By Agnes T. Crane and Christopher Swann The authors are Reuters Breakingviews columnists. The opinions expressed are their own. There seems to be no end to bad news for bankers. They’re already on the defensive. Third-quarter earnings look set to be shoddy. Another 10,000 job cuts may be in the offing. And protesters are ready to camp outside Jamie Dimon’s house. Yet financials still haven’t shrunk enough, suggesting more pain is to come. Despite the fallout from the 2008 financial crisis, the sector actually accounts for a bigger share of the U.S. economy than before the financial crisis, representing 8.4 percent of total GDP. Manufacturing’s output, while still larger, shrank between 2006 and 2010. Moreover, job cuts in New York City’s securities industry have only slimmed high finance’s payrolls by 22,000, or 12 percent, according to Thomas DiNapoli, the New York state comptroller. He expects another 10,000 pink slips to be sent out by the end of 2012, but if culls after previous financial mishaps are any guide, that may prove too optimistic. The Big Apple lost twice as many Wall Street jobs after the dot-com crash, for example. Compensation also still seems out of whack. The average Joe at a securities firm saw his paycheck increase 16.1 percent in 2010 to more than $360,000. That’s 5.5 times higher than the going wage in the private sector, according to the comptroller. In 1980, it was only twice as fat. There are a number of reasons Wall Street survived the aftermath of the 2008 crisis better than many had expected, chief among them taxpayer support and trillions of dollars pumped into financial markets, inflating asset prices and trading desk profits. But with the economy stalling and Uncle Sam running out of ways to jump-start it, more cuts look likely. Longer term, new regulations are likely to whack profitability further, enforcing even more trimming. Bringing banks back into balance won’t just be painful for the pin-striped suit brigade. Reducing the industry’s contribution to the economy means fewer taxes for federal, state and local governments to collect, especially for New York, where no other sector looks healthy enough to pick up the slack. But it’s an adjustment that’s past due.
