The financial industry has certainly seen slow periods of stock and bond trading and sparse banking before, especially after the dot-com bust. But banks made up for it by inventing high-margin products like collateralized debt obligations, says Kessler. Now it’s hard to imagine mortgage-backed derivatives will add much to Wall Street’s bottom line for many years. There are too many traders, bankers, and salesmen to support the new level of business. Rising interest rates will be the cure for what ails the US economy by driving the dollar higher, commodities back toward their extraction values, and encouraging commitments of capital based on market mechanisms, not the wishes of the government and the Federal Reserve. But that will not be good news for Wall Street, which doesn’t thrive in a rising interest-rate environment.
Kessler, a former hedge fund manager, is the author most recently of “Grumby” (Vigilante, 2010).