Wall Street wages have increased at a much higher rate than the wages for the rest of the US, especially during the nineties. One could possibly argue that it’s because Wall Streeters have been working harder since that time, or that they’re becoming more and more valuable to society as time passes. But since Wall Street was at the heart of the financial crisis, which caused millions of people to lose millions collectively, and since Wall Street inflated the housing bubble, we think that people should seriously question whether Wall Street deserves such heightened compensation.
We should question whether Wall Street wages are at the the level they should be, or whether perhaps they’ve been inflated. It should be obvious what we think on the issue. For more, read this post about Wall Street and Main Street. The post contains this stinging quote from Sheila Bair, former FDIC chair:
[Wall Street] create incentives for banks to come up with an endless array of complex “structured” financial products to meet investors’ insatiable demand for return. Just how many jobs did all of those CDOs-squared give us anyway?
Also see the source for the chart, with further clarification: “[The graph] displays the relative wage in finance in the Tri-State Area (New York, New Jersey, and Connecticut), where “Wall Street” employees are likely to generate income, together with the relative wage of finance in the rest of the United States.”
The news is that last Friday at 5PM (the perfect time to leak controversial press releases) the US treasury announced that it would exempt foreign exchange swaps from certain safeguards. According to regulators of derivatives, this change will effectively allow the megabanks to restructure other types of derivatives—credit default swaps, mortgage-backed securities, collateralized debt obligations—as foreign exchange swaps. It will allow these megabanks to continue to gamble with derivatives just as they were doing in the lead-up to the 2008 crisis.
One important action consumers can take is to only support local lenders, which aren’t involved in the global derivative markets.
Read more about the release from the US Treasury.
“Wall Street fought hard to convince Treasury to grant this loophole, which is unjustified by independent research,” Dennis Kelleher, president and chief executive officer of Better Markets, an organization advocating stricter financial regulation, said in an e-mail statement. “That may be why, after two years of consideration, the United States Treasury announced such an important financial regulation decision on a Friday night at 5 p.m. when Congress is on recess and on the eve of the Thanksgiving holiday.”
NYTimes editorial, with links to key academic papers on the topic.
The Treasury contends that the market for the exempted derivatives is already stable and transparent enough, and that the new rules could be dangerously disruptive. That is a distressing argument. Research and other analyseshave shown the risks in this market. In addition, asserting that regulation would be dangerous reinforces the Republicans’ antiregulatory approach that Mr. Obama attacked during the campaign. Third, the exemption invites disruption, in that traders may be able to escape regulation by structuring various derivatives deals to fall under the exemption. The Treasury has pointed out that such manipulation would be illegal, but what would stop it when regulatory enforcement resources are already stretched? It is much more likely that the exemption will create another regulatory challenge without providing the resources to address it.