Morgan Stanley announced today they will be laying off 1600 workers, primarily from institutional sales, trading and investment banking. Back office operations will also be affected, as the Wall Street Journalexplained today.
This is a continuing trend in the financial services business that is a direct result of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Since I left The Street myself a year ago, I still maintain many personal connections and a view to the carnage impacting the business. Enjoying a front row seat on an emerging market debt trading desk, I watched with my own eyes as the liquidity dried up and trades became harder and harder to get closed. The trend has only worsened over the last twelve months, hence the layoffs.
Now let me say one thing up front: I can remember vividly the day Sandy Weill came through my office as the CEO of newly formed Citigroup and telling us all how he would push President Clinton to have Glass-Steagall repealed, which had separated commercial and investment banks since the Great Depression. I recall thinking, “this will not end well.” Having banks levered up 30 to 70 times and funded by government guaranteed deposits was not a prudent strategy, and the banks are still being weaned off of this leverage. I do believe that commercial and investment banks should be separate. We’ve learned this the hard way twice now.
However, in the long run, the cure will be worse than the disease. The Obama Administration has taken this crisis and used it to force a suffocating blanket of government control over the industry. An unaccountable Consumer Financial Protection Bureau can now make arbitrary decisions about what products are good or bad. Three thousand new government jobs and multiple new agencies have been created.
The main glaring error of Dodd-Frank is that it did nothing about the cause of the housing crisis: the U.S government forcing banks to make non-commercial loans and then having the taxpayer guarantee them through FNMA and FHLMC. This was also started by Clinton.
The result of all this intrusive government oversight is less capitalism, fewer liquid markets, less trading and less commerce. Therefore, you need fewer people and create fewer jobs. It is hard to see how more government control will fix problems caused by more government control.
The ironic fact is that New York, which is the capital of liberalism in this country, is also the financial capital of the world. My sources tell me that upwards of 300,000 jobs will be lost in the financial services business in the next five years due to Dodd-Frank. It seems that New York has shot its golden goose. Its tax base will shrink, the budget deficits will only worsen, and people will continue to leave.
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- 10 Ways Dodd-Frank Will Hurt the Economy in 2013 (usnews.com)
- Exchanges, Trading Firms Face Continuation of Dodd-Frank With Obama Win (blogs.wsj.com)
- SEC Chief’s Exit May Stall Dodd-Frank Rules Including Volcker – Bloomberg (bloomberg.com)
- Big Banks Get Two-Year Delay in Dodd-Frank Swaps Pushout (bloomberg.com)
- Can We Thank Congress For Higher Credit Card Interest Rates? (debtconsolidationusa.com)