Increasing Risk

 We all know the economy has been flagging, but now the impacts hit even our most impervious markets. The New York State Comptroller forecasts Wall Street will shed 10,000 jobs by year-end 2012 and even recession resistant Washington DC girds for possible and previously unthinkable federal government jobs cuts.

 The New York story is a delayed reaction to the fallout from the 2008 financial crisis. Wall Street firms thought they could go back to business as usual with the help of various government bailouts. But the M&A and private equity games won’t work without a lot of leverage—the idea is to make quick bucks for managements or the takeover players without putting at stake your own capital. The debt financing isn’t available to do these deals, and the private equity guys (who don’t want to run the businesses on a long-term basis) have no short-term exit strategies since the economy won’t ramp up a lot of new profits to shore up bottom lines after they gut the companies of employees and related expenses. The trading businesses, which made so much money for investment bankers, also run out of gas—people realize these gambling schemes don’t create much if any economic value and are hard to pull off without escalating markets to draw in investors. You just don’t need as much high priced talent to do traditional banking and investment banking—that is carefully investing in companies, their people, and products to reap long-term gains.