Wall Street Profits Down!

This article in New York magazine really struck me.  Key quote:

With all the major banks unable to wager their own funds on big bets [due to Dodd-Frank], there’s a growing sense that the money that was being made during the Bush boom won’t be back. “The government has strangled the financial system,” banking analyst Dick Bove told me recently. “We’ve basically castrated these companies. They can’t borrow as much as they used to borrow.”

... On Wall Street, the misery index is as high as it’s been since brokers were on window ledges back in 1929. But sentiments like that, accompanied by a full orchestra of the world’s tiniest violins, are only part of the conversation in Wall Street offices and trading desks. Along with the complaint is something that might be called soul-searching—which is, in itself, a surprising development. Since the crash, and especially since the occupation of Zuccotti Park last September (which does appear to have rattled a lot of nerves), there has been a growing recognition on Wall Street that the system that had provided those million-dollar bonuses was built on a highly unstable foundation. Disagreeable as it may be, goes this thinking, bankers have to go back to first principles, assess their value in the economy, and take their part in its rebuilding. No one on Wall Street liked to be scapegoated either by the Obama administration or by the Occupiers. But many acknowledge that the bubble­-bust-bubble seesaw of the past decades isn’t the natural order of capitalism—and that the compensation arrangements just may have been a bit out of whack. “There’s no other industry where you could get paid so much for doing so little,” a former Lehman trader said. Paul Volcker, whose eponymous rule is at the core of the changes, echoes an idea that more bankers than you’d think would agree with. “Finance became a self-justification,” he told me recently. “They made a lot of money trading with each other with doubtful public benefit.”

It's a long article and a great read, and goes on to note that the big investment banks are closing down their proprietary trading departments, the ones that basically acted like hedge funds, and their "star traders" are quitting to start their own hedge funds because the rules don't allow the big banks to take the kinds of risks that produce 8-figure annual salaries.  This makes sense to me- Too Big To Fail banks shouldn't act like risky hedge funds, because as we saw in 2008, when they fail they take too much collateral damage along with them.

I first read the article as sort of neutral reporting, or even a bit of a Liberal take.  Near the end there are quotes from various Wall Street leaders in favor of higher taxes on their huge salaries, and little in opposition to that.
Matt Taibbi reads it this way:

But in reality? Please. Wall Street people complain a lot, but in the last six months, the grave impact of Dodd-Frank on bonuses hasn’t even been within ten miles of the things these people are really panicked about. The comments I’ve heard have been more like, "My asshole has been puckered completely shut for four months in a row over this Europe business," or, "If the ECB doesn’t come up with a Greek bailout package, I’m going to have to sell my children for dog food."
Bonuses are indeed down this year, especially when compared with the bonuses of recent years, but let’s be clear about why. It has nothing to do with Dodd-Frank. We can posit three other factors:
1. Banks have unfortunately had to give up the practice of simply printing trillions of dollars out of thin air by selling off worthless mortgages for huge profits and/or making millions of synthetic copies of those same worthless mortgage assets;
2. After twice being saved from the execution chamber by Ben Bernanke’s Quantitative Easing programs, which printed trillions of new dollars and injected them straight into Wall Street’s arm, Wall Street was rocked this summer when Helicopter Ben decided to temporarily forestall QE3;
3. Europe, a slightly more than minor factor in the global financial picture, is imploding, causing mass hoarding of assets all over the world, severely impacting the business of investment banks everywhere. 

I don't know what's right.  But to me lower profits on Wall Street are a feature, not a bug.  That's not because I hate rich people, or because I'm jealous.  It's because the enormous profits on Wall Street happened because of the enormous risks being taken, and when it came crashing down taxpayers took the hit.  Individualized gains and socialized losses don't work.

So if Dodd-Frank is the reason for Wall Street whining, then I give it three cheers.