Will Financial Reform Work?

Let our journalists help you make sense of the noise: Subscribe to the Mother Jones Daily newsletter and get a recap of news that matters.


Will financial reform help create a safer banking system? Last week I said that a key sign would be falling profits, since safer banks ought to be less profitable banks. Unfortunately, banks seem pretty bullish about profits, a sign they don’t really think all the new regulations will change their business practices much.

Today, the Wall Street Journal begs to differ:

Investor presentations by top bank executives in London last week, combined with increasingly dour projections for the third quarter that ended Thursday, are crystallizing the challenges banks face. “The business models on the Street are going through dramatic changes,” says Clayton Rose, professor of management practice at Harvard Business School, based on the most drastic shifts in the “political, regulatory, and economic environment since the 1930s in the financial industry.”

….Return on average equity for the major investment banks, a key barometer of profitability, could be halved from the 20% range a few years ago, according to SNL Financial. And costs are rising, leading to expected waves of industry job cuts.

Morgan Stanley and Goldman, the two major firms that derive most of their earnings power from Wall Street businesses, are expected to earn about $12.1 billion in profits this year — 23% less than in 2006, their peak earnings year, according to Thomson Reuters. Their revenues are still largely dependent on trading, with about 60% of 2009 and estimated 2010 revenues coming from trading, according to Sanford Bernstein.

It’s too early to know for sure how this is going to turn out, so for now consider this just another data point. On the one hand, a big part of this anticipated profit crunch is due to lower volumes of stock trading, something that wasn’t really affected by the financial reform bill. So that doesn’t mean much. On the other hand, the Journal story suggests that higher capital requirements, curbs on prop trading, and derivatives rules are also a big part. If that’s the case, maybe the new rules will really have some bite. Stay tuned.

SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

payment methods

SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate