For decades, Wall Street offered the allure of big league paydays and behind-the-scenes power.
But since the 2008 financial crisis there's been a growing sense – or even hope – that The Street's stride had been broken. After all, demand for a financial system overhaul, regulatory reform, and a crackdown on Wall Street pay must take some toll.
Not hardly. Wall Street hasn't changed its ways and it never will.
Take it from a man who has spent decades on The Street, seeing everything firsthand.
Money Morning Capital Wave Strategist and retired hedge-fund manager Shah Gilani says that in the short-term, firms will have to deal with new rules and slimmer paychecks, but ultimately, they will still find a way to prosper.
"The bloom is off the rose and Wall Street is showing its thornier side, but the Street is still paved with gold," said Gilani. "On any relative basis, unless you're a rock star, star athlete or Hollywood heavy, there's no place like Wall Street to make your fortune. That's not going to change any time soon."
Wall Street Sidesteps Obstacles
Wall Street faces a new regulatory environment, pay cuts and angry public protests – but the effects won't be nearly as damaging as many critics had hoped.
For instance, the new Volcker Rule regulations, part of the Dodd-Frank financial oversight law, will go into effect next year. Its restrictions are perhaps the sternest to emerge from the campaign for reform.
The rule aims to ban proprietary trading, in which the banks traded for their own benefit rather than for the benefit of their customers, but also will address other areas such as hedge fund investing.
When all is said and done, the Volcker Rule could slam fixed-income operations revenue by as much as 25%.
Of course, JPMorgan Chase & Co. (NYSE: JPM), Bank of America Corp. (NYSE: BAC), and Citigroup Inc. (NYSE: C) aren't exactly quivering, since they derive less than 10% of their revenue from such activity.
And the firms with the most to lose – Goldman Sachs Group Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS) – already are devising ways to avoid the regulations by dumping their "bank holding company" classifications
In 2008, the banks converted from securities firms to bank holding companies to qualify for bailouts. Now they simply intend to switch back.
These Wall Street heavyweights are also dealing with increased scrutiny of executive compensation, but continue to allocate a large percentage of profits for salaries and bonus pools.
Goldman Sachs' third quarter profit fell about 75%, but the firm only reduced compensation expenses by 25% for the quarter. Profit totaled $1.5 billion, down from $5.5 billion the year prior, but the company still spent $10 billion on compensation. Average pay for each Goldman employee was $292,000.
Goldman isn't the only firm to keep paying, despite efforts to curb Wall Street compensation. Average pay for JPMorgan employees is $290,000 according to third-quarter earnings. Citigroup's average pay went up 6% — despite flat revenue.
"I wouldn't shed too many tears for Wall Street," Neil Barofsky, the former special inspector general for the Troubled Asset Relief Program (TARP), told Bloomberg News. "The systemic advantage that the too-big-to-fail banks enjoyed in the lead-up to the financial crisis may be diminished in the near term, but the structure is still essentially the same and will almost certainly help catapult them to record profits and bonuses once the good times return."
Wall Street: The Only Place to Really Make Money
Indeed, Wall Street may have taken a beating, but it still offers something most other careers don't: a chance to generate vast amounts of wealth without risking your own money.
"At the end of the day, it usually takes money to make money, so if you don't have any but you want to make a lot of it, Wall Street is the only place where you can make money with other people's capital," said Gilani.
Even amid a global protest movement, Wall Street's ability to attract customers and turn profits overshadows its troubles.
"While some grads may be rethinking their options, it's unlikely too many who look to the Street of Dreams are going to wake up to all the bad press Wall Street has been getting and decide to take some higher road," Gilani said.
And where there's a promise of riches, there's corruption.
"All power corrupts. It's impossible to weed out corruption and greed on Wall Street, money does strange things to some people," said Gilani.
Of course, that's exactly why it helps to have someone like Gilani on your side. As a former Wall Street insider, Gilani knows how Wall Street operates and how to spot the "catch" when something sounds too good to be true. If you want to make money but need help separating the suspects from the prospects, you can turn to Gilani in his new publication, Wall Street Insights & Indictments.
His goal simply is to show you what's really going on in the markets, so you can "know the story" and make some money.
News and Related Story Links:
- Money Morning:
These Three Men Represent Everything That's Wrong with Wall Street
Wall Street Sees "No Exit" From Financial Woes
Goldman, Morgan Stanley May Shed "Bank' Status: Analyst
Goldman Sachs reports first loss since 2008