What's the Matter With Wall Street? There are too many traders, bankers and salesmen to support the new level of business. Thanks to Dodd-Frank, the shrinking of finance will continue.
Author: Andy Kessler</br></br>What's wrong with Wall Street? I don't mean the painfully slow and dreadful new Oliver Stone movie. I mean the real Wall Street. The stock market has been on a tear this month and is up a few percentage points for the year. But the stocks of most Wall Street firms are actually down close to 15% for the year.</br></br>It wasn't supposed to be this way. The Federal Reserve's near-zero interest rate policy makes it almost impossible for Wall Street not to make money by borrowing at next to nothing and buying anything, especially Treasury bonds. This gives banks easy profits and the wiggle room to write off the toxic mortgage assets that never got cleared out.</br></br>While most firms won't release earnings for another three or four weeks, Jefferies investment bank set off air raid sirens last week by announcing disappointing earnings, which CEO Richard Handler blamed on "painfully slow trading." And there's more trouble down the road.</br></br>One obvious problem is that the yield curve has flattened. While short-term rates are near zero, Ben Bernanke's Fed, via quantitative easing, has been working furiously to lower long-term mortgage rates. In January, Wall Street could borrow in the short-term market at 0.15% and buy 10-year bonds paying close to 4%. Today they can still borrow cheap at 0.14%--but 10-year bonds are only paying 2.6%. That's a huge difference in nine months, and profits suffer.