“Drawn and Quartered”

Is it fair to blame Wall Street for the financial disaster we are in? Politicians from Rush Holt to Christohper Dodd have been vocal in criticizing the financial sector for endless risk taking, yet few in the industry have been charge with any type of criminal violations. Yet a recent report by New York City State Comptroller Thomas D. Napoli (here) shows that the sector did feel real pain in the crisis. Despite record profits on Wall Street in the 2010, the state financial sector reported nearly 40,000 jobs lost.

The hardest hit industry was the securities industry, as the report showed one of every six jobs lost during the crisis came from the securities industry. The job lose cause contribution to tax revenue from the financial sector to drop in New York City from 13 percent to about 7 percent in the 2010 fiscal year. For the state, tax revenue dropped from 20 percent to 15 percent. While many would like to blame Wall Street for the lose, charging that recovery in the sector’s profits show the sector escaped unscathed, the truth is Wall Street felt the pain to as people lost jobs and their financial assets, when their companies went under.

Professor Roy C. Smith, a Kenneth Langone Professor of Entrepreneurship and Finance Professor of International Business at the New York University Stern School of Business said many of the traders remain unemployed or no longer work in the industry. While many criticize the global financial industry, Smith said as many as 250,000 investors around the world lost their jobs.

“They weren’t actually drawn and quartered and thrown in a salt bin,” Smith said. They just lost everything they had worked for. He said it is common to accuse the industry of greedy behavior but some level of greed is a part of the system, as the investors fought to make money for their firms in the competitive market. Many in the industry fell victim to a market which had been overheated, a bubble destined to burst. 

Locally, the lost industry also has an impact on consumer spending in the city, Smith said. The lose of discretionary income means fewer meals out and less overall spending, he said. The report found the average income in the securities industry dropped about 20 percent.

“These fat cat bankers aren’t fat cat bankers anymore,” Smith said.

The report did show that Wall Street profits were set to hit about $19 billion, one of the highest in the past 30 years. Smith said the financial sector has started hiring again, though, as in the rest of the market, it will be a long time before all of the jobs are regained.The economy, he said, has a long way to go before it digs itself out of the hole, which saw a decline in gross domestic product of about 6 percent. But he said the recovery on Wall Street and in the stock market may be a leading indicator of job creation across the board. Hopefully, these “fat cat” bankers will start spending again.