Issue of the week: Has Wall Street been chastened?

Wall Street’s best days are behind it, said Gabriel Sherman in New York. At least that’s what people are whispering in corner offices and on trading desks across the financial world. After bouncing back spectacularly from the 2008 crash, Wall Street just had a very bad year: Earnings are down sharply, bonuses are being slashed, and jobs are disappearing. Everyone expects occasional setbacks, “but the sense on Wall Street is that this bad year is different.” Banks are “stripping themselves of the pistons that powered their profits” during the boom, such as proprietary trading and highly leveraged deals. They say they’re acting to comply with the Dodd-Frank financial reform act, which has “taken a pickax to the Wall Street business model.” A creeping realization has set in on the Street that high finance will have to return to a more mundane—and less lucrative—style of banking. “There’s a real sense the world is changing,” one private equity executive said.

If that’s true, hallelujah, said Andrew Leonard in Salon.com. Wall Street’s share of U.S. corporate profits grew from 19 percent in 1986 to 41 percent just before the crash. That did no good for the U.S. economy, and if Dodd-Frank can turn that trend around, we will be far better for it. “Wall Street sounds chastened,” and even as bankers lament their shrinking bonuses, you can hear at least a note of self-awareness that “maybe, just maybe, there was something wrong with all the easy money.” I consider that progress.

I’m not buying it, said Suzy Khimm in WashingtonPost.com. “Most of the rules surrounding Dodd-Frank haven’t even been written, much less gone into effect.” Wall Street executives could just be pre-emptively blaming their poor showing on regulations in order to strengthen their case for weakening them. MF Global’s meltdown last year made it clear that risky, complex derivatives are still being traded under the noses of newly vigilant regulators. So it seems far too early to declare the masters of the universe reformed. Especially because the political fight is far from over, said Sam Gustin in Time.com. Wall Street has been pouring money into political candidates’ coffers in the hopes of beating back some of the more restrictive rules Washington would like to impose. You can be sure the financial world is prepared for a long fight. “Wall Street may be down, but by no means is it out.”

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