Just how ephemeral is Wall Street’s “recovery”?

State comptroller Thomas DiNapoli notes in today’s report that securities firms’ profits are reaching record highs, because “the sharp decline in interest expenses (to $5 billion in the second quarter of 2009 from a high of $76.3 billion in the last quarter of 2007) has allowed net revenues to surge. Additionally, firms reported gains on their own securities trading accounts in 2009 ….”

In other words: the big securities firms are taking advantage of the Fed’s zero-percent interest-rate policy and the government’s too-big-to-fail policy to borrow nearly for free. Then, they use that money to pump up the price of almost every other asset, including their own securities, and book gains on those price increases.

When interest rates go up, some serious pain could ensue.

Here’s another aspect of the state’s longer-term structural failure: between 2003 and 2007, securities-industry salaries (including bonuses) in New York City increased by 73 percent, more than triple the gain in other industries. If such gains were to continue forever, securities industry wages eventually would consume all the city’s wage income.

So, something’s got to stop them. If the federal government won’t do so, by removing the too-big-to-fail guarantee, then, the markets eventually will, because the feds won’t be able to borrow anymore to bail Wall Street out.

Problem is, the state has built its spending on these unsustainable increases in Wall Street profits and bonuses and the tax revenues they throw off — and Albany continues to do so.

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