems.

He explains: “A group that divides the world between the pure 99 percent and the evil 1 percent will have nothing to say about education reform, Medicare reform, tax reform, wage stagnation or polarization. They will have nothing to say about the way Americans have overconsumed and overborrowed. These are problems that implicate a much broader swath of society than the top 1 percent.”

As for the tax-the-rich solution, Brooks is equally dismissive: “Even if you tax away 50 percent of the income of those making between $1 million and $10 million, you only reduce the national debt by 1 percent, according to the Tax Foundation. If you confiscate all the income of those making more than $10 million, you reduce the debt by 2 percent. You would still be nibbling only meekly around the edges.”

Almost by definition, radicals do not live in the real world. They live in a fictional world where Wall Street is the evil vampire sucking the lifeblood out of the American economy.

For those who can still think rationally, it’s worth taking a look at what is happening on the real Wall Street.

Ever since the financial crisis of 2008 the free markets have been exacting their own toll on Wall Street. In the marketplace speculative excesses are normally corrected by severe market contractions. These latter are called bear markets.

One may argue that government intervention stopped the bear market in its tracks, but, old market hands will reply that bear markets do express themselves fully. The bear will punish many of those who allowed their decisions to be dictated by greed. Unfortunately, it will also punish many who did not. In the end, the bear market will correct the financial bubble.

Government may have postponed the inevitable, but it cannot put it off forever.

As for what’s really going on on Wall Street, Andrew Grossman reports in today’s Wall Street Journal:

“New York City's securities industry could lose nearly 10,000 jobs by the end of 2012, New York state's comptroller predicted, a painful blow to the area's economy and government budgets.

“In a report set to be released Tuesday, Comptroller Thomas P. DiNapoli also said bonuses are likely to shrink this year, reflecting lower profits on Wall Street.

“Since January 2008, the securities industry in New York has seen 22,000 jobs evaporate. If Mr. DiNapoli's prediction of 10,000 more jobs losses between August 2011 and year-end 2012 comes true, that would represent a decline of 17%. About 4,100 jobs have been eliminated since April, and deeper cuts are widely seen as inevitable given a recent flurry of corporate expense-trimming announcements.”

If you factor in the influence that Wall Street has on the New York job market and on state and city budgets, you can see that the future does not look too bright.

Grossman writes: “Financial firms play a major role in New York's economy and its budgets. Mr. DiNapoli's office estimates that one in eight city jobs and one in 13 state jobs rely on securities firms.

"’The banks I talk to are talking about significantly reduced compensation, which comes right out of our tax rolls, and layoffs and downsizing,’ said Kathryn Wilde, president of Partnership for New York City, a group of business executives whose firms have significant operations in the city. ‘All of the above suggests that there's going to be a real impact on the New York City economy.’

“Mr. DiNapoli's report also portends more budget pain at New York's City Hall and in Albany, as lower pay and employment levels hit tax collections. New York City's financial plan forecasted $20 billion in securities-industry profits for 2011.

“Those profits now are unlikely to reach $18 billion, the state comptroller concluded in Tuesday's report.”

This puts politicians in a difficult position. They want to support the unions because the unions support them. And yet, Wall Street is the proverbial goose that is financing New York City’s liberal largesse. If the protesters want anything, they want more largesse,

In Grossman’s words: “The report also underscores the delicate position some of the region's politicians find themselves in as anger at the financial industry takes the form of street protests like the Occupy Wall Street encampment. Many protests are backed by powerful constituencies like organized labor, but those politicians are heavily reliant on revenue from Wall Street to balance their budgets and avoid painful cuts and tax increases.”

Be careful what you wish for….