New York Mag: Dodd-Frank has changed Wall Street, reduced bonus pools, ended proprietary trading at many banks

You get two-for-one with this post. One part is a "how to read the media" piece. The other part is — hmm, banking may be changing after all.

The subject of both reflections is a long, well-researched article on Wall Street in New York magazine, "The End of Wall Street As They Knew It".

First, the "how to read the media" part. The piece is so well researched that its covert purpose is not readily discerned. It's a whitewash, of course. The title statement is true, but only partly so. And the author does a great many other things well (which adds to the confusion).

What is whitewashing exactly? Painting something in the wrong color, usually more favorably. Komen for the Cure is being whitewashed as we speak — washed in the lily-white blood of chagrin and forgiveness. Even Democrat Nancy Pelosi (whose ground cover is that, as a woman, she speaks for women and not just for Democrats who want Komen's money-and-lobbying machine to survive) has told us to go home, all is now well in CancerLand.

Please read this Wall Street piece to the end (if you're inclined that way) and ask yourself, in how many places does the following underlying message appear? "They've learned their lesson — see, they're suffering too — time to lay off the bankers."

I could go on and on about this, quote chapter and verse; the instances are legion (as my bibble reminds me). But I'll spare you. I guarantee though, if you seek, you will find them (instances, I mean, of whitewash).

But second, the author, despite his "please think well of bankers," lets drop some doozies (my emphasis and reparagraphing throughout).

■ Bonus are being severely cut back, at least for the hoi and the poloi of the banking world.

[A]mong the many dislocations Wall Street has suffered since 2008, none may have been more destabilizing than the headlines that flashed across Bloomberg terminals on the afternoon of January 17, when news leaked that Morgan Stanley would cap cash bonuses at just $125,000. A week later, Bank of America announced that it would be cutting the cash portion of its bonuses by 75 percent, giving the rest in stock.

All across Wall Street, compensation is crashing. Goldman Sachs, coming off a lackluster fourth quarter, slashed compensation by 21 percent. Banks have always had occasional bad years, but the sense on Wall Street is that this bad year is different.

If you don't have money, you can't give it away.

■ This changes the culture of medium-flyer bank employees, the grunts.

Read the following carefully; ignore the writer's implicit boo-hoo (I know, but try) and the implicit negative effect on the upscale end of New York's economy:

For New York’s bankers and traders, the new math suddenly reordered their assumptions about their place in a post-crash city. “After tax, that’s like, what, $75,000?” an investment banker at a rival firm said as he contemplated Morgan Stanley’s decision. He ran the numbers, modeling the implications. “I’m not married and I take the subway and I watch what I spend very carefully. But my girlfriend likes to eat good food. It all adds up really quick. A taxi here, another taxi there. I just bought an apartment, so now I have a big old mortgage bill.”

That bonus could easily have been in the hundreds of thousands, if not more, in previous years. Lifestyle-changing changes are real changes. This could be a sea change for the banking industry.

■ Republican Teaparty-ish voters share many positions with the Occupy Movement:

Even as bonuses have withered, Wall Street as a political issue is gaining force. Bankers are aware that populism has a foothold, even in the Republican Party, and that these forces are liable to accelerate the process already taking place. “There’s a real sense the world is changing,” says a private-­equity executive with deep ties to the GOP. “People are becoming aware there’s real anger out there. It’s not just some kids camping out in some park. The Romney attacks caught everyone by surprise. We have prepared for this to come from the Democrats in the fall, but not now. You could run an entire campaign if you’re Barack Obama with ads using nothing but Republicans saying things about finance that you’d never hear two months ago. It’s an amazing thing.”

■ Big banks are losing revenue and profits in a way that looks lasting:

Since July 2010, Bank of America nosed down 42 percent, Morgan Stanley fell 25 percent, Goldman fell 21 percent, and Citigroup fell 16—in a period when the Dow rose 25 percent.

■ The Volker Rule, which forbids proprietary trading for some banks, seems to be having an effect:

Months before the Volcker Rule is set to kick in, star traders began to leave in droves. In March 2010, Pierre-Henri Flamand, the London-based global head of Goldman’s Principal Strategies group, quit to start his own hedge fund. A few months later, in September, Goldman revealed it was shuttering its entire desk. In October, the nine traders at Goldman’s U.S.-based desk, run by Bob Howard, decamped en masse for KKR, the private-equity firm. Around the same time, Morgan Sze, one of the highest-paid traders in Goldman history, who was said to have earned a bonus of $100 million in 2006, announced he was leaving to launch his own $1 billion–plus hedge fund.

■ Same for the Durbin amendment, which attacked some banking fees:

The rule passed and overnight wiped out $6.6 billion in revenues banks had made on debit cards. In response, Bank of America announced it would charge consumers $5 a month for their debit cards. After being savaged by outraged customers, BofA announced this past November that it would drop the plan.

And the boo-hoo, dutifully recorded by the author, on that one:

“The Durbin rule was the worst rule,” says an executive at one of the major banks. “Debit cards had nothing to do with the crisis. The fact is, we give free stuff to our customers. Now we’re going to have to be the bad guy.”

We're crying real tears.

■ Hedge funds, to whom some bankers have fled, aren't doing great either:

Just a couple of years ago, traders faced with hardships like this would simply have jumped over to a hedge fund, and made more money with less hassle. ... But recently, hedge funds have fared just as poorly as the banks. .. In 1990, there were 610 hedge funds in the world. In 2000, there were 3,873; in 2011, there were 9,553, according to a report by Hedge Fund Research. All these funds are chasing fewer surefire trades. ... The rising tide of the real-estate and credit markets lifted all boats.

But nowadays, while some hedge funds will still make ridiculous money, just as many will lose. One Leon Cooperman fund was down 12 percent over the first three quarters of last year, while a Bill Ackman fund was off 16 percent—not the kind of returns investors pay the hedge-fund premium for. ... And as the world becomes deleveraged, money has been pouring out. In October 2011 alone, hedge funds saw $9 billion go out the door.

It does seem to be a changed world for these cretins.

The conclusion of the piece supports my original contention.

But for now, the strictures that are holding the banks back now are tighter than any since the thirties. And those laws kept banking reliably risk-free and dull until the deregulation mania of the eighties and nineties unleashed finance. The system is being designed so that Wall Street grows only as fast as Main Street. “The bubble can’t happen again,” Jack Bogle told me.

Etc. It looks like a bit of a whitewash, don't you think?

In addition to that, the article makes no mention of too-big-to-fail. No mention of the implicit promise of more bailouts at your personal middle-class-taxes expense. No admission of crimes committed; not a hint of fraud performed; no mention (well, barely) of jail time for the jailable. Etc.

Other than that, it may still be true that banking has been irrevocably changed, at least for now. Here's hoping.

GP