Attention New York: on the eve (roughly) of the one-year anniversary of Lehman Brothers’ collapse, a new report from J.P.Morgan in London opines that because of the effects of eight likely financial-regulatory changes worldwide, “what is certain … is that global [investment] banking profitability will decline,” not just temporarily but structurally (that is, even after the recession is over).  

The regulatory changes that J.P.Morgan analyzed include fixes to how banks structure and trade financial instruments such as credit-default swaps, as well as higher capital requirements (limits on borrowing).

As an example, the researchers figure that without the new regulations in place, Goldman Sachs would earn $7.5 billion from its global investment-banking operations in 2011. With the proposed regulations, it would earn $6.5 billion, a 13 percent haircut. Morgan Stanley would have earned $4 billion from such operations in 2011 with no new rules in place; instead, under contemplated new restrictions, it would earn $3.4 billion, a nearly 15 percent haircut.

Of course, lots of this is alchemy — and J.P.Morgan could be wrong.

But the point is: New York’s local and state politicians have now had more than a year to think about the fact that the number one source of money for the city and state, an ever-growing Wall Street, might not be so ever-growing anymore.

What have they done about it?

Nothing — except, in the state’s case, hike income taxes on wealthy earners and MTA payroll taxes on downstate jobs. These measures will make it harder to attract entrepreneurs to replace some — not all — of the jobs and income we’ve lost.

Maybe Wall Street will come roaring back, and the city and state can continue business as usual, as they’re already doing. But it’s an unacceptable risk to take.

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