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The End of Wall Street As They Knew It

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And, knowing a losing position when they see one, much of Wall Street is onboard with some of the tax changes Obama has been proposing. “I would tax dividends and interest income higher and capital gains,” said Dimon. “Have a higher tax rate. If you said there’d be a certain percent rate for people making over a million dollars and a higher percent rate for people making over $10 million, no problem with me. I don’t think people should be able to pass unlimited amounts on to their kids.”

Even Home Depot founder and financier Ken Langone (“You bet I’m a fat cat,” he told me proudly) isn’t arguing for the status quo. “I would enthusiastically embrace a tax increase,” he told me. “I’m more than willing to pay taxes. I’m saying, take the money and use it to lower the debt.”

Last Tuesday, about 150 people packed into the soaring marble-floored atrium of the Museum of American Finance, housed in the former Bank of New York Building on Wall Street. Large murals on the wall extolled American industry and Wall Street’s role in building businesses. The gathering was a conference honoring the long career of legendary Vanguard Group founder Jack Bogle, but as I listened to the conversation, the hypercapitalism of the aughts sounded like a museum exhibit from an earlier time. Bogle, who built Vanguard into a $1.6 trillion mutual-fund giant, was the guest of honor, but the clear star of the event was Paul Volcker, who caused heads to crane when the genial six-foot-eight former Fed chairman arrived carrying a stack of newspapers and took his place in the audience as Ken Feinberg and Lynn Turner, the former chief accountant for the SEC, debated how Wall Street compensation got so insane. During their panel, I noticed ­Volcker flipping through his copy of the Financial Times, stopping to read an article headlined “Forget Big Bonuses, a Pay Squeeze Is Coming.”

During a break in the panels, attendees streamed up to Volcker, and a book editor implored him to write his memoirs. It was a dramatic reversal for Volcker, who had been shunted aside during the financial-reform debate but found himself back in the center after Obama embraced a version of his prescriptions. “It’s beginning to have an impact,” he told me when I asked about how his rule is changing Wall Street. “It is a factor in moderating compensation, because compensation was very high for these traders, and that kind of spread through the business into people who didn’t feel like they had a fiduciary responsibility.” As much as anything else, the daylong conference at the museum exposed a generation gap. The Wall Street that spawned the careers of Bogle and Volcker was very different from the one that attracted the next generation of hyperambitious young people to New York and Greenwich, Connecticut, eager to have their lives measured by a number—seven figures or more, they hoped. For those people, especially, it’s difficult to get their minds around a Wal-Mart future for finance. “It’s been three years, and people have to readjust their spending habits,” a former Lehman executive told me. “People have been in different stages of denial.”

Of course, many still argue that the new rules will have unintended consequences. “Banking is very global now,” said Dimon. “If rules are written in a way where American banks can’t compete and are disadvantaged versus non-U.S. banks, that’ll be a problem for banks and for American competitiveness. Banking cannot be made into a utility.”

Some hedge-funders are still going to find ways to make billions, even in this new environment—one of Ray Dalio’s Bridgewater Associates funds made a return last year of over 20 percent. While the big banks’ rank and file saw their cash bonuses slashed, the money that was deferred may eventually end up in their bank accounts; and the CEOs tended to do rather well. Also, it should be remembered that anytime Wall Street has been faced with new regulatory obstacles, it has fairly quickly found ways around them. Many of Dodd-Frank’s rules are still being argued in Washington, and Republicans seem bent on reversing a lot of them.

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. “The underlying reason is, corporations make money. We do things that make society better. But they grow, and this won’t surprise anyone, at rate of GDP.” On Wall Street, recent history was the exception. “Reversion to the mean is the rule of the financial market.”


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